We have now been publishing profiles of legendary fund managers like Seth Klarman, George Soros, and Michael Burry.
At present we’re taking a look at a unique kind of profile, somewhat extra entrepreneurial and extra controversial as properly, 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 may do worse than have a look at the historical past of the richest man on this planet. How did Elon Musk make his cash, and what can traders be taught 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 recreation franchise together with his brother with out telling his dad and mom. He was additionally a self-admitted “geek”, who realized programming on his personal and preferred 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 referred to as the Web taking place, 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 bunch 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’s going to 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 automotive 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 also as properly be his center title. He systematically re-invested all his fortune in new. Each Tesla and SpaceX had been “weeks from chapter” at factors of their existence whereas speeding to launch a purposeful product that (actually) didn’t explode (SpaceX) or self-ignite (Telsa).
2. Pattern Following
It’s honest to say that Musk has a aptitude for smelling trending matters 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 house tech in 2002.
Rising tendencies are a strong drive for rising cash, each for entrepreneurs and traders, and Musk is perhaps the poster youngster of this for a whole 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 workers to work as exhausting as himself. He’s additionally well-known for very difficult conferences, usually placing workers in a tricky 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 realizing as a lot or greater than them.
Musk had been ingesting Cantrell’s textbooks on rocket-building and had remodeled himself into an professional. “He knew all the things,” 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 might be a bonus if it will get one of the best out of workers and an obstacle in the event that they resolve to go elsewhere.
What We Can Study from Musk
Most of us are usually not going to duplicate Musk’s profession, however there are classes we will extract from it.
Entrepreneurship & Investing
The primary lesson is that regardless of how good an investor’s returns might 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 a long time. Lengthy-term holdings in profitable firms can present a a lot increased return than frequent buying and selling will ever do. Preliminary traders in Tesla, Microsoft, or Amazon in all probability bought in some unspecified time in the future, means too quickly. Their founders didn’t.
The Pattern Can Be Your Pal
One other lesson is that technological modifications and rising sectors could make you a LOT of cash, although it could be a good suggestion to money out when it turns into an outright insane bubble.
Musk did that with Zip2 in 1999 and bought elements of his Tesla shares in 2020 and 2021. He could be using a bubble, however he is aware of it’s a bubble, as an alternative of deluding himself with the “it’s a brand new period” narrative.
“When taking a look at our precise profitability, it is rather low at round 1% for the previous yr,” Musk says. “Buyers are giving us quite a lot 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 beneath a sledgehammer!”
Many development traders may be taught 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 recreation”. Whereas it may not a wholesome life-style, as shareholders, we’d profit from a CEO that lives and breathes his firm in each second.
Having nearly all of administration’s web price within the firm’s shares can also be an excellent predictor of fine governance.
The Musk Controversies
This may very well be a really lengthy part, however we’ll attempt to be transient!
Communication Type
The very first thing that drew quite a lot of controversy towards Musk is his private type. Half geeky with low social abilities, 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 matters with out Tesla’s board approval…
Geniuses are sometimes somewhat unusual, and really wealthy persons are usually “eccentric”. We will safely say Musk is somewhat of each and actually appears to take pleasure in pushing folks’s buttons. He generally appears unaware that the free speech of a public firm CEO is constrained by SEC rules.
On the plus facet, the limitless media protection has changed into the equal of tens of billions price of free advertising and marketing for Tesla and Musk’s different ventures (Tesla is the one automotive 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 alleged about his firms, particularly Tesla.
There’s a good argument that Tesla inventory is in a bubble, with the corporate valued at one level increased than the remainder of the automotive trade mixed. Reliability points and overpromising for options nonetheless not out there years later *like full self-driving) is a real downside.
Nonetheless, it appears Musk is such a polarizing determine it will probably make folks somewhat irrational. And the devoted “TeslaQ” brief sellers have, as a rule, misplaced some huge cash betting in opposition to Musk.
For instance, SpaceX has single-handily made viable reusable rockets, kicked off a brand new house race, and lowered the prices of reaching orbit by x10. Tesla proved that electrical vehicles may very well be a extremely worthwhile and purposeful product, and is now imitated by just about each automotive producer.
So it’s greater than somewhat excessive to say that Elon Musk is only a rip-off artist who by no means created something.
Conclusion
Elon Musk is a somewhat fascinating character and a form of Rorschach check for traders: with the identical public determine, completely different folks can see utterly various things.
Some will see a genius that may save the world from world 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 be taught from learning Musk and his firms’ shares:
- The energy of founder-led firms.
- The significance of long-term holding of high quality firms.
- The facility of catching rising tendencies 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 an alternative of emotional in investing, about each what you may love or hate.
So love him or hate him, each investor can enhance by learning Musk.
📚 (This text was largely written based mostly on the ebook “Elon Musk: Tesla, SpaceX, and the Quest for a Improbable Future” by Ashlee Vance. This could be a good begin if you wish to learn additional about Elon Musk.)