I have TSLA stock, a 5 bagger for me. It doesn't exactly fit into my portfolio, but one thing led to another. Now it's a gigantic capital gain I don't need in this last year of major Roth conversions. Otherwise I'd sell. Hopefully it'll still look this good next year.
The future may look bright, but how does that make Tesla the most valuable of all the car companies? That's like saying a rookie football player will be in the Hall of Fame. Not that I'm complaining.
I've missed a lot of portfolio gorillas because they seemed over-valued. Amazon, Netflix, etc. But as I gained experience as an investor I learned an important truth. Every additional percent of the Compounded Annual Growth Rate (CAGR) of an investment is a big deal! So paying a premium for companies likely to have a superior CAGR pays off big time!
Here's an example:
Say you have $100,000 to invest. If you get an annual return of 7% you will not quite double your money to $196,715 in 10 years. However, if you can get an annual return of 15% you will more than quadruple your money in the same 10 years to $404,556. As you can see, it makes good sense to pay double for the investment that has the higher CAGR.
However, in the case of Tesla, they actually have a good possibility of having a CAGR of 40-45% and possibly much higher. Even at 40% CAGR, your 100,000 would become almost $2.9 million in only 10 years! So fretting over whether you are paying $300 per share or $1000 per share doesn't make a lot of sense. If you want the likely superior returns of an innovative company on a mission (like Tesla), you have to pay the market rate.
Also, comparing the valuation of Tesla to established auto companies doesn't make any sense at all. Established auto companies are valued very inexpensively precisely because the writing is on the wall (Tesla is disrupting the auto market). Comparing the valuations of a rapidly growing company with that of a shrinking company makes no sense! You are likely to lose money on the shrinking company! And all major auto companies have been shrinking over the last 3 years.
Successful investors (such as yourself) get into the companies with superior CAGR's early and stay there regardless of valuations. That is where fortunes are made. Not in buying companies because they look cheap.
Showing why TSLA is likely to have a superior CAGR is beyond the scope of this message but I encourage those who want superior returns to investigate further. There is a lot of misinformation out there so be careful what information you take at face value. Powerful economic interests want to slow Tesla down precisely because they threaten billions in what were once secure revenue streams.
