Warren Buffett preaches that inventory selection and market timing are meaningless responsibilities for the vast majority of people. He says the bet for the average user is to simply invest in a low-fee S&P 500 index fund and hold it for the long term.
But a venture capitalist is raising the alarm, arguing that a handful of technology stocks have become so valuable that owning the market-capitalization-weighted S&P 500 is basically a concentrated bet on those risky businesses, not a wager on the stock market as a whole.
“This must be constant or it will end in disaster,” Chamath Palihapitiya, a venture capitalist who co-hosts the podcast “All-In,” said in an X post on Saturday. He reacted to a chart shared by Kevin Gordon, senior investment strategist at Charles Schwab, which showed that the top 10 most valuable companies in the S
Apple, Nvidia, Microsoft, Alphabet, Amazon, Meta, Tesla, Broadcom, Berkshire Hathaway, and Walmart are collectively worth about $21 trillion, a giant slice of the S’s roughly $50 trillion market capitalization
“Average US ETFs in the S index
But the CEO of Social Capital and Facebook’s most sensible investor said the overweighting of a few stocks meant that “when you buy an index of 500 companies, you’re buying 10 companies along with 490 others. “
Palihapitiya said the lack of diversification means that if stocks of big tech corporations take a hit, investors could face massive losses because the pain in their portfolios likely wouldn’t be alleviated much by other stocks. Amateur buyers threaten a “rude awakening if this challenge is not resolved,” he added.
It’s worth noting that Palihapitiya was widely criticized for selling high-risk special target acquisition deals, or SPACs, during the pandemic and seeming unrepentant when its price plummeted.
Buffett, a price investor who strives to stay within his circle of experience, has largely avoided generation stocks throughout his career because they tend to be expensive and he lacks experience in what generation companies do. .
Still, he sees Apple as Berkshire’s largest holding company so far this decade, despite a reduced bet in recent quarters. The prominent investor and CEO of Berkshire also praised Alphabet and Meta as normal companies.
On the other hand, Berkshire is incredibly diverse, owning corporations as diverse as Geico, See’s Candies, and Pilot Travel Centers. He also has billion-dollar stakes in index corporations such as Coca-Cola and Bank of America.
In the past, Buffett has ignored shareholder considerations that his stock portfolio might be too concentrated in Apple. But he would probably feel less comfortable now than in the past, with amateur investors buying an index so governed by some big tech names.
Gonna