Tesla (Nasdaq: TSLA) Always got a lot of attention. Its groundbreaking electric vehicles have become a sign of technological advancement, and CEO Elon Musk, who has helped the company become a dominant player in its industries, has made shareholders extremely happy since the decade of the initial public offering fringe (IPO).
But for index fund investors, Tesla has only recently stepped into a long line of controversy. That’s because index funds spent just 90 90 billion to buy Tesla shares – and in just two short days, they’ve already lost .4 7.4 billion to their fund shareholders.
Image Source: Getty Images.
-Shopping at L-Time High
Index funds have known for more than a month that Tesla stock will become a hot commodity. It was only in mid-November that the S&P Dow Jones announced that Tesla would join S&P 500 IndexEffective from the start of trading on December 21st.
This means that index funds should target as much of the stock as possible near the end of the day on December 18th. In this way, their returns will match the returns of the S&P 500.
However, unlike the index – which has the virtue of not really implementing its investment strategy of keeping its approximately 500 component stocks – the fund will have to decide how to buy it all while disrupting the markets as little as possible. It was a high order, as Tesla’s market capitalization of more than અ 600 billion meant that the electric automaker would represent a huge percentage of the huge multitrillion-dollar market.
Finally, index funds paid out about 90 90 billion in Tesla shares, according to Howard Silverblatt, an analyst at the S&P Dow Jones index. And as you can see in the chart below, Tesla’s stock closed at 5,695 per share on Friday afternoon was the exact top-dollar dollar price that could be paid by that fund.
The price index is higher than the effective payment of funds by investors. Data source: TSLA data via vicharts.
4 7.4 billion hit
Shares of Tesla were trading around $ 638 per share on Tuesday afternoon. Which marks the second day of the loss with an increase of more than 8%. Late on Friday, index funds bought ર 90 billion worth of stock, down 4 7.4 billion from the previous two days.
As you can see above, the index change coming down from the height looks like a mirror image of Tesla’s ascent as soon as it is implemented. The effect of compulsory buying of index funds is evident from how the stock rose and fell around the event.
Funding could have done better
The worst thing is that index funds did not have to take this financial hit. To put the stock’s move in a slightly broader perspective, Tesla’s stock traded at 400 shortly before the S&P Dow Jones index was announced. It took less than three days for the stock price to reach the top 500 and by the end of November Tesla had reached above $ 600 per share.
That’s almost where Tesla’s share price stayed for the next few weeks. However, in the final race to include the index, Tesla scored one more push up. The last-minute spike didn’t make it to the 700 level, and it was so short that it doesn’t even appear on many intraday stock charts. But that, nonetheless, was the official final figure from which the S&P 500’s performance calculation will move forward.
Why index funding doesn’t take care of you
The problem with index funding is that they have no incentive to avoid sports that inevitably lead to losses like this. Mostly, companies are much smaller when added to the S&P 500, so the negative impact on shareholders is not as big as it was here. However, every time a new stock joins the index it happens with a low degree.
Investors only choose index funds to track the index. When indexes create contradictions like this, fund managers blindly follow the rules, keeping in mind the losses of their shareholders.
Now everyone’s inertia for Tesla
Of course, given Tesla’s past performance, it is certainly possible that the stock will climb above 700 in the future. It could happen today or even before 2020 ends. If that happens, then everyone will be forgiven. And now that Tesla has a stake in this index, it wants to see every index become a fund investor.
Although index funds are just as helpful to ordinary investors, they are the index price that index fund shareholders pay. In Tesla’s case, he took 7. 7.4 billion out of their hands and put it in the hands of people who were not bound by strict and fast investment rules.
