Invest in what you know.
Anytime someone asks me for investment advice, the first thing I say is to invest in what you know.
It may sound pretty simple, but all too often investors get caught up in the hype of the “next big thing,” without knowing anything about what that “next big thing” actually is.
Tesla is the perfect example.
Back in 2007, I was screaming from the rooftops that Tesla would soon be a major force in the auto industry. This was before the company went public and before most people had even seen the company’s first vehicle, the Tesla Roadster.
This was also at a time when no one had ever really seen an electric car that didn’t look like a goofy little golf cart with doors and power locks. The idea of electric cars was almost laughable back then.
But as an advocate of pretty much any transportation alternative that would help us end our reliance on the outdated internal combustion engine, it didn’t take me long to gravitate towards Tesla.
Getting Schooled on Electric Cars
I remember the first time I sat in a Tesla. It was at a conference where attendees had the opportunity to test drive the Tesla Roadster. Aesthetically, it wasn’t really my kind of car. But when I drove off in what can only be described as “rocket-like,” I knew Tesla had officially changed the game, and I officially became a student of vehicle electrification.
I spent close to two years getting schooled by engineers, auto mechanics, and battery developers. I learned about every possible battery chemistry that exists today as well as those chemistries that are being developed for future applications. I even helped a friend of mine convert an old Chevy Chevette into an electric car using old lead-acid batteries and a 3-phase AC induction motor.
Yes, I rapidly turned into an electric car geek that obsessed about electric cars. And this quickly turned into an obsession with finding a way to profit from the development of electric cars.
So when Tesla had announced it was going public, I wasted no time in taking a position. After all, while I wasn’t yet an expert in electric cars, I was certainly well-educated. I knew enough about the engineering fundamentals to know that electric cars really did have the potential to grab some market share. As long as they were built, presented, and marketed properly.
Now when I first wrote about investing in Tesla, I was met with a fair amount of mockery and even hostility. But I stuck to my guns because I knew electric cars and I knew the market potential that existed.
Why Invest in Tesla?
The story is pretty common now. You know how it went.
Within about five years, Tesla catapulted from less than $20 a share to a high of $280 a share.
Naysayers bitched and moaned about how the rise in share price didn’t make sense. And in all fairness, on a technical basis, it doesn’t make sense. It didn’t make sense when Tesla hit a high of $280 and it doesn’t make sense today.
But Tesla investors don’t invest in this company because the technicals look good. They invest in Tesla because they know that Tesla is the king of electric cars. Even with companies like GM and Nissan carving out their own share of this market, Tesla remains the leader in terms of quality and technological superiority.
Of course, every time Tesla has earnings, the naysayers come out in droves to tell us why Tesla is doomed and why Tesla investors are going to lose their shirts. I suspect this is done mostly out of frustration that their short positions aren’t working out as expected.
If earnings disappoint, I’m quite certain the master of shorts, Jim Chanos will give his tired old “I told you so,” diatribe. And if earnings look good, Chanos will tell us how Tesla is still a horrible investment.
Chanos doesn’t know electric cars. And he refuses to accept the fact that an investment in Tesla is not an investment based on fundamentals. It’s an investment based on Elon Musk and the ability of Tesla to continue to deliver state-of-the-art electric cars people actually want.
That being said, I’m not suggesting you run out and buy shares of Tesla. At least not if you’re looking for a quick score. That opportunity has passed. But long-term, mark my words, Tesla is solid play on the future of electric vehicles and renewable energy. It won’t be an easy journey, and certainly there will be bumps in the road, but getting a piece of Tesla today is like getting a piece of Apple (NASDAQ: AAPL) or Amazon (NASDAQ: AMZN) back when it was little more than a piñata for bitter analysts and a shining star for fans of progress.