The Soufflé & The Sledgehammer
Tesla is not a stock we own, but a look at recent news shows just how different our investment approach is from that of speculators and fans of indexing.
Tesla CEO Elon Musk recently warned employees that if the electric-vehicle maker doesn’t meet its operating goals, the stock could be “crushed like a soufflé under a sledgehammer.”
It makes sense for him to worry. Speculators have driven the market value of Tesla higher than the combined value of the 12 largest global auto companies. Company profits are meager, and if they don’t grow fast enough, the stock could get walloped.
Who Cares About Price? Not the S&P Index Committee.
Despite this high price, the Committee that decides which companies to include in the S&P 500 has just voted to add Tesla to their Index. That means that investors who own index funds tied to the S&P will soon own it.
But isn’t the goal of investing to buy low and sell high? Why would the Index Committee add what seems to be an overvalued stock? Why would they continue to include other stocks that seem overpriced?
Continued here: https://www.am1st.com/the-souffle-the-sledgehammer/