Tesla and Elon Musk are imploding. It feels like the company is headed toward an existential crisis or bankruptcy.

Investors must understand that investing isn’t a game of certainties or possibilities. It’s a game of probabilities. Many people do not invest because of the potential of stocks going to zero, even though the likelihood of that happening is highly unlikely.

Business goes through cycles. Although most stocks are down in 2022, energy, healthcare, and defense are areas that have done quite well.

Look at the stock of companies like United Health, Bristol Meyers, Gilead, Chevron, and many others in these industries. All are doing quite well. These are the stocks “experts” are saying you are supposed to be buying now, not selling. If you went back 3-4 years ago, these names were loathed, and now they are beloved. This is how cycles work. They turn. If you assume tech stocks will always be uninvestable, you may need to look at investing through a probabilities lens. Are companies like Meta, Tesla, and Netflix going bankrupt? Again, look at it through possibilities rather than probabilities.

One of the greatest investors people have never heard of was Shelby Davis. Davis was a long-term investor who started investing at age 38. From 1947 until he died in 1994, he turned $50,000 into $900 million.

Shelby preaches many of the same principles that Warren Buffett does in long-term investing:

The biggest history lesson you can learn is that the market cycles from bust to boom and back again. Investor behavior flows with it. Each time is slightly different but similarities abound and the cycle always rolls on,” he said.

“Between these two extremes, and what investors forget, is a great long-term track record at compounding money that no other asset class offers. The few times in history when there is an exception, investors rarely seized the opportunity because they projected their short-term pessimism far into the future,” he said.

Shelby Davis’ investment tips to achieve long-term success

Shelby Davis and Warren Buffett are legendary investors, but their gains are attainable even for everyday investors. When someone tells you it is nearly impossible to beat the market by picking stocks, it is an arbitrary statement that can make investors take inappropriate actions. Saying investing in single stocks is an impossible game to win is like saying sticking to a diet is impossible because most people fail at it.

These are some of my thoughts, and I could be completely wrong. Some of the views I am expressing cannot be proven quantitatively, but if I had to bet money, I am more right than wrong. I have always preached investing is more behavioral and philosophical than numerical.

Take a room of 10,000 random investors. 2/3 of those investors, or at least 6,666, will fail to beat the market not because they are uninformed or bad stock pickers but from self-inflicted wounds.

• Investing money you can’t afford to lose. You can categorize these investors into two groups. People who shouldn’t be investing either live paycheck to paycheck or have no emergency fund. The other group is people that are invested but will likely need to dip into their portfolio in the near to mid future – to buy a house or fund retirement, for example. These people are not in a dire financial situation but will likely have to sell out of positions for non-investing reasons because they do not have enough discretionary income.
•  Lack of emotional control or patience. Suppose you have a strong conviction to buy a stock but a few months later sell out because the stock has fallen or everyone in the media is saying to sell. In that case, you most likely shouldn’t be investing. Humans aren’t hard-wired to be good investors. Humans hate losses twice as much as they like gains. A 50% loss feels as bad as a 125% gain feels good. This is one of the reasons why many investors never see exponential gains. They don’t have the stomach to wait for it. For many people, once they see 30-40% losses, they just sell and leave the market altogether.

The 6,666 investors will have one or two of these problems, like having one hand tied behind your back. This provides a significant advantage to investors that can follow basic long-term investing principles. Not an arbitrary rules-based methodology but an ability to think independently, be patient, and learn.

If you can invest money you can afford to lose and have balls of steel, you will likely be in the 70th percentile of investors. Notice I didn’t mention anything about a person’s ability to analyze/value stocks because this is a subjective practice that can be learned over time.

You will get little debate from anyone about not using your rent money on stocks. You will get a lively discussion on whether stock x is overvalued or undervalued. As you gain experience, if you are adequate at analyzing equities and can think independently, you can likely be in the 80th percentile or higher of top investors.

If you are in the 70th percentile of investors, you have beaten the market rather easily. How likely is this? Not that improbable.

If you are having trouble following, I will provide an example:

• A 1200 SAT score can be considered good or bad, depending on one’s expectations. A 1200 SAT score puts you at the 74th percentile, which from one perspective, sounds great – you scored higher than 74% of your peers! On the other hand, a 1200 SAT score will not get you into Harvard or Yale.

So, when people say you aren’t likely to beat the market, it depends on the individual investor. The entry of barrier to investing is low. Are you an investing hobbyist, or do you view your portfolio like a business? The average Robinhood user is 31 years old with an account balance of $240. That is not enough skin in the game. 

A large number of investing hobbyists skews the number of people that fail to beat the market at a higher percentage than it should. More than 2/3 of investors fail to beat the market, which is a conservative guestimate given how many Americans live paycheck to paycheck or do not have the proper investment mindset.

The majority of people that fail to beat the market are breaking simple investing rules. Think again about the high percentage of people who break their diet. Does that automatically mean you shouldn’t diet because most people fail or abandon their diet? Again, you have to individualize the experience.

Investors shouldn’t give up investing and automatically go into index funds. Tesla is a perfect example. A tremendous long-term stock going through short-term negative sentiment.

Returning to investors being able to control their emotions, this includes not being blinded by arrogance or ideology.

Framing forward-looking expectations through an ideological prism is a terrible idea for investing. Getting investing advice from political commentators about Tesla stock is foolhardy. Partisan politics, by nature, is tribalistic, negative, and biased. Tesla sells electric vehicles for over $50,000. Most consumers on the fence about buying a Tesla base their decision-making on non-political reasons.

Potential Tesla buyers don’t care what Elon Musk thinks about Dr. Anthony Fauci or his tweets about Democrats. That is not how consumer behavior works. That is not how consumers think. Those that do most likely make up a fringe minority or weren’t that interested in buying a Tesla in the first place. Imagine buying a house: how much does a potential home buyer weigh the seller’s political affiliation or social media activity before making an offer.

The great Telsa story has been hijacked by politics. Political commentators and politicians do not care or understand the company’s financials. The declining stock price drives whatever narrative is spun by the media and curmudgeons on Twitter.

Investing and politics should not mix. You may disagree, but a CEO’s political affiliation is meaningless. Tesla is a fantastic company producing phenomenal growth results. I have seen this play out before:

“Tesla is doomed.”

“Elon Musk is unstable.”

“Tesla is a car company, not a technology company.”

“Tesla has no competitive advantage.”

I think I’ve seen this film before

And I did like the ending.

Where Tesla bears don’t admit they were wrong, they just say I got lucky.

The stock may enter a bust cycle, but this creates an opportunity. As Davis said, “out of crisis comes opportunity… A down market lets you buy more shares in great companies at favorable prices. If you know what you’re doing, you’ll make most of your money from these periods. You just won’t realize it until much later.” Unfortunately, many investors will fall into the same trap of selling stocks during a bust cycle and buying during a boom cycle.

The Tesla fundamental story is solid. The growth numbers are impressive. The future is incredibly bright. The Tesla Bears have already been defeated. Refuting decade-old talking points is a waste of time.

Politics is mainly theatre. It is entertaining to watch, but it typically has no material impact on a company’s earnings, profits, or shareholder value. Trying to turn political commentary into investment tips is dangerous in investing. Politics has a definite space for society, but how do political programs on CNN, MSNBC, and Fox put money in your pocket? In investing, it doesn’t. I view these shows on the same level as watching pro wrestling, or comedy shows, purely for entertainment.