Agili’s latest video, Investing Hot Topics: GameStop, Bitcoin and Tesla, featuring Michael Joyce, is certainly on-trend in the investment management world these days. Everyone seems to be talking about these companies!
If you’d prefer to read Michael’s insights, please see the full transcript of the video below in italics.
Financial Advice – Trending Topics
Hi. This is Michael Joyce, from Agili, Your Personal CFO. At Agili we don’t have a radio show or podcast, but if we did, I think one of our features would be a mailbag where we could answer some questions from our clients and from some others. And we’ve been getting a lot of questions lately on a couple different subjects, most notably about the whole GameStop craze and also about Bitcoin.
The Fundamentals Behind GameStop Haven’t Changed
While I’m going to talk about both of them, I think it’s important to differentiate between investing and speculation. When you’re investing in something, there are fundamentals behind it. You think that, for example, if you invest in a stock, you think that future cash flows are going to grow and you’re going to be able to take advantage of that. And with GameStop, it was fueled on social media, on Reddit, and really GameStop had been kind of a failing company that was trying to change their business model from selling video games in brick and mortar stores, which was dying, to doing it online where they would face not only established competitors already but maybe high barriers to entry. And, fueled by the Reddit boards, things just moved up. And from my standpoint, the fundamentals of GameStop didn’t change, just the speculative interest in GameStop is what changed.
The Merriam Webster Dictionary defines a Ponzi scheme as something where you pay a cost to join and then you make a profit by getting other people to join and that drives the price up. I’m not saying that the GameStop craze is a Ponzi scheme but there would really have to be better fundamentals behind that.
Bitcoin: Things Go Up Until They Don’t
And the story is similar with Bitcoin. The crypto currencies are – I won’t say they’re all the rage – but certainly it’s getting a lot of questions and Bitcoin is perhaps the best known. And, I don’t have all the answers. I do believe that block chain technology does have a future. But the crypto currencies including Bitcoin, they may also have a future as well, but it seems to me that the big gains are not fueled by any kind of fundamentals at all, but rather by people thinking that it’s going to keep going up and they’re going to be able to sell Bitcoin to somebody else at a higher price. Or, if it’s going down, they want to get rid of it and they think they’re going to be able to sell it to somebody before it falls too far. You know, as they say, things go up until they don’t – and I think that is certainly the case here.
Narrow Markets of GameStop and Bitcoin
Both GameStop and Bitcoin, they’re pretty narrow markets. They’re pretty thin markets so it doesn’t take a lot of buying to push the price up. It doesn’t take a lot of selling to push the price down. So before investing in Bitcoin, you have to really ask why you’re doing it. Are you doing it simply because you think it’s going to keep going up or are you investing in it because you think that there are fundamentals behind it – which is going to make it more valuable? I should point out that if I went to Wawa to buy a hoagie, I can’t use Bitcoin to do that.
Don’t Pay the Share Price for Tesla
And as a bonus today, maybe I’ll spend a couple seconds talking about Tesla – because Tesla is a stock that’s been a favorite of many and there are fundamentals behind Tesla. But there also are valuations that you really have to scratch your head about. And I would argue that if you are thinking about Tesla as a car company, the valuation is ridiculous. You should never pay the share price for Tesla. It’s worth far less than what the share price is right now. I mean, the amount of electric cars that they produce in a year is less than the big car companies produce in a few weeks individually. But yet Tesla’s market value is higher than General Motors, Ford, Volkswagen and what used to be called Chrysler – all of those combined.
Tesla Has More Value As An Information Technology Company — But Be Careful
But there is another way to look at Tesla. You can look at it like an information technology company because they have sensors all over the place and they are collecting information as they go down the road – so much so that the Chinese government a couple of weeks ago said that top military officers could not drive Teslas onto military bases in China because they were worried about that for national security purposes. And if Tesla could find a way to monetize this data, then it’s certainly more valuable than it is as a car company. And that remains to be seen. There have been some companies like Facebook that have done a really good job of monetizing data but there are also many companies that haven’t done a great job of monetizing data. So, like Bitcoin and GameStop, think about why you’re investing in Tesla, and if you do – be careful.
Thanks a lot. Have a great day.
We hope you enjoyed Agili’s analysis of GameStop, Bitcoin and Tesla. For more of our market insights and blog posts about personal finance, please visit the Insights page of our website.