The ‘more foolish’ theory explains why Tesla has a market capitalization equal to the seven largest Japanese automobile manufacturers combined.

At the moment, there are not many names that have the heat like Tesla on the stock market.

The electric car company officially surpassed Toyota Motor on July 1 to become the world’s most valuable automaker. Their market capitalization reached $ 332.9 billion in Monday trading – that’s as big as the seven largest Japanese carmakers combined.

The Tesla stock chart this time is reminiscent of companies in the dot-com bubble boom in 1999 and the surge in bitcoin of 2017. Their flowers are based on a few practical bases.

The transition from internal combustion engines to electric vehicles is a trend in practice. This explains why investors still don’t waver when the company’s value approaches the level of technology giants.

However, high-growth expectations cannot fully explain Tesla’s exponential increase. It seems that some investors have bought the company’s stock in the belief that someone will buy back from them at a higher price.

But who are these “some investors”: Passive investments such as index-linked exchange traded funds. (Passive investing is an investment strategy to maximize profits by minimizing buy and sell. Accordingly, investors buy stocks in common indices such as the S&P 500 and hold it. in a long time).

When Tesla released its business report for the period from April to June on Wednesday, it expected a fourth consecutive quarter of profit to meet the last remaining requirement to be listed. List of S&P500 indices. Nearly $ 4.4 trillion is invested in index-related funds and the addition of Tesla will boost their purchases of 25 million shares – regardless of price.

Investors are betting on this stock in anticipation of the above wave of automated buying.

The “whoever is more stupid” theory states that you can profit from investing as long as there is a fool than you out there, willing to invest at a higher price. That means you can make money out of undervalued stocks as long as someone stupid is willing to pay a higher price to buy it from you.

When passive investment was first developed in the 1970s, it was seen as a smart approach to asset management characterized by low cost and efficiency.

At the moment, it seems that passive indices of their huge size and the role of idiot theory have brought about the unexpected distortions of the market.