The $1.6 Trillion Behind Facebook's "Pop"
Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Facebook was up 8% during the last two days of the week, following S&P Dow Indices' announcement late Wednesday that shares of the social-networking company would be added to the S&P 500 following the close of trading on Dec. 20.
The addition validates the growing economic heft of social networking, Facebook's prominence in that space, and its exit from the market's doghouse following a poorly executed initial public offering. (As of Friday's close, the shares had doubled this year!) However, being added to the S&P 500 has no impact whatsoever on the Facebook's intrinsic value, so why the pop?
In the following video, Fool contributor Alex Dumortier sizes up the amount of Facebook stock index funds will need to buy to account for Facebook's inclusion in the S&P 500. Furthermore, he explains why individual investors shouldn't try to anticipate or mimic index funds' behavior -- where the latter are insensitive to price, valuation ought to remain a paramount consideration for the former.
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The article The $1.6 Trillion Behind Facebook's "Pop" originally appeared on Fool.com.Fool contributor Alex Dumortier, CFA, has no position in any stocks mentioned; you can follow him on Twitter: @longrunreturns. Mike Klesta has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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