Elon Musk & the market: word worth billions

We continue our series of articles on financial literacy aspects with a story about the notorious Elon Musk, namely, the scale of his influence on the stock markets. How does he do it? And what can the average investor learn from this story?

The power of words

Having firmly taken over Twitter back in 2009, the richest man in the world has repeatedly proved his ability to decide the fate of global markets with just a few words. 

Who will supply batteries for the long-awaited Tesla Model 3 electric car? “Would like to clarify that Tesla is working exclusively with Panasonic for Model 3 cells,” Musk dispelled all rumors in June 2016. As a result, Panasonic immediately added $0.8 billion in value. In the meantime Samsung SDI, which was considered the most likely supplier, fell in price by almost $0.6 billion.

A “Use Signal” tweet in January 2021 was enough for Musk to increase the capitalization of Signal Advance in three days by 5100% (!), to almost $0.4 billion. Although on the fourth day it finally became clear that the company had nothing to do with the secure messenger that Elon had in mind. Shares of the medical products manufacturer went down again.

A similar story repeated just a couple of weeks later. Musk's announcement of the emergence of the Clubhouse social network temporarily more than doubled non-project shares in Clubhouse Media Group. Shares of the Chinese company of the same name soared more than 100% in over-the-counter trading immediately after the Tesla founder announced on Twitter his participation in Good Time. When investors figured out the mistake, the stock fell sharply.

In the same January 2021, Musk tweeted on a meme with a famous anime heroine encouraging “Hey, you yeah king. You're gonna make it". And again the hero of the occasion Bandai Namco Holdings, who owns the rights to the cartoon character, on the same day monetized 550 thousand likes and 100 thousand retweets of the post in an increase in its value by 4,4%.

Polish developer of computer games CD Projekt, retailer GameStop, marketplace of hand-made goods Etsy… Elon's generosity truly knows no bounds.

Crypto obedience? Why not

The manipulation of the business magnate with the cryptocurrency market deserves special mention.

May 2021. Bitcoin sank more than 15% after Musk said that he was suspending the acceptance of cryptocurrency as payment at Tesla. Soon after, the coin lost another 8% after Musk’s laconic “Indeed” regarding the possibility of a complete sale of Tesla’s bitcoin assets.

Shortly before this, the news about Tesla investing $ 1.5 billion in bitcoin, on the contrary, had expectedly warmed up its quotes. And even earlier (again in the winter of 2021), when Musk's mouthpiece was especially powerful, he tweeted "In retrospect, it was inevitable", adding the #bitcoin hashtag to the profile description. Investors took the hint, raising the asset price by 20%.

July 2021. At one of the conferences, Musk admitted that he also has Ethereum in his cryptocurrency portfolio. The currency immediately jumped 12%.

Finally, Dogecoin owes a lot to Musk. The coin, which appeared in 2013 as a joke, soared more than 60% after the “Doge” tweet against the backdrop of a flying SpaceX rocket in February 2021 and several subsequent posts by Elon on the same topic. However, the asset sank 28% in a couple of hours after Musk appeared on a TV show in May, when he dropped that Dogecoin was a “hype”.

Measure twice and cut once

Should we talk about Musk's conscious manipulation? Hardly. At least the author himself has repeatedly admitted that he was careless and regrets some of his posts. And the veracity of these words is proved by Tesla, Musk's favorite brainchild, which was harmed by almost everything he said.

On the international April Fool's Day, April 1, 2018, Musk decided to play a trick on his subscribers and published a series of tweets about Tesla's bankruptcy. “Despite intense efforts to raise money, including a last-ditch mass sale of Easter Eggs, we are sad to report that Tesla has gone completely and totally bankrupt. So bankrupt, you can't believe it," he wrote, in particular. Investors did not understand the joke: the next day, the company's shares sank by more than 5%.

In the same year, Elon announced his readiness to buy the shares of his favorite company. “Am considering taking Tesla private at $420. Funding secured,” he tweeted. The stock, which was worth around $350 at the time, immediately gained 11%. But the US Securities and Exchange Commission (SEC) also responded to the post. The misleading case it initiated ended with Musk stepping down as Tesla chairman, paying a $40 million fine, and agreeing that all social media posts by the billionaire materially related to Tesla must now be pre-approved. The company itself lost $20 billion in capitalization. And that was just the beginning! The decline continued after Musk's famous smoking marijuana incident on a live TV show (-10%) and an ironic post about the SEC a little later (-5%).

Finally, in May 2020, Musk posted on his page that "Tesla stock price is too high imo." Result: the growing quotes of the company collapsed by more than 10%, saving its founder from the "extra" $ 2.8 billion.

Hold on to yours

And yet, hardly anyone from the serious global investment community doubts that most of Musk's statements are made by him consciously, both for simple quick profits and as another move in a more subtle strategy game of a global scale. Some believe that individual statements simply serve to study the power of influence on an audience of millions and world markets.

It should not be ruled out that today's events also belong to the same context - the sensational epic with Musk's purchase of Twitter for $44 billion. There are a lot of strange things in this story: Elon's statement in April of this year about the initial unwillingness to get involved in the deal, a rapid change of opinion, a significantly overestimated cost purchases ($54.20 per share at $36.29 on July 15), repositioning and its reason (reluctance to buy due to an excess of bots in the service). Compared to the scale of what is happening, the $1 billion break-out clause due to the fault of one of the parties seems completely miserable. Probably, Musk himself sees them absolutely the same way, ready for additional legal costs (and Twitter has already sued him). As the businessman himself said about the negative impact of his posts on Tesla, the likes are worth it.

Be that as it may, Musk's behavior has already influenced – and will certainly continue to directly influence – the fate of the stock markets. 

What other conclusions should our readers draw from today's story? Perhaps the following:

  • Stock markets are far from being as rational and inactive as many investors would like. They can be powerfully influenced not only by truly structural events, but also by literally a few words dropped by someone. If you are looking for more stable ways to make money, you can consider investing in REITs, bonds or P2P. 
  • (Time) information is money. Timely reaction to important market news is one of the keys to investment success. By the way, one of the “side effects” of what has been said is the likely strengthening of the legislative regulation of public statements that affect the market.
  • And yet, an adequate opinion remains the most important factor. Investors who blindly follow numerous "gurus" can very often and fast be left with nothing. The case with Musk in this sense is just one of hundreds and thousands of others. 

* The information in this article is intended for educational and entertainment purposes only and cannot be considered investment advice.

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