Tesla Stock in September 2020: Is It Time to Invest?

The question of whether Tesla stock was a good buy in September 2020 is a matter of intense debate. As discussed in the introduction, my stance is clear: I am not buying Tesla at this time. However, this does not mean you should abstain from every decision solely based on my viewpoint.

Understanding Tesla's Valuation

Tesla is currently valued well above its earnings, leading to a situation where its future success must justify this valuation. Many point to the potential lucrative markets such as electric vehicles, solar power, and autonomous driving. However, it is important to note that these alone may not be enough to support such a high valuation. According to the long-term sustainability argument, Tesla's success must be primarily attributable to its core business and not external ventures like SpaceX or The Boring Company.

Taking a Historical Perspective

Market psychology plays a significant role in the stock's performance. It is important to recognize that past performance does not guarantee future results. Tesla's impressive 7x increase in 2020 was unsustainable, and traders who got into the market at elevated prices are at risk of significant losses. As illustrated by the collapse of stocks like Nikola and Kodak, the markets can be fickle and investors often lose their savings through speculative behavior.

Lessons from Nikola's Market Behavior

The case of Nikola Corporation is a poignant example of market hype leading to steep declines. Between June 8th and July 17th, 2020, nearly all the buyers of Nikola experienced losses. Moreover, the stock is unlikely to recover. This serves as a stark reminder of the risks associated with speculative investing. While there are no direct comparisons between Tesla and Nikola, it highlights the potential for sudden market corrections.

Recent Stock Performance and Long-term Outlook

Over the past 6 months, Tesla experienced a significant increase. However, this rapid rise raises several questions: What exactly did Tesla do to warrant such a valuation? Did they launch any groundbreaking new products or innovations? It's crucial to note that such a drastic increase is a one-off event that may not be replicable in the future.

Investor Caution and Market Psychology

Buying stocks with a speculative mindset can lead to emotional investment decisions, particularly when acted upon in a herd mentality. If an investor buys Tesla stock solely based on hype and peer pressure, they are likely to feel anxiety when the stock's value dips. This can result in selling at the wrong time and losing long-term gains. It's essential to conduct your own research and not be swayed by short-term market movements.

Conclusion and Investment Wisdom

While I am not buying Tesla stock at this time due to a lack of certainty about its future performance, this does not mean you should not invest. The key is to have a well-reasoned investment plan. If you are confident in your decision to buy Tesla, you should be comfortable with market volatility and avoid making emotionally driven decisions.

Final Thought on Market Sentiment

Ultimately, when the stock market offers a high return, it often comes with higher risk. Market trends can shift quickly, and what is trending today might be passé tomorrow. Therefore, it is crucial to remain calm and make rational investment decisions based on thorough research and analysis.