What did Tesla's stock plunge cost S&P 500 investors last year? Billions and billions

A lot of retail investors are getting a good laugh from watching the impact that the huge decline in Tesla’s (TSLA) share price is having on CEO Elon Musk, who was the world’s richest person before Tesla started tanking.

And why not laugh?

Not only is Musk suffering from Tesla’s price decline, he’s also suffering through massive misadventures with his new toy, Twitter, even as he uses his Twitter ownership to tweet to the rest of the world about how to behave.

But you know what? Even though few people seem to realize it, retail investors—people like you and me— are also getting whacked by Tesla’s tremendous fall in price.

Here’s why. Because Tesla is a major component of the Standard & Poor’s 500 Index (^GSPC), and the EV-maker’s 65% fall last year has inflicted serious damage on holders of S&P index funds. And S&P funds are major holdings for lots of regular retail investors.

Let me show you the numbers.

If you owned $10,000 worth of Admiral-class shares in Vanguard’s S&P 500 fund at the end of 2021, Vanguard says, Tesla’s decline last year shrank the value of your fund stake by $137.

If you owned considerably more than $10,000 of the Vanguard fund—which happens to be my biggest single stock investment—the damage is a multiple of $137. That’s serious money for me—and maybe for you, too, if you’re heavy into S&P 500 index funds.

Elon Musk, Tesla Inc. CEO, is seen on the screen as he speaks virtually during the B20 Summit, ahead of the G20 leaders' summit, in Nusa Dua, Bali, Indonesia, November 14, 2022. REUTERS/Willy KurniawanElon Musk, Tesla Inc. CEO, is seen on the screen as he speaks virtually during the B20 Summit, ahead of the G20 leaders' summit, in Nusa Dua, Bali, Indonesia, November 14, 2022. REUTERS/Willy Kurniawan

Elon Musk, Tesla Inc. CEO, is seen on the screen as he speaks virtually during the B20 Summit, ahead of the G20 leaders’ summit, in Nusa Dua, Bali, Indonesia, November 14, 2022. REUTERS/Willy Kurniawan

In fact, according to numbers 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 almost five times Tesla’s 2.1 percent 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 based on the market value—in other words, the weight—of its components. That’s opposed to the Dow Jones Industrial Average (^DJI), which is based on the share prices of its 30 components and not on the components’ overall market value. That’s 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 is a far greater disparity between weight and loss than Apple (6.8% weight and 11.0% of the loss) or Amazon (3.6% weight, 10.7% of the loss).

So, in other words, Tesla punched way above its weight when it came to inflicting damage on index fund investors.

Now, get this. Tesla’s 65% drop last year cost S&P 500 investors as a class around $129 billion. How do I know that? From some numbers that Howard Silverblatt gave me.

He said that institutional and individual investors had a combined $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 price drop, partly offset by reinvested dividends—for the S&P 500 was minus 18.15%. That works out to a total loss of $1.28 trillion. Since Tesla accounted for 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 about Musk’s Tesla losses, be my guest. I’m still laughing, there’s no reason that you shouldn’t laugh, too. But please remember that the joke is on us, not only on him.

Allan Sloan, who has written about business for more than 50 years, is a seven-time winner of the Gerald Loeb Award, business journalism’s highest honor. He’s won Loebs in four different categories over four different decades for five different employers.

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