Billionaire investor says Americans face ‘rude awakening’ if they follow Warren Buffett’s advice

A billionaire investor has claimed that Americans are in for a “rude awakening” if they follow one of Warren Buffett’s most popular pieces of advice.

Buffett, one of the most successful and respected investors in the world, has long recommended that retail investors buy a low-fee S&P 500 tracker fund.

This is an investment fund that tracks the performance of the S&P 500 and gives investors the exact profits or losses.

The index has a rich history of gains, rising more than 20 percent in 2024 after a 24 percent gain in 2023.

The back-to-back rallies gave the benchmark its best performance since the dot-com bubble in 1997 and 1998, FactSet data show.

However, celebrity investor Chamath Palihapitiya has warned against Buffett’s advice, claiming the key US market is now dominated by a handful of tech companies such as Amazon, Nvidia and Microsoft.

The venture capitalist warned investors that when they buy the S&P 500, they are now essentially betting that those risky tech companies will continue to succeed.

“This must be resolved or it will end in disaster,” Palihapitiya wrote in an X-post last week.

If the tech companies’ shares fall, investors could suffer huge losses that won’t be offset by other positions, he argued.

Amateur investors will face a “rude awakening if this is not addressed,” he said.

The comments came in response to a chart showing that the 10 most valuable companies in the S&P 500, including Apple, Meta and Alphabet, accounted for 39.9 percent of the benchmark index’s total market capitalization as of December 20.

“Average Americans are buying S&P 500 index ETFs in part because Buffett tells them to,” Palihapitiya wrote.

“They were told they would pay very little and get diversification into the top 500 companies in the world to weather storms.

“If you buy an index of 500 companies, you are actually buying 10 companies and 490 others,” he added.

Buffett believes in value investing, finding healthy and sometimes undervalued companies, and holding their stocks for the long term.

The CEO of Berkshire Hathaway tends to avoid technology stocks because they are expensive and outside his area of ​​expertise.

Warren Buffett has long recommended that retail investors buy a low-fee S&P 500 tracker fund

The notable outlier, however, is Apple, which has been Berkshire’s largest holding company for almost a decade.

However, Berkshire is also highly diversified and has major stakes in companies such as Coca-Cola and Bank of America.

Professional and retail investors call Buffett the “Oracle of Omaha” because of his foresight and keep a close eye on his shrewd moves.

The billionaire amassed a massive $325 billion cash pile last year before buying shares in Occidental Petroleum, Sirius XM and VeriSign.

Berkshire had to disclose these purchases, worth a combined $563 million, because it already owns more than a 10 percent stake in each company.

It comes after Wall Street watchers wondered whether Buffett thought the market was overvalued as he sold billions in shares of Apple and Bank of America and grew his cash reserve to the highest percentage since 1990.

Some thought he might be wary of a stock market crash, while others thought he could wait to make a big acquisition at the right time and at the right value.