Dividends and With big bets on Musk, some fund managers may have a Tesla problem in 2023

Everyone agrees stocks go up and down, what everyone does not agree is when a stock goes down when should you sell. When it goes up, the accepted wisdom is after you made the money you put in it, you should sell some and keep the rest. For some organizations they have a 5% rule of thumb, when a stock is greater than 5% of the fund’s holdings, the fund trims the stock holding. When stocks fall, people look for a reason till the reason does not exist anymore than they find other reasons why the stock should go up again. In the stock market the only true information is what has happened in the past, the future is any open to anyone’s prediction.

Last year the biggest stock name which fell in value was Tesla. There were many reasons for it, including Elon Musk bought Twitter and people did not like what he was doing with it. A more practical reason might be the other car companies are producing very good electric vehicles which means consumers have choices and Tesla is not the only choice in the marketplace. Should Telsa trade at the higher multiples than its peers?

In an article by David Randall of Reuters, the writer examines the 50 actively managed US equity funds which have more than 5% of their assets in Telsa stock. These funds were down an average of 42% last year.

The biggest fund in the $6 billion Baron Partners Retail fund with 52% of its assets in Tesla. The Zevenbergen Genea International Fund has 13% of its assets in Tesla. Both funds decreased by 43% and 59% respectively. Although with the Baron funds, Ron Baron has been a long-term Tesla investor which means most of his shares were bought very inexpensively, even though the price fell he is still up money.

According to Forbes, Mr. Musk net worth has fallen over $100 billion.

Telsa’s stock traded at low prices when it was issued, almost went bankrupt, then from 2018 to 2022 the stock was up 1,700% compared to the S&P 90% return. The stock trades at a premium to other vehicle makers and most of the sales and profits are in China, Jim Chanos of Chanos & Company asks is that good or will the multiple go down?

Linking to dividend paying stocks, ideally you are long-term investor, but all stocks go up and down and you should have a rule to follow when stocks go down, and when they go up. When they go up, that is wonderful and decisions are easier to make, but market discipline applies both up and down. With dividend paying stocks, you can worry more about the payment of dividends than the share price. Investing is complex, but you can make simple rules to follow that will allow you to consider alternatives.

There are more questions than answers, till the next time – to raising questions.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s