New Investor Looking For Advice

[ELRev]

Hi everybody,

I literally just walked out of a brokerage firm after opening my first ever investment account. I'm 25 years old. I've come into a little bit of money recently ($25k), and will be coming into more ($70-80k) in the next two months or so. I have no money invested anywhere except a worthless savings account, and I'm looking to change that as early as the next market open. The reason I'm here is because, with that money I've come into, in 2 years time, I intend to purchase a Tesla Model 3 to replace my current ICE that will have, by then, well over 100k miles on it. Beyond the obvious reasons a Tesla is a great car, living in California, I think it is also a sound investment in my future - though obviously not one with lucrative benefits.

All that said, I've spent more time than I care to admit recently on these forums and researching Tesla in general. The company as a whole has lofty goals and, if successful, will change the world. For me, the idea of investing in $TSLA started with the thought that I could do so with some portion of the money I intend to put toward the car and allow my success or failure in 2 years to determine how much I spend on my Model 3. Beyond that cute little idea, however, I've come to consider it as both a short- and long-term investment idea. From there, I have two questions for those of you experienced in the realm of investing and dealing with $TSLA specifically:

1. Is now a good time? I've spent plenty of time researching Tesla, but the focus hasn't been on financial success as much as infrastructure and product plans. I'd love some recommendations on where to look to help educate myself on Tesla's financial standing and expectations for the future.

2. How much should I invest? Again, I'll have come into a little over $100k by the end of spring, 7-10 times what I had saved on my own. Whether I keep the shares for years to come because Tesla takes off, or whether I sell all of them off in 2 years and use what's left to buy the car I want, I have very little concept of what proportion of my money into one stock would be considered a good investment. I've loosely thrown around the idea of investing the rest in mutual funds, or maybe one or two other specific stocks as well, to create a more reliable investment, but I admittedly have very little idea what I'm doing.

I appreciate whatever advice or dialogue anyone has to offer. I'm a very bright individual with a great job who has done quite well for myself to this point. I've just yet to take the time to learn about and involve myself in really investing money, and I thought this would be a great place to look for guidance.

Thanks.

 

[Gerardf]

There was a similar thread not long ago, my reply in that post are not a direct answer to your questions, still wanted to share my 2ct's.

Have 10K to invest- TSLA good long term play?

 

[adiggs]

Big question I've got a ton of ideas and opinions in this space, but I'm afraid too much is too easy to blow somebody out.

My first observation is that most people are convinced they can beat the market (I'm among them). Most people underperform the market, if for no other reason, they trade frequently and eat up a big chunk of their returns in fees. This leads to the first suggestion - focus on minimizing fees across a good sized chunk of your portfolio.

My second observation is that at your age, you have many big financial events ahead of you in life. They will easily overwhelm the windfall you have arriving soon. You may still arrive at the same general plan as you have now, but my suggestion is to think about the larger view of your life, and the role the current situation can/should play in that.

You will likely have some combination of:
- wedding / marriage
- child / children to raise
- 1 or more college educations to fund
- 1 or 2 retirements to fund
- house to buy, which will include a need for some level of down payment

Oh - and a car to buy too


Lots more I could say - I tend to read www.pragcap.com for insight into what's going on with the world economy and financial management. I don't agree with everything he says, but I think he's a lot closer to right, and a lot closer to providing advice that isn't designed to chisel cash out of my pocket, than most. Here's one article that might serve to get you started:
The Myth of Passive Investing | Pragmatic Capitalism

I think one of his best observations, and one that I can't find the link for right now, is that most people would be best served by viewing their "portfolio" as their "savings". You get the return you can get, but your "investment" is in YOU. Your skills, soft and technical, that make you a valuable contributor in the economy, worth a steadily increasing price to employ (job route), or the skills you need to have to startup new company(s). Both are investments in you.


To your questions:
1) Is it a good time to buy? It's always a good time to buy. And it's always a good time to sell! This is a question that others can answer from their point of view and for themselves - you will have to answer for yourself. In this forum is a thread regarding the Blind Faith Price Targets. That thread, and you'll probably need to read it in its entirety, will provide one mental model that might lead you to an answer.

And by answer, I mean both a decision to buy or a decision not to buy. Both are decisions.

2) How much to invest? I could argue for all of it, and I can argue equally well for none of it. Or somewhere in between. Modern Portfolio Theory would argue strenuously against investing all of it. Warren Buffet's idea that most investors would be better off is they mentally had a book with 20 tickets in it, where each buy and sell decision they make in their whole life costs them 1 ticket. With that mentality, you'll wait years for a single good entry point in a single company to appear, and when it happens, you'll invest heavily. You can also find people that don't agree with Buffett's investment strategy (though it's hard for anybody to argue with his body of work as an investor).

You'll need to make a plan for yourself that makes sense to you, and in the context of what you've learned.

One idea I'll add though - if you're thinking about investing $35k in TSLA today, and then using the position in 2-4 years to buy a Model 3 when your spot in line comes up, then you also need to be mentally ready for TSLA to be at 1/2 of today's price in 2-4 years, your investment to be worth $17.5k, and not get a Model 3 at all. The general principle here is that company stock tends to be more volatile than is reasonably compatible with a purchase in a short term time horizon. This sounds a bit like gambling that this is a way to get yourself the fully loaded Model 3 that you want, but only pay for a bare bones car. If you're thinking this way, you'll also want to be honest with yourself - will the bare bones car or no car be worth buying the lottery ticket that has a way better than lottery odds of paying off with a fully loaded car?


And of course, you need transportation, especially living in California. And driving electric has all sorts of advantages with HOV lane access. Maybe you invest the whole windfall, and finance the car later (given that you have the income to handle the monthly payments).

See, endless options and considerations.

 

[ELRev]

Big question ...endless options and considerations.

Yes, yes! And thank you so much for your response. To address a few of your points without cluttering my post with quotes:

I should clarify my intentions regarding investing money I intend to use toward my Model 3. I wasn't quite expecting to put the full 35k into Tesla. I had been thinking more along the lines of some portion of that - maybe 1/2 or 1/3 - with the intention of using the result to inform my decision on additional features for the Model 3. As of now, unless life changes dramatically (which it may), I fully intend to buy the car. And I'll be able to afford to do so regardless of my investment in $TSLA. Your comments about Warren Buffet's strategy make me wonder, though, if it might be worth considering investing the full 35k. As a contributor to this forum, I have to assume you have a generally positive outlook for the stock, and while I appreciate you choosing not to influence me with your opinions, I feel that the majority of what I have to go on, and ultimately act upon, are just that: opinions. With little else to go on, starting with my love for their products, my opinion of Tesla is, obviously, high.

As for future life decisions, you're absolutely right. To inform that conversation with my own specifics, I have a 401k through my place of employment, which matches 50% up to 4%. That is taking care of itself. As for the rest, I'm very fortunate in my family support in that I'm fairly confident my wedding will be paid for. I will also, over the course of my life, come into additional funds that will serve to counteract any risk - even significant risk - I take with any portion of my current savings that I'd be willing to risk (admittedly on the conservative end of that 100k). I've also had a few people suggest to me that, instead of buying a Tesla, I should invest in a property. My problem there is I know even less about property investment and real estate than I do about stock investing. I intend to educate myself in this process, but that will definitely be further down the line than the car.

I'll read through all of those links both you, adiggs, and Gerardf posted. I really appreciate the insight, and I hope that these details further inform your understanding of where I stand and where I maybe should go.

 

[adiggs]

Tesla occupies the 2nd largest position of a single company holding in my position, and is the 2nd largest investment my wife and I have made. The initiation for that position was entirely due to my reading and learning about the company, and then test driving Model S and putting down a reservation for Model X. Somehow back in Fall 2012, it was immediately clear to me that this was a paradigm shift, and it was obvious that someday, Tesla couldn't help but clear $50 or $60

My own investment style is extremely long term. Today, I'm targeting something like 2025 with a mental possibility of a decision point in the 2020 range. That is supplemented with a series of "metrics" or indicators of what I consider to be Tesla's structural advantages, and changes in behavior by Tesla that would indicate the company has lost / is losing those structural advantages. (Initiating a franchised dealership network in the US is one such metric / decision point).


One idea to add to the Buffet notion. I remember back in the 08 / 09 timeframe seeing some companies that had sold down to levels that I thought made no sense whatsoever. The market had gone mad, and in one case, a company with what looked like a totally safe dividend was selling so low, it was paying nearly 11%. That was one of 3 or 4 instances in my life where I "knew" I was looking at something I should get in on.

The lesson from that investment was that I didn't get into it deeply enough. It turns out I was completely right, and that company continued raising it's dividend reliably every year since, until I was earning something closer to 13% on invested money. Unfortunately, it was only $5k I put in. (I've also since sold that company, despite a hold-until-I-die investment hypothesis, as I wanted out of direct investment in any of the oil & gas sector.)

Tesla, for me, was one of those few examples. By then, I'd also consciously had the lesson about staying somewhat diversified, but not being shy when I see the market mispricing something so badly. If I hadn't had the previous experience with a good outcome, but wishing I'd been 10x on the investment, it wouldn't have been as easy to invest as much as we did.


Ultimately I view investing as a discipline. The nature of disciplines is that they are activities / skills we exercise during our life, but never master. There are always new things to learn. I read these investment forums because I learn about Tesla from others, and also because I get new ideas about and learn about investing more broadly. I read many other sources that I find valuable, about many companies, but also business and the economy in general.

You'll know more in 5 or 10 years than you know today. You'll also learn more from decisions to do something, and then see how they turn out, than you will by simply studying but not getting involved. Make decisions where the extremes that you consider unlikely but at least somewhat plausible don't include outcomes that negatively change your wealth at the life level (don't bet the farm on one pony).

Have a reason for what you do, and continue to monitor at a level that you're comfortable with, partly to evaluate whether your reason was right. Learn from it. I like to think of everything I do as fulfilling at least two outcomes - I want what I do to be valuable (such as an investment becoming more valuable), but I also want it to be educational for me. I don't mean book or classroom learning - I want to learn from it and be better next time around than I was this time.

Which may not mean I get a better result next time around (I may know more, but I'm unlikely to find a new investment that will do what Tesla has done )

 

[neroden]

This is not investment advice; I am not your investment advisor. This is just generic life wisdom.

All that said, I've spent more time than I care to admit recently on these forums and researching Tesla in general.

Good. My best piece of advice in investing is to do insane amounts of research. Alll the most successful investors have done so.

You may have heard of the "efficient markets theorem" -- it says that if everyone has the same information, you can't beat the market. Well, this implies that if you want to beat the market, you need to have more information. There is always lots and lots and lots of information out there that most investors and traders have never looked at or read. If you know a bunch of it, you have an advantage.

1. Is now a good time? I've spent plenty of time researching Tesla, but the focus hasn't been on financial success as much as infrastructure and product plans. I'd love some recommendations on where to look to help educate myself on Tesla's financial standing and expectations for the future.

Long term? First, learn what a P/E ratio is and how it works. Second, learn to do a discounted cash flow analysis. Both of these provide ways to take your projections of Tesla's future profits and determine what the stock should be worth now. There are several other methods you can learn too.

I am not going to tell you what Tesla's future profits will be. You have to make your own projections, based on your understanding of how many cars they will sell, how much it will cost them to make each car, how much they will have to spend on warranty repairs, how much it costs in overhead to maintain the factories, service centers, Superchargers, etc, how much capital expenditure they will have to make to build all of those, how much they will have to spend in R&D, and how much they will be paying in interest on debt. Depending on your assumptions you can end up with a "fair" stock prices anywhere from $50 to $5000 (which is why there are such wildly varying "analysts projections"). If your information and analysis is better, you'll make the most profitable decision.

Short term? Learn how to place limit orders. Then learn about volatility, fluctuations, technical analysis, etc. Try to find the right "entry point". Or, if your long-term analysis says it doesn't matter, just forget about it and buy shares now. If you think a fair price for TSLA is $5000, it won't really matter whether you buy it at $250 or at $300 or at $200. But if you think a fair price is $350, it matters quite a lot more.

2. How much should I invest?

(a) Always have an emergency fund in cash sufficient to pay your living expenses for a while if you lose your job, go into the hospital very sick, etc. The modern rule of thumb is 6 months, but I prefer 2 years.
(b) Account for any debts you have. Get rid of high-interest rate debt. Consider lower-interest-rate debt to be part of your living expenses and make sure you can cover it.
(c) Account for upcoming major expenses. In your case, you need to save enough money to buy a replacement car if your ICE car fails before you can afford a Model S.
(d) After that, you know how much money you can afford to lose. This is the amount you can afford to invest. (Total. Not just in Tesla. In anything.) Never invest money which you might need in the next couple of years; otherwise you can be forced to sell good investments at the bottom of the market to raise cash.

If you're comfortable with living in a tiny apartment, getting married at the courthouse, and driving beaters, you have way more money to invest than if you *really need* to spend money on a fancy wedding and a nice car and a nice house. But your comfort comes first; you shouldn't be suffering to create investment money; that way lies madness.

My first rule of investing is never invest in anything which will keep you awake at night worrying.

Think about it this way: if you would be able to shrug off losing the money, you can afford to invest all of it in one thing. You should still do a huge amount of research to make sure you think you know what you're doing... but you can afford to be wrong. If you can't afford to be wrong, you are in a totally different position and you must not invest the money.