Investor Profile: Elon Musk
Now we have been publishing profiles of legendary fund managers like Seth Klarman, George Soros, and Michael Burry.
Right now we’re a distinct sort of profile, a bit extra entrepreneurial and extra controversial as effectively, one that’s mentioned intensely in investing circles, with cohorts of each followers and haters.
I’m, after all, talking of Elon Musk, “Chief Twit”, CEO of Tesla and SpaceX, and briefly the richest man on this planet.
When speaking of cash and investing, we might do worse than take a look at the historical past of the richest man on this planet. How did Elon Musk make his cash, and what can traders study from his spectacular rise? And why is he so controversial?
Who Is Elon Musk?
Musk was born in South Africa, to a comparatively well-off household. He would begin early on entrepreneurship, launching an arcade sport franchise together with his brother with out telling his mother and father. He was additionally a self-admitted “geek”, who realized programming on his personal and appreciated to spend most of his time with books. He was additionally brutally bullied, together with to the purpose of being despatched to a hospital for a number of weeks.
He left South Africa for Canada, after which the US. There he briefly thought-about beginning a Ph.D. in battery know-how however realized “there was this factor known as the Web occurring, and I needed to be a part of it”.
From there on, he would successively begin 2 Web firms, after which Tesla, SpaceX, and a number of different “facet companies”.
How Did Musk Make His Cash?
In 1995, Musk constructed ZIP2, a form of Web Yellow Pages together with his brother Kimbal. They bought it for $300M in 1999, close to the height of the Web bubble.
He used that cash to construct X.com, which might later flip into PayPal after a merger with Peter Thiel’s firm, a competitor to X.com. eBay bought PayPal for $1.5B.
Musk then based SpaceX in 2002, and have become an investor in Tesla in 2004, earlier than taking up Tesla as the primary shareholder and CEO.
He bought Twitter for $44B in 2022, though it stays to be seen whether or not it should flip right into a money-making or a money-burning enterprise.
Tesla has been the primary driver of Musk’s $188B fortune. Musk owns 23% of the dominant electrical automobile producer.
The three Sources of Musk’s Success
There are three pillars to the Musk success story.
1. Entrepreneurs Beat Buyers
The primary attribute of Musk’s rise to wealth is his entrepreneurial exercise. He made nearly all his cash from being the founding father of extremely profitable firms.
Threat-taking may additionally as effectively be his center identify. He systematically re-invested all his fortune in new. Each Tesla and SpaceX have been “weeks from chapter” at factors of their existence whereas dashing to launch a useful product that (actually) didn’t explode (SpaceX) or self-ignite (Telsa).
2. Development Following
It’s truthful to say that Musk has a aptitude for smelling trending subjects years forward of their time. Web in 1995, electrical vehicles in 2004 (even earlier than for those who think about the curiosity in battery tech), and area tech in 2002.
Rising traits are a strong pressure for rising cash, each for entrepreneurs and traders, and Musk is possibly the poster baby of this for a complete technology, having caught not one however 3 speculative bubbles of their earliest phases.
3. Work Ethic
It doesn’t matter what folks say about Musk, one thing to grant him is a borderline insane work ethic and self-driven ardour for excellence. Like a 120-hour work week and a near-maniacal give attention to effectivity and productiveness.
This transfers down the hierarchy, as he’s asking his staff to work as exhausting as himself. He’s additionally well-known for very difficult conferences, usually placing staff in a troublesome spot, and for setting “unimaginable” duties and deadlines.
The stress can worsen, as he routinely is aware of intricate technical particulars himself, usually difficult his engineers throughout conferences by figuring out as a lot or greater than them.
Musk had been ingesting Cantrell’s textbooks on rocket-building and had reworked himself into an knowledgeable. “He knew every thing,” Cantrell instructed Esquire. “He’d been planning to construct a rocket all alongside.” And that’s how SpaceX was born.
Musk is thought to be a demanding and difficult boss, which could be a bonus if it will get the perfect out of staff and a drawback in the event that they resolve to go elsewhere.
What We Can Study from Musk
Most of us usually are not going to copy Musk’s profession, however there are classes we will extract from it.
Entrepreneurship & Investing
The primary lesson is that irrespective of how good an investor’s returns could be, nothing will beat the returns of a profitable entrepreneur. Musk, Invoice Gates, and Jeff Bezos have every held the title of the richest man on this planet. Every certainly one of them is a profitable enterprise founder.
Most have additionally held onto their share for years, if not many years. Lengthy-term holdings in profitable firms can present a a lot greater return than frequent buying and selling will ever do. Preliminary traders in Tesla, Microsoft, or Amazon most likely bought sooner or later, manner too quickly. Their founders didn’t.
The Development Can Be Your Pal
One other lesson is that technological modifications and rising sectors could make you a LOT of cash, although it is perhaps a good suggestion to money out when it turns into an outright insane bubble.
Musk did that with Zip2 in 1999 and bought components of his Tesla shares in 2020 and 2021. He is perhaps using a bubble, however he is aware of it’s a bubble, as a substitute of deluding himself with the “it’s a brand new period” narrative.
“When our precise profitability, it is rather low at round 1% for the previous yr,” Musk says. “Buyers are giving us lots of credit score for future earnings, but when, at any level, they conclude that’s not going to occur, our inventory will instantly get crushed like a soufflé underneath a sledgehammer!”
Many progress traders might study from Musk’s realism right here.
A Good CEO Is a Workaholic?
For traders, Musk additionally illustrates the worth of a founder and CEO who has his “pores and skin within the sport”. Whereas it may not a wholesome way of life, as shareholders, we’d profit from a CEO that lives and breathes his firm in each second.
Having nearly all of administration’s internet value within the firm’s shares can also be a great predictor of excellent governance.
The Musk Controversies
This may very well be a really lengthy part, however we’ll attempt to be transient!
Communication Fashion
The very first thing that drew lots of controversy towards Musk is his private model. Half geeky with low social expertise, half bombastic and even crass, it’s sure to irk lots of people.
The newest instance was a change of Twitter’s brand to a cryptocurrency meme picture and eradicating the “w” from the corporate’s headquarters signal.
Earlier and extra problematic points relate to monetary declarations, just like the notorious “funding secured” tweet, which led to an SEC ban on tweeting about monetary subjects with out Tesla’s board approval…
Geniuses are sometimes a bit unusual, and really wealthy individuals are usually “eccentric”. We will safely say Musk is a bit of each and actually appears to take pleasure in pushing folks’s buttons. He typically appears unaware that the free speech of a public firm CEO is constrained by SEC rules.
On the plus facet, the infinite media protection has become the equal of tens of billions value of free advertising and marketing for Tesla and Musk’s different ventures (Tesla is the one automobile firm spending nothing on promoting).
And with the Twitter takeover, controversies are assured.
Investor Criticisms
As a counterweight to his many followers, Musk additionally has a cohort of haters. To them, he’s a con artist, a scammer, and a fraud, and the identical is claimed about his firms, particularly Tesla.
There’s a good argument that Tesla inventory is in a bubble, with the corporate valued at one level greater than the remainder of the automotive trade mixed. Reliability points and overpromising for options nonetheless not accessible years later *like full self-driving) is a real downside.
Nevertheless, it appears Musk is such a polarizing determine it will probably make folks relatively irrational. And the devoted “TeslaQ” quick sellers have, most of the time, misplaced some huge cash betting towards Musk.
For instance, SpaceX has single-handily made viable reusable rockets, kicked off a brand new area race, and decreased the prices of reaching orbit by x10. Tesla proved that electrical vehicles may very well be a extremely worthwhile and useful product, and is now imitated by just about each automobile producer.
So it’s greater than a bit excessive to say that Elon Musk is only a rip-off artist who by no means created something.
Conclusion
Elon Musk is a relatively fascinating character and a form of Rorschach take a look at for traders: with the identical public determine, completely different folks can see fully various things.
Some will see a genius that may save the world from international warming, and disinformation and “make people a multi-planetary species”.
Others will see a grifter mendacity to traders and regulators, a dishonest determine that must be put behind bars.
There are extra rational takeaways to study from finding out Musk and his firms’ shares:
- The energy of founder-led firms.
- The significance of long-term holding of high quality firms.
- The ability of catching rising traits early, together with the danger of irrational bubbles later.
- The worth of a robust work ethic and main by instance.
- The potential of unconventional communication and “free” advertising and marketing, in addition to its risks.
- The necessity to keep rational as a substitute of emotional in investing, about each what you may love or hate.
So love him or hate him, each investor can enhance by finding out Musk.
📚 (This text was largely written primarily based on the e book “Elon Musk: Tesla, SpaceX, and the Quest for a Incredible Future” by Ashlee Vance. This generally is a good begin if you wish to learn additional about Elon Musk.)