TESLA IN THE S&P 500 | NEW $4000 PRICE TARGET??

What's up you guys? It's Graham here. So we got to celebrate today because not only is it a super rare occasion that I actually post a video here on a Tuesday, but this one deserves it because it's officially announced that Tesla is going to be added to the S&P 500. That's right! They did it! They hit S&P 500 inclusion, and that also means that pretty soon nearly every single index fund out there is gonna have to own a small piece of Tesla as part of their portfolio.

I've got to say that's a pretty big announcement for nearly anyone invested in the stock market right now. But of course, though, you might be wondering, "But Graham, I don't get it. Why is this such a big deal? Why did the price of Tesla stock just skyrocket this morning? And why do you keep asking us to smash the like button for these values?" Well, don't worry, I'm gonna answer that because the reality is if you're not an investor in Tesla right now, pretty soon you probably will be, whether you like it or not.

And it's important to know where your money is going. So let's go ahead and talk about what just happened, how this impacts you, how high the price of Tesla stock might go from here, and whether or not it's a good idea to buy in now or maybe buy later when some of the hype dies down. But really quick, if you're wondering why I always ask you guys to smash the like button for the YouTube algorithm, it's because YouTube tends to recommend my videos to a brand new audience when it sees my videos getting high engagement.

And if I even so much as mentioned smashing the like button in the first like two minutes of a video, it increases the amount of likes on a video by over a hundred percent. Don't even do it for me at this point, just do it for Elon Musk. So thank you so much for doing that!

Also, a big thank you to Simply for sponsoring this video because they're doing their best sale of the year right now, but more on that later. First, let's start with the basics: the S&P 500. Now for those of you that don't know, the S&P 500 is a stock market index that measures the performance of the top 500 publicly traded companies here in the United States.

Now, the total value of all of these companies is worth a combined 27 trillion dollars as of October 31st. However, not every company is treated equally when it comes to calculating this value that you see right here. There's a very complicated scientific formula to determine how much each company gets to influence the value of the overall market. So for an index like this, the more valuable a company is, the more that company gets to influence the entire S&P 500.

It would be kind of like putting 10 people on a scale together that weigh a combined 2,000 pounds. Now, if the skinniest person gets off who weighs 50 pounds, the scale is only going to go down by two and a half percent. But if the heaviest person gets off who weighs 500 pounds, that scale is going to go down by 25. Well, the same thing happens with companies in the S&P 500. Except instead of how heavy they weigh, it's how valuable they are.

Now, something like this is really, really important to understand because just the top five largest companies in the S&P 500 make up 20% of its overall value. Now, those companies are in order: Apple, Microsoft, Amazon, Facebook, and Google. Then the other 495 companies make up the remaining 80 percent of value. That means for every 100 dollars you invest in the S&P 500, what you're actually buying is six dollars and forty-five cents worth of Apple stock. You're buying five dollars and fifty cents worth of Microsoft and four dollars and forty-eight cents worth of Amazon, whether you realize it or not.

Now this is a really big deal because guess what? Tesla is worth over 380 billion dollars, and that means that now they're going to be the ninth largest company in the S&P 500. They're also going to be the largest company ever added to the index. Now, just let that sink in for a moment because here's how big of a deal that is.

However, before we get into that, I want to thank our video sponsor today: Simply Safe. There's almost always a rise in break-ins over the holidays, and that's why Simply Safe is having their best sale of the year right now where you could get 30% off plus a free HD camera with the purchase of any new system. Now for those of you not aware, Simply Safe is an incredibly reliable home security system that makes sure your home is protected around the clock. It's shipped right to your door, it's extremely easy to use, and it's very intuitive to set up yourself in under an hour.

From there, your home is protected 24/7. They've got everything from sensors to cover every window, room, and door plus lots of great extras like water sensors, temperature sensors, and HD cameras. Trust me, when it comes to this stuff, I'm not a handy person whatsoever, and if I could set it up myself in under an hour without any tools, anyone can! Not to mention their devices are extremely small and sleek, so you don't even notice them. It brings me a lot of peace of mind just to be able to go on my phone and check in on my home from wherever I am, and Simply Safe makes that incredibly easy to do.

Then, of course, if anything happens or Simply Safe is alerted to anything, they will make sure the appropriate action is taken and the police get called. So if you're interested in learning more or you want to check out the best sale of the year that they're having right now, visit SimplySafe.com to try one out for yourself. And of course, with that said, let's get back to the video!

Anyway, back to the video: here's why Tesla getting added is such a big deal, and this is where some of the math behind it gets crazy. Right now, there's over 11.2 trillion dollars invested in the S&P 500, and almost half of that, at 4.6 trillion dollars, is in index funds that include the S&P 500. The way these index funds work is that they own a small portion of every single company equal to their weight in the market cap.

So, in order to properly balance every single S&P 500 index fund in existence, they're gonna have to allocate about 1.2% of their money to go and buy Tesla stock. That means if we just consider the 4.6 trillion dollars sitting in index funds, over 51 billion dollars of that is going to have to invest in Tesla stocks so that they could properly balance their portfolio based on each company's weight.

That's the reason why if you haven't bought Tesla stock before but you go and buy index funds like I talk about here all the time on the channel, by the end of December, over one percent of your portfolio is now going to be a friendly reminder to Elon Musk. That's why people see this as such a big deal because every single time someone goes and buys an index fund that contains the S&P 500, what they're really buying is a small portion of Tesla.

And that just means a steady consistent stream of money flowing into Tesla stock and a smiling Elon Musk all day every day. This is even such a big event that in a press release, they asked investors for feedback about whether to include Tesla all at once on December 21st or in two tranches with the first added a week earlier due to Tesla's unusually large market capitalization, so as not to overwhelm the market. If that doesn't tell you how significant this is, I don't know what will.

So that then begs the question: how good of a deal is it to buy Tesla right now? Is it better to buy now before all the index funds start buying in, or is it better to wait and hold off for things to settle down? And when it comes to this, I've done my research, and I will tell you historically what happens when a stock gets added to the S&P 500 and how much the price is really changed once that happens.

Now, it's important for me to mention that Tesla is well unique. They're almost unlike any other company that I've seen. Like, are they a car company or a tech company? Are they overvalued or are they undervalued? Is Elon Musk a genius, or is he crazy? Tesla's certainly controversial. For a while, they were the number one most shorted stock in the entire stock market, but meanwhile, they've exceeded expectations, and they even produced Tesla short shorts to mock the people that didn't believe in them.

So even though I'm about to present to you actual factual data, a company like Tesla really can beat to its own drum. But as far as every other stock out there that's ever been added to the S&P 500, here's what you need to know: anytime a stock like this is going to be added to an index, it's announced ahead of time before all the index fund managers get to buy in. This leaves time for individual investors and speculators to buy in trying to make a profit, like what we're seeing right now.

Now when it was researched, it was found that stocks do go up in price once it's announced that it's going to be added to an index, but once it's actually added to an index, the pent-up demand seems to slow down, the stock price tends to drop, and then it returns to a new normal. This is also confirmed by a study published in the 1990s which found that the announcement and inclusion of the stock in the S&P 500 did have a measurable effect on the price, but short term, long term.

However, it was found that adding a stock to an index had no permanent effect on the price. In fact, it was studied that a stock's premium of being added to an index completely wore off after two months, usually returning to the same price it was before it was ever announced. Likewise, it was also found that stocks which were removed or bumped down from the index didn't see a drop in price or any lack of demand.

So given all of this information, like we're seeing right now, the announcement to being added to the S&P 500 is increasing the price, just like the studies have shown. Historically, that announcement is going to have a larger impact on the price than actually being added to the index. After all, Yahoo was being cited as being the most recent comparable of its price back in 1999.

That stock surged 64% in five days between the announcement to being added to the index and actually being added to the index. But this is Tesla we're talking about, and this is going to be the largest addition ever into the S&P 500. And it's Tesla! This is a company people talk about as if they're talking about politics or religion. And I say that because I have a feeling I could spout out all the logic and rationalization and reason, and it's not going to matter at all.

That's because Tesla is not logical. Case in point: the Tesla stock split on August 11th, 2020. Tesla announced that they would be doing a five-to-one stock split back when it was trading about fourteen hundred dollars a share. Well, that news caused the price to skyrocket about twenty percent within a week, and ever since the stock split went into effect, that stock price has been on fire. Does that make any logical sense? No! Nothing fundamentally changed. The company didn't do anything differently, and the fundamentals were still exactly the same.

But now instead of owning one big share at 2,000, you could buy five smaller shares at 400. It's kind of like asking, "Do you want to buy a whole pie or do you want to pay 20% more for the same pie just cut into five pieces?" Well, I guess psychologically owning five of something seems like a lot more in comparison, so it seems cheaper now when the price just went up. Well, the same could be said about Tesla being added to the S&P 500 even more so now because now people have a reason to invest in Tesla stock if they want to get into the S&P 500.

That just means for Tesla more awareness, more interest, more money, higher stock prices! However, in order for the stock to do well long term, they still have to actually perform well. They'll need to continue posting profits and continue innovating, and gosh, they need to finally start making the Cybertruck and the Tesla Roadster because I've been waiting too long for these to come out!

But in all seriousness, where they're probably likely to shine in the future is within their battery technology. Even though their battery day event was a bit underwhelming, they are producing a new battery cell that they claim will provide five times the energy, six times the power, and sixteen percent more range compared to its old battery cell. They say that their road to more profitability is by bringing down the cost of their batteries, and that'll get them closer to selling 20 million automobiles annually, and they will also try to do that at a 25,000 dollar price point.

Now speaking of prices, lately those have come under change as well. Like just a few days ago, they announced that they would be getting rid of the $35,000 Tesla Model 3, and also they slightly lowered the cost and increased battery range on other models. Besides the battery production, though, they also have the value of data for eventual one-day fully automated self-driving. I've used some of this technology on my own car, and I gotta say it's incredible so far.

And when it comes to this, Tesla's collected so much more data that puts them ahead of every other car manufacturer. That's why Tesla is just so much more than a car maker! I mean, sure, they sell automobiles, but that's just the tip of the iceberg because then they start getting diversified into solar energy, batteries, and data. Plus, Elon Musk is a Twitter and meme lord, so that's got to be worth at least a few billion dollars on top of that!

As far as where we go from here, I've owned Tesla stocks since it was the equivalent to $51 back in April of 2019, which wow, sounds like a very long time ago! But every now and then I continue to buy more and add to my position. This being added to the S&P 500 really solidifies Tesla as a company that people need to take seriously. You can't underestimate the persistence of having someone like Elon Musk behind the company.

Now overall, I've got to say I'm pretty bullish on the stock long term, but I'm also not naive to realize that this could very well go down in price, and the tide can turn rather quickly. That's why some analysts call for a $7,000 price target, which works out to $1,400 with today's stock split price to $75 a share from JP Morgan, which, yeah, I highly doubt that is gonna happen. That person's probably just salty he missed out on the Tesla run.

Now as for what I think is gonna happen, honestly, who knows? I wouldn't be surprised if this goes up past $500 rather quickly and then just continues to go up year after year. I also wouldn't be surprised if this gets some negative press and then almost overnight drops 20%. So when it comes to this, here's my recommendation:

One, Webull's three free stock promotion ends tomorrow, where they will give you three free stocks when you deposit a hundred dollars on the platform, with two of those stocks worth at minimum eight dollars all the way up to one thousand six hundred dollars! So if you haven't done that yet, this is pretty much your last chance to get three free stocks, and they're a totally free stock trading platform where you could buy Tesla stock with zero commissions.

And two, if you're gonna be investing in Tesla stock, just be prepared for a wild ride. It's not uncommon for this stock to be up or down 10% in a matter of days, so understand why you bought in and then just hold as long as nothing has fundamentally changed. If you're investing in Tesla, just do that with the intention of holding long term and then just hang on tight.

Otherwise, if you're just investing in index funds like I preach here in the channel nonstop, well congratulations! You're soon going to own one percent of your entire portfolio in Tesla. This is not exactly enough to make waves in your portfolio, but it is enough to make a significant difference long term if Tesla ends up doing really well.

But just know that statistically based off all the evidence I've ever researched, the announcement to being added to the S&P 500 makes a bigger difference in the price than the actual inclusion itself. Overall, after about two months, all the newness of being added to the S&P 500 tends to wear off. But just take that for what it's worth because I'll admit Tesla is not a usual statistic, and they're in a league of their own. So this may or may not be the case, but it will be fun to look back at this in hindsight and either see $450 a share as being a bargain price, or we could look back at this and be like, "Wow, all of the studies Graham researched were right and I should have hit the like button for the YouTube algorithm."

So with that said, you guys, thank you so much for watching! I really appreciate it. As always, make sure to destroy the subscribe button and the notification bell. Also, feel free to add me on Instagram—I posted pretty much daily! So if you want to be a part of it, feel free to add me there, as in the second channel, The Graham Stefan Show. I post there every single day I'm not posting here. So if you want to see a brand new video from me every single day, make sure to add yourself to that.

And lastly, if you guys want those three free stocks, use the link down below in the description, and Webull is going to be giving you three free stocks when you deposit $100 on the platform, with two of those stocks worth at minimum eight dollars and all the way up to one thousand six hundred dollars. This offer expires tomorrow, so if you're watching this right now and you haven't yet done it and you're procrastinating, don’t do that! Today is your last day, really, to get this done. So just do it! Thank me later; it's free money! If you guys like free money, just use the link down below in the description—easy as that! Let me know which free stocks you get. Thank you so much for watching, and until next time!