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SPY STOCK: SPDR S&P 500 ETF Trust Proves Warren Buffett Is Brilliant


We’re into February already, and only two out of the 11 S&P 500 sectors are in positive territory through Feb. 1. Moreover, the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is down 5.7% year-to-date. It’s been a long time since SPY stock started so poorly. 

close-up of the phrase

Source: shutterstock.com/bangoland

However, before you start a pity party for poor little old you, consider that it could easily be much worse. 

Warren Buffett’s simple recommendation is proving prescient in this latest market correction. The man’s brilliant. SPY is proof positive. 

SPY Stock Is Simply the Best

In August 2020, I highlighted seven index funds to buy. SPY didn’t make the cut because I hoped to give readers something more than plain vanilla. But don’t take that to mean I disagree with the Oracle of Omaha because I don’t.

At the 2020 Berkshire Hathaway (NYSE:BRK-A, BRK-B) annual shareholders meeting, Buffett reemphasized his feeling about investing in single stocks

“‘I don’t think most people are in a position to pick single stocks,’ CNBC reported he said during the Berkshire Hathaway annual shareholders meeting. ‘A few [are], maybe, but on balance, I think people are much better off buying a cross-section of America and just forgetting about it.’”

He believes investing in a cross-section of America makes the most sense. You get that with a low-cost version of the S&P 500 index. The exchange-traded fund (ETF) charges less than 0.10% for some of America’s largest companies from 11 different sectors of the economy.  

If you want to gain exposure to U.S. stock markets, SPY is simply the best and most straightforward way to do so. Buffett knows it. You know it. I know it. 

But the elegant solution that is the S&P 500 doesn’t shine until the markets are tested, as is the case early in 2022.

Protecting the Downside

Until my dad died at age 81 in 2013, he was a big believer in keeping most of your eggs in an equity basket. He wasn’t fond of bonds, although he did own a small amount of fixed-income securities. 

His theory was that the best time to invest is when you have the money. It didn’t matter the market conditions. He figured if you followed Buffett’s advice and held for the long haul, it would all work out. And for him, it usually did. 

Writers at InvestorPlace are paid to make opinions. And so we do. Sometimes with less-than-stellar results. Logically, we know Buffett’s on-the-money regarding the index. But that wouldn’t keep the interest of readers very long if all of us kept trotting out reasons to own the S&P 500. 

The reasons, as Buffett points out, are self-evident. Here’s another Buffett saying:

“Rule Number One: Never lose money. Rule Number Two: Never Forget Rule Number One.”

He’s not saying that you shouldn’t put money into investments, just that you be sensible about it. 

Since 1928, the longest winning streak for the index is eight years between 1982 and 1989. The biggest losing streak was four years from 1929 to 1932. In the 94 years between 1928 and 2022, the index has been negative on 30 occasions (2022 included). Conversely, it’s been flat on two occasions — 1947 and 2011 — and has experienced positive returns in 62 years or two-thirds of the time.     

The most significant loss was in 2008, when the index lost 38.5%. 

Now go and compare this record to the Invesco QQQ Trust (NASDAQ:QQQ) or some other innovation-based passive ETF, and I’m confident you’ll find that the swings were much greater, and the up years didn’t do much better than 66%/

The Bottom Line

As I said in the beginning, SPY’s YTD total return is -5.7%. However, the QQQ has a total return of -9.9% over the same period. 

There is no question that innovation-focused ETFs outperform SPY in the good times. But in the downtimes, the S&P 500 remains the easiest and cheapest way to stay in the markets without losing your entire wardrobe. 

The current correction is proof positive. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. 



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