The sixth biggest company in the United States is being added to the S&P 500. We might never see anything like this again in our lifetimes.
What took so long for Tesla to enter the index? The S&P has rules for stocks being added. Silly things like “you must earn money.” This hurdle was removed after Tesla reported a profit in the second quarter, taking the sum of its previous four quarters into the black.
It would have been nice if this was added to the index at $50 billion instead of $550 billion, but here we are. The good news is that the S&P 500 has a market cap of almost $33 trillion. So Tesla could be added to the index, go to zero the next day, and it would shave 1.7% off the top. Not great, but not the worst thing ever. And let’s assume at this point that it’s probably not going to zero.
In other words, relax. Or, if you’re so bothered by this, you can own a total stock market fund, which already has Tesla. The Vanguard total stock market fund is up 15.6% this year, compared to 14.1% for the S&P 500. All of the difference and then some is due to Tesla’s 580% return. Zoom’s 445% return, another stock not in the S&P 500, has also contributed to the difference.
I would be remiss if I didn’t let you know that if Tesla were in the S&P 500 today (it’s going in on the 21st), the top 6 stocks would be equal in size to the 369 smallest holdings in the index. To be clear, this eyesore is showing the top 6 stocks and the bottom 369 (132-500), meaning stocks 7-131 are not shown.
Josh and I spoke about Tesla’s inclusion and more on this week’s What Are Your Thoughts?
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