Thinking out loud here:
A lot of people seem to be talking about this causing a bubble and discussing what price is the best price to sell at before it drops back down again. However, maybe I am misunderstanding but I have a feeling this isn't what will happen in the case of TSLA.
Because in a regular bubble, you have a large influx of buyers, who bid up the price until it hits a peak and then people start selling until the price goes back to an equilibrium which reflects the true value of the company (which hasn't changed much).
However in our current situation, we have a large influx of buyers (index funds) who aren't buying to speculate on a price increase with plans to sell later, but rather they are buying to hold long term. As they attempt to buy approximately 15% of the float, this will bid up the price (same as a bubble), however none of those funds are planning on selling at the peak. So, wouldn't the price just settle at an equilibrium near the peak rather than near the original price? (maybe 20% below the peak as I'm sure there would be some bubble chasers mixed in there)
My rationale here is that I am trying to think practically about where are those millions of shares going to come from? Not from insiders or HODLers who think that the company will soon be making trillions in revenue off terafactories and autonomy, but rather the people selling will be those who think the company's true value is close to what the stock price is now (or within a few hundred dollars of it). And so what will effectively happen is that within the next 30 days, 15% of the float will transfer from people who don't believe the company is worth $1 trillion+ to investors who are effectively HODLers (index funds who will never sell, no matter the price), and these index funds aren't planning on selling at the top of the bubble and neither are the actual HODLers or the insiders. So who is going to be the one to do all the selling to get the stock price back down again?
My own rebuttal:
This simply reduces the effective float by 15% (which will cause an initial bubble) however the price will settle back down and ultimately be determined by the smaller group of shares that are sold back and forth on a daily basis between investors at whatever price the market thinks they are worth (and the fact that the number of actively traded shares is smaller shouldn't change the intrinsic value of them). E.g. the index funds will buy up all the shares they want, which will temporarily increase the stock price, but after the index funds have all those shares, the few remaining people who are interested in selling will still know that the company is only worth $400 billion and so will be happy to sell for between $400-500 a share (and that will be the price the market is happy to pay).
Summary:
I am torn between a supply and demand theory (i.e. S&P 500 inclusion permanently reduces supply and therefore permanently increases price)
And a true value theory (i.e. a share will only be bought and sold in the long term for what the intrinsic value is, and therefore S&P 500 inclusion should only cause a temporary pop).
Anyone have any ideas as to which theory is more correct?
