The Muskophiles and the Muskophobes — Tesla

The Muskophiles and the Muskophobes — Tesla

Claudio Brocado – Nuclo Independent CIO Head of Global Equities

I have written much of late about the theme of polarization. As regrettable as it is, societies around the world appear to be splitting (in many cases pretty much down the middle), creating two (in my view, artificial) halves, where people who otherwise are very similar inhabit two different perceived realities. This is obviously an overgeneralization and oversimplification of an otherwise very complex issue.

It is a lot more nuanced than what I will articulate in this brief note, but for simplicity’s sake, let’s just say that in the US, for instance, the country has been divided between those who voted for Trump, and those who did not. Right and left, urban and rural, red and blue, and the list could go on and on for possibly pages. There is obviously not right or wrong, black or white, but — in an increasingly complex world — a myriad shades of gray instead.

Yet, we human beings tend to generalize in order to simplify our environment. The one human race, a single species of Homo Sapiens, we try to sort out our world in a way in which we can more easily understand it. Unfortunately, part and parcel of this process is finding “others,” to create groups and tribes to which we belong but others do not. I am increasingly convinced that all we humans share substantially more than what sets us apart. Yet, in an apparently ever more polarized world, we tend to focus more on what makes us different — than on the much more we have in common.

I probably, at the margin, will only contribute to this undesirable process by discussing yet one more dividing line among investors: the Muskophiles vs. the Muskophobes – the ardent fans of Elon Musk as different from those who hate the new global celebrity who is among other things CEO of Tesla.

It has downed on me that in this complex world, many of us seem to want our heroes, role models and leaders to be perfect. But there is obviously no perfection in this world, so I always say not to let the perfect be the enemy of the good. By wanting our leaders to be perfect, we increasingly often end up with the most flawed instead, in my view.

While I am admittedly a natural optimist, a key feature of my net positive scoring (NPS) framework is to try to identify all possible negatives – not to simply ignore them or deny their existence. I then subtract all identified negatives from my perception of the positives to arrive at a net score. I then favor stocks, companies, organizations and other jurisdictions (towns, regions, countries), and even people, on the basis of my perception of their respective NPS.

In this context, leaders such as Elon Musk and companies and stocks such as Tesla, score quite well in my process. Tesla is not the perfect stock or company, and Musk is very far from a perfect person. All we humans are quite flawed, and Musk is certainly no exception. He probably would be the first to acknowledge that fact, yet the NPS of his contribution to our world so far has exceeded my own by such a large factor that it would be impossible to measure, in my view.

The very flawed individual who is Elon Musk is also a rather extraordinary human being willing and able to do many more things than I could ever even imagine, let alone accomplish. Thus, do please count me in the Muskophile camp. By naming him businessperson of the year, Fortune Magazine is officially among the fans. Some of the Muskophiles are so hard-core that outsiders call it a cult. While Musk is not my hero and I do not consider him superhuman, he is no ordinary man either, and I do believe this flawed individual deserves a very high net positive score.

A couple of implications of this sort of polarization for TSLA the stock

Whether it makes sense or not, I believe that one’s perception of Elon Musk the man probably has an important bearing on a person’s opinion of TSLA the stock, everything else being equal. The stunning success of SpaceX, the other important company of which Musk is also CEO, must to some extent rub off on investors’ perceptions of Tesla. By such measures, 2020 has been an extraordinary year for the South African immigrant who runs two of the most-discussed business stories of this otherwise challenging year.

2020 is the year in which Tesla completed the requisite string of profitable quarters for Standard and Poor’s (S&P) to finally include what is slated to become the sixth largest component of the all-important S&P 500 index for US large-capitalization stocks. As I have written plenty of times before, just by virtue of becoming part of this benchmark, TSLA will finally receive the research coverage that such a large-cap stock arguably needs and deserves.

As I wrote in my most recent previous report, “One of the benefits of the liquid US securities markets is the substantial analytical coverage, their breadth and depth, their relative efficiency, and (at least arguably), their superior provision of price discovery. Given its extraordinary trading liquidity (and extremely large market cap), Tesla remains a largely under-researched stock, in my view…

That is probably also just about to change. Having constant contact with an extensive network of professional investors, I don’t cease to be amazed at how many still think of Tesla as the perennial cash burner they may have cursorily looked at a few years back. Constantly dismissed as not having a shot against the giant industry incumbents in the long run, TSLA now enjoys a larger market cap than the three leading German carmakers, combined.”

Since the announcement of S&P’s decision, we have already seen a number of rating and target price upgrades on the stock from recognized Wall Street firms. The research departments at countless investment organizations must be spending lots more time on TSLA than they did just a few months ago. Given the extraordinary performance of the stock so far this year, I am still surprised that not a comparable shift in sentiment towards TSLA appears to have taken place among professional investors. I guess it makes sense that ‘the more expensive’ the stock gets, the less the skeptics are bound to be favorably inclined towards it.

Buy low and sell high is a useful mantra, but it is just that it is not the way it generally works on Wall Street in widespread practice, in my experience. Be it due to FOMO (fear o missing out) or some other phenomenon, counter-intuitively, the longer any particular investment rallies in price, the more fans on Wall Street it tends to garner. Yet the process of shifting of the camps in favor of the Muskophiles appears to me to be more gradual and slow than I have perceived in the case of many stocks other than Tesla in the past. I conduct periodic polling on TSLA on LinkedIn, and a plurality of participants in my admittedly much less than scientific/well-constructed surveys continues to call the performance of this stock a bubble. In other words, the stock price has soared a lot more than sentiment of professional investors towards it would indicate, in my view.

Now, obviously, regardless of sentiment towards TSLA, funds and ETFs indexed to the S&P 500 will have to buy it as it is officially included effective December 21. The shares, which remain solidly among Nuclo Independent CIO’s global top picks, have long been quite volatile, and this news is not making them less so. Actively-managed funds must not own the stock, and some have long owned it all the same. Hedge funds and index-agnostic investors have had ample possibility to buy the shares with the intention to sell them to indexed players. Thus, nobody knows for sure the near-term supply/demand balance specifics for the stock.

TSLA was quite weak on Wednesday (December 9), after a first full trading day of taking in stride the news of an at-the-market (ATM) $5 billion follow-on offering of stock — reportedly to accommodate the expected surge in demand due to the pending index inclusion. Volatility is likely to continue. My readers know trading calls are never my forte, so I will not make one at this stage. I remain a strong fan of TSLA and a Muskophile, for the long haul.