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Index Inclusion is More Impactful than Warren Buffett’s Berkshire Hathaway
13 October 2020
Every company wants Berkshire Hathaway to buy their stock.
Managed by Warren Buffett, Berkshire has a track record of
successful investments and people believe in his strategy. As a
demonstration, the average company that Berkshire initiates into
outperforms the market by 3.1% the day the information is made
public. However, this pales in comparison to the impact that simple
index inclusion and exclusion can have on stock prices.
IHS Markit analyzed the impact of index inclusions and
exclusions into the S&P 500 (large cap), S&P 400 (mid cap),
and S&P 600 (small cap). Interestingly, the S&P 600 had by
far the largest price impact while the S&P 500 was the least
notable. Key highlights include: a 9.8% decline when a company is
removed from the S&P 600 and a potentially counterintuitive
6.2% increase when a company is downgraded to the S&P 600 from
the S&P 400.
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