Paul McBeth is the editor of The Bottom Line and Curious News, having worked at BusinessDesk for 15 years.
Popcorn lovers around the world were fixated by the train crash that was the falling out between US President Donald Trump and his former fanboy-in-chief Elon Musk.
Breaking up is always hard to do, and while many of us can sympathise with the very public split that maybe happens in a crowded restaurant, not too many of us know what it’s like to hurl insults and insinuations to legions of online followers as two former confidantes sling mud on the way out.
And while the stakes might not seem too high when it comes to the features of Trump 2.0, where global trade norms have been turned on their head and negotiations to end international conflicts get treated like classic games of chicken, when it comes to the Muskonomy a lot of his devotees are hurting.
It’s hard to argue with a 14% slump in a single day, which is what Tesla’s army of investors felt when public markets did their thing and reacted to the back-and-forth between the besties.
All told, US$152.4 billion of value evaporated in a single session, taking its losses to US$237.2 billion over the course of five days as Musk ratcheted up his accusations that Trump’s big and beautiful tax and spending law was actually a disgusting abomination full of outrageous pork-filled Congressional spending.
Tell us what you really think, Elon.
On a hillside desolate
It’s easy to sit back in Fortress New Zealand and watch in awe as these global titans trade barbs, but the reality is that electric vehicle maker Tesla actually matters to plenty of Kiwis.
It was the third-most owned stock by the 800,000-strong Sharesies brigade at the end of the March quarter, and as one of the Magnificent 7 mega-stocks driving Wall Street, it has an outsized bearing on plenty of funds that every day New Zealanders invest in.
That’s not to say that everyone’s a fan.
Te Ahumairangi chief Nicholas Bagnall – who oversaw years of outperformance when he ran the Accident Compensation Corp’s investment arm – couldn’t make the numbers stack up for the EV maker when he tried to plot a course for investors to extract a fair return from it.
And he’s not a lone voice in the wilderness.
Investment enfant terrible Eden Bradfield – who co-manages Elevation Capital’s $175 million portfolio – has long bemoaned the price-to-earnings multiple Tesla trades at, currently 162 times, meaning an investor is waiting more than a century-and-a-half to get their money back, all things staying the same.
And one-time fan Pathfinder’s John Berry quit the EV company earlier this year as the mercurial Musk’s antics outweighed the ethical investment firm’s attraction to Tesla’s leadership in driving global decarbonisation.
A jumped-up pantry boy
Even the crowds on Reddit’s Wall Street Bets cooled on the chosen one, with the exit of the chief of Tesla’s Optimus robotics arm adding to the general sense of foreboding as the weekend drew near.
All of which is a timely reminder for investors far and wide to revisit why they’re backing something.
It’s hard to argue with the genius of Musk as he reshaped the auto industry, flies rockets to the moon, cuts into science-fiction with his neural-technomancy and trolls like no other on the old Twitter platform.
And while that’s created huge amounts of value for himself and his fellow investors, name recognition alone isn’t worth jumping on board simply because things have gone well in the past.
Investing is a bet on the future after all.
Backing a meme stock can certainly deliver dividends, but as with every investment that doesn’t mean it lasts forever, and fundamentals of an organisation still matter when the vibe cools and those glasses lose their rose-tinted hue.
When the leather runs smooth
Closer to home we see that irrational exuberance in Australia’s biggest lender, Commonwealth Bank of Australia – something we know better on this side of the Tasman as ASB Bank’s parent.
CBA crossed the A$300 billion market value mark this week, trading at a price-to-earnings multiple of almost 32 times, twice that of Australia’s other four pillars, Westpac Banking Corp, ANZ Group Holdings and National Australia Bank.
In fact, it’s also more than twice the 13-times ratio of megabank JPMorgan Chase & Co, the world’s biggest bank with a market value of US$728 billion.
And for many institutional investors, that’s simply too rich for their taste and plenty of Aussie shareholders have been selling to Americans fleeing an increasingly volatile Wall Street, although it’s been a favourite for Sharesies’ users, ranking highly in its top 10 most traded securities on the ASX in recent days.
Of course, that’s not to say CBA is a dud. Of the big four Aussie banks, it’s probably the best run and hasn’t been beset by uncomfortable sideshows like some of its smaller peers.
But when the smart money is scratching its head about whether something might be too good to be true, it’s typically a good time to at least consider where they’re coming from.
If the vibe still feels too good to let go, so be it, but if cracks are starting to appear in the mirror, it might not just be your eyes failing you.
Image from Krists Luhaers on Unsplash.
