Which super-wealthy person comes to mind when you think of wise investing advice? I suspect that the top answer would be Warren Buffett. But there’s another rich businessman who’s dispensing some investing wisdom these days as well.
Elon Musk currently ranks as the wealthiest person in the world, with a net worth estimated at $246 billion. He’s known more as an entrepreneur and maverick than he is as an investor. However, Musk just provided some great investing advice that you and I should absolutely follow.
Three principles and a promise
Musk is a prolific user of Twitter (NYSE: TWTR). Over the past weekend, though, he only tweeted once. But it was a tweet that every investor should read — and heed.
Since I’ve been asked a lot:
Buy stock in several companies that make products & services that *you* believe in.
Only sell if you think their products & services are trending worse. Don’t panic when the market does.
This will serve you well in the long-term.
— Elon Musk (@elonmusk) May 1, 2022
We could sum up Musk’s advice as three principles and a promise:
Principle No. 1: Buy stocks you believe in
The first principle has a couple of important components. Note that Musk recommended buying “stock in several companies.” Although he didn’t specify how many stocks to buy, diversifying your investments across multiple stocks is a good idea.
The multibillionaire also provided his thoughts on what kinds of stocks to buy. He advised to invest in companies that make products and services that you believe in — with an emphasis on the word “you.”
Musk has practiced what he preaches on this front. Most of his net worth is in Tesla (NASDAQ: TSLA). Even his detractors probably would agree that Musk appears to truly believe in Tesla’s electric vehicles and solar panels. Musk seems to be fully on board with Tesla’s stated corporate mission “to accelerate the world’s transition to sustainable energy.”
His plan to acquire Twitter also fits. Although Musk has criticized some of Twitter’s policies in the past, his public comments indicate that he values the potential of the platform.
Other Musk investments line up with this philosophy as well, including privately held SpaceX and The Boring Company.
Principle No. 2: Only sell if your original premise changes
Musk advised to only sell stocks when the products and services of the companies that you invest in “are trending worse.” My interpretation of this is that he thinks the time to sell stocks is when your original premise for buying the stocks changes. In other words, if the point comes where you no longer believe in a company’s products and services, sell the stock.
Principle No. 3: Don’t panic when the market plunges.
The third principle that Musk gave dovetails with his second principle. He urged that investors not panic when the market does. That’s excellent advice.
Just look back to early 2020. Some investors did panic then when the stock market plunged. However, those who didn’t do so went on to reap huge gains.
Granted, the stock market doesn’t rebound so quickly after every major sell-off. But history shows that it does always come back.
Musk closed his tweet with a promise that following the principles he laid out “will serve you well in the long term.” I think he’s exactly right. And his specific mention of “the long term” is important. The best way to succeed with investing in stocks is to have a long-term mindset.
In good company
Musk is in good company with his investing advice. I’d even say that he’s in great company.
Legendary investor Peter Lynch popularized the idea of “buying what you know.” Warren Buffett has always focused on investing in businesses that he understands. Both views are similar to Musk’s take to buy stocks of companies that make products and services you believe in.
Musk’s advice lines up even better with the view of David Gardner, co-founder of The Motley Fool. Gardner’s pinned tweet on Twitter since early 2021 states, “Make your portfolio reflect your best vision of our future.” The advice to only sell when your underlying premise changes and to ignore market moves also match up with The Motley Fool’s investing philosophy.
So does Musk’s promise that following his principles will pay off over the long term. It’s understandable for investors to be afraid and worried when stocks sink. But if you still believe in the company’s long-term business prospects, stay the course.
Musk sometimes talks about the days several years ago when Tesla almost went bankrupt. He stuck to his guns then because he continued to believe in the company. If he hadn’t, it’s unlikely that he’d be the richest person in the world right now.
You probably won’t agree with everything that Elon Musk says. I don’t. However, I think that his latest investing advice is spot on. And — as he tweeted — following it “will serve you well in the long term.”
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