Legendary investor Jeremy Grantham has made plenty of good bets in his time, but he did not foresee the success that Tesla and its CEO Elon Musk would have.
Grantham, a cofounder of investment management company GMO, recounted what he described as “my favorite loser story” on a Friday episode of The Compound & Friends podcast
While he bought a red Tesla in 2019 and, in a quarterly letter at the time, wrote the car was “terrific” and “unlike anything my wife or I had ever come across,”, he considered the company’s stock to be a “different story” and “incredibly expensive.” But from that day on, he said, Tesla’s shares rose 10-fold.
Grantham explained that when he wrote the letter, Tesla “didn’t have any earnings, it didn’t look like it might have any earnings. In fact, it looked quite uncertain it would exist in two years. They had a cash crunch.”
As for how Musk pulled it off, Grantham said the Tesla CEO “was such a wonderful propagandist that he talked the stock up way ahead of any possibility, and then he sold lots of stock. Got a lot of assets. Talked the stock up again. Sold a lot of assets over and over again until he had generated out of thin air a massive amount of real buying power which went straight into these megafactories.”
Tesla completed its first gigafactory in 2016 in Nevada, followed by ones in New York, Shanghai, Berlin, Texas, and elsewhere.
Grantham added, “it was almost miraculous management generating the money out of thin air, out of bullshit and charisma.”
He noted that even just three years ago, it was easy to dismiss Tesla.
“All you had to do, said the critics, was wait until VW and GM gear up, and they’re toast, because you’re comparing people with decades and decades of grinding out vast volumes with these newbies,” he said. “Three years later, all you can hear is the sound of Tesla kicking their bottoms. It is amazing.”
Grantham made his name predicting the dotcom crash of 2001 and the Global Financial Crisis of 2008. But he hasn’t always been right, or perhaps he hasn’t always gotten the timing of things right. In July of 2022, having warned about a “superbubble” in U.S. stocks and the housing market, he said the S&P 500’s fair value was “pretty close to 3,000,” as opposed to 3,970 at the time.
“There is absolutely nothing to stop the market from going below fair value,” he said. “It’s certainly entitled to spend several months below 3,000.”
Of course, the S&P 500 has spent much of the time since above 4,000, meaning anyone who had invested based on his prediction would have lost money. But as he also said at the time, “This can be quick, like six months. Or it can be drawn out like in 2000, which took almost three years. You can’t really know if it’s going to be quick or long.”
Asked on the podcast whether we’re in a “big bubble,” he doubled down on his prediction and replied, “Yes, of course.”