Begin To Invest - January 3rd - is Tesla like Yahoo?
Jan 03, 2021 5:56 pm
This Week in Stock Market History
“There is no better teacher than history in determining the future... There are answers worth billions of dollars in a $30 history book.”
― Charles T. Munger, in Poor Charlie’s Almanack
January 2nd, 2000 - Yahoo Reaches Its All Time High at $500.31 per share
Today, Tesla ($TSLA) is making waves in the stock market after it was officially added to the S&P 500 index. With a market cap of nearly $700 billion, Tesla instantly became the 6th largest holding in the S&P 500.
That has a lot of index investors concerned. A stock that many fear is in a significant bubble, has become one of their largest holdings literally overnight.
This week in history is the anniversary of the peak of another bubble stock from cycles past - Yahoo, that was also added to the S&P 500 index after it had risen substantially.
Yahoo was added to the S&P 500 index on November 30th, 1999. At the time, Yahoo had a market cap of $56 billion, and its stock was up 6,278% over the prior 3 years.
To put today's Tesla move in perspective - Tesla is "only" up about 1,100% over the last 3 years. (Though, it is up over 13,000% over the last 10 years).
On this day in 2000, after just over 1 month as part of the S&P 500 index, Yahoo's market cap reached just over $120 Billion, a level that would end up being Yahoo's ultimate peak.
By September 2001, Yahoo's shares would be $8, a decline of 98%.
Will Tesla share the same fate? Of course no one knows for sure, but there is one more striking similarity - Tesla's lack of profits, just like Yahoo.
At its peak, Yahoo had an annual Net Income of $61 million. Based on its peak market cap of $120 billion, that gave the company a PE Ratio of nearly 2,000.
Today, Tesla is similarly unprofitable, with profits of about $550 million, but a market cap of $700 billion, for a PE ratio of 1,100 - Still astronomically high!
At the very least, the lesson from Yahoo's inclusion in the S&P 500 index, and its subsequent fall should be a warning for Tesla investors today. Inclusion into the index is no guarantee for future success or longevity. And with such lofty valuations, Tesla, like Yahoo in 2000, has little to no margin of error.
For our US readers - A new year means new rules for 401(k), IRA, and Roth IRA savings. Although this year has less changes than normal, there are some adjustments. Our new post this week details what you need to know.
This image below has some of the headline numbers. If you are looking for more detail, our post gives more information.
What We Are Reading This Week
If you have a goal for reading more in 2021, we have the perfect post for you!
Last year, Begin To Invest saw nearly 250,000 visitors (Thank you!). I compiled the most popular books that were purchased from the affiliate and advertising links on Begin To Invest last year, to come up with a list of our readers top 10 books.
The article gives a brief review of the books, and links to many other older blog posts where we looked at the book, or its topics in greater detail.
If you are looking to fill up your reading queue for 2021, this post is a great place to start.
As a reminder - We give away money to our newsletter subscribers every month. Don't forget to enter into January's giveaway, here:
But there is a lot of Graham content out there that has been lost. I ran across this interview with Graham from many years ago, and found it incredibly surprising. Just for example:
"In selecting the common stock portfolio, do you advise careful study of and selectivity among different issues?
In general, no. I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, 40 years ago, when our textbook "Graham and Dodd" was first published; but the situation has changed a great deal since then. In the old days any well-trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their cost. To that very limited extent I'm on the side of the "efficient market" school of thought now generally accepted by the professors."
I was not aware of Graham's change of heart as time went by!
That's all for this week. I wish you and your family the best for 2021. Thank you for making 2020 another incredible year on the Begin To Invest blog.
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