2/ To put this in perspective: in 2010 about $3.5t in assets were benchmarked to the S&P 500. Today this is $11.2t, as the index rose from ~1,100 to today's ~3,000 levels.
Show this thread
1/ "The Index Effect": Tesla joining the S&P 500. One of the biggest S&P 500 additions in history was when Berkshire Hathaway, with a $160b market cap, was added in early 2010. The inclusion was a surprise, and the headlines were bombastic.https://www.reuters.com/article/us-berkshire-sp-idUSTRE60P6OO20100126 …
-
-
-
3/ When BRK.B was added, with an about 1.1% weight in the index, the short term effects on the stock price was immediate, as it rose from ~$65 to a peak of ~$83, by +27%. This was while the S&P 500 dropped by around -6% due to the Euro debt crisis.pic.twitter.com/LY2e3Sjeky
Show this thread -
4/ BRK.B also rose despite the float being diluted by about 6%, as new shares were issued. The undiluted appreciation of BRK.B, relative to the benchmark S&P 500, was probably closer to +35%-40%.pic.twitter.com/06fpgEPuuF
Show this thread -
5/ Berkshire Hathaway also missed many opportunities in 2009 and by early 2010 it was considered an under-performing fund. Now let's compare this with Tesla. TSLA's current valuation is ~$185b and 80% float, would make it about ~0.7% of the S&P 500 index.
Show this thread -
6/ But while Tesla's index weight of $185b*80% = $148b is comparable to BRK.B's $170b*67% = $107b, the amount of global assets potentially carrying TSLA as a benchmark component are not:
BRK.B: 1.1% of $3.5t = ~$38b
TSLA: 0.7% of $11.2t = ~$78bShow this thread -
7/ So the magnitude of possible anti-dilutive portfolio allocations to TSLA - a fair chunk of which have probably already been performed for the largest players - is 2x larger for the TSLA S&P 500 inclusion event than for the Berkshire Hathaway event.
Show this thread -
8/ But there are other differences as well: the inclusion of BRK.B was (presumably...) a surprise - and it happened against the backdrop of a bearish market episode (the Euro debt crisis) when the S&P 500 dropped about 10% from its recent peaks.
Show this thread -
9/ If Tesla manages to post marginal profits in Q2, then its S&P 500 inclusion would happen while big market participants are certainly aware of the possibility - and against a reasonably bullish market backdrop with a dovish Fed and strong stimulus measures in place.
Show this thread -
10/ The million dollar question is, how many of the passive and active funds benchmarked against the S&P 500, in particular smaller and medium size funds, are prepared for the inclusion of Tesla? Tesla FUD was pervasive for almost a decade and was still formidable this year.
Show this thread -
11/ Many of the big funds, such as BlackRock, are currently overweight in TSLA - which suggests either long term growth investment, or a possible intent to sell to market participants who are under pressure to take an equal-weight stake in Tesla.
Show this thread -
12/ If these institutional investors overestimated the appetite of the market for TSLA shares, or if there's a broader bearish market, then we could see a 'sell the news' selloff after S&P 500 inclusion. OTOH, TSLA's ~10% short interest is much higher than BRK.B ever was.
Show this thread -
13/13 If institutional Tesla shareholders currently overweight in TSLA control the free float supply of TSLA shares after S&P 500 inclusion, then I'd expect them to allow the price to run up & squeeze a few more shorts, so they can collect a well deserved premium.
Show this thread
End of conversation
New conversation -
Loading seems to be taking a while.
Twitter may be over capacity or experiencing a momentary hiccup. Try again or visit Twitter Status for more information.