Tesla Stock Added to S&P 500 - Passive Investing Bubble?
Tesla $TSLA is finally on the S&P 500 $SPX500 . Tesla is the sixth largest company in America with a market cap of over $600 billion, making it the largest addition to the index ever and will contribute about 1.7% to the index.
To accommodate for this addition, $70 billion worth of Tesla shares will need to be bought by various ETFs such as SPY $SPY owned by iShares and VOO $VOO owned by Vanguard, both of which follows the S&P 500. Buying Tesla means the stock will keep going up leading to other stocks which are highly owned by these index funds and ETFs to keep going up.
Today, 22% of the S&P 500 is in just 5 stocks and it has never been so concentrated. This is the passive investing bubble that Michael Burry has been talking about. The top owners of most public companies are always Blackrock, State Street and Vanguard through passive funds and ETFs. These funds don't exercise their voting rights and incompetence is often tolerated.
Do we have a passive investing bubble? Most likely. The best way to deal with that is to invest in companies with real fundamentals, preferably smaller companies.
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