On January 26, 2010, after the close of trading, it was announced that Berkshire Hathaway stock would be added to the Standard & Poors 500 Stock Index®. The components of many stock indexes including the S&P 500, Dow Jones Industrials®, and Nasdaq 100 index® has changed over the years.
How do these changes in the S&P 500 affect market timers? The answer is usually not much. This is particularly true of large market weighted indexes. Berkshire Hathaway will be about 1.1% of the S&P 500. Many of the other additions are usually even a much smaller percentage of the index.
It does mean that many money managers, other indexes, and mutual funds that track the S&P 500 will need to buy some shares of Berkshire Hathaway.
Berkshire Hathaway traded up about 7% on the news. Much of this came very quickly as arbitrageur and front runners with inside information bought the stock.
What beats market timing? The answer is “insider trading”.
Look at the trading in Berkshire Hathaway prior to the announcement and the volume of shares traded in the stock in the bottom panel of the chart.
Berkshire Hathaway stock trades best for market timing as a “reversion to mean” style stock. I anticipate that the characteristic for trading Berkshire Hathaway will remain as a Swing Trading stock. For market timing purposes, after the announcement of the addition of a stock to an index, there is usually little interest to market timers.
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