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50% Tesla in my Portfolio? A Cautionary Tale of Portfolio Allocation Gone Wrong

Updated: 5 days ago

Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.

 

We all make mistakes as investors, and sometimes the best lessons come from those mistakes. Today, I want to share my experience with allocating a significant portion of my portfolio to a single stock – Tesla.


Dollar-Cost Averaging Gone Wrong

Let's be honest, Tesla's story is captivating. In late 2021 and early 2022, I saw the price dipping and believed a strong comeback was imminent. Fueled by that belief, I kept dollar-cost averaging on Tesla, gradually increasing my position. This strategy can be effective, but in this case, it backfired.


Breaking My Own Rules

Here's where I went wrong. In chasing potential gains, I violated my own diversification guidelines which was to keep any single stock below 30% (ideally 25%) of my portfolio.


I reduced my holdings in other promising companies like

  1. Hubspot (initially 16% of my portfolio) after CEO Rangan Yamini's significant stock sale in March 2023.

  2. Microsoft (initially about 15% of my portfolio) when Satya Nadella's sold a sizeable amount of his stocks in September 2021, and when the company got affected by the Antitrust case.

  3. Servicenow (initially up to 10% of my portfolio) when CEO William McDermott sold up to almost all of his shares in end of 2022. to double down on Tesla. This decision exposed me heavily to Tesla's volatility. And these 3 stocks prices have since rose in value since I divested in them, making me wonder if the C-lvl execs selling their stocks is not something to be concerned with.


Three Years Later: A Sobering Reality

Fast forward to today, Tesla remains a significant portion (50%) of my portfolio, and it's still in the red after 3 years of holding the stock.

The rising competition from BYD and other Chinese manufacturers, and the potential for continued high interest rates affecting car purchases, all add to the concern.


A Blessing in Disguise?

Despite the current situation, there's a silver lining. This experience has further instilled my beliefs in a disciplined approach when it comes to investing.

If everything had gone according to plan, it might have fueled a dangerous sense of invincibility, leading me to take even riskier bets in the future.


Looking Forward: Holding with a Cautious Eye

Although I am cautious about future ventures like FSD (albeit progress is looking rather promising) and humanoid robots that lack a proven track record of generating revenue. As investors, we should prioritize proven revene generating products with established market demand.


I remain confident in Tesla's long-term potential & fundamentals, particularly in their core EV segment.


Therefore, my decision would be to HOLD the stock for now.


Based on conservative estimates, even a worse-case scenario of another 4 years to reach its all-time high of $407 (by 2028) would still yield a 25% CAGR (Compound Annual Growth Rate) returns.



This holding strategy assumes Tesla maintains a 10% top-line growth, which aligns with the projected EV industry growth for the next four years. (source: statista)

  • Although in reality, Tesla’s top-line growth rate will probably be higher than industry growth rate especially when interest rates are reduced.



Hence due to this decision, as long as Tesla's fundamentals remain strong, the stock will likely stay at 50% of my portfolio or even increase as the price climbs.


However, my plan is to divest once Tesla reaches its all-time high. The profits will then be used to rebalance my portfolio and invest in other promising opportunities. In the meantime, I'll continue dollar-cost averaging on those other stocks.


The Takeaway

This experience taught me a crucial lesson: diversification is important (or more accurately, it is important to not be overexposed to a single stock).

While chasing high returns can be tempting, a well-diversified portfolio offers greater stability and peace of mind. This journey is far from over, and I'll keep you updated on my progress. Let's learn and grow together as investors!



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