Think and Make Money

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You’ve heard of Elon Musk? He’s the CEO of Tesla Motors (NASDAQ:TSLA), the upstart luxury electric car manufacturer. He’s also, according to an article published in Forbes, “The Coolest Guy on Earth”, “a genius”, “formidable competitor”, “one heck of [a] stand-up guy”, and oozes “greatness”.

Those are some accolades. But that’s how so much of media operates. The goal being to draw in readers through schlocky headlines and exaggerated entertainment pieces masquerading as impartial reporting. Objective information? Too often, nothing but an unfortunate casualty of the sales and ratings game.

Of course, Musk could have paid for this lavish flattery (unlikely given his public persona and accomplishments straight out of central story casting). Or maybe the writer is a slobbering acolyte of the highest order unable to contain his worship of the Coolest Guy. Still, he’s not the only one (for better or worse) as many others sing Musk’s praises.

Warranted or not, that’s not for me to comment. Instead, as an investor (note: I have never owned Tesla shares), I have zero interest as to whether the CEO of a company is anointed by media as cool.

[Another note: a comparable example is the cult of Steve Jobs, who passed on a few years ago. There were many proclaiming that Apple would tank without Jobs at the helm. They were wrong. Because the organization is bigger than one person. And as extraordinarily talented as Jobs was, he wasn’t the God of Technology; other mortals could, and have, filled his boots].

See … if I’m a Tesla investor, I’m not investing in Elon Musk fanciful imagery. Sure, I’m looking for a strong management team to run the company, and a savvy, capable CEO is always preferred. But if I’m buying Tesla stock, I’m investing in Tesla, the company. And if I’m thinking of becoming a Tesla shareholder, I want to know a few things, such as:

  • What are projected future sales of electric vehicles?
  • To what extent do sales depend on infrastructure (i.e., charging stations) that does not (yet) exist?
  • What about range? If I’m only getting 200-300 miles for each full charge, I can’t drive too far on the highway without needing a recharge. Where do I recharge given that charging stations are few and far between?
  • What does Tesla offer that Nissan and GM and Toyota and the other older kids on the block don’t?
  • Given its measly number of auto sales compared to the big manufacturers (i.e., Ford, BMW, etc), what’s to say that Tesla’s not a shooting star destined to flame out, with the established players already chipping away at market share?

If you live in a high electricity cost jurisdiction (i.e., Massachusetts or Ontario), is an electric vehicle worth the cost? What is cost per mile (km) driven compared to cost of gas? Of course the higher the cost of electricity compared to gas, the less incentive to switch from gas powered vehicles. (no, I’m not ignoring the real and pressing environmental argument. But to my thinking, electric cars will not become a popular option unless they’re affordable to the vast majority of consumers).

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Dig Before You Buy

I enjoy gardening. Being outside, planting, digging, pruning, these activities bring me peace and relaxation. Sometimes to the point where I’m in a meditative state, my focus entirely on the task at hand, no other thoughts or stories running wild in my head. In the here, now, this is what I call a state of bliss.

And I identify with the idea that investing money is similar to gardening. First, you research what kind of crop (companies, etfs, etc) you would like to grow (buy). Next, you plant the seeds (buy shares). And like any seed, investments take time to produce results. In the meantime, you check in on the seed and the soil (company specific news, general industry zeitgeist) and if they’re not thirsting for water or sunlight (fundamental change in company business), then you sit back, relax and admire your holdings. Still, you don’t ignore them. Weeding and nurturing (monitoring portfolio) is essential.

Alright. Enough of the analogies. Here’s what I’m getting at: Good investors do their homework. Good investors don’t get caught up in hype. Good investors don’t let emotions drive decision-making. Good investors ask, ‘what am I missing? What are the holes in my reasons for buying shares of this company?’ Good investors are turtles, playing the long game, slow and steady.

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Stock Investing: The Nuts and Bolts

When buying shares of a company such as Tesla, you buy a piece of the company, participating in its growth (and, hopefully not, its decline). As corporate profits grow, share price is likely to increase.

In the myopic short-run, share price is influenced by factors such as: immediate economic forecast, interest rates, degree of optimism/pessimism among investors (for better or worse, often influenced by media).

But the short run approach is no way to invest. Buy a stock hoping to making a quick buck? You’re not an investor, you’re a trader. And you’re playing a high risk game, one that burns a whole lot of folks. Putting money to work long term is what good investors are all about. And in the long run, share values reflect past and projected growth in earnings and dividends. The more they grow, the more likely the stock increases in value.

All that said, every company is exposed to a host of risks that potentially affect share price. And these risks may fluctuate monthly, annually … really, there’s no set timetable for when risk appears. But here’s the beauty of it: as a long term investor, you know that the emergence of risk often results in stock price volatility. You also know that volatility in share price of a fundamentally sound and prosperous company represents a buying opportunity. To be clear, in stock markets, volatility and downturns are inevitable. When the inevitable happens, the good investor goes shopping for quality companies at bargain prices.

The Buddha of Investing (Warrant Buffet) puts it this way:

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

and …

“Price is what you pay; value is what you get. Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

Why bother buying shares of quality companies when there’s risk and volatility? First off, unless you or your advisor has a special knack for it, don’t buy individual companies. Instead, buy stock based Exchange Traded Funds (ETF) (which I talk about in Swinging For Singles).

Either way, good investors hold stocks. Because quality stocks generate superior returns over extended periods of time. Superior to what? To fixed income (i.e., bonds) and cash instruments (click for a detailed review of returns from 1928-2016).

As I wrap up this post, the question arises: why bother? Why bother undertaking all the time, effort, research, monitoring, decision-making when it comes to investing? Well, the typical responses have something to do with being able to afford a decent lifestyle (defined by you); provide for you and your family; and wisely prepare for retirement, those days when you no longer collect a paycheck, instead you’re living off your accumulated funds.

Really though, it’s an issue for you to decide. What do you need in your life? What do you want? And how are going to reach your goals?