When Elon Musk – the second richest man on Earth, according to recent figures published by Investopedia – tweets about his investments, amateur and professional investors alike tend sit up and pay attention.
Recently Musk tweeted about his digital investments, saying that he’d acquired some bitcoin, ether and dogecoin, which he referred to as “the people’s crypto”.
Other notable Musk holdings include SpaceX, Tesla Motors and The Boring Company. But should you follow his lead and build a similar portfolio?
SpaceX, Tesla and The Boring Company
SpaceX, The Boring Company and Tesla are all owned by Musk, so it’s no surprise that he backs them to the hilt.
It would certainly be hard to argue that Tesla isn’t worth a punt. The electric car maker’s revenues have been soaring in the past five years, moving from $7bn back in 2016 to $31.5bn by the end of last year.
SpaceX and The Boring Company are not publicly traded companies, so it’s harder to gain exposure to them. When it comes to SpaceX, perhaps this is a good thing as it could be considered more speculative than putting money into the likes of Tesla. Electric cars are almost certainly the future, but can we say with any certainty that space travel will become mainstream in our lifetimes?
Musk’s success in building his business empire shouldn’t be discredited, though.
“Despite or perhaps because of their audacious visions, both Tesla and SpaceX have overcome many major setbacks to date. A lot of very smart people have consistently underestimated Elon's ability to deliver on his business promises,” points out Andrew Scott, founding partner of 7percent Ventures.
“Most recently, Hertz has ordered 100,000 Teslas for its fleet, which sent the stock soaring again, and SpaceX remains on track to successfully operate the world’s most powerful yet most economical heavy-lift rocket, to take cargo and human beings into high earth orbit and far beyond,” Scott added.
Musk and bitcoin
When it comes to bitcoin, Musk tend to blow hot and cold. This year he has confirmed that he and his companies (SpaceX and Tesla) do own some, despite his misgivings about the coin and the environmental impact.
Bitcoin has had a volatile trading history, but if you’d got in on this digital currency in the early days – say in November 2011, when it bottomed out at $2 – you’d be sitting rather wealthily now, with the bitcoin price currently at $60,780.
The price of bitcoin has recently been propelled further by the launch of the ProShares Bitcoin Strategy ETF fund. Eager investors poured more than $1bn into the fund, driving the bitcoin price higher.
Speculation is rife that the ether price could go over $5,000 before the end of 2021 and hit the $50,000 by 2030. This is all on the back of predictions that ether, too, will have an exchange traded fund tracking its performance. Its pricing tends to be closely linked to bitcoin’s performance.
Without knowing the size of his exposure to these digital currencies, it’s hard to know whether Musk considers them a fun punt or something more.
“It's perfectly normal for Elon to have that portfolio, but you likely won’t find it recommended to anyone else,” said Mathieu Hardy, chief development officer at Osom.finance. “He hasn’t revealed the size of his dogecoin, bitcoin and ethereum portfolio, so it’s hard to say in what proportion he holds them, and whether that’s sensible.”
When it comes to digital tokens, is Musk supporting the right one? Musk has posted a series of tweets about dogecoin in recent months.
This is, however, the riskiest investment of the lot, mainly because the coin’s popularity on social media makes it prone to wild price swings. Dogecoin was launched in 2013 as a joke by software engineers Billy Markus from IBM and Jackson Palmer of Adobe. Neither co-founder is directly involved in it any more.
But should Musk’s dabble in Doge be considered above all others? Not if the performance of rival meme token Shiba Inu, a cryptocurrency that Musk has publicly snubbed on Twitter, is anything to go by.
Shiba Inu surged in price this week and is now considered the 11th largest cryptocurrency – just behind Doge, which is the 10th biggest, with a market cap of $31bn.
To invest or not?
So, should you take note of which companies and digital assets Musk has invested in, and copy him?
Not many analysts are fans of this approach: most would consider it too much of a gamble. What’s more, any gains you could make following Musk’s tweets could be short-lived.
“With regards to people reacting to Elon’s investments, it would be advisable to take his statements with a pinch of salt,” averred Kay Khemani, managing director of the trading platform Spectre.ai.
“When a visionary like Elon, who boasts a considerable social following, highlights any given asset, it will mostly be reflected in price action for that particular asset. As the crypto markets mature over time, it seems likely that the influence of any given individual on market prices will wane.”
Ultimately, many feel that the level of risk inherent in Musk’s portfolio is not suitable for the average investor.
“He holds a highly speculative and highly risky portfolio. Having said that, his holdings could fall by 99% and he would still be wealthier than 99.9% of the population,” noted Robert R Johnson, a professor of finance at Heider College of Business, Creighton University. “Essentially, his acceptance of a very high degree of risk may be perfectly consistent with his goals and objectives and personal circumstance.”
While Musk can afford to take gambles without worrying unduly, it’s doubtful that many others are in a position to take the same kind of risks.