Tesla Shares Fall as Musk Offers To Sell

People are always saying things like Bill Gates is worth $XX billion based upon the current Microsoft share price times the number of shares Bill Gates owns. While this is a reasonable approximation –and unless Gates is going to throw open his books, the only one we have– it is actually completely unrealistic. The same thing is true of Elon Musk, even though he has two big chunks of stock.

Big Sells Equal Big Falls

One of the problems with deciding that anyone is worth their shares times the share price is that the reality is that their shares are at once worth both more, and less, than the current share price.

Ever wonder is Zelle a scam?

In sort of a Schrödinger’s Cat of stock prices one can see how someone like Musk’s stock is worth both more and less than the current price per share. We got a nice example of the “less” thanks to Musk’s weekend tweet.

Tesla Shares Fall as Musk Offers To Sell 1

On Saturday, Musk proposed selling 10% of his Tesla stock, if the people voted for it. By the time the poll ended, over 3.5 million people had voted (or more specifically 3.5 million Twitter accounts had voted). The result was a resounding Yes.

Whether Musk follows through or not remains to be seen. Musk loves to shoot off Twitter messages that get attention. It is not always a good thing. Supposedly, the SEC wasn’t going to allow this, or he was supposed to run it by company attorneys first or something, but clearly either that expired, or it isn’t happening.

Tesla Stock Down Monday

The maxim goes, “Sell the rumor, Buy the news.” So, on Monday, Tesla stock was down 3%.

How does this fit our Schrödinger’s stock?

If someone just sells a large chunk of stock on the open market, the price of that stock will fall. The big sell is increased stock supply. The law of supply and demand applies strongly to the typical stock market auction, so… the price falls. Indeed, the possibility that Musk will sell 10% of his shares is driving the price down. If Musk were to sell ALL of his shares, the price would fall so far, so fast, that he would get much less than the # of shares X current share price formula everyone was using to calculate his worth.

How Are Shares Worth MORE?

In order to be a Schrödinger’s situation, there has to be a way Musk’s shares could be worth more if he sold them, and there is.

If Musk were to sell his share to a specific person or organization, that buyer would become the defacto controller of Tesla. That is worth a lot more than the current share price times the number of shares. In this case, Musk and the buyer would bargain with each other and come to a purchase price. That price would undoubtedly include a premium over the current share price.

In this circumstance, Musk’s net worth would be much higher than the simply share price times shares formula.

In the end, the whole “Jeff Bezos” is worth a certain amount is a game. The exact number is irrelevant. Much like getting a free credit score, the exact number isn’t as relevant as whether the number is going up or down. Likewise, this net worth guess isn’t as relevant as seeing if someone’s net worth is increasing, and if so, how fast, and so on.

The reality is that just like you, even Bezos himself probably doesn’t know exactly what his worth is. For you, there are cars that you only know the approximate value of. Likewise, your house, and maybe there was money you invested in your nephew’s business that might be worth a lot, or nothing, depending upon how things go, and company stock options that aren’t really vested, and so on.

For Bezos, there is undoubtedly a series of assets not instantly valued like real estates, trusts, and so on. Not to mention loans, with collateral, and assets that are in the process of being sold or bought, and so on. Yachts, homes, jewelry, and who knows what else.

Just like you, the approximation has less to do with knowing “the number” and more with if you are doing well, or not, and if that is getting better or worse.

Either way, Tesla stock is down today.

Don’t even ask me whether Tesla is a buy or Tesla is a sell. There is no possible way that Tesla is worth more than all the other American car makers combined like its market cap says. On the other hand, everyone who has tried to sell into that knowledge has lost money. For my own personal purposes, I consider Tesla a knife, and I don’t play with knives. You do you.

By Brian Nelson – Brian is a former Certified Financial Planner and financial advisor. He writes for the Finance Gourmet and other financial publications. The material provided on this website is for informational use only and is not intended for financial or investment advice. At the time of publication, Mr. Nelson did not own any securities mentioned above, however, that may change at any time without notice. ArcticLlama, LLC, FinanceGourmet.com, and Brian Nelson, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.

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