Predictions are worthless, mine included. The point of this post is to help you think through your position on this polarizing stock. If you come out of it thinking that I'm asking you to go long or short, then you may need to reread it. I only ask for you to be open-minded when reading my opinion. Bears may read my embedded tweet and think Tesla is overvalued and overdue for a correction. Conversely, Bulls may get the opposite message. Regardless of where you stand, you should understand what a Tesla stock is (especially if you're new) and how it fits into your portfolio. I'm neither long nor short. I hold a lot of SPY options that are now influenced by Tesla's share price. But if Tesla got removed from the S&P 500 tomorrow, I wouldn't lose any sleep. Let's dig right in.
Bears, you're likely going to run out of money before Tesla goes bankrupt. I know, it isn't fair that the other side gets to ignore valuations and get rich while you...but wait. It is fair. Tesla bulls are taking an incredible amount of risk, and they are getting rewarded for it, just not in a conventional way. The most significant variable contributing to Tesla's share price is uncertainty. If successful, Tesla could be a leader in EVs, Autonomous Driving, and Robo Taxis combined; If they are successful. Tesla bulls are taking on this idiosyncratic risk and betting that Tesla will be successful. I'm not saying it's rational, and it doesn't have to be. I mean, what other stock rises on news of dilution?
Many Tesla bulls also happen to own one or more of their vehicles. I know quite a few millennials that became investors only after falling in love with the product. Tesla's EV, a statement on its own, is the most advanced piece of technology many people own. They transfer those feelings to anything Tesla, including its shares or short shorts. Bears, Tesla is not merely an "overvalued stock." It's a cultural phenomenon. You may think that public companies can't continue to sell more of their shares forever, and you'll be right. For them, forever ends when the last bull stops believing. For you, it is when you're forced to cover your shorts. Who do you think will win?
Bulls, I get why some of you are not taking profits. Tesla's potential is crazy, but do you know that Tesla's success may be bad news for shareholders? It sounds weird so let me explain. Think of Apple. Do they have the same potential Tesla has? If we're judging by valuations, then the market has voted Hell No. But why not? It's due to uncertainty. We know what to expect, roughly, from Apple in the next few years. It's pretty boring by today's standard because its products and services have been widely adopted.
But what about Tesla? This EV thing is not new, but its adoption by the general public is. What about FSD and Robo Taxis? Ten years ago, I never thought my parents would experience this technological leap in their lifetime. Ten years from now, teenagers may no longer need to learn how to drive. But getting there requires wide-scale adoption. Tesla stock will be less interesting after this event. If Tesla (or other direct competitors) are successful, we'll start to learn what the new economy looks like with all the new levers humanity can pull. The uncertainty surrounding the stock will vanish once the public markets can place Tesla in the correct box. The box may be fancy, unlike the traditional boxes we are used to. But it will be a box.
I'm not saying you won't make money; there's a chance that you'll make a killing. But there's also a chance that you won't. Tesla will do this! Tesla will do that!! No, Elon and his team are humans. There's a chance that they will accomplish those things. Their success is not inevitable. Bad things that we can't explain or control happen all the time. You're signing up for the known good, known bad, unknown good, and unknown bad by investing in any stock. You're embracing uncertainty, taking risks, and expecting to be rewarded. That reward, however, is not guaranteed. Investors can do everything right, check every box, and end up broke in retirement. The same thing goes for Tesla as a company. They are subject to luck as well as market risk.
Tesla may change the world, but that doesn't mean you should go all-in with your parent's retirement funds. I wish I were making this up, but just last week, I got multiple accounts of people making this risky bet for their parents. It isn't risky because it is Tesla, it is risky because it is a single company for individuals approaching retirement. I want you to know that the point of investing is to not die broke. The goal is to be able to not work later in your life and live off retirement. A nest egg that ends up between $1m and $2m is better than the range between $50k and $3m. People approaching retirement don't need high rewards. They don't need that type of risk. They need more certainty.
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