Warren Buffett is widely regarded as one of the greatest investors ever. But he's not having a great year so far.
Most of the stocks in Buffett's Berkshire Hathaway portfolio have fallen by double-digit percentages year to date. Many are down more than 20%, with a handful of his stocks plunging over 50%.
Which of these losers is the main one to avoid? Here's the worst Buffett pick to own right now, according to one Wall Street analyst.
A surprising choice
Savita Subramanian is the head of U.S. equity and quantitative strategy at Bank of America Securities. She's been with BofA since 2001 and is widely respected on Wall Street. To paraphrase an old E.F. Hutton slogan: When Subramanian talks, people listen.
So which Buffett pick does she dislike the most in the current market? Subramanian's choice will probably surprise you. She said in a recent interview with CNBC that the "worst thing to own" is... the S&P 500.
Buffett would almost surely scratch his head at this advice. Berkshire owns not one but two S&P 500 exchange-traded funds (ETFs) -- the SPDR S&P 500 ETF Trust (SPY -0.53%) and the Vanguard 500 Index Fund ETF (VOO -0.50%).
Also, the legendary investor has long advocated that retail investors buy and hold S&P 500 funds. His will stipulates that 90% of the cash his family inherits be invested in a low-cost S&P 500 index fund. If you could ask Buffett what to invest in right now, he'd likely recommend that you buy S&P 500 ETFs.
Time horizon matters
To be clear, Subramanian isn't completely at odds with Buffett. She acknowledged in the CNBC interview that she agrees with Buffett's approach to buy and hold the S&P 500 over the long term.
Subramanian predicts that the S&P 500 will deliver returns "in the mid-single digits" over the next 10 years. While that's not great compared to the index's historical performance, it's still better than the loss of more than 20% that the S&P 500 has delivered so far this year.
But Subramanian doesn't think the S&P 500 has bottomed out yet. She's concerned that its valuation is still too high. The BofA executive also maintains that the S&P 500 is "super crowded" -- a reference to the heavy ownership of the index.
A better pick?
So does Subramanian think there's a better pick than the S&P 500? Yep. And it's another stock index.
Subramanian believes that small-cap stock benchmarks could outperform over the short term. She thinks that investors' fears of a severe recession could be overblown. As a result, the valuation of small-cap stocks is more attractive than the S&P 500 is, in her view.
One way to follow Subramanian's recommendation is to buy shares of the Vanguard Small-Cap Index Fund ETF (VB 0.78%). It's down a little more than the S&P 500 so far this year. There are also other small-cap index funds to consider.
However, investors would probably still do well to heed Buffett's advice from several years ago. In 2013, he wrote to Berkshire Hathaway shareholders:
The goal of the non-professional should not be to pick winners -- neither he nor his "helpers" can do that -- but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal.
... the "know-nothing" investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results. Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long-term results than the knowledgeable professional who is blind to even a single weakness.
Subramanian's statement that the S&P 500 is the worst thing to own right now is almost certainly hyperbole. There are plenty of individual stocks that will underperform the major index. What about Buffett's insistence that investors should win over the long term by buying and holding a low-cost S&P 500 fund? He wasn't exaggerating one bit.