Not as Good as You Think

Read this week’s Periscope for insights into some of the opportunities and risks we see in equity markets, including a wild ride in Tesla. Also, here are the links to our new webinars on demand.

Learn How We Make Investment Decisions

September 2020 Market and Economic Commentary

Tesla is Not as Good or Bad as You Think
Tesla’s shares are in “ludicrous mode.” The market valuation of this company is worth more than many of the other car manufacturers combined! (1)

Recently, the stock price declined precipitously. Some of the pundits blame the fact that Tesla was not included in the SP500 index. They may be correct, and they may be wrong. There may be other reasons. Among our experts, we have strongly divergent opinions about Tesla.

If I were a naysayer, and I am not, I would believe this is a sign of a bubble. If I were a stock picker, and I am not, I would believe it is time to sell. But I am not offering an opinion about Tesla. I’m simply pointing to it and saying, “isn’t that interesting?”

READ MORE: Age of the Tech Giants

Two different strategies—Valuation vs. Future Growth
Years ago, we talked about Ford stock vs Tesla stock. I told stories and wrote a Periscope about how you could own a share of Ford stock for the price of a Starbucks coffee. What a deal! I said my other choice was buying TSLA. I could buy a share of Tesla (then $300 or so) and lose the price of a Starbucks in earnings, every three months, because Tesla was burning through cash that fast. I made the case that one company was a profitable, turn-around investment and the other was a speculation on future growth. Ford was a “value” and Tesla was a “future growth” opportunity.

I feel comfortable saying that back then we didn’t know—as no one knew—that Tesla’s celebrity CEO would woo enough fixed income investors to save the company’s dangerous balance sheet and become the world’s most valuable car manufacturer. It bears repeating—no one knew that. But some of our investment managers bet on Elon and were very well rewarded.
These past few years has shown the popularity of momentum investing. This is a style that says, recent good performance is likely to continue to bring more good performance. Momentum does best right before a crash. Like a Tesla in ludicrous mode, it’s most fun when it is most dangerous.

Remember this: Diversification is humility in action. Let’s just say we don’t know how long this party is going to last.

Source:
(1) Statista- Tesla’s Market Cap Dwarfs Automobile Giants