How Tesla paid for his Tesla

One of my clients (“John”) has always been interested in buying the new Tesla 3. In Australia, that car was being priced around A$73,000 or ~ US$47,000 depending on the FX rate used.

While the markets were plunging in March 2020, I told him about a story from over 20 years ago where a client (“Brian”) wanted to buy a Harley Davidson (HOG).

Instead of buying a Harley Davidson for $35,000, Brian decided to invest that same amount in HOG shares.

His strategy was that Harley Davidson shares could pay for his Harley.

Back in 1997, HOG shares were wallowing around the $10 mark. By Christmas 1998, the stock was trading at $20. At a price of $22, Brian had sold his shares.

Job done. A free Harley Davidson.

He recouped his original outlay. The profits were used to buy a new motorcycle and with a bit of money leftover to contribute towards his capital gain tax bill.

However, the story continues…..

15 months later (May 2000), HOG shares doubled again and are now trading at $40 per share and by 2004 they are trading a further 50% higher, at $60 per share.

Brian suffered from “Hindsight Bias”. He was annoyed about his decision to sell and thinks his $35,000 Harley is actually worth at least $180,000. He even pondered installing elaborate security in his garage to protect it.

Today (16 years later), HOG shares are trading at $23.

And so this brings me to “Tesla John”.

Instead buying a car, in early April 2020 he bought Tesla shares at $504 per share (not quite the $350 low seen 2 weeks earlier).

In early June (only 2 months later….), Tesla shares reached $1,000 and John “was out”.

A new Tesla 3 is due for delivery around September.

Today, the shares have roared a further 20% higher to $1,208 and are now the most valuable automobile manufacturer in the world.

What a wonderful and fun idea but I hope that John isn’t affected by the same cognitive bias.

July 3, 2020

by Rob Zdravevski

rob@karriasset.com.au