We’ve got been publishing profiles of legendary fund managers like Seth Klarman, George Soros, and Michael Burry.
At the moment we’re a unique sort of profile, a bit extra entrepreneurial and extra controversial as effectively, one that’s mentioned intensely in investing circles, with cohorts of each followers and haters.
I’m, in fact, talking of Elon Musk, “Chief Twit”, CEO of Tesla and SpaceX, and briefly the richest man on the earth.
When speaking of cash and investing, we might do worse than take a look at the historical past of the richest man on the earth. 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 mother and father. He was additionally a self-admitted “geek”, who discovered 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 of 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 corporations, after which Tesla, SpaceX, and a number of different “aspect companies”.
How Did Musk Make His Cash?
In 1995, Musk constructed ZIP2, a kind 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 automobile producer.
The three Sources of Musk’s Success
There are three pillars to the Musk success story.
1. Entrepreneurs Beat Traders
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 corporations.
Danger-taking may additionally as effectively 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 dashing to launch a useful 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 automobiles in 2004 (even earlier than in case you contemplate the curiosity in battery tech), and area tech in 2002.
Rising traits are a strong pressure for rising cash, each for entrepreneurs and traders, and Musk is perhaps the poster baby of this for a complete technology, having caught not one however 3 speculative bubbles of their earliest levels.
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 staff to work as laborious as himself. He’s additionally well-known for very difficult conferences, usually placing staff in a tricky spot, and for setting “inconceivable” duties and deadlines.
The stress 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 reworked himself into an knowledgeable. “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 could be a bonus if it will get the very best out of staff and an obstacle in the event that they determine to go elsewhere.
What We Can Study from Musk
Most of us should not going to duplicate Musk’s profession, however there are classes we are able to extract from it.
Entrepreneurship & Investing
The primary lesson is that irrespective 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 the earth. 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 corporations can present a a lot greater return than frequent buying and selling will ever do. Preliminary traders in Tesla, Microsoft, or Amazon in all probability offered sooner or later, means too quickly. Their founders didn’t.
The Development Can Be Your Good friend
One other lesson is that technological adjustments and rising sectors could make you a LOT of cash, although it is likely to be 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 likely to be driving 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 our precise profitability, it is extremely low at round 1% for the previous 12 months,” Musk says. “Traders are giving us a variety 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 underneath a sledgehammer!”
Many progress 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 nearly all of administration’s web value within the firm’s shares can also 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 temporary!
The very first thing that drew a variety of controversy towards Musk is his private model. Half geeky with low social abilities, half bombastic and even crass, it’s sure to irk lots of people.
The most recent 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 a bit unusual, and really wealthy individuals are usually “eccentric”. We are able to safely say Musk is a bit of each and actually appears to get pleasure from pushing folks’s buttons. He typically appears unaware that the free speech of a public firm CEO is constrained by SEC laws.
On the plus aspect, the limitless media protection has was the equal of tens of billions value of free advertising and marketing for Tesla and Musk’s different ventures (Tesla is the one automobile firm spending nothing on promoting).
And with the Twitter takeover, controversies are assured.
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 corporations, particularly Tesla.
There’s a good argument that Tesla inventory is in a bubble, with the corporate valued at one level greater than the remainder of the automotive trade mixed. Reliability points and overpromising for options nonetheless not obtainable years later *like full self-driving) is a real drawback.
Nevertheless, it appears Musk is such a polarizing determine it could actually make folks quite irrational. And the devoted “TeslaQ” quick 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 area race, and diminished the prices of reaching orbit by x10. Tesla proved that electrical automobiles could possibly be a extremely worthwhile and useful product, and is now imitated by just about each automobile producer.
So it’s greater than a bit excessive to say that Elon Musk is only a rip-off artist who by no means created something.
Elon Musk is a quite fascinating character and a kind 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 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 study from finding out Musk and his corporations’ shares:
The power of founder-led corporations.
The significance of long-term holding of high quality corporations.
The ability of catching rising traits early, together with the chance of irrational bubbles later.
The worth of a powerful 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 finding out Musk.
📚 (This text was largely written based mostly on the guide “Elon Musk: Tesla, SpaceX, and the Quest for a Unbelievable Future” by Ashlee Vance. This is usually a good begin if you wish to learn additional about Elon Musk.)
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