Tesla finally added to S&P 500 - Concerns from Reckenthaler

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Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by willthrill81 »

John Reckenthaler with Morningstar had an article about Tesla finally being added to the S&P 500. He was very skeptical about several aspects of the move, such as questioning Tesla's stock jumped +13% after the announcement, leading him to question how efficiently Tesla is currently priced, and which also makes the S&P 500 even more top heavy. The top 10 stocks in the index now account for 34% of its value. He is also concerned that at least half of these top 10 stocks are in tech and that the last time this happened was the late 1990s, which was followed by a 'lost decade' for stock returns.

Reckenthaler is not my favorite writer, to put it mildly, but I do think that he brings up some interesting points.

Thoughts?
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Angst »

Poor John. Perhaps the best way, certainly the easiest and most elegant way of dealing with this problem would be to buy the completion index. :wink: ...or just hold TSM instead.

Either way, one would beat down that 34% of the S&P500 in its Top-10 to just 23.7%
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by scout1 »

Most of my day is spent using my Apple phone, my Microsoft computer, searching Google, buying things on Amazon, browsing Facebook, and reading articles about TSLA.

I don't think people should try to make the case that the market is inefficient. The author should have bought TSLA if it was a sure thing. It wasn't a sure thing though. You don't know in advance which month it will be added to the S&P and TSLA could easily go down 13% in a day or two. It's one of the most volatile stocks you can buy for an uncertain 13% return at some point in the future. It's not even at an all time high right now so there are people who paid more for the stock before it was added to the index than they can sell it for right now.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by TravelforFun »

Sir Isaac Newton: 'I can calculate the motion of heavenly bodies, but not the madness of people.'

This applies especially to the Robinhood crowd.

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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by garlandwhizzer »

I read the piece and agree with Reckenthaler that with the addition of TSLA to the S&P 500, there is tremendous concentration of assets in mega-cap tech who have semi-monopolies in rapidly growing markets and what appear to be bullet proof business models. Not all of these stocks are classified as tech, AMZN and FB for example are in other sectors, but the truth is they are all tech driven rapidly growing massive disruptors of the society and the economy. Interestingly this article argues that as indexes go, S&P 500 is more heavily weighted now to these tech darlings, 34% of all assets, than TSM at about 25%. He therefore seems to prefer TSM as a cap weighed index with which I agree.

Interestingly, his concerns about this heavy concentration of assets are related to increased risk, not to lower expected returns. I also agree that risk is the major concern. While these great powerful companies have seemingly bullet proof business plans and sufficient size to buy out or ward off of competitors, risk still exists. We have a very dynamic economy with rapidly changing technology innovation. There is no reason why the current leaders won't fall by the wayside just as have past tech leaders like INTC, CSCO, Lucent, etc.. In addition perhaps the largest risk is governmental regulation including breaking up their semi-monopolies, trade policy that interferes with tech supply chains, and tariff policy both in the USA and internationally in response to US policy that will overall reduce end product demand throughout the world. Finally all these companies are very expensively valued, TSLA and AMZN outrageously so. Things have gone very well for these tech darlings over the last decade but that does not guarantee the next decade will be likewise. One of the biggest mistakes investors make is to assume that the recent past which is burned deeply in their memory banks will persist into the future. It may or it may not.

Personally, for reasons of portfolio risk and volatility control and because I am at heart a contrarian, I have in recent months modestly increased my exposure to SCV and LCV to counteract the dominance LCG which has so much future news already baked into its rich valuations. If things go badly for mega-cap tech there is a long way to fall from their lofty perch to get to reasonable valuations. That may not happen and these darlings may persistently outperform going forward, but even if they do my current portfolio exposure to them will be sufficient to take good advantage of it.

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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by 1789 »

Thanks for the article. I agree that if SP500 crashes investors cant hide behind the total market index as they basically different color of the same things - large cap blend.

For the experienced investors: Do you see any difference in investor behavior when you compare these two periods 1993-1999 and today? Does investors trade more today? How is zero trading costs and fractional share trading impacted this behaviors?

My speculation is that stocks like Tesla has lots of love from main street traders.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Dennisl »

the stocks may have gotten a short term boost from being added. In time, it'll revert to mean/what market deems it's worth and settle down.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by cogito »

I think most Bogleheads tend to prefer to own the total market through VTSAX/VTI, and have held TSLA all the way up anyways. The only thing that annoys me is that my alternative funds (PSLDX, NTSX) are pegged to the S&P 500 for their market exposure, not the total market.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Anon9001 »

I am of the opinion that excluding Tesla all these stocks are priced just right as you need to look into how often you are using these companies services when you are on a computer,smartphone and tablet. If you do the due diligence you realize you can't use the Internet without using these companies services:https://www.nytimes.com/2020/07/31/tech ... iants.html
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by nisiprius »

If the market crashes, it crashes. I don't expect to hide from it.

I don't expect the S&P 500 committee to protect me from overvalued stocks or stocks that are in bubbles. I expect them to do what they always have done: include the stocks of "leading companies in leading industries," i.e. approximate the market as it was thought of in 1957.

A standard talking point against "indexing" is "you aren't really passive because the S&P 500 is managed actively." So what is this now, people are talking against indexing because they don't think the S&P 500 is actively managed enough? I can't worry about two opposite things at the same time.

Rekenthaler's concerns and others seem to be mixing up three different fears.

1) Something terrible is going to happen specifically as a result of the addition of Tesla to the S&P 500. I can't even say "nonsense" because I don't even understand this, nor do I understand what people want S&P to do. Snub Tesla?

2) Something terrible is going to happen because Tesla is going down and it is now so big that when it goes, it will take down the whole stock market with it. This seems like nonsense because Tesla's market cap is only 1 or 1.5% of the stock market. The stock market often moves more than 1.5% in a day. Tesla could literally go to zero and it would not be anything worse than a bad day in the market.

3) Something terrible is going to happen because the world has gone mad today, and good's bad today, and black's white today, and day's night today etc. Yes, I worry about that, but it doesn't have very much to do with Tesla or the S&P 500, except as a symptom.

Owning Total Stock isn't going to protect me or anything, but it is going to free me from anxieties about the addition of Tesla, because I've been owning Tesla since 2010 or so. If Tesla crashes, I lose perhaps 1% or 1.5% of what I have in Total Stock, but it will just be money that I had previously gained from the run-up in Tesla because of having owned it for years.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by whomever »

I don't follow it closely, but Tesla seems overvalued to me.

We have both SP500 and Total Market funds. This illustrates one of the advantages of total market: for the Tesla stock the Total Market funds own was bought years ago for cheap, so we have ridden that elevator up; if we ride the elevator down, c'est la vie. This contrasts with an SP500 fund selling other stocks now to buy Tesla high and then riding it down - that seems more like a real loss..
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Rowan Oak »

nisiprius wrote: Fri Nov 20, 2020 2:15 pm Owning Total Stock isn't going to protect me or anything, but it is going to free me from anxieties about the addition of Tesla, because I've been owning Tesla since 2010 or so. If Tesla crashes, I lose perhaps 1% or 1.5% of what I have in Total Stock, but it will just be money that I had previously gained from the run-up in Tesla because of having owned it for years.
This. ^^^

Why worry about what the S&P 500 does anymore? Investors haven't needed to since around 1992 (Vanguard Total Stock Market Index Fund (VTSMX) inception).
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Marseille07 »

S&P500 ticker shuffling is the primary driver of what gets S&P500 going strong. There are companies in S&P500 that used to be strong but not anymore, such as Norwegian Cruise Line Holdings Ltd. People can say whatever on Tesla but somehow arguing they'd rather have Norwegian Cruise Line Holdings Ltd than Tesla in their holdings sounds crazy to me.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by arcticpineapplecorp. »

i'd be more concerned after reading this:
Consumer Reports is no longer recommending Tesla’s Model S and is panning the reliability of the new Model Y
https://www.cnbc.com/2020/11/19/tesla-m ... term=tesla
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by willthrill81 »

Rowan Oak wrote: Fri Nov 20, 2020 3:46 pm
nisiprius wrote: Fri Nov 20, 2020 2:15 pm Owning Total Stock isn't going to protect me or anything, but it is going to free me from anxieties about the addition of Tesla, because I've been owning Tesla since 2010 or so. If Tesla crashes, I lose perhaps 1% or 1.5% of what I have in Total Stock, but it will just be money that I had previously gained from the run-up in Tesla because of having owned it for years.
This. ^^^

Why worry about what the S&P 500 does anymore? Investors haven't needed to since around 1992 (Vanguard Total Stock Market Index Fund (VTSMX) inception).
Some employer retirement plans don't have a TSM fund. My 457 plan only has two options for U.S. stock: S&P 500 and a SCV fund.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by TropikThunder »

willthrill81 wrote: Fri Nov 20, 2020 12:20 pm John Reckenthaler with Morningstar had an article about Tesla finally being added to the S&P 500. He was very skeptical about several aspects of the move, such as questioning Tesla's stock jumped +13% after the announcement, leading him to question how efficiently Tesla is currently priced, and which also makes the S&P 500 even more top heavy. The top 10 stocks in the index now account for 34% of its value. He is also concerned that at least half of these top 10 stocks are in tech and that the last time this happened was the late 1990s, which was followed by a 'lost decade' for stock returns.

Reckenthaler is not my favorite writer, to put it mildly, but I do think that he brings up some interesting points.

Thoughts?
IMO as I said in another thread, the problem is the S&P500 waiting until a company is big before buying them (adding them to the index). A Total Market approach would have had you riding TSLA all the way up rather than buying at the top (if it is indeed the top). It’s the index version of performance chasing.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by willthrill81 »

TropikThunder wrote: Fri Nov 20, 2020 4:04 pm
willthrill81 wrote: Fri Nov 20, 2020 12:20 pm John Reckenthaler with Morningstar had an article about Tesla finally being added to the S&P 500. He was very skeptical about several aspects of the move, such as questioning Tesla's stock jumped +13% after the announcement, leading him to question how efficiently Tesla is currently priced, and which also makes the S&P 500 even more top heavy. The top 10 stocks in the index now account for 34% of its value. He is also concerned that at least half of these top 10 stocks are in tech and that the last time this happened was the late 1990s, which was followed by a 'lost decade' for stock returns.

Reckenthaler is not my favorite writer, to put it mildly, but I do think that he brings up some interesting points.

Thoughts?
IMO as I said in another thread, the problem is the S&P500 waiting until a company is big before buying them (adding them to the index). A Total Market approach would have had you riding TSLA all the way up rather than buying at the top (if it is indeed the top). It’s the index version of performance chasing.
And yet the historic returns of TSM and the S&P 500 have been close to identical over the long-term.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Marseille07 »

TropikThunder wrote: Fri Nov 20, 2020 4:04 pm
willthrill81 wrote: Fri Nov 20, 2020 12:20 pm John Reckenthaler with Morningstar had an article about Tesla finally being added to the S&P 500. He was very skeptical about several aspects of the move, such as questioning Tesla's stock jumped +13% after the announcement, leading him to question how efficiently Tesla is currently priced, and which also makes the S&P 500 even more top heavy. The top 10 stocks in the index now account for 34% of its value. He is also concerned that at least half of these top 10 stocks are in tech and that the last time this happened was the late 1990s, which was followed by a 'lost decade' for stock returns.

Reckenthaler is not my favorite writer, to put it mildly, but I do think that he brings up some interesting points.

Thoughts?
IMO as I said in another thread, the problem is the S&P500 waiting until a company is big before buying them (adding them to the index). A Total Market approach would have had you riding TSLA all the way up rather than buying at the top (if it is indeed the top). It’s the index version of performance chasing.
It is, but that's what it means to collect large-caps. Can't collect them until they become big already. Besides, if they wanted to buy cheaper then they shouldn't have skipped Tesla on the last round of shuffling.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by jyoung »

SP500 or TSM either way you will hold Telsa, but you will also hold companies that massively surprise to the upside in the future. Who knows who it will be, and most people will never have bought it otherwise. I try not to focus only on what bad things could happen. This is how indexing works and it's not right for everyone, but I prefer it to any alternative I've seen.
Last edited by jyoung on Fri Nov 20, 2020 4:20 pm, edited 1 time in total.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by TropikThunder »

willthrill81 wrote: Fri Nov 20, 2020 4:06 pm
TropikThunder wrote: Fri Nov 20, 2020 4:04 pm IMO as I said in another thread, the problem is the S&P500 waiting until a company is big before buying them (adding them to the index). A Total Market approach would have had you riding TSLA all the way up rather than buying at the top (if it is indeed the top). It’s the index version of performance chasing.
And yet the historic returns of TSM and the S&P 500 have been close to identical over the long-term.
That argument works both ways though. If historically it hasn’t mattered that the S&P500 performance chases vs TSM, why would it matter this time? I don’t pretend to have the answers, but the current method with regard to TSLA is how the S&P has always done things and it hasn’t mattered so far. Surely TSLA won’t be the first company added to the 500 near the top rather than near the bottom, will it?
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by pseudoiterative »

Tesla may be a reasonable company, but the TSLA shares are at least 10x over-priced relative to their fundamental value (see Prof. Damodaran's Tesla valuation scenarios from earlier this year). Even if you believe that Tesla will somehow turn into a never-before-observed business chimera with the best possible outcome of all variables -- FAANG-like software margins, VW/Toyota like mass-market auto revenues, etc -- then it's still about 15% over-valued compared to current prices.

When (if) the music stops and market sentiment about Tesla's narrative changes, that leaves a long way for the share price to fall.
Last edited by pseudoiterative on Fri Nov 20, 2020 4:36 pm, edited 1 time in total.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Hyperchicken »

It will be interesting to revisit this thread in a year or two.

My prediction: regardless of what Tesla stock is doing, the divergence between S&P 500 and TSM will stay what is has been historically - that is, negligible and go either way. And that would mean that all concerns were moot.

Obviously only time will tell what really happens.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by columbia »

Rowan Oak wrote: Fri Nov 20, 2020 3:46 pm
nisiprius wrote: Fri Nov 20, 2020 2:15 pm Owning Total Stock isn't going to protect me or anything, but it is going to free me from anxieties about the addition of Tesla, because I've been owning Tesla since 2010 or so. If Tesla crashes, I lose perhaps 1% or 1.5% of what I have in Total Stock, but it will just be money that I had previously gained from the run-up in Tesla because of having owned it for years.
This. ^^^

Why worry about what the S&P 500 does anymore? Investors haven't needed to since around 1992 (Vanguard Total Stock Market Index Fund (VTSMX) inception).
I own the Vanguard 500 (in several accounts) and am not in any way worried by the addition of Tesla.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by willthrill81 »

TropikThunder wrote: Fri Nov 20, 2020 4:19 pmSurely TSLA won’t be the first company added to the 500 near the top rather than near the bottom, will it?
I'm not sure about that. But I agree that it seems reasonable to expect the long-term returns of the S&P 500 and TSM to be very similar. There might be some meaningful short-term differences though, as there have been before. From 1994-2000, the S&P 500 outperformed TSM by almost 1.6% annualized.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by nisiprius »

pseudoiterative wrote: Fri Nov 20, 2020 4:26 pm Tesla may be a reasonable company, but the TSLA shares are at least 10x over-priced relative to their fundamental value (see Prof. Damodaran's Tesla valuation scenarios from earlier this year). Even if you believe that Tesla will somehow turn into a never-before-observed business chimera with the best possible outcome of all variables -- FAANG-like software margins, VW/Toyota like mass-market auto revenues, etc -- then it's still about 15% over-valued compared to current prices.

When (if) the music stops and market sentiment about Tesla's narrative changes, that leaves a long way for the share price to fall.
But who cares--if it's only 1 to 1.5% of your stock holdings? Ignoring 2020 as anomalous, in the year 2019 there were 36 days in which the value of an investment in VTI fell by more than 1.5%.

I think what we have is a lazy loose association of ideas.

1) Tesla will collapse because Elon Musk is arrogant, or because Tesla isn't making reliable cars, or whatever.
2) Tesla is a tech company.
3) Therefore all tech companies will collapse.
4) There are a lot of tech companies in the stock market.
5) Therefore the stock market will crash.
6) But if only, if only S&P doesn't add Tesla to the S&P 500, then Tesla won't collapse, tech won't dive, the stock market won't crash, we're out of the woods, we're out of the dark, we're out of the night, march up to that gate and bid it open.

If that isn't the reasoning, what is?
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by 000 »

TropikThunder wrote: Fri Nov 20, 2020 4:19 pmSurely TSLA won’t be the first company added to the 500 near the top rather than near the bottom, will it?
BRK comes to mind. It was added in 2010 after a 50-1 split for B shares giving BRK.B more liquidity. Of course, BRK has since underperformed the S&P 500 despite being a top member of that index.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by 000 »

I don't care about the S&P 500, but the top heaviness of Total Stock has me thinking of redonning my Cloak of Active Management.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by willthrill81 »

nisiprius wrote: Fri Nov 20, 2020 4:50 pm
pseudoiterative wrote: Fri Nov 20, 2020 4:26 pm Tesla may be a reasonable company, but the TSLA shares are at least 10x over-priced relative to their fundamental value (see Prof. Damodaran's Tesla valuation scenarios from earlier this year). Even if you believe that Tesla will somehow turn into a never-before-observed business chimera with the best possible outcome of all variables -- FAANG-like software margins, VW/Toyota like mass-market auto revenues, etc -- then it's still about 15% over-valued compared to current prices.

When (if) the music stops and market sentiment about Tesla's narrative changes, that leaves a long way for the share price to fall.
But who cares--if it's only 1 to 1.5% of your stock holdings? Ignoring 2020 as anomalous, in the year 2019 there were 36 days in which the value of an investment in VTI fell by more than 1.5%.

I think what we have is a lazy loose association of ideas.

1) Tesla will collapse because Elon Musk is arrogant, or because Tesla isn't making reliable cars, or whatever.
2) Tesla is a tech company.
3) Therefore all tech companies will collapse.
4) There are a lot of tech companies in the stock market.
5) Therefore the stock market will crash.
6) But if only, if only S&P doesn't add Tesla to the S&P 500, then Tesla won't collapse, tech won't dive, the stock market won't crash, we're out of the woods, we're out of the dark, we're out of the night, march up to that gate and bid it open.

If that isn't the reasoning, what is?
Are you suggesting that writers like Reckenthaler are just trying to come up with something to write about, even if it's not meaningful? :wink:
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by pseudoiterative »

nisiprius wrote: Fri Nov 20, 2020 4:50 pm I think what we have is a lazy loose association of ideas.

1) Tesla will collapse because Elon Musk is arrogant, or because Tesla isn't making reliable cars, or whatever.
2) Tesla is a tech company.
3) Therefore all tech companies will collapse.
4) There are a lot of tech companies in the stock market.
5) Therefore the stock market will crash.
6) But if only, if only S&P doesn't add Tesla to the S&P 500, then Tesla won't collapse, tech won't dive, the stock market won't crash, we're out of the woods, we're out of the dark, we're out of the night, march up to that gate and bid it open.

If that isn't the reasoning, what is?
I agree with you that the linked Rekenthaler article doesn't make a lot of sense in parts. I find this part nonsensical:
Apple, Microsoft (MSFT), Amazon, Alphabet, Facebook, and Tesla would seem at first glance to occupy different industries, from building smartphones to installing software to delivering packages to manufacturing automobiles, in reality their stock-market valuations all depend upon two features: 1) preserving their semi-monopolies and 2) extending their technological advantages. They rise and fall on the same investment waves.
Huh? Tesla doesn't have a "semi-monopoly" on cars. Some of the other companies mentioned in that list definitely do have monopolies or semi monopolies on their market segments -- they've got some great businesses with large profit margins, revenue growth, and huge moats against competition, whatever we might believe about their respective share prices. I'd hate to try competing against the big _profitable_ tech companies in their dominant market segments. But Tesla isn't one of them!

That said, I don't think it helps to characterise the article with a straw-man argument. I don't see the Rekenthaler article or anyone else in this thread making the argument that Tesla's business will collapse due to Musk's "arrogance" or unreliability of the product being sold. Personally I believe it is possible to lose a lot of money buying shares in a good business, by simply paying too much for the shares: there's no requirement that the underlying business fails, is fraudulent, is selling a shonky product etc. If you pay 10x what something is worth to buy-and-hold it, then over the long run as Mr. Market shifts from momentum & speculative narrative-driven "voting machine" to results-oriented "weighing machine" you expect to lose 90% of that investment.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by z3r0c00l »

I think Tesla will be lucky to hold 10% of their current market cap in 2030, it is absurd that they have a market cap greater than Walmart but that does not matter re. deciding of they should be in the index.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by 4nursebee »

The world really needs one more person to write about tesla, start a youtube channel about tesla, or analyze tesla. That is when all will be well with the world. I am glad this journalist was able to do his part.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by asset_chaos »

willthrill81 wrote: Fri Nov 20, 2020 12:20 pm The top 10 stocks in the [S&P 500] index now account for 34% of its value.
Does this mean that S&P500 index funds will all be SEC designated as non-diversified? I have a vague recollection that the threshold for being designated non-diversified is 25% in the top 10 holdings. If so, then Investopedia suggests that somewhat over $1 trillion is indexed to the S&P 500 in US index funds alone, and that seems like a lot of people's money invested in non-diversified funds.

It won't effect the way I invest; I'll keep on in total world (15% in top 10 holdings, says Vanguard). But it does give the feel that $1 trillion of index funds becoming non-diversified---if that's the case---may signify something really is different this time.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by firebirdparts »

1789 wrote: Fri Nov 20, 2020 1:57 pm
For the experienced investors: Do you see any difference in investor behavior when you compare these two periods 1993-1999 and today? Does investors trade more today? How is zero trading costs and fractional share trading impacted this behaviors?
I would say the key thing that happened in the late nineties was disruptive technology made it impossible to value “Internet” companies with any reason, and a lot of them had no promise of any value, as there was too much given away free or too much competition. That does not seem to be the case today, but there are a lot of valueless stocks trading today at impressive market caps. It does seem to be entertainment, but I think you have to have larger scale market manipulation for the entertainment to work.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by sambb »

Ive seen many threads here that are anti-tech (against social media, apple watch or apple phone, tesla), etc,, while it seems that these are great companies that have changed the world and are part of large indices (microsoft, facebook, amazon, apple netflix, etc). Ive also seen threads that are very pro-stock pickers (like warren buffet). I dont know why both of these happen. Maybe it is related to age of the investor or other factors?
Might be easiest to to buy total stock and accept "market returns".

I dont know if Im a fan of all the companies in the S&P, but i really dont care for that portion of my portfolio.

Im not a fan of tesla products - a family member had one - terrible quality control - really really bad, long wait for parts - with no communication, terrible customer service, and terrible range in cold weather. But everyone has preferences and total stock market makes it easier
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Normchad »

yep. there seems to be a broad consensus here that you can't consistently pick winners and losers. And then we all try to do exactly that......

Also seems like a lot of people conflate/confuse great companies with great stocks.

Personally, I don't consider Warren Buffet to be a stock picker. He's doing a lot more than that, he is buying companies and exerting a lot of control and influence over them for a very long time. Much more a business man/business owner than a stock picker.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by JoMoney »

I still prefer the S&P's methodology to Total Stock Market.
I'd rather Tesla be held out until they've had a more consistent track record of actual earnings... but as they say, "C'est la vie".
It will help the S&P continue to track with the broader "Total Market", for better or worse.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by bluquark »

nisiprius wrote: Fri Nov 20, 2020 2:15 pm nor do I understand what people want S&P to do. Snub Tesla?
They already refrained from including it, even though it met all their criteria, for unexplained reasons last quarter. Was that for some technical reason, or were they just spooked by the volatility and valuation?

Whatever the reason, by snubbing it once, they made it not unreasonable for the investing public to think that it's within their power to continue to snub it indefinitely.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by 1789 »

firebirdparts wrote: Fri Nov 20, 2020 9:17 pm
1789 wrote: Fri Nov 20, 2020 1:57 pm
For the experienced investors: Do you see any difference in investor behavior when you compare these two periods 1993-1999 and today? Does investors trade more today? How is zero trading costs and fractional share trading impacted this behaviors?
I would say the key thing that happened in the late nineties was disruptive technology made it impossible to value “Internet” companies with any reason, and a lot of them had no promise of any value, as there was too much given away free or too much competition. That does not seem to be the case today, but there are a lot of valueless stocks trading today at impressive market caps. It does seem to be entertainment, but I think you have to have larger scale market manipulation for the entertainment to work.
Thank you for the response. What i dont understand is the following. If we look at sp500 at 1999 most of the top 10 companies were very solid companies for the time, for example list have INTC, IBM, MSFT, GE etc but it also had Lucent tech and AOL. There were Walmart and Exxon as outside of tech circle. So basically the top 10 is really not dominated by dot com companies at all. Then why is all of these companies at top 10 with the exception of MSFT trailed the index for the next 20 years. So if we look at top 10 today we can still say most of the companies are strong. If a similar large cap tech wreck happens why fo most investor assume these companies wont trail the index for next 20 years. Why do most people think the result will be different?
Last edited by 1789 on Fri Nov 20, 2020 11:18 pm, edited 2 times in total.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by HenrySouthernCal »

I my company 401K plan, I have 23% in S&p500 index and 10% in Vanguard extended market index fund (VEXAX). Tesla is 4.9% and No. 1 holding of VEXAX. I am glad it will move out of the extended index from selling high, but I have to take a small hit in S&P 500 index from buying high even though it is only 2% weight.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by whodidntante »

Presumably your portfolio does not consist solely of the S&P 500. But let's say you're a standard issue home country bias Boglehead, and you own a little much in bonds, so it's 1% of your portfolio. You can cancel whatever happens in Tesla by shorting 10k per million dollars in your portfolio, which is quite easy to do. This is much ado about nothing.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Lee_WSP »

Sir Isaac Newton: 'I can calculate the motion of heavenly bodies, but not the madness of people.'

This applies especially to the Robinhood crowd.

TravelforFun
This. The Robinhood favorites seem to share too many characteristics with a Ponzi scheme for my comfort level.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Northern Flicker »

Every stock in the S&P 500 today, except those in the index when it was launched in its present form in 1957, were added at some point. It is just a normal part of index maintenance and governance.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Laurizas »

nisiprius wrote: Fri Nov 20, 2020 4:50 pm 6) But if only, if only S&P doesn't add Tesla to the S&P 500, then Tesla won't collapse, tech won't dive, the stock market won't crash, we're out of the woods, we're out of the dark, we're out of the night, march up to that gate and bid it open.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by burritoLover »

Keep out the Tesla
Cries wanna-be Bogleheads
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Xrayman69 »

Northern Flicker wrote: Sat Nov 21, 2020 1:13 am Every stock in the S&P 500 today, except those in the index when it was launched in its present form in 1957, were added at some point. It is just a normal part of index maintenance and governance.
S&P adds companies that are on the ascent and shed companies that are on the descent. Push and pull and over the past 60+ years has been a good tracker of the general market. If the company added does well great for them and me. If the company added does poorly it is at risk for delisting. The company that is removed if it turns it around is eligible to be brought back, but if not then it is what it is.

Sure i may be buying Tesla at a premium i am Also dumping a company that is projected to be declining and once off the S&P at risk for further decline.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by CurlyDave »

TravelforFun wrote: Fri Nov 20, 2020 1:01 pm
...This applies especially to the Robinhood crowd.
Criticism of the "Robinhood crowd" is fairly common around here.

Does anyone have a number for what percentage of total trading is done on Robinhood?

This article https://www.marketwatch.com/story/heres ... =home-page sheds some light on Robinhood but does not answer the question I raise.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Scooter57 »

CurlyDave wrote: Sat Nov 21, 2020 10:16 am
TravelforFun wrote: Fri Nov 20, 2020 1:01 pm
...This applies especially to the Robinhood crowd.
Criticism of the "Robinhood crowd" is fairly common around here.

Does anyone have a number for what percentage of total trading is done on Robinhood?

This article https://www.marketwatch.com/story/heres ... =home-page sheds some light on Robinhood but does not answer the question I raise.
I am pretty sure I just saw an article on bloomberg.com that said that retail traders were now around 20% of all trades, which is now more than programmed trades. That number has jumped because of the Robinhood traders.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Scooter57 »

Lee_WSP wrote: Sat Nov 21, 2020 12:32 am
Sir Isaac Newton: 'I can calculate the motion of heavenly bodies, but not the madness of people.'

This applies especially to the Robinhood crowd.

TravelforFun
This. The Robinhood favorites seem to share too many characteristics with a Ponzi scheme for my comfort level.
Where this can hurt the staid Large Cap index holder is that if the price of Tesla, the top Robinhood trader stock, were to go to zero, even though it is only 1% of YOUR portfolio it might be 25% of the portfolio of many of those retail traders. If they panic and start cashing out all their other darlings with their trades currently making 20% of all trade volume the overall psychology would shift and a lot of investors would start taking profits off of the huge gains of the recent past. When there are more people wanting to sell than wanting to buy, prices drop. When momentum starts going down the momentum traders jump in and keep it going and it can take a long time to recover.

That is just a possibility, but one that should remind you that you can't just think about the impact of something involving a lot of money on your portfolio. You weren't trading CLOs in 2006 but your portfolio got hurt anyway.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by willthrill81 »

CurlyDave wrote: Sat Nov 21, 2020 10:16 am
TravelforFun wrote: Fri Nov 20, 2020 1:01 pm
...This applies especially to the Robinhood crowd.
Criticism of the "Robinhood crowd" is fairly common around here.
That's because it's pretty clear that the overwhelming majority of trading done on that platform is for individual stocks, which BHs rightly eschew. It's one of the most closely held tenets of BH-ism.
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Re: Tesla finally added to S&P 500 - Concerns from Reckenthaler

Post by Laurizas »

CurlyDave wrote: Sat Nov 21, 2020 10:16 am Does anyone have a number for what percentage of total trading is done on Robinhood?
Do not have a number, but
wrote: It may come as no surprise that smaller speculative stocks like Kodak, Nikola, Hertz, and Moderna show a high correlation between Robinhood users holding the stocks and price changes. Meanwhile much larger stocks like Apple, Amazon, and Tesla show basically no correlation. Since these are higher market cap stocks, it’s possible that even lots of volume from Robinhood traders can’t move the market, compared to, say, a stock like Hertz, which is trending toward being worth $0.
https://ofdollarsanddata.com/robinhood-trader/
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