Reply to Is $TSLA a buy here?

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[quote=Anonymous][quote=Anonymous] 
Tesla is on a tear. For those of you who bought, congratulations. It is also now rated a "buy". [/quote]

Not really.  From Matt Levine at Bloomberg
[quote]
On Friday, Elon Musk spent about $1 billion to buy 2.57 million shares of stock in Tesla Inc., bringing his ownership of Tesla from 19.71% to 19.78%.[1] The purchases were disclosed today, and the stock went up: The stock closed at $395.94 per share on Friday, and at noon today it was trading at about $419.54. Why did the stock go up? Bloomberg’s Craig Trudell and Benjamin Stupples write:

The purchase amounts to a show of confidence in Tesla’s prospects after a challenging first half of the year in which vehicle sales slumped 13% worldwide. While Musk has talked up Tesla’s pursuit of robotaxis and humanoid robots, he’s also cautioned that the company could be in for “a few rough quarters” after the US phases out electric-car purchase incentives at the end of this month.

Sounds about right. Tesla’s shareholders like Musk; they think the company is worth more when it has his full(ish) attention and interest, and it’s worth less when he’s off doing other things. Tesla recently proposed giving Musk a $1 trillion pay package to keep him motivated over the next decade, and I suppose him buying $1 billion of stock with his own money sends a similar message. The message is “Tesla is still my favorite child,” or one of them anyway. So the stock went up about 6%.

So it seems fair to say that the stock went up more or less entirely because of Musk’s $1 billion purchase. And the stock-price increase makes Musk approximately $17 billion richer.[2] So Musk spent $1 billion to make himself $17 billion richer. Nice work if you can get it! A 1,600% one-day return on his money. What is the optimal size of this trade? Would he have made $34 billion if he’d invested $2 billion? Would he have made $15 billion if he’d invested $700 million? It seems plausible that $1 billion — the smallest 10-digit number — maximizes bang for his buck; anything less would be small but anything larger would be a waste.

One general point that I like to make around here is that this sort of trade is never as good as it looks. If you could spend $1 billion to make yourself $17 billion richer, and then cash out that $17 billion, that would be an amazing trade and you should do it all day long. But in practice, if buying $1 billion of stock makes your stock go up by $17 billion, then selling that $17 billion of stock will make your stock go down by much more. (Though: If Musk files a disclosure tomorrow saying that he sold $17 billion of stock today, I’ll be impressed.)

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