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Tesla’s Charge Reveals Weak Points of Indexing

DFA Perspectives:  Tesla’s Charge Reveals Weak Points of Investing

Index additions and deletions are typically a routine affair, but the recent announcement by S&P that Tesla would be added to the widely tracked S&P 500 Index stirred up quite a lot of attention.  No surprise, given that Tesla is the largest company to ever join the index and, at the time of its addition on December 18, 2020, became the sixth-largest company in the S&P 500.  On news of the announcement on November 16, Tesla’s stock price jumped 8.2% from $408.09 to $441.61.  As shown in Exhibit 1, Tesla then continued to post strong returns, closing December 18 up 70.3% since the announcement.  That made the 2.3% return to the S&P 500 Index over that period look meager by comparison.

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