Is this the biggest Red Herring of '22?

Dear Reader, "I recommend the S&P 500 index fund and have for a long, long time to people," billionaire investor Warren Buffett said at Berkshire Hathaway's annual shareholder's meeting last May. Investing in a broadly diversified basket of stocks is not the sexiest way to make money. But, if you've watched novice investors lose their shirts in the recent market downturn, you're probably feeling much more comfortable. "More than 70% of S&P 500 stocks are currently down at least 10% from their 52- week highs," Brian Belski, chief investment strategist at BMO Capital Markets, observed in a note to clients on Tuesday. With so many individual stocks down by more than 20%, analysts have characterized this phenomenon as a "stealth bear market." Some of the under performing stocks are well-known names. Meta Platforms (formerly known as Facebook) was down by a whopping 48% from its 52-week high through Tuesday. Meanwhile, investors holding S&P 500 index funds have benefited from being exposed to winners, including U.S. energy producers, which have been surging amid higher oil prices. Nothing here is new. We're seeing the benefits offered by having a diversified and balanced portfolio.

When Buffett made the quote S&P 500 index funds, he shared the slide above listing the 20 largest companies as measured by market cap in 1989. "None of the 20 from 30 years ago are on the present list," he said. "We were just as sure of ourselves as investors and Wall Street in 1989 as we are today. But the world can change in very, very dramatic ways." There's a solid argument to be made for having a diversified portfolio rather than broadly putting all your money into what you think are winners.

Andrew Graham Editor, Silver Ridge Market Report

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