Tesla Stock Hugely Popular Among Retail Investors: Great Sign for Future
Tesla Stock Has Popular Support
If the stock market was a high school prom, Tesla Inc (NASDAQ:TSLA) would be the head cheerleader: everyone is lining up to ask it for a dance.
And by “everyone,” I mean we’re seeing something that is rarer and rarer in our ever more concentrated securities market.
While many publicly traded companies typically see most of the money invested coming from institutional investors and high-net-worth individuals, TSLA stock is bucking that trend somewhat by seeing a huge chunk of its funding come from retail investors like you.
And that’s really good news for the future of Tesla stock.
TSLA stock has soared nearly 550% over the past year. To say that this is a momentous shift in the company’s outlook is an understatement. I’ve been bullish on this stock for years, and even I never anticipated that it could rise as fast as it has in 2020.
Chart courtesy of StockCharts.com
Couple that with the fact that there many doubters of the company (so many that Tesla stock has a short position against it of nearly $20.0 billion) and it didn’t seem plausible for this stock to soar as high and fast as it has. (Source: “Tesla Is Close to Becoming the First Stock With a $20 Billion Short Bet Against It (TSLA),” Business Insider, July 10, 2020.)
But my predictions of Tesla Inc doing well weren’t wrong, so much as understated. The company has been unstoppable this year and shows no signs of slowing down.
One of the major reasons that TSLA stock is on such a hot streak right now has to do with the company’s gigantic swell of retail investor support.
A recent article by Reuters highlighted how many everyday investors have seen large gains as a result of believing in Tesla stock.
One example the article cites is that of a software developer taking out a loan of nearly $50,000 and putting it all into TSLA stock, back in October when it was trading at roughly $230.00 a share. (Source: “Tesla Share Rally Propels Some Early Fan Investors to Riches,” Reuters, July 20, 2020.)
This ended up paying off big-time for the man, who saw his investment jump by more than six times its original value.
“To me it didn’t feel like a bet because I studied what Tesla does very closely and it’s simply inevitable that it would dominate,” said the investor, adding that he plans to own the TSLA shares for decades. (Source: Ibid.)
Now, it’s typically not advisable to take out a giant loan and invest it in a security; that’s about the riskiest move you could make. On top of potentially losing the money itself, you could end up owing a lot to your bank because of the loan.
But in this case, it paid off. And for readers of Profit Confidential who have been following our bullish advice on Tesla stock, they too could have seen massive gains if they had invested at the right time.
Around the world, retail investors have been seeing their belief in TSLA stock pay off. On July 20 alone, the share price shot up by 10%, spurred on by the company’s impressive Q2 financial report.
Online forums have seen an increase of discussion surrounding the renewable energy stock, another good sign that more capital is likely to flow toward it.
We don’t know how many retail investors own Tesla stock, but we do know that about three-quarters of the company belong to institutional investors and the company’s executives. (Source: Ibid.)
But, as I recently reported, Tesla Inc is very popular among newer investors and millennials. “Robinhood,” an investment app with a lot of pull among that demographic, saw about 40,000 accounts add Tesla shares in a four-hour period on July 13. (Source: “Ten Thousand Day Traders an Hour Are Buying Tesla Shares,” Bloomberg, July 13, 2020.)
Compared to two years ago, the number of Robinhood users holding TSLA stock has increased by over 400%. And in South Korea, Tesla is the most-traded overseas stock, with Koreans buying $3.2 billion worth of Tesla shares so far this year, up nearly 13-fold from all of 2019. (Source: Reuters, op. cit.)
So why is this such a big deal?
Well, first of all, it allows Tesla Inc to receive a big flow of capital from a channel that, say, mining companies and other traditional industry securities can’t access. The fact that people know about Tesla and its products (due in no small part to the pop culture prominence of its CEO, Elon Musk) make it a desirable destination for their investment dollars.
Furthermore, the fact that these people are investing in the company means that they likely believe in its products, which in turn means they may be likely to buy a Tesla vehicle or battery in the future.
After all, if you own part of a company, why not support your assets with a purchase on the ground? Not to mention that the best advertising is almost always word of mouth; Tesla owners can peddle the cars to their friends and neighbors better than viral videos ever could.
That type of reach is awesome for Tesla stock bulls.
Another boon from Tesla Inc’s grassroots support is that algorithms and fancy trading schemes are going to be less dangerous to the company. That’s because so much of TSLA stock is held by people who are insusceptible to those traditional stock market pitfalls. Or at the very least, they’ll be slower to react, likely leading to a more stable and less pronounced drop if a correction hits.
On the flip side, market panic and outright disinformation (like we’ve seen in the past) could be a problem. For instance, if some rumor were to gain traction that Musk had died (something that’s happened to other companies with famous figureheads), Tesla’s share price could drop precipitously.
While that’s possible in almost any context, it would be exasperated by the fact that Tesla is owned by so many individuals with small holdings, meaning there are more links in the chain that could potentially be damaged by disinformation.
I have no reason to suspect that something like the scenario described above will occur, but it is possible.
Besides that, however, the ownership makeup of Tesla stock is a good sign moving forward.
It’s especially heartening in a time when so many companies are owned by so few. The richest one percent of Americans now account for more than half the value of equities owned by U.S. households. (Source: “How America’s 1% Came to Dominate Stock Ownership,” Financial Times, February 10, 2020.)
While the top earners in the U.S. have always enjoyed a larger share of the market than the rest of the country, that portion has skyrocketed in size over the past 20 years.
With more and more Americans—and people globally—taking a stake in TSLA stock, it is, in effect, becoming the “people’s stock.” And that’s a very good title to hold.
Finally, the fact that Tesla Inc has such pop culture recognition means we’re likely to see more and more people flock to the company.
One of my favorite TV shows, Silicon Valley, had an episode in its latest season poking fun at the conspicuous consumption arms race that has ratcheted up among elites regarding the electric vehicle, with everybody who is somebody needing to own at least one Tesla car.
As you can imagine, for an electric vehicle company like Tesla, that pop culture status is going to be very beneficial for sales.
The situation is similar to that of the “iPhone,” wherein everyone wants to own the latest version as much out of status-signifying necessity as for what the product actually delivers. And as we know, Apple Inc. (NASDAQ:AAPL) has profited immensely from that interplay. Tesla Inc could very well be developing into the “Apple of cars” in that regard.
There’s no denying the momentum that Tesla stock has right now. The question that people are asking is whether the stock has reached its peak or if it still has room to climb.
For me, that’s a pretty easy question to answer: TSLA stock absolutely has the ability to double or even triple an investment, even at its current price.
The reason being that Tesla Inc’s vehicles are exploding in popularity and are arguably becoming a pop culture icon.
On top of that, we haven’t even begun to see the full potential of the battery side of the business, with renewable energy stocks likely to grow exponentially in the coming years. Tesla, with its name recognition and culture cache, is poised to dominate that sector as well, making it one of the strongest available stocks on the market.