I Missed Tesla

Tesla’s stock performance has been electrifying, rising 20% yesterday, 15% today, and 86% for the year. Since June, it’s soared 415%. On August 7, 2018, Elon Musk tweeted, “Am considering taking Tesla private at $420. Funding secured.”[1] Tesla’s stock is up 142% from this now infamous tweet.

Initially, I missed several “obvious” winners over the past three decades, like Apple, Google, Microsoft, Amazon, and so on. I did, however, eventually buy these stocks. In 1993 I purchased DELL Computer in my IRA and quickly doubled my money. After it doubled, I sold it so I wouldn’t lose my profit. DELL would rise another 20,000% or so over the next several years, a valuable lesson to let your winners run.

I’m not worried I missed Tesla, because I own it indirectly through several funds. Who knows what’s ahead for Tesla, but if it follows the path of previous highfliers, I may get another opportunity to buy it at a lower price. When I started in the business as a stockbroker, I recommended Coca Cola stock to clients, despite the fact it went public in 1919, 71 years before I started. Coke stock has risen over 1,000% since January of 1990[2], so investors still made money despite its strong performance during the previous seven decades.

Missing a winning stock doesn’t cause me any regret because I’ve also passed on losers like Enron, Worldcom, Global Crossing, Gamestop, and several others. In a diversified portfolio of individual stocks, you’ll probably own a few winners, a few losers, and numerous also-rans. A winning stock like Amazon or Tesla can have a significant impact on your portfolio. A losing stock, likewise, will be an anchor, dragging your performance down.

Tesla is a popular stock, getting most of the headlines and screen time on CNBC, but other stocks are performing better this year. Nanoviricides is up 331%, LMP Automotive Holdings Inc is up 114%, and Interups is up 110%.[3] Owning mutual funds will give you exposure to companies not on your radar screen.

What should you do if you’ve missed a highflying stock that everybody else appears to own? Here are a few suggestions.

  • Be patient. What goes up will come down. Amazon stock fell 92% in 2001 and 60% in 2008. Apple fell 85% in 1985, 82% in 1997, 79% in 2003, and 56% in 2008. Facebook fell 54% in 2012 and 38% in 2018.[4] Stocks fluctuate and oscillate between over and undervalued.
  • Buy fewer shares. If your goal is to buy 100 shares, start with 50 or 25.
  • Buy a fixed dollar amount. Rather than focusing on shares, start with dollars. A prudent allocation is 3% to 5% of your account balance.
  • Set a limit. Enter a buy-limit to purchase the stock at a specific price. You can set any price you want, but you must buy the stock if it trades at or below your limit price; however, you’re not guaranteed to get the stock at the price you set.
  • Sell a put option. Selling a put option obligates you to buy shares at a specific price. Because you’re a seller, you’ll collect a premium. The premium is yours to keep, regardless of what happens to the price of the stock. For example, Tesla’s April 2020 $500 put option is currently selling for $6.75, meaning, for every contract you sell, you’ll collect $675, before fees. One option contract equals 100 shares of stock, so if you sold one contract at $500, you’re obligated to buy it at that price if the stock trades at or below the strike price when the contract expires in April – 100 shares of Tesla at $500 is a $50,000 purchase. If you’re going to pursue this strategy, please work with an advisor who understands option trading, because options involve risk, and they’re not suitable for every investor.
  • Buy a mutual fund. The following mutual funds own shares of Tesla: Baron Partners (BPTUX), Harbor Capital Appreciation (HRCAX), Vanguard Extended Market (VEXMX) and Invesco QQQ Trust (QQQ)

Chasing a high-flying stock is a risky proposition, so develop a trading plan and tread lightly. Don’t over commit capital and avoid leverage. Be patient, and work your plan.

“The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them. Stand by your stocks as long as the fundamental story of the company hasn’t changed.” ~ Peter Lynch

February 4, 2020.

Bill Parrott, CFP®, CKA®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.

Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.

 

 

 

 

 

 

 

[1] https://www.cnbc.com/2019/08/08/teslas-chaotic-year-after-musks-funding-secured-tweet.html, By Michael Wayland, August 8, 2019.

[2] YCharts: January 1, 1990 – February 3, 2020.

[3] YCharts

[4] Ibid

Funding Secured

On August 7, Elon Musk tweeted: “Am considering taking Tesla private at $420. Funding secured.” His tweet caused a storm on Twitter and in the stock market. At the time of his tweet, Tesla shares were trading around $343 per share before soaring to $387. Since the tweet, it has traded in a range of $345 to $380 as market participants and regulators focus on the “funding secured” part of his announcement. Does he have the financing? I hope so, because I’m rooting for him to succeed.

After he sent his tweet, I wondered how many individuals have secure funding for retirement.

What does it mean to be financially secure? In short, it means you have the resources to pay for your day to day expenses for the rest of your life. To find out if this is possible, I recommend taking an inventory of your personal assets, Social Security and pension benefits. Also, it’s paramount to keep tabs on your annual expenses, because this will determine the amount of assets you’ll need for a comfortable retirement.

Let’s say your annual expenses are $100,000 and you’ll receive $25,000 in Social Security benefits per year. After subtracting your Social Security benefit from your expenses, you’re responsible for funding $75,000 per year. At a 4% distribution rate, you’ll need $1.875 million in assets to cover your expenses ($75,000/4%). If you also receive an annual pension of $25,000, it will lower your funding requirement to $50,000 and your asset goal to $1.25 million.

Today most companies don’t offer a pension plan, and this is putting a strain on retirees. In a recent Wall Street Journal article, the rate of individuals filing for bankruptcy age 65 or older has tripled since 1991.[1] One of the factors sited for the rise in bankruptcies is the reduction in corporate pension plans.[2] The responsibility for retirement has shifted from corporations and the government to the individual. When my wife’s grandfather retired from a large oil company in Texas, he received Social Security, a pension, and healthcare benefits. He made more money in retirement than he did while working. His safety net was so strong that he didn’t need to save money for retirement. Today’s workers aren’t as lucky.

How can you fortify your financial future? Here are a few ideas.

Safe early and often. The sooner you start investing, the more money you’ll have for retirement. If you start investing $200 per month at age 25, you’ll have $1.3 million at age 65[3]. If you wait until age 45, you’ll end up with a paltry $155,000 – a difference of $1.1 million!

Buy stocks. The stock market is the best way to create long-term wealth. Since the end of World War II, the S&P 500 has averaged 11.3% per year despite numerous dips, drops, and downturns.

Keep an eye on inflation. Inflation has historically averaged 3% per year. If your annual expenses are $100,000 today, in 30 years they’ll be $242,000. A dollar today will be worth 41 cents three decades from now. To avoid the erosion of your dollar, allocate a substantial portion of your assets to stocks.

Don’t retire your money. A “safe” portfolio of CDs, U.S. Treasuries, cash, and money market funds might appear attractive in the short term, but over time they’ll barely produce a positive return. The 91-year average annual return for U.S. T-Bills has been 3.4%, after subtracting inflation of 2.9% your net return would’ve been .5% – before taxes!

Plan. A current financial plan will keep you on the path towards a profitable retirement. It will help you quantify your financial goals and allow you to prioritize items that are important to you and your family.

As you rocket towards retirement, follow your financial plan, invest your money, and think long-term. If you do these things, you will have an electrifying future.

When something is important enough, you do it even if the odds are not in your favor. ~ Elon Musk

August 13, 2018

Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.

Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.

[1] https://www.wsj.com/articles/bankruptcy-filings-surge-among-older-americans-1533641401, Anne Tergesen, 8/7/2018

[2] Ibid

[3] FV calculation at 10.2% interest, the 91-year average annual return for the S&P 500, before taxes and inflation.