One of the key reasons for me to buy stocks is to apply my reasoning to the real world and get feedback in a real way. So, I’m sharing a recent story with a good lesson.
Bulls make money, bears make money, pigs get slaughtered.
The quote is an old saying in Wall Street, and I’m writing a reflection on how my greed got slaughtered.
On 2013-01-28, I bought a few shares of Tesla at $37.45 each (market cap being ~$4B). The company was founded only in 2003, went public in 2010-06, and never made net income positive, so the position was quite bullish. However, I believed in the vision and execution of Elon Musk, and I found the Model S very attractive with 0-100 kph of 4.4s and a range of 400km with one complete charging.
Even the most renowned investors cannot evaluate an entirely new business like the electric car, and the price tends to be volatile with contradicting opinions. That makes short-term trading enticing – you want to profit from the movement by buying low and selling high. As I knew it was tempting, I explicitly decided to avoid this strategy from the beginning. Why? It consumes too much time (the most precious resource of mine) and is more like gambling than investing. I kept my promise for the first few months.
Then, when the stock price hit $46 (>20% increase), I couldn’t resist the temptation. I initially thought Tesla could hit a market cap of $20 - $50B in the future but wanted to make a quick profit! I even had a reasonable justification that I needed to do the risk management on my portfolio.
I sold almost 40% of my position to neutralize the commission fee. After that transaction, Tesla reported its first net income positive quarter, and the stock is stronger than ever. Unfortunately, greed failed 40% of my position to materialize its potential. Pigs got slaughtered indeed!
I still think Tesla has a large room for growth. However, I won’t take more transactions for now. The stock price is growing too rapidly, and I don’t think I can make a sound judgment without greed. ∎