Thursday, December 3, 2020

"If you use the benchmark, you will have to have Tesla"

My cynical prediction was right: Tesla will be included in the S&P 500.

This is not new information, but the question is what investors should do about it. There is the primary effect of adding a new stock that will be the sixth largest to the index and will represent 1% of the index. If you use the benchmark, you will have to have Tesla. All passive investors are now betting on Tesla.

Tesla had to go into the S&P 500 index once the price was squeezed high enough, because to exclude it on the basis of skepticism or suspicion would have been an active choice of security selection. It would have implied that the market could be hugely inefficient, that the entire philosophical predicate of indexation was wrong.

I do have one prediction about how things will go post-inclusion. As a Tesla bear for the past several years, one thing I have found is scorn for the "TSLAQ" skeptics from others in the marketplace and the media. If you pointed out a problem with Tesla, people's attitude was "why do you care?" There was a general sense that this is a company owned by dorks and making cars for dorks, and why would anyone but a TSLAQ autist take it upon himself to go probing into the situation?

That is about to change. First, the valuation is so much higher than it was before. It is now $562 billion while just one year ago it was only $62 billion. But more importantly, practically everybody in the country is going to own some of the stock now, and it is going to be their sixth largest holding in any market-capitalization weighted vehicle. 

It was not too big of a story when an "intoxicated driver of a Tesla Model S on autopilot mode crashed into a Department of Public Safety patrol car" on the freeway in Arizona. Or when a Tesla payables person got indicted for keeping two sets of books - and then disappeared without a trace.

The valuation and forced ownership by the entire country should attract more attention. Remember, $562 billion is as big as Home Depot and Walt Disney combined. Profitable household names like Starbucks, Wells Fargo, Union Pacific, and so on have tiny market capitalizations in comparison.

We should also note that the half-trillion dollar valuation has attracted the attention of autistic Big Short Michael Burry. You think that Elon's scam can withstand a guy like that?

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