In the stock market, it's tough to find consistency. Great companies may profit investors over the long term, but even the best of them will have months when they miss the mark and lose ground. But if you need a bit of consistency, look no further than the Rule Breaker Investing podcast, which always ends the month with a win for its listeners: a mailbag episode.
In this segment from the podcast, listener Jared is curious about how host and Motley Fool co-founder David Gardner feels today about a longtime company in the Rule Breaker portfolio, and an active recommendation: Tesla(NASDAQ:TSLA). Does the greatness of the brand and the products make up for the messy financials and erratic CEO? Can it deliver more market-beating gains for investors? David offers up a number of insights.
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This video was recorded on Sept. 25, 2019.
David Gardner: Rule Breaker mailbag item No. 3. This one comes from Jared Preston. Jared, you wrote, "Dear RBI, thank you for your outstanding services. I've been a Rule Breaker member for about six months. I'm also coming on my first anniversary as a Stock Advisor member. I've invested in about 10 of your recommendations thus far and have my kids also reading your buy recommendations and investing their own money in the market. Thanks for the great work." Well, thank you very much, Jared. I appreciate you saying that. I especially love that you're sharing it out with the next generation. Boy, could we use more of that. That's a world that smarter, happier and richer.
Jared goes on. "My question is around Tesla. Tesla is an active Rule Breakers recommendation. I bought shares albeit well after the recommendation was made and at a pretty high price. Price aside, I'm trying to figure out if Tesla is a company we should still have faith in. On the one hand, they have an amazing product with market leadership in the e-vehicle space, and their brand name has come to define the electric vehicle. On the other hand, their financials are a mess. Elon's behavior has been quite erratic. And I'm not certain any longer on whether or not they'll be able to fully scale up operations to a point where the Model 3 becomes the profit-maker we'd hoped. Obviously, I've over-simplified the problem, but I can't help wonder, what is Rule Breakers' take on Tesla today? Does David and team still have confidence in the business? With appreciation, Jared."
Well, I'm really glad that you've asked about this company, because it's one of the most talked about companies of our time. That is, in itself, a sign that it's a Rule Breaker. When you find something do something so disruptive, a for-profit company with a product or service so disruptive that people can't not talk about it, and the rest of its industry both criticizes it and then tries to copy it. You have a magnetic, and, as you say, erratic person running the company. How could we not want to talk about Tesla? Which we do on Rule Breaker Investing from time to time.
The first thing I want to say, Jared, is that no one has to be right about this stock. In fact, nobody has to be right about any single stock. Sometimes I think I'm right. That's usually when I buy shares of a company. But there's no requirement that I get Tesla right or that you get it right. The first thing most investors can do is put that one in the "too hard to understand" category. I think that's the Warren Buffett metaphor. Just throw it on the "too hard to understand" pile and not have to be right about Tesla. There are so many other great businesses and stocks out there. Nobody has to be right about their predictions about Tesla.
Now, I want to mention that this is a stock that we've held for a long time. In fact, it was November 23rd, 2011. We're coming up on our eighth anniversary of Tesla. We recommended it to members at $31.45. Today, it's at $242, so it's up more than 7 times in value. But, as you well know, the stock's been flat for several years now and has been weak. Elon Musk and his dream have been compromised at different points. A lot of questions about Elon.
I do want to say, from the standpoint of somebody who was there early days, I am admittedly biased. I have a long-term position the stock. I usually don't give up long-term positions readily. And, I feel like I've gotten to know the company pretty well. My view of Tesla is that it started as a Rule Breaker, and it's right now in that phase where we're going to see, can it become a rule maker? The dream of every Rule Breaker, to become the maker of rules in its industry. Or, will it not get there? Potentially, will it fade off into obscurity over time? We can all see, maybe, a future of electric vehicles. I believe that Daimler just announced that it's scrapping the internal combustion engine this week in order to focus wholly on electric vehicles. That is an amazing change for a big longtime company. So, you see the pioneer here. But sometimes, the pioneers end up with arrows in their backs, as the old clich goes. Tesla could certainly be one of them. But my default is to hold. Whether you have it at a high price or a low price, when you see a company with these attributes -- they have a great recognized brand, they are the top dog in their category, does it sound like this is a Rule Breaker? A lot of people think it's overvalued. Those are the reasons I usually continue to hold stocks.
The final thing I want to say is, there are lots of other analogues I have here for seeing how things could play out for Tesla. I'll give a silly one. Longtime Rule Breaker members might remember a company called MAKO Surgical, a company that did a robotic arm to help with knee and hip replacements. It was a disruptive approach. If you know Intuitive Surgical, MAKO Surgical was in that vein. It came out looking like a Rule Breaker, but it started acting erratically. It ended up turning from a big winner to a loser, but eventually got bought out by another company at a significant premium, giving us a win on the investment overall. I'm not saying that happens here, but I've seen other cases where a company looks like a Rule Breaker, then trips up, stubs its toe, and gets caught by other companies, but ultimately, a big player -- in this case, it was this case he was Stryker, the medical products company that bought MAKO Surgical. But, you can see how, even if Elon screws it up, how valuable the Tesla brand is, the footprint, all of their superchargers. I think there's a ton of value there for an acquisitor eventually, if it ever came to that.
I think people think that a company like Tesla is far more fragile than it actually is. They treat it as if it's just Elon and it's all coming down to the Model 3, when actually, these roots run deep. Tesla really has dominated the luxury car market, cars that cost $100,000 or more. That's really what Tesla's taken over in the last decade or so. Happens to be electric, and the world seems to be agreeing with Tesla. We'll see how it plays out.
But, Jared, as I move on here, remember -- you don't have to be right about this stock. I might be wrong about this stock. The main thing is, let's put our money in the things that we believe in. Let's be patient and watch them play out. We certainly have been rewarded as eight-year holders of TSLA.
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Is Tesla Still a Rule Breaker to Believe In? - The Motley Fool