If nothing up to this moment tipped you off, we find ourselves in a bit of an odd place when it comes to the market. If the bubbly nature of the market around all things tech isn't worrisome enough, we now have Elon Musk – CEO of an S&P 500 company – as one of the more prominent individuals acting as a market whisperer on Twitter. We'll look at this interesting development and what it means for investors.
- In addition to being a tech billionaire, Elon Musk's Twitter statements have helped drive rallies in the market.
- Musk's tweets about Bitcoin (BTCUSD) have helped drive the cryptocurrency both up and down.
- Market gurus are nothing new, but the current batch are known more for their entrepreneurial achievements rather than their investing track record.
Yes. That happened. On Jan. 26, GameStop Corp. (GME) was already up over 600% when Musk weighed in on the rally, simply telling his over 40 million followers "Gamestonk!!" How much Musk's tweet helped the GameStop rally stack on another 1,000% for a total jump of over 1,600% from where it started the year is hard to say with any certainty. He is, after all, a public figure and a frequent communicator on Twitter covering everything from WhatsApp alternatives (Signal), cryptocurrencies (Bitcoin, Dogecoin, etc.), and Clubhouse, not to mention Tesla, Inc. (TSLA) and SpaceX. Musk's callouts have sent eager followers into the wrong stock more than once, and he was even able to cool off the Bitcoin bull run by calling the current valuations "excessive."
To be fair, Musk likely isn't looking for his words to move the market. He is jockeying for position as one of the richest men in the world, so a bump up in his personal wealth is unlikely to be life changing. In fact, as a CEO, his Twitter habit is probably a topic of frequent discussion among the legal department. The Securities and Exchange Commission (SEC) couldn't get Musk off Twitter, so it is doubtful that he is going to change direction now. It is still fun to imagine a world where Musk did take Tesla private at $420 per share as he stated in that long-ago Tweet, but instead we now have him seemingly directing momentum in the market while his publicly traded electric vehicle company has traded at twice that rich valuation (the 2018 Tweet was back before Tesla broke $100 per share).
Market Gurus and Oracles
Despite the humor in the situation and the fact that Musk likely doesn't want to be a pied piper for his followers even if simply from a legal standpoint, there seems to be a significant number of investors who are piling into whatever investments catch Musk's attention. There are, of course, other public figures who are seemingly moving the market, including Musk's fellow billionaires Mark Cuban and Chamath Palihapitiya. Market gurus who inspire investors to follow them into positions are hardly new, but the current crop is unique in that they are primarily known as entrepreneurs rather than as investors.
When we talk about Warren Buffett as a market guru, we are recognizing his rather incredible ability as an investor to stick to his value strategy in all markets – even as we wonder how large his pile of idle cash will grow. In contrast, Musk may be a visionary tech entrepreneur, but there is very little in the way of a public record of his investment performance. Musk is also speaking to a sector within the broader market where traditional valuation models seem to have been discarded in favor of momentum trading. This is leading to some stunning situations, including the GameStop surge that profited some individual investors enormously while also leaving others holding the bag on the losses.
The Bottom Line
In an ideal world, investors would understand their investments completely. In reality, we are all making guesses, some more educated than others. If individual investors are following market gurus with risk capital, there is nothing inherently wrong with it. The bigger concern is that swaths of new investors coming into the market thanks to lower fees and apps like Robinhood are piling substantial portions of their portfolios into these momentum plays. Not all of them will be lucky, and many of them might sour on investing altogether after catching a few falling knives.
It is hard to tell a new investor that they should listen to an octogenarian from Omaha over a tech billionaire. More importantly, Buffett-style investment principles may take time to reassert in a market like this. So, like so many lessons in the market, this is going to be one individual investors have to learn for themselves.