Why Billionaires Are Winners
It’s time to tell the truth: Billionaires are not like the rest of us. To their credit, they think and act differently.
|Source: Daily Express|
Elon Musk saw his net worth soar to an astonishing $70.5 billion last week. The 49-year-old Tesla (Nasdaq: TSLA, Rated “D”) CEO is now the seventh richest person in the world. It’s all due to betting everything in ideas he’s passionate about.
His focus and commitment are great values that all investors should have.
Unlike billionaires, it’s easy for the rest of us to lose focus. The odds are stacked against us. We are inundated by scary news cycles and a constant stream of foreboding from media talking heads. Many earn lucrative incomes skillfully shifting other people’s money in and out of stocks and bonds.
That’s not the way Musk made his billions.
For that matter, it’s not the way Jeff Bezos, Bill Gates, Mark Zuckerberg, Warren Buffet, Larry Ellison, Larry Page or Sergey Brin — some of the richest people in the world — made their fortunes, either.
They had big ideas. They focused on building game changing businesses that most of us rely on everyday of our lives. We connect with loved ones on Facebook (Nasdaq: FB, Rated “B-”). We buy things instantly on Amazon.com (Nasdaq: AMZN, Rated “C+”). And we have the ability to search for all of the worlds’ information at our fingertips through Alphabet’s (Nasdaq: GOOGL, Rated “B”) Google search engine.
But like most things in life, it wasn’t easy to get to the success that they have attained.
These billionaires stayed passionate and committed to their visions through the thick and thin.
They committed to holding shares through good cycles and bad.
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For example, it was only a year ago when Tesla seemed doomed. The electric car company was struggling to ramp up production of its affordable Model 3 sedan, even as demand appeared to be softening. Shares, that had been as high as $310 as 2019 began, cratered to $179.
In a secondary stock offering in May, Musk bought 102,880 new shares at $243. The $25 million investment pushed his personal stake in Tesla to 20%. A year later, he added more shares at $767. Stock based compensation raised his stake to 25%.
Today, that stake is worth $50.5 billion. The rest of Musk’s net worth is derived largely from SpaceX, the rocket company he founded in 2002 to advance his passion for space exploration.
Bearish investors argue Tesla’s valuation, at $286 billion, makes no sense. The company is currently more valuable than Toyota Motor Corp. (NYSE: TM, Rated “C+”), an automaker that produced 8.8 million vehicles in the first half of 2020. Tesla factories, in comparison, have churned out only 185,000 cars and SUVs.
And although sales have grown to $24.6 billion in 2019, up from only $4 billion in 2015, the company has yet to turn a profit on an annual basis. Despite this, the company stock was up 581% since 2015. Shares have rallied a staggering 269% in 2020. Friday alone, Tesla stock gained 11%.
But valuation is not really the point. Billionaires become wealthy by finding ideas they believe in, and almost never selling.
Smaller investors often believe they don’t have this luxury. They are conditioned by the media to trade their investments based on stock market ebbs and flows.
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Unfortunately, market timing is notoriously tough to do. Moreover, selling big winners creates wealth sucking capital gains taxes. Surrendering investment capital to Uncle Sam voluntarily is almost always a bad idea.
Private investors of every age and wealth level should be thinking like billionaires.
They should look for entrepreneurial businesses with vested, visionary leadership. They should add positions when these businesses go on sale. And they should almost never sell.
Thankfully, there are a lot of these businesses. Many have even performed better than Tesla.
Jeff Bezos, with a net worth of $189 billion, is the richest man in the world. His Amazon.com, founded in 1994, is a digital juggernaut with leadership in cloud computing, e-commerce, media and artificial intelligence. Shares are up 894% since 2015.
Another great example of this type of exemplary leadership is Jensen Huang. He co-founded Nvidia (Nasdaq: NVDA, Rated “C+”) in 1993 with the business beginning as a graphics processor maker.
A decade ago, the firm morphed into a vertically integrated artificial intelligence specialist. Today, big companies are using Nvidia AI gear for everything from seamlessly routing wireless phones calls, to finding cancer tumors faster, to building self-driving cars. Since 2015, Nvidia stock is up 2,049%.
There is a reason billionaires create so much personal wealth. It has little to do with unfairness. It’s about bigger visions and commitment. There is no reason smaller investors can’t do the same.
Believe in yourself and commit to your determination as an investor.
Jon D. Markman