Tesla’s stock value is up a whopping 600% in 2020 alone, with a current market cap of over $550 billion dollars and a P/E ratio of over 1,000. At this moment, it is worth more than Disney, Walmart, or Berkshire Hathaway. Even better, the S&P 500 index managers decided not to allow Tesla in until they were pretty much forced to, as Tesla was now in the top 10 of all US companies. Tesla went up 40% after that announcement because they know that after 12/21 every single S&P 500 index fund and ETF will have to sell a little bit of hundreds of companies and put over 1% of their total assets into Tesla stock (an estimated flurry of $100 billion in mandated trades).
Meanwhile, the Vanguard Total Stock Market fund (VTI) will have to do… nothing. VTI and VTSAX already owned Tesla way back when it closer to $5 a share instead of waiting until it was $600. VTI aims to own the entire US stock market according to market cap. Large-cap, mid-cap, small-cap. Growth and value. Low-vol and high-vol. 3,555 companies, all the way down to Patriot National Bancorp (PNBK) worth only $31 million. Here’s a screenshot of the as of the end of last quarter, October 31st, 2020.
Owning an S&P 500 fund is still a fine idea and this Tesla matter will be noise in the long run, but it is another example of why I prefer the simplicity and quiet elegance of a total market cap fund. You own the entire haystack without lifting a finger, not having to worry about when a company goes from #501 to #490, and vice-versa. The S&P 500 owns most of the haystack, but humans have to vet all the new additions and subtractions (and publicly announce them beforehand).
50 years from now, the haystack will look very different. Here are the top 10 companies as of 2008 ():
Here are the top 10 companies in the US as of late 2020 ():
Maybe Tesla will end up justifying their current valuation, or maybe it will be ““. I root for Tesla because I like the advancements in autonomous driving and not having to endure the pain of traffic. (Also, one day I’ll be old and would love full mobility instead of the Handi-Van.) Either way, if you own either the S&P 500 or Total US market fund, you’ll earn the winners. The total market fund will be a little bit quieter, and cost a bit less because you don’t need to pay S&P any licensing fees.
Sometimes I feel like I should write more about stock investing, but I intentionally avoid the short-term noise. I can’t control the outcome, and I can’t predict the outcome, so I detach. This means that I end writing more about my profitable hobbies of earning thousands of dollars in extra income per year by maximizing the interest earn on my bond/cash holdings (same safety, higher return) and credit card rewards. All of this supports my ultimate goal – to get outside and try out this with my daughters that just arrived.
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