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The valuation game in Tesla is over. Elon won. The nature of the game changed once Tesla was added to the S&P 500. Now there is a lot of passive money that flo

• jjeaff 5y ago
  That's a two edged sword. Yes, the passive funds initially all must buy up shares to even out their holdings. But they also must sell off shares if Tesla stock underperforms other members of the sp500 in order to balance out their holdings.
  • javagram 5y ago
    That’s not how the vast majority of index funds work. Most s&p 500 index funds are market cap weight, not equal weight. A fund weighted by market cap only needs to sell shares when/if shareholders decide to cash out of the entire fund.
    • jjeaff 5y ago
      That's not correct. If you are market cap weighted and Tesla prices crash, that lowers the market cap of Tesla thus making it a smaller percentage of the total market cap of the index. Or, if some of the other companies were to take off and increase their market cap, same thing, the fund will need to sell Tesla shares to redistribute the fund by market cap.
• javagram 5y ago
  Being added to the S&P 500 does not prevent price discovery in the stock market. There are still enough active funds and active traders that stock prices can go up and down for stocks within the S&P 500, and sometimes stocks fall out of the index if they fall enough. Doubt that will happen with tesla anytime soon though unless there are some really bad announcements for their business or future.