Elon Musk, undisputed champion of stockbrokers

Sent 4 Dec. 2022 at 9:18 am

Between Tesla and Apple, American dealers have made their choice. Both companies are among individual investors’ favorite stocks, but Tesla holds a special place. They greatly prefer Elon Musk, the eccentric and hyperactive innovator, to Tim Cook, the successful but slightly bland manager. On the honor roll at Robinhood, the new broker of choice for young investors, Tesla shares are ahead of Apple. That makes up about 10% of the average trader’s portfolio, according to Vanda Research.

Individuals’ appetite for the manufacturer’s titles is still as strong. They acquired securities worth $633 million over the last 5 sessions in November. That’s almost three times more than the second most popular title, Apple. The difference is even more marked on options, with volumes nearly four times larger for Tesla, even though Apple’s capitalization is nearly four times larger than the automaker’s.

2,600% increase

The unwavering popularity of Tesla stock with individuals may come as a surprise. The stock has lost about half its value this year, with Apple down 18.5 percent. Tesla pays no dividends and has never done share buybacks, unlike Apple, which has been extremely generous to its shareholders in recent years. It is largely due to their excessive appetite for Tesla that US individual investors show losses on average higher this year (-32%) than the losses of the major US stock market indices such as the S&P 500 (-15%), Vanda Forskning estimates.

Elon Musk, buoyed by his successes at PayPal and SpaceX, has captured the imagination of stock marketers with his vision of future all-electric mobility. They bet massively on Tesla when the guardians of the temple of the financial markets, the institutional investors (or “zinzins” in stock market jargon), did not believe it. Many have become rich thanks to the stock’s exponential rise in recent years: between the end of August 2019 and the peak reached on November 5, 2021, the value of a Tesla share took 2,600%, from 15 to more than 400 dollars, before it fell back in recent days around $190.

pain threshold

Enough to justify letting go of “Papa Musk” — as he’s nicknamed on WallStreetBet’s forum on Reddit — perceived, rightly or wrongly, as the origin of this extraordinary stock market performance. But the stockbrokers are not far from their pain limit. “Tesla’s share price is getting dangerously close to summer 2020 levels [autour de 140 dollars, NDLR], when most of the new positions were opened,” says Giacomo Pierantoni from Vanda Research. “Despite the unquenchable appetite of individuals for this company, a further decline could trigger a series of margin calls” and force investors to quickly sell their securities, he warns.

Tesla’s main shareholder, Elon Musk himself, is in a difficult situation. Between his acquisition of Twitter and his personal loans, many of his Tesla papers are placed as collateral in banking institutions. “If the price of our shares were to fall significantly, Mr. Musk could be forced […] to sell Tesla shares to meet its obligations”, the group emphasizes in its annual report. “Such sales could lead to a further decline in the price of our securities,” he warns. In this context, it is not so strange to see Elon Musk calling on the Federal Reserve to lower its policy rates “immediately”: after all, the monetary tightening by the Fed is one of the main reasons for the decline in technology stocks on the stock market this year.

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