Great expectations
Can you explain why shares of Tesla sank 21% on Sept. 8? I read that it was because the company wasn’t added to the S&P 500 index, but it’s not like anything really happened to the business. — G.B., Shaker Heights, Ohio
You’re right — whether the company is or isn’t an S&P 500 index component doesn’t change its business or its prospects. When a company gets added to the index, though, the many index funds that track that index will need to grab shares of the company — and some investors might be buying shares ahead of the add, expecting that index-fund buying to propel the shares up some more. The expectation of inclusion had been baked into Tesla’s shares. When that didn’t happen, many shares were sold, sending the price down.
Over the long run, a stock’s price tends to move along with its changing intrinsic value, but over the short term, it’s often subject to the impulses of investors. As Warren Buffett has noted, “In the short run, the market is a voting machine, but in the long run it is a weighing machine.”
What are the prevailing capital gains tax rates? — F.W., Portland, Oregon
It depends on how much you earn. Long-term gains, from assets held for more than a year, are taxed at 15% for many people. Those with lower earnings pay 0%, though, and those with higher incomes pay 20%. Short-term gains (from assets held for a year or less) are taxed at your ordinary income tax rate.
Note that if you have capital losses, you can use them to offset your gains and reduce your tax bill.