Is Warren Buffett Invested in Tesla?
Written by
J. Arky
Edited by
Zuri Anderson
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Are two of the world’s wealthiest men in business together?
There’s been some speculation that Warren Buffett, the CEO and chairman of Berkshire Hathaway, has put his money behind Tesla, essentially joining financial forces with Elon Musk.
While the details are a little vague, GOBankingRates reached out to some money and economic experts to get the details on if Buffett is invested in Tesla or not, as well as what the answer means.
Short Answer: ‘No’
According to David Kass, a clinical professor of finance at University of Maryland, Robert H. Smith School of Business, Warren Buffett has not, and will not, invest in Tesla since it is not within his “circle of competence.”
“He seeks companies with a ‘durable competitive advantage,'” Kass went on to say. “Since he acknowledges that he has no special expertise in understanding new technologies, nor forecasting which high technology companies will be succeeding five years into the future, he has avoided them.”
Not Buffett Stock
Simply put by Robert R. Johnson, a professor of finance at Creighton University: Tesla is not a Warren Buffett-type stock.
“That doesn’t mean it is destined for failure, but is simply not one that Buffett is comfortable investing in. It is highly speculative and does not fit the profile of the type of companies that Buffett likes to invest in,” Johnson explained.
In Johnson’s opinion, Buffett likes companies with competitive advantages that are priced with a margin of safety.
“Using imagery recalling the Middle Ages, Buffett has stated that he wants to invest in businesses with economic castles protected by unbreachable moats,” Johnson continued. “That is a way of describing a firm’s competitive advantage and a way to assess the durability of that competitive advantage. Morningstar has adopted the concept of an economic moat and classifies them into five main types: Low-cost producer, switching costs, the network effect, efficient scale, and intangible assets.”
Tesla Is Speculative
Hugely speculative, in fact. However, according to Johnson, that doesn’t mean that investors can’t make money buying Tesla at these valuation levels.
“While I wouldn’t bet on Tesla at these valuation levels, I wouldn’t bet against the firm either,” noted Johnson. “Short term, there is no way of predicting what TSLAs stock price will be. But, long term there are several risks including a general pullback in the market that would likely impact more speculative stocks more than less speculative stocks. But, the biggest risk is that Tesla isn’t the big winner in the electric vehicle sweepstakes.”
Past Opportunities
Johnson pointed out that over the years that Buffett has “made it clear that in baseball terms, you don’t need to swing at every pitch thrown to you and, more importantly, there are no called strikes.”
Additionally, Johnson highlighted that at the 2020 Daily Journal shareholders meeting Charlie Munger made the Berkshire stance on Tesla clear when he told the audience that while he wouldn’t bet against Musk, he wasn’t buying Tesla stock either.
“My thoughts are two,” Munger said. “I would never buy [Tesla], and I would never sell it short.”
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