Stories of Market Chaos
There were many, many (many many many) stories in the market chaos of last week.
Written by Jonathan Wade
Director
One of the big ones was what the Oracle of Omaha was up to…
Warren Buffett’s Berkshire Hathaway always releases its quarterly results on a Saturday.
And when it did the same in earl August, it was a moment a bit like this:
Source: Good Will Hunting, Miramax
Because Berkshire’s report showed Buffett cut his stake in Apple by HALF (selling about ~$75 billion worth of shares).
Not… that… helpful… for already nervous markets.
But I want to talk about the unintended consequences.
BECAUSE Buffett has sold Apple shares, all of the major stock indices (S&P 500, MSCI USA, Russell 1000, etc etc) will have to INCREASE their weight to Apple.
They’ll be buying about an extra $40bn* worth come September.
So if you own any of the normal US trackers, you’ll be increasing your Apple holding in about a month.
What?!
Source: Good Will Hunting, Miramax
You see, the rules governing stock indices** say that when big long-term investors hold a lot of shares, these shouldn’t be considered as publicly available to buy.
And the weights in indices are defined by what’s publicly available – what the likes of you and me can buy.
While Warren (the literal definition of a big, long-term investor) was holding his Apple shares, he took them out of play – only 96% of Apple was publicly available.
With most companies that sort of rounding doesn’t matter.
But Apple is worth $3.3 trillion. So adding back in 4% is actually the same as adding a whole Goldman Sachs, or Disney, or Uber.
Which means that purely passive investors will be buying Apple, at just the time that the world’s greatest investor is selling. It’s not your fault… but it’s not your choice either.
*200 million shares, as per Piper Sandler research
**20 sweet sweet pages of rules for you, here.
Copied from an article by 7im
Based on an article by 7IM