We have now been publishing profiles of legendary fund managers like Seth Klarman, George Soros, and Michael Burry.
At this time we’re taking a look at a special sort of profile, slightly extra entrepreneurial and extra controversial as nicely, 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 might do worse than take a look at the historical past of the richest man on this planet. How did Elon Musk make his cash, and what can traders study 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 appreciated 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 expertise however realized “there was this factor referred to as the Web occurring, 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 number of different “facet companies”.
How Did Musk Make His Cash?
In 1995, Musk constructed ZIP2, a type of Web Yellow Pages together with his brother Kimbal. They offered 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 can 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 virtually all his cash from being the founding father of extremely profitable firms.
Threat-taking may also as nicely be his center identify. He systematically re-invested all his fortune in new. Each Tesla and SpaceX had been “weeks from chapter” at factors of their existence whereas dashing to launch a purposeful product that (actually) didn’t explode (SpaceX) or self-ignite (Telsa).
2. Development Following
It’s truthful 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 in case you take into account the curiosity in battery tech), and house tech in 2002.
Rising developments are a robust power for rising cash, each for entrepreneurs and traders, and Musk is possibly 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 deal with effectivity and productiveness.
This transfers down the hierarchy, as he’s asking his workers to work as onerous as himself. He’s additionally well-known for very difficult conferences, usually placing workers in a troublesome spot, and for setting “unimaginable” duties and deadlines.
The strain can worsen, as he routinely is aware of intricate technical particulars himself, usually difficult his engineers throughout conferences by understanding 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 every thing,” Cantrell advised 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 could be a bonus if it will get the very best out of workers and an obstacle in the event that they resolve to go elsewhere.
What We Can Be taught from Musk
Most of us should not going to copy 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 could 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 one among 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 offered sooner or later, approach too quickly. Their founders didn’t.
The Development Can Be Your Buddy
One other lesson is that technological adjustments and rising sectors could make you a LOT of cash, although it is perhaps a good suggestion to money out when it turns into an outright insane bubble.
Musk did that with Zip2 in 1999 and offered components of his Tesla shares in 2020 and 2021. He is perhaps driving a bubble, however he is aware of it’s a bubble, as a substitute of deluding himself with the “it’s a brand new period” narrative.
“When taking a look at our precise profitability, it is vitally low at round 1% for the previous yr,” Musk says. “Buyers are giving us quite a lot of credit score for future income, 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 might study 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 won’t a wholesome life-style, as shareholders, we would profit from a CEO that lives and breathes his firm in each second.
Having the vast majority of administration’s web price within the firm’s shares can be a very good predictor of excellent governance.
The Musk Controversies
This could possibly be a really lengthy part, however we’ll attempt to be transient!
Communication Model
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 emblem 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 slightly unusual, and really wealthy persons are usually “eccentric”. We are able to safely say Musk is slightly of each and actually appears to take pleasure in pushing folks’s buttons. He typically 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 become 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 business mixed. Reliability points and overpromising for options nonetheless not out there years later *like full self-driving) is a real downside.
Nevertheless, it appears Musk is such a polarizing determine it could possibly make folks fairly irrational. And the devoted “TeslaQ” brief sellers have, as a rule, misplaced some huge cash betting towards Musk.
For instance, SpaceX has single-handily made viable reusable rockets, kicked off a brand new house race, and decreased the prices of reaching orbit by x10. Tesla proved that electrical vehicles could possibly be a extremely worthwhile and purposeful product, and is now imitated by nearly each automotive producer.
So it’s greater than slightly excessive to assert that Elon Musk is only a rip-off artist who by no means created something.
Conclusion
Elon Musk is a fairly fascinating character and a type of Rorschach take a look at for traders: with the identical public determine, completely different folks can see fully various things.
Some will see a genius that can save the world from international 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 study from finding out 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 developments 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 a substitute of emotional in investing, about each what you would possibly love or hate.
So love him or hate him, each investor can enhance by finding out Musk.
📚 (This text was largely written primarily based on the e-book “Elon Musk: Tesla, SpaceX, and the Quest for a Improbable Future” by Ashlee Vance. This is usually a good begin if you wish to learn additional about Elon Musk.)