Lets go to go over the reason Tesla stock has increased so much over these last few months, whether or not it’ll continue to go even higher, and then how much the price will be affected if it joins the SP500 – Enjoy! Add me on Instagram: GPStephan
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IF Tesla meets the full eligibility for SP500 inclusion, and IF it’s voted on to join the SP500..how much of an effect will this have on the stocks price, and is getting added to an index all it takes to boost up the stock?
When a stock is going to be added to an index, it’s announced AHEAD OF TIME – BEFORE index fund managers can actually go ahead and buy it. This leaves time for individual investors and speculators to buy in, anticipating it being added to the index within the coming week – and trying to make a profit.
When it was researched, it was found that stocks DO generally see a rise in price once it’s ANNOUNCED they’re going to be added to an index – but ONCE they’re actually added to the index, the pent up demand slows down – the stock price drops – and then it returns it a new “normal.”
This was also confirmed by a study published in the 1990’s, that found that the announcement and inclusion of a stock within the SP500 DID have a measurable effect on the price…short term.
Long term, however, it was found that adding a stock to an index has no permanent effect on the price.
In fact, it was studied that a stocks “premium” for being added to an index completely wore off after 2 months, usually returning to the same price before it was ever announced.
And overall, studies have shown that stocks added to an index did NOT see any superior performance and demand over stocks which were NOT traded within an index…
So, IF Tesla gets added to the SP500 – according to all the history and research out there – the ANNOUNCEMENT that it’ll be added will have a MUCH more powerful affect on the stock price than the actual INCLUSION of the stock to the index. After all, Yahoo was cited as being the most recent comparable of its size back in 1999…that stock surged 64% in 5 days between the announcement of being added to the index, and actually being added to the index.
But once a company is added to an index – it must actually PERFORM well, and much of its stock price movement will be from it’s earnings, performance, and ongoing development. Otherwise, if it doesn’t perform well, it’ll get bumped and the price will go down – causing a small percentage of the overall index to go down, with it.
But there’s one message I just want to make clear…in my personal opinion…at these levels, investing in Tesla is a gamble – and if you’re going to buy in, hold it with the expectation of keeping it for at a LONG TIME. This is the type of stock that’ll be just as likely of dropping 50% as it is of going UP another 50%….so, if you buy in, just be prepared for a really, really wild ride – for better or worse.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com
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