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Strategies & Market Trends : Buffettology -- Ignore unavailable to you. Want to Upgrade?

To: Chuzzlewit who wrote (942)	1/4/1999 8:56:00 PM
From: Beltropolis Boy	Respond to of 4691

in light of the recent AOL commentary ... via fortune mag. ----- Why Warren Buffett Didn't Make the S&P 500 Index Weirdness Amy Kover When Berkshire Hathaway agreed to buy General Re last summer, Standard & Poor's needed to replace the insurer on the S&P 500 index. Should S&P go with the acquirer or list an entirely new stock? In December it opted to fill the spot with Carnival, the cruise company. Had S&P chosen Berkshire instead, all hell might have broken loose. The combined company will have a mere 1.45 million Class A shares outstanding at most, and Berkshire shareholders are notoriously unwilling to sell. Yet if Berkshire had been added to the S&P 500, big index-fund managers would have had to buy enough to keep their portfolio weightings correct. According to Charles Schwab's Geri Hom, that could have meant the funds' buying about $4.5 billion in Berkshire shares. One can only imagine what that would have done to the stock's price (above $60,000 recently). "That would have been a tough trade," says Vanguard's Gus Sauter. It's the "S&P 500 effect": Safeway popped 7% when it went on the list; Chrysler fell 6% when it came off. As index funds proliferate and merger mania continues, expect more of this kind of index weirdness. Issue date: January 11, 1999 Vol. 139, No. 1