Limiting TSLA exposure in index fund

[CapriciousCapital]

With TSLA now taking almost 2% of SPY, what's the easiest way to net that to 0?

I guess TSLA is at $609 and makes up ~2% of SPY. So for every $30,000 in SPY you sell one share short? Rebalancing every few months. Or is an option strategy better?
 

[rkbabang]

TSLA puts maybe?

[maplevalue]

When TSLA got added to SP500 I dumped my SP500 index ETFs, thats one way to do it :)

[Gregmal]

Why not short it against the index? Even double or triple the amount since you seem to dislike Tesla as a long idea so much you dont even want to go near an index with a 2% weighting? Long $100K SPY vs short 6-10% in TSLA or some ratio like that? If you play with the scenarios, SPY is still momo heavy enough that is Tesla does anything crazy to the upside, other index components almost certainly will as well. Pairing trades is a great alternative to sitting in cash.

[thowed]

I don't want to sound snarky, but isn't this missing the whole point of holding the index?

You either accept the agnosticism and hold the whole index - if you start not liking certain companies, shouldn't you just stock pick?

[Jurgis]

I don't want to sound snarky, but isn't this missing the whole point of holding the index?

You either accept the agnosticism and hold the whole index - if you start not liking certain companies, shouldn't you just stock pick?

This.

Also if you held Total Market index - which is likely better indexing strategy than SP 500 - Tesla would have been in it for a long time now.
With the upside as well as downside. ./shrug

Also, if you hedge, at best you are going to get 2% outperformance vs SP500 if Tesla goes to zero. Likely with the cost, you will not even get 1% outperformance. Is that really what you want to spend you effort on?

[CapriciousCapital]

Broadly speaking, I'm comfortable valuing a few companies in the S&P 500 but not all or even most of them. Hence, the carve-out strategy. Short-selling sounds like the simplest way to do it (~2% per dollar-in-SPY / dollar-in TSLA) but the tail-type-risks/margin issues/broker problems has some costs to it. Buying puts is more complicated and has to be done on a rolling basis, but I think that's the best option I can think of.

[Lakesider]

On 3/30/2021 at 6:56 PM, thowed said:

I don't want to sound snarky, but isn't this missing the whole point of holding the index?

You either accept the agnosticism and hold the whole index - if you start not liking certain companies, shouldn't you just stock pick?

I dont know, Joel Greenblatts fund is doing exactly this. Mostly holds the index and the makes large bets on high conviction ideas long and short. if he can out perform by a couple of % a year that will have a large impact over time.  

[LC]

1 hour ago, Lakesider said:

I dont know, Joel Greenblatts fund is doing exactly this. Mostly holds the index and the makes large bets on high conviction ideas long and short. if he can out perform by a couple of % a year that will have a large impact over time.  

This is the original idea of a "hedge" fund. 

[fareastwarriors]

3 hours ago, Lakesider said:

I dont know, Joel Greenblatts fund is doing exactly this. Mostly holds the index and the makes large bets on high conviction ideas long and short. if he can out perform by a couple of % a year that will have a large impact over time.  

Agree a few % here and there is legend status over time but only if the person can actually perform.

 

For most people/investor, we tend to underperform the indexes. Now I just recommend my friends/family to index fund/etf and call it a day. "There's a big drop! What should I do?" Keep adding! 

[ANP301191]

 

On 3/31/2021 at 1:56 AM, thowed said:

I don't want to sound snarky, but isn't this missing the whole point of holding the index?

You either accept the agnosticism and hold the whole index - if you start not liking certain companies, shouldn't you just stock pick?

Agree with the sentiment, but some of the positions on a market weighted index are just nuts - Tesla being the chief amongst them. Maybe a better solution than a pure SPX index (SPY or whatever) is an equal weighted index for those who are more concerned about certain valuations

[Jurgis]

19 hours ago, ANP301191 said:

 

Agree with the sentiment, but some of the positions on a market weighted index are just nuts - Tesla being the chief amongst them. Maybe a better solution than a pure SPX index (SPY or whatever) is an equal weighted index for those who are more concerned about certain valuations

As much as I'm against limiting TSLA exposure in index fund, I think I'm even more against switching to equal weighted index because of TSLA or couple other stocks. Now you are not only shifting TSLA exposure, but shifting exposure of 500+ stocks. Do you really want to do that?

Personally, I was in "equal weighted" camp in the past. I think "equal weighted" are bad indexes nowadays. A lot of new economy is winner-takes-most and you are pretty much killing the best performing companies with equal weighted.