The Twitterscape, for better or for worse, has become a fixture in our communication landscape. Since its inception in 2006, the user base has ballooned to more than 335 million; dwarfing the population of the United States by 8 million people. It’s become a platform that connects the powerful and influential with the common citizen, which for the more impulsive and influential users, has not always paid dividends. Now, you know we never talk politics, but we will happily talk cars all day, so let’s discuss for a minute, Tesla’s maverick CEO, Elon Musk.
At 12:48pm on Tuesday, August 7th, @elonmusk tweeted, “Am considering taking Tesla private at $420. Funding secured.”
These 61 characters set off a firestorm in the financial, automotive, and regulatory communities alike. In this fragmented, but incendiary message, Elon Musk caused the company’s stock to plummet from what was a-near all time high of $379.57 per share to a closing value of $264.77 on the Friday before the SEC fined him $20 million and required him to step down as the company’s chairman. Mid-day trading of Tesla’s [still public] stock on the following Monday, October 1st brought gains of more than 15%, but this is not a commentary on Musk, Tesla, or even Twitter.
Instead, this quarter’s insight is focused on the impact of information on both your money and your mindset. Imagine you are on a walk at night. The path is completely dark and you don’t have so much as the light from your phone. The only information you’re receiving about where you’re walking is unverified and interpreted through your non-visual senses. When the landscape is uncertain and the risks are high, you’re far more inclined to proceed conservatively, so as to avoid causing yourself problems or harm.
On the contrary, if you’re walking along the same path in the middle of a sunny, warm day, your reservations about those same perils are all but extinguished. You’re much more confident, because you have reliable information to guide your decision-making and you know most threats are allayed. This same theme holds true for your personal financial planning and the global markets as a whole. Uncertainty breeds fear and fear is a terrible thing for the markets. Tesla’s stock didn’t plummet from $380 per share because Musk was Tweeting, rather than working. The stock plummeted, because investors became wary about the impact his behavior was going to have on the company.
The motivation to sell after Musk’s Tweet in August should not have been precipitated by fear or uncertainty, but those two elements are the foundation for irrational behavior. Instead, investors should sell when their own circumstances necessitate a trade. For instance, maybe you need to liquidate so you’re able to use the cash for a home improvement or you’ve noticed you’re too heavily weighted in American companies, so you liquidate to diversify. These decisions to sell an investment are not motivated by fear or uncertainty. Instead, they’re motivated by a rational and objective evaluation of your circumstances, using all of the information you have available.
Being methodical and, to a much greater degree, objective about your own circumstances is not a simple undertaking however, and we understand that. The value of having an independent, objective, and seasoned third party to be rational and objective on your behalf is why you hire attorneys, doctors, and of course, financial counselors.