Lots of retail investors are having a great laugh watching the impact that Tesla’s huge decline (TSLA) the stock price has on CEO Elon Musk, who was the richest person in the world before Tesla began to crumble.
And why not laugh?
Not only is Musk suffering from Tesla’s price cut, he’s also suffering massive mishaps with his new toy, Twitter, even as he uses his Twitter property to tweet to the rest of the world about how he’s been doing. .
But you know what? Although few people seem to realize it, retail investors – people like you and me – are also being hit by Tesla’s meteoric price drop.
Here’s why. Since Tesla is a major constituent of the Standard & Poor’s 500 index (^GSPC), and the electric vehicle maker’s 65% plunge last year inflicted severe damage on S&P index fund holders. And S&P funds are important holdings for many regular retail investors.
Let me show you the numbers.
If you owned $10,000 of Admiral-class shares in Vanguard’s S&P 500 fund at the end of 2021, According to Vanguard, Tesla’s decline last year reduced the value of your fund stake by $137.
If you held much more than $10,000 of the Vanguard fund — which happens to be my largest stock investment — the damage is a multiple of $137. That’s serious money for me — and maybe for you too, if you like S&P 500 index funds.
In fact, according to figures from another source, Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, Tesla accounted for 10.1% of the S&P’s decline last year. That’s nearly five times Tesla’s 2.1% weight in the index at the start of the year.
A brief but important aside. Why am I talking about Tesla’s weight? Because the S&P 500 is calculated on the basis of the market value, i.e. the weight, of its components. This contrasts with the Dow Jones Industrial Average (^ DJI), which is based on the stock prices of its 30 components and not the overall market value of the components. This is why the Dow is an average and the S&P is an index.
Back to the main event.
As you can see from the chart accompanying this article, Tesla’s contribution to the S&P’s loss last year ranked third, behind only Apple. (AAPL) and Amazon (AMZN). But Tesla’s 2.1% weight and 10.1% loss contribution represents a much larger disparity between weight and loss than Apple (6.8% weight and 11.0% loss) or Amazon (3.6% weight, 10.7% loss).
So, in other words, Tesla far exceeded its weight when it came to inflicting damage on index fund investors.
Now take this. Tesla’s 65% plunge last year cost S&P 500 investors as a class about $129 billion. How can I know? According to some numbers that Howard Silverblatt gave me.
He said institutional and individual investors had a total of $7.06 trillion of their money tied to the S&P 500 at the start of last year. That’s right, trillion, with a “T”.
Last year, the total return—the decline in prices, partly offset by reinvested dividends—for the S&P 500 was minus 18.15%. This equates to a total loss of $1.28 trillion. Since Tesla was 10.1% of the loss, according to Silverblatt, that means Tesla’s share of the loss, as I said, was about $129 billion.
So if you want to keep laughing at Musk’s Tesla losses, be my guest. I always laugh, there’s no reason why you can’t laugh too. But remember the joke is on us, not just him.
Allan Sloan, who has written about business for over 50 years, is a seven-time winner of the Gerald Loeb Award, business journalism’s highest honor. He won Loebs in four different categories over four different decades for five different employers.
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