September 10th, 2020 by Frugal Moogal
Note: Nothing below is investment advice.
At the end of the day on September 8th, I checked my phone and learned that my stock portfolio had received it’s largest single day hit in my entire life. My value on paper was down by five figures, larger than any single day drop I had experienced even at the beginning of the pandemic.
Before this point, even though I’ve had investments in the stock market for more than 20 years, I have generally focused my investments on incredibly stable companies which were focused on regular, large dividends and less on growth. I made — and learned from — some incredibly poor early choices during the dotcom bubble, but due to being so early in my life, I was scraping money together to save as I worked in minimum-wage jobs in high school, so I didn’t have much money to invest that could have been lost.
Monday, September 8th, however, was a five-figure paper loss, and I found myself questioning my investment.
An Aside on Investment Advice
Before going on, I seem to have an interesting following of commenters on my articles lately. After my last article, I had someone mention I should really add a clearer disclaimer — I guess that the one at the top and the bottom of that article wasn’t enough, so why not add another mention?…
Let’s be clear. If you’re an investor, or thinking of investing, and you come and read a single article on any website and then plow all of your money into a single investment, you’re doing it wrong. I’m actually teaching this right now to my 10 year old son, who has decided that he wants to start investing. His method is to Google things like “best stock to buy today” before telling me excitedly that someone has a $1.77 stock that may soar 311%, and can he buy that company?
And, seriously, if you Google that, you’ll find the exact company. The question, as I’ve pointed out before, is what might be the goal with writing an article like that? If you dig into the company that is being advertised, by the way, we find out that the $1.77 stock has lost about 25% since that point, so the drive for investment isn’t working. So, why might they be doing that?
If it isn’t clear, I’m not mentioning the company because I don’t want to give them any credibility. But any sensible reader should be asking the same question of every site they read which has information about stocks. In theory, I could just be a puppet (I’m clearly not a sock puppet) trying to pump up the price of my shares to sell and dump them.
In general, if you’re a smart investor, and you are looking to invest in any particular company, you should actively seek out both positive and negative viewpoints and weigh them.
In fact, when I proposed writing for CleanTechnica, I was already doing all of this research, diving into the FUD articles and trying to determine the forest through the trees. I expected to find things about that Tesla I liked, and things that I didn’t. In fact, I wrote an article about that, and how I was surprised to find that I didn’t find much of any support for the negative views. Your mileage may vary, and you should absolutely not read a single article expecting it to give you perfect investment advice. If you’re doing that, you’re doing it wrong.
What’s Changed About Tesla?
With that out of the way, let’s get to Tesla. In late March, I wrote an article about how I valued Tesla (or any company) that was affected by COVID-19, and I specifically outlined eight points that I use to decide if I’m going to invest in businesses or not.
Before I check in on my view of Tesla today, I wanted to point out that this is literally what I do for every company. A lot of the analysts that have been worried about Tesla like to compare them to the P/E of the industry, or the levels of support and wedges in the stock charts, or … lots of different things. With my early investments, I learned that if a company has a premium above what people think the industry it operates in has, so long as it continues to execute, it will continue to have that premium. Conversely, no stock chart level of support will hold if the company is having huge problems. By all means, feel free to disagree with this and create your own system, but it’s worked really well for me for the past 20 years, ever since the dotcom bubble made me take a step back and figure out what I was doing.
Let’s examine these points:
Company Leadership
Elon Musk may be polarizing to the general public, but his drive and determination has clearly set up an environment of innovation and advancement within the engineering teams at Tesla, and the rest of the management team seems to have smoothed out a lot within the last few years. The fact I can see that culture continuing means that I am more than comfortable with the leadership of the company.
Executive Pay
Elon Musk’s stock package is unique, but it’s driven almost wholly on the performance of the company. I have no problems with this sort of compensation, and it is far better to me than the multi-million-dollar packages that aren’t tied to company performance that many other companies hand to executives.
Related, this is where I feel there is a disconnect with reporting and the real world. I keep seeing articles rating how much more net worth Elon Musk gained from a good day, but since it is all in stock that Musk is not selling, it’s not actual value until that stock is sold. This is important, as Musk’s net worth is almost all on paper, and not wealth that he has in the bank. Additionally, Musk couldn’t sell all of his stock without causing a huge cratering of value, meaning his assets are illiquid, or not easily converted to cash.
When it comes to Tesla’s value, the largest shareholder and the one with the most skin in the game happens to also be the CEO, who is basically only compensated when he increases the value of those shares for both himself, and all shareholders.
If it isn’t clear, I love Musk’s executive pay structure. The rest of the company is a little more standard, but it’s clearly also tied to performance, as Musk wouldn’t keep people around who weren’t performing.
No Stock Buybacks
Even in established companies, I have stock buybacks as perhaps my biggest red flag. Theoretically, with a stock buyback, I as a shareholder end up owning a slightly larger percentage of the company, but I feel like it’s often done to prop up a share price that perhaps shouldn’t be what it is, while often at the same time making excuses to give the executives bigger cash bonuses. None of this I like.
I would rather an established company return extra profits as dividends if it has nothing new to invest in. With a company like Tesla, I’d rather see it increasing the shares in the market if it has a plan. In fact, Tesla just sold an additional $5 billion in stocks since the start of this month. I expect $5 billion in cash is enough to fund Giga Texas in whole. I love this move, and would be happy to hear we’re going to do it again.
Long-Term Planning
Battery investor day is less than two weeks away, but even without it, we see and hear a constant push about the future. I know about an expansion in China, a new plant in Texas, a new plant in Germany, the start of production for the Cybertruck and Semi and Roadster, and we are starting to make pushes into energy generation. While it’s clear that Tesla does care about its quarterly revenue, that also takes a clear back seat to its future plans.
Is The Business Future Proof?
One way or another, we’re going to transition off of fossil fuels. Tesla is on the bleeding edge of the companies making that transition for transportation, and could make tremendous inroads with grid management.
Do I Understand What They Do?
Tesla’s goal is to accelerate the transition to sustainable energy. It accomplishes this by creating the most desirable vehicles of any type, while also developing and implementing methods to create and store power. Tesla has done this by encouraging a culture of innovation outside the norms of the industries they work within.
Am I Too Close To Them?
I’ll admit it, I’m pretty close to Tesla now — but I started investing in the company before I was. I’m also pretty good about compartmentalizing things I like, while being able to admit drawbacks about them. I think Tesla’s got a great product … but I can definitely say that I don’t invest the company just because I like the product.
Invest for the Long Haul?
This was my last point, but I want to highlight it, since it is what has led me to having a bit of stress. Here’s exactly what I wrote in my March 24th article:
I had originally titled this “don’t try to time the market,” but I think the real lesson is that you should never invest in a company that you don’t intend to hold for at least three years.
None of my beliefs about Tesla have changed. I find myself being a bit cautious about telling anyone else if they should invest in Tesla or not right now, as I didn’t think the seemingly regular double digit percent increases would last, but I also didn’t think that there would be any huge pullbacks.
And then yesterday, the combination of the $5 billion stock sale announcement (which I love) and the news that Tesla wasn’t added to the S&P 500 (which I honestly don’t care about at all) crushed the stock. And it stressed me out.
I read a book on investing when I was getting started — I honestly don’t remember which one, I read probably 100 or more — and it said that if you are invested in a stock and you believe in it, when it drops in price, you should consider it as being “on sale,” and an opportunity to invest.
Conclusion
On September 8, Tesla went “on sale,” and it was a sale that I wasn’t expecting, so I had no ability to shuffle money to take advantage of that sale.
You may disagree. Maybe Tesla is just a house of cards, ready to collapse in on itself like many of the FUDsters — which seem to be out in force suddenly again — claim. My belief in the outlook of the company has only gotten brighter (hooray for the stock sale!), so seeing the drop as a sale that I may have missed out on — the stock gained back about half of its losses as I wrote this — is disappointing.
Tesla’s share price is stressing me out … because I think I missed a sale.
Disclaimer
I am a Tesla [NASDAQ:TSLA] shareholder who has purchased shares within the preceding 12 months. Research I do for articles, including this article, may compel me to increase or decrease stock positions. However, I will not do so within 48 hours after any article is published in which I discuss matters that I feel may materially affect stock price. I do not believe that my voice could or should influence stock price by itself, and I strongly caution anyone against using my work as your sole data point to choose to invest or divest in any company. My articles are my opinion, which was formulated using research based on publicly available data. However, my research or conclusions may be incorrect.
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About the Author
Frugal Moogal A businessman first, the Frugal Moogal looks at EVs from the perspective of a business. Having worked in multiple industries and in roles that managed significant money, he believes that the way to convince people that the EV revolution is here is by looking at the vehicles like a business would.