In March 2020, Tesla (NASDAQ:TSLA) stock reached $28.50 per share (on a split-adjusted basis). Today, the share price has reached $253, up just over 790% from its pandemic lows.
A £1,000 investment in Tesla shares made during the Covid lows would be worth £8,440 today. In my view, there are three important lessons for investors, here.
Courage
The most obvious point is that buying shares in a time of crisis has been highly rewarding. Warren Buffett’s advice to be greedy when others are fearful really shines through here.
It’s worth noting that Tesla’s business in March 2020 was a long way from its current state. The company sold 368,000 cars per year and made a net loss in the process.
On the face of it, the car company’s shares were a highly risky investment. The US was in a recession and what life would be like after the pandemic was highly uncertain.
This environment was always going to be challenging for a business in the consumer discretionary sector. But investors who were willing to take the risk have been rewarded.
Vision
For every success story, though, there have been a number of failures. Whether it’s Disney in US, or J. D. Wetherspoon in the UK, a lot of stocks are still at or near their March 2020 levels.
This shows that there’s more to investing successfully than just piling in when prices are low. Having a relatively good idea about what a firm’s long-term prospects look like is crucial.
Blackstone CEO Steven Schwarzmann says the best investments are less risky than they look. That’s because the people making them can see something in the company’s prospects that others can’t.
With Tesla, those who could see the firm’s capacity to scale its production were in a great position. Their ability to judge the risks and rewards accurately allowed them to see a terrific opportunity.
Opportunities
By definition, though, the fact Tesla would sell 1.3m cars per year and earn $14bn in profit by 2022 was hard to foresee. If it had been obvious, the stock wouldn’t have been as low as it was.
Fortunately, though, an investor didn’t have to buy Tesla stock in 2020 to do well. Plenty of other shares have provided outstanding returns since the pandemic.
Shares in Apple, for example, are up by 227% since the pandemic. And in the UK, the Rolls-Royce share price had increased by 146%.
The point is, investors didn’t have to spot the opportunity in Tesla shares in 2020 to do well. Those who were more confident predicting the future for Apple or Rolls-Royce could also have achieved market-beating results.
Foolish investing
When it comes to investing in a downtown, the most important thing is to be able to see where others are overestimating the potential risks with a stock. This comes down to knowing the business well enough to judge its future prospects accurately.
Whether it’s Tesla or any other stock, it’s important for investors to stick to sectors where they can make informed predictions about a company’s prospects. Ultimately, this is what helps limit risks and maximise returns.
