Tesla’s Rollercoaster Ride: A Lesson for Investors

Bear Traps newsletter founder Larry McDonald made an interesting observation on Tuesday. In his statement, he highlighted the astonishing fact that Tesla stock (ticker: TSLA) has remained unchanged since 2020 despite experiencing a staggering 49% drop from its all-time high. This represents a period of 32 months characterized by stagnant market performance.

At first glance, it may seem unimaginable that a company as successful as Tesla could face such a setback. Yet, the numbers speak for themselves. Tesla stock plummeted to a low of slightly above $212 on Friday, marking a significant decline from its intraday high of over $414 in November 2021. To put things into perspective, Tesla’s closing price on Friday stood at $215.49, a level first reached in December 2020—yes, 32 months ago.

These numbers hold valuable lessons for investors, particularly when dealing with a highly volatile stock like Tesla. The choice of starting point plays a crucial role in investment outcomes. Furthermore, a patient and measured approach to buying and selling is advisable, rather than hastily jumping in and out of the market.

Consider this: since 2018, Tesla stock has soared by more than 1,000%, averaging an impressive annual gain of 60%. This meteoric rise catapulted Tesla’s market capitalization from $60 billion to approximately $700 billion during that same period. Not only did Tesla become the world’s most valuable auto company, but it also revolutionized the electric vehicle industry, compelling traditional automakers to adapt their strategies.

Nonetheless, it is vital to note that Tesla’s market cap peaked at around $1.3 trillion in December 2020. Hence, investors who joined the party relatively late may not experience the same level of adoration for Tesla CEO Elon Musk as early investors do.

To avoid succumbing to the hype of market euphoria, a wise strategy is to engage in dollar-cost averaging, continuously purchasing small amounts of shares along the way. This method entails buying shares at varying prices over time, such as $40, $25, and $35 each, ultimately resulting in an average purchase price of approximately $33—not the lowest price, but certainly not the highest either.

Lessons for Investors in Dealing with Market Volatility

Investors often dream of buying stocks at their lowest point and selling them at the highest. However, this ideal scenario rarely materializes. A more practical approach is to consistently invest over the long term and make small adjustments to our holdings when necessary.

Emotions play a significant role in our investment decisions. Humans are prone to behavioral biases that can cloud our judgment. This is where incorporating momentum and valuation into our investment strategy can be helpful. By analyzing trends and considering the value of a stock, we can avoid significant losses and react more rationally to market fluctuations.

It’s crucial to strike a balance between relying on cold, hard math and taking action based on the market’s ups and downs. Acting in response to soaring or plummeting stock prices can provide a psychological boost and prevent us from making hasty decisions. Soothing our emotions can positively impact our investment outcomes.

Tesla’s stock performance offers a valuable lesson for investors. The market has a knack for inflicting pain on both short sellers and those who jump in at the peak. The happiest investors are often those who have patiently held onto their investments for the longest period and made incremental adjustments along the way.

However, navigating through market volatility is not without its challenges. Tesla’s stock, for instance, has experienced significant fluctuations, recently enduring a six-day decline followed by a 7.3% increase on Monday. As of premarket trading, shares are valued at $240.70, up 4.1%. Meanwhile, S&P 500 and Nasdaq Composite futures are showing positive gains of 0.6% and 0.8%, respectively.

In conclusion, investors should approach market volatility with a strategic mindset and account for their own emotional biases. By combining careful analysis with measured action, we can weather the storm and make informed investment decisions.

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