“Should I buy Tesla shares? As company announces it will sell $ 2 billion in new shares, financial advisers offer advice to new investors


Retail investors may be eager to take a spin on a stock that has more than doubled (an increase of 123%) in the past three months, but then they need to figure out what to do with the latest electric car maker. hard left and right Silicon Valley.

The company has garnered so much attention and curiosity recently that typing “Do I” in a Google GOOG,
+ 0.54%

+ 0.80%
The research yielded an autofill response that said, “Should I buy Tesla shares”.

What if the stock goes south? How many stocks can an investor afford?

It’s a simple sounding question that can quickly get complicated: what if the stock goes south? How many stocks can an investor afford? Candidates for stock selection should exercise caution, according to financial planners.

Tesla did not immediately respond to a request for comment from MarketWatch.

Dan Slagle, founding partner of Fyooz financial planning in Rochester, Minn., says there could be investors out there in severe FOMO pangs, or fearful of missing out. Slagle said people with financial FOMO should ask themselves how comfortable they are with any future drop in the stock price of Tesla or any company they buy shares in.

In fact, Thursday’s news reinforces the idea that owning the action may not be an easy race. At the same time, Tesla’s shares have slumped in recent weeks. They are up 84% since the start of the year. The Dow Jones Industrial Average DJIA,
is up 3% over the same period, while the S&P 500 SPX,
is up 4%.

Ask yourself if you have the stomach

“If you own the stock, you have to weather the storm and be comfortable with volatility,” Slagle said. He doesn’t personally own Tesla shares, but believes the company – which has an enigmatic, though unpredictable, founder in Elon Musk – has potential for long-term growth.

There are ways to determine your tolerance for risk. Quizzes are one way to get the hang of it, but experts say stress tests like this can’t go any further. Instead, think about your investment goals so you know how much you should worry – or not worry about – about a stock’s fluctuation.

Even professionals cannot bear so much market loss. A leading portfolio manager bet Tesla stock would drop, but put an end to that game.

“Sometimes there is no ‘why’. If you are little, you have to go.

“Sometimes there’s no ‘why’,” said Steve Eisman, senior portfolio manager at Eisman Group Neuberger Berman, in an interview with Bloomberg TV. “If you are little, you have to go – there is no glory in losing money.”

Slagle’s customers don’t tell him about Tesla shares, he said. Instead, they are talking about buying the actual vehicles.

A new Tesla Model 3, with a sticker price of $ 39,990, had the lowest price depreciation of cars sold between August 2019 and January 2020, according to iSeeCars.com, a car search engine. A used Tesla costs about $ 2,500 less, a drop of 5.5%, well below the average price drop of 25.2%.

People don’t necessarily need to stock up on Tesla stocks to get behind the wheel of Tesla, added Scott Vance of Trisuli Financial Advising in Fort Bragg, NC A better idea, he said, is to buy into an exchange traded fund or mutual fund that has Tesla in its portfolio.

That way, novice investors can do one thing most financial advisers consider rule # 1 in investing: diversify. “I think Tesla is part of an industry that is going to thrive in the future, but picking an individual winner in that industry is something I disapprove of,” Vance said.

Tesla stock has climbed 123% in the past three months.

Photo by Charley Gallay / Getty Images for Elizabeth Glaser Pediatric AIDS Foundation

Don’t be distracted by fancy footwork

Erika Safran, founder and director of Safran Wealth Advisors in New York, NY, says she has a client who enjoys playing the market based on the news of the day. Overall, it hasn’t worked out well for him: his biggest windfall is the tax write-off he gets on his market losses, he said.

Look at the fundamentals of the business, she said. This includes the price-benefit ratio, the revenue and the potential of the vehicle itself. It may also include technical analysis, such as a review of stock price performance and trading volume over the medium to long term.

But investors only need to focus on fundamentals if they buy and hold shares over a period of several years, a strategy that Safran favors. “You are only a good trader a few times,” she said. “The other times he’s a loser.

Give yourself some “fictitious” money

Jared Friedman, Financial Planner at Sequoia financial planning in Scotch Plains, NJ, said if people are comfortable buying Tesla stock, they should – but they should draw yellow lines for themselves and stay indoors.

Friedman’s clients have their core portfolios, but some also have “satellite” investments. Customers buy these stocks and investments because they are intrigued. These investments, however, represent a maximum of 5% of the client’s entire portfolio, Friedman said.

Don’t miss: Opinion: Here’s how Tesla ranks against other popular tech stocks

Side investments can be a good idea for someone who can afford to gamble – and maybe lose – some money, Friedman said. This investment keeps the person engaged with the market and aware of their portfolio as a whole, he said.

When Friedman meets clients who have small stock picks, “we spend 90% of the time talking about the satellite investment,” he said. Some of Friedman’s customers have Tesla shares and plan to hold them, he added. “They believe in the business no matter what.”

This story was originally posted on February 7, 2020 and has been updated.

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