July 11, 2017

Elon Musk. Doom ahead?

As he is the chief prophet of electric cars, I think it is appropriate for me to say something about him here. To begin at the end, I think his bubble will burst quite soon.

The key question is how does he fund his activities?  As far as I can tell, none of his businesses makes a profit.  He is the profitless prophet.  So what keeps him afloat?

Hope.

In his many activities he is seen as THE NEXT BIG THING.  He is seen as someone who will soon be a big success.  He is seen as someone who will soon start making money hand over fist.  And not only that, he is also seen as someone who will make big money in a Greenie way.

That has two outcomes: 1). Governments love him.  The 8 years of Obama were a golden era for Mr Musk and even Mr Trump may see him as helping to make America great again.  We shall see.  So Mr Musk only has to ask in order to be given government  money to fund his innovations. He is a brilliant fundraiser off governments, State and Federal.

2). And he is a brilliant fundraiser off the private sector too.  You can see that in the share-price for his car company.  The price is many multiples of what the shares of other car companies fetch.

And that happens because lots of investors believe that he is THE NEXT BIG THING.  It's the oldest fallacy in stockmarket investing that to make big money, you have to pick "up and coming" companies so that when the prices of their shares rise, you will make a bundle.  To many that is the sole principle guiding their share purchases.  They are always hoping to get "a jump ahead".  Mining investors are almost wholly of that breed. I know some of them.  And I know how sad they are.  They lose overall.

I am myself a rather successful investor. I am now 73 but I was able to retire when I was 39. And I follow a quite different strategy. I am an investor, not a gambler.

But given the current mood, if Mr Musk wants more money for something he just has to sell some more shares in his company.  People will snap up those bits of paper with great avidity.  He is very close to being able to print money.

But it is a bubble. At some stage people are going to be looking for results, for profits.  And I think that is now just about upon us.  He has made a big thing of the new "affordable" electric car that he will soon be releasing.  But there are already rumbles about troubles with that.  So if that car fails to generate a profit, hopes will begin to die. Even Mr Musk might not be able to spin his way out of that one.  And the crash from that will be enormous. There will be such a rush to get out of his shares that they could end up worth pennies only.

But by all means, buy one of Mr Musk's cars if you can afford it. Electric cars drive nicely and Teslas will one day be treasured mementoes of a great dream

Prophecies are a mug's game and I am no prophet -- but I have mostly been a successful share market prophet.  Around two out of three of my picks work out. It will therefore be interesting to see if I have picked this one right -- JR




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