Is there anyone more interesting & successful in the business world right now than Elon Musk? Really – I am in awe of this guy and all he is accomplishing. The sad thing, is that I bet ‘against’ him three years ago and can’t believe how wrong I was.
For those of you who haven’t been paying attention, Musk is flipping 4 entire industries on their ear. First was financial services with PayPal, second is the automotive industry with Tesla, third is energy with Solar City & Tesla’s battery factory, and fourth is space travel with SpaceX.
While he ‘only’ netted $22 million on his original PayPal exit, he is now the second richest person with wealth of $125 billion (almost all of it still invested in his companies). Only Jeff Bezos, with $190 billion from Amazon, is wealthier.
Still, a few years ago, I was thinking that Musk had bitten off more than he could chew. It was before the launch of the Tesla Model 3 and the company needed to scale production from 50K cars a year to 500K. A 10x jump. The stock was sitting at $266/share and Musk had missed so many deadlines and milestones that I thought investors would quickly lose confidence if they didn’t deliver. The word in the industry and business press was that they would soon have cash flow issues.
A buddy of mine, Tom – who is also a ‘car guy’ – held the opposite view, so we shook on a bet based on the future price of Tesla stock. If it went up – from $266/share – I’d fill his gas tank every New Year’s Day. If it went down, he would fill my gas tank. The bet pays out each year for three years – the last upcoming on January 1, 2021.
For the third time, I will lose the bet again. Why? In 2020, Tesla’s stock price has shot up to $558 … and, that’s after an incredible FIVE WAY STOCK SPLIT.
Yes, it has gone from $266/share to the equivalent of $2,790 in 3 years.
That’s amazing 10x growth!
Thankfully, my bad judgement on Tesla was just on this small bet. The losses will be about $100 total to my buddy, Tom. Had I actually had any confidence in my ability to invest in individual stocks, I might have wagered serious retirement savings by shorting Tesla.
Thankfully I don’t have that confidence.
In fact, I can recall thinking Amazon was a bad bet back in 1999 when Jeff Bezos was TIME magazine’s ‘Person of The Year’. Their stock is up 42x (from $76 to $3,195 today) since then. I also wasn’t keen on Facebook’s IPO in 2012 at $38. It’s at $277 now (7x growth).
Now you see why I don’t actually ‘bet’ on individual stocks. I would suck at it. I have missed 3 of the biggest business successes in the last 20 years.
Instead, I buy broad index funds that give me a fraction of EVERY listed company so that I catch the couple blockbusters that become the world’s most valuable companies. Tesla is just now joining the S&P 500, but our portfolio has long benefited from the collective growth of the market behind Amazon, Facebook, Apple, and others.
While I won’t relish filling up my buddy’s gas tank for the third time this New Year’s Day, I’ll be happy the bet is finally over. What won’t end is my aversion to making big, speculative bets on individual stocks. Using broad index funds that ‘buy the whole market’ is as smart as I need to get. I’ll tip my cap to the real geniuses like Elon Musk.
How confident are you in your ability to see the ‘next big thing’?
Image Credit: Pixabay
MrFireStation 
I have proven to be a bad stock picker. My investment plan states I am to balance my investments in index funds, but I had jumped on the bandwagon and bought some Aurora Cannabis Inc against my investment plan. In the first few months I was up 30% and doubled down just to watch it drop 80%. I am still holding on to it as it might recover some of my loses… Just a reminder that it’s hard to pick them and know when to get out with a profit or when to cut your loses. Holding the index for the long term is so much easier with the added benefit of diversifying your risk and also the index will do the work of removing or adding companies for you.
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I did hear that Congress was looking at a decriminalization bill, so maybe the long term is good. One by one the states are legalizing it, so who knows?
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These days, I strictly stick to indexes and real estate. Indexes are a no brainer, so I indulge my inner investor with real estate, which keeps me away from thinking that I’m smart enough to buy individual stocks. (Hint: I’m NOT!) 😉
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I would think that investing in properties would be pretty tricky too – isn’t it?
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After I left The City in 2011, I assessed my investment strategies, vehicles, and advisors. I determined to stop discretionary investing (aka “Wide World of Sports, the thrill of victory, the agony of defeat”). While diversifying across types, geographies, and risks, I changed from “playing” the market to “being” the market – mostly through ETFs to minimize costs while participating in potentials. Mr. Musk is in my portfolio. When he does well, I do well. If he does poorly, I still do well. No regrets.
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That sounds like the right decision to me. Were you quite a Wall Street/stock ‘player’ over the years?
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I wouldn’t call myself a big player, but did own many of individual stocks over years. My main individual investment was in a mega-corp with whom I worked for 30 years. Every time I traveled to their HQ, I would visit the little office set up for employees and vendors to buy stock. Great client. Great company. Great investment history with them.
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That’s cool – buy direct without paying a commission, I assume. My last MegaCorp let employees buy at a discount. I stocked up on that one while I was there and they went from $85 to $180 in 3 years!
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