• Warren Buffett has long recommended a low-cost S&P 500 tracking fund to hobby investors.

• Chamath Palihapitiya says it has become riskier as a handful of stocks now dominate the index.

• Buffett mostly steers clear of tech names, but Apple has been his No. 1 for years.

Warren Buffett he preaches that stock picking and market timing are fool’s errands for the vast majority of people. He says his best bet is to simply invest in a low-cost S&P 500 index fund and hold it for the long term.

But to a handful of tech stocks they’ve become so incredibly valuable that owning the market-cap-weighted S&P 500 is essentially a concentrated bet on those risky businesses, not a bet on the stock market as a whole, says Chamath Palihapitiya.

“This has got to be fixed or it’s going to be a disaster,” the venture capitalist and co-host of the “All-In” podcast said in a X post on Saturday I was reacting to a chart shared by Kevin Gordon, a senior investment strategist at Charles Schwab, showing that the 10 most valuable S&P 500 companies accounted for 39.9% of the benchmark’s total market capitalization on 20 of December

Apple, Nvidia, Microsoft, Alphabet, Amazon, Meta, Tesla, Broadcom, Berkshire Hathaway and Walmart are worth about $21 trillion combined, a large chunk of the S&P 500’s roughly $50 trillion market cap.

“Average Americans buy S&P 500 index ETFs, in part, because Buffett told them to,” Palihapitiya said. “They were told they would pay very little and manage to diversify into the top 500 companies in the world to ride out the storms.”

But the Social Capital CEO and early Facebook investor said the disproportionate weighting of a few stocks means that “when you buy an index of 500 companies, you’re really buying 10 companies with 490 others.”

Palihapitiya said the lack of diversification means that if Big Tech stocks take a hit, investors could suffer big losses as the pain in their portfolios won’t be tempered much by other holdings. Hobby buyers are in for a “rude awakening if this is not addressed”, he added.

It’s worth noting that Palihapitiya has been widely criticized for promoting high-risk special purpose acquisition deals, or SPACs, during the pandemic and showing little remorse when their value crater.

Buffett, a value investor who strives to stay within his circle of competition, has largely avoided technology stocks throughout his career because they tend to be expensive and he has no experience in what the technology companies.

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