Your money is no good here

Something very powerful happens when you become financially independent.

Not financially independent as in, my job will give me enough money to retire happy.

Financially independent as in, if I quit work today I’d still have enough money to retire happy, and to provide for the people you care about indefinitely.

That is true power.

Not the power to exert your will on others, but the power of being beholden to no one – forever.

That’s true freedom.

And that’s what financial independence provides you with.

The idea is summed up well by John Goodman’s character in the 2014 remake of The Gambler.

In one scene, Goodman, playing an accomplished loan shark, gives the hapless Mark Wahlberg some stellar advice.

I’ll **** out the swearing here, but you can watch the clip on YouTube if you want it in full effect.

Here’s the dialogue:

Goodman

You get up two and a half million dollars, any a**hole in the world knows what to do:

You get a house with a 25 year roof, an indestructible Jap-economy sh**box, you put the rest into the system at three to five percent to pay your taxes and that’s your base, get me? That’s your fortress of f***ing solitude.

That puts you, for the rest of your life, at a level of fuck you. Somebody wants you to do something, f*** you. Boss pisses you off, f** you!

Own your house. Have a couple bucks in the bank. Don’t drink. That’s all I have to say to anybody on any social level.

Did your grandfather take risks?

Wahlberg

Yes.

Goodman

I guarantee he did it from a position of f*** you.

A wise man’s life is based around f*** you.

Has Elon Musk been watching The Gambler?

The reason I am thinking about this today is because yesterday morning I woke up to the news that Elon Musk wants to make Tesla a private company again.

Why would he want to do that? To give the company more freedom.

In his own words:

Basically, I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible.

Musk announced his plans, as he likes to do, over Twitter. And on the news Tesla’s share price jumped more than 7% before trading was halted.

This must have made Musk happy. One of the reasons he gave for wanting to make Tesla private again was Tesla being “the most shorted stock in history”.

When the price jumps, short sellers lose money. I’d imagine in this case, an awful lot of money.

He later published the email he sent Tesla employees this morning on Tesla’s website explaining his rationale.

Here’s an excerpt:

Earlier today, I announced that I’m considering taking Tesla private at a price of $420/share. I wanted to let you know my rationale for this, and why I think this is the best path forward.

First, a final decision has not yet been made, but the reason for doing this is all about creating the environment for Tesla to operate best. As a public company, we are subject to wild swings in our stock price that can be a major distraction for everyone working at Tesla, all of whom are shareholders. Being public also subjects us to the quarterly earnings cycle that puts enormous pressure on Tesla to make decisions that may be right for a given quarter, but not necessarily right for the long-term. Finally, as the most shorted stock in the history of the stock market, being public means that there are large numbers of people who have the incentive to attack the company.

I fundamentally believe that we are at our best when everyone is focused on executing, when we can remain focused on our long-term mission, and when there are not perverse incentives for people to try to harm what we’re all trying to achieve.

This is especially true for a company like Tesla that has a long-term, forward-looking mission. 

You can read it in full here.

And I guess, if you can get the money you need from elsewhere, why would you want the hassle of being a public company? Especially when you’re such an experimental and unconventional company as Tesla.

There are many advantages to being private. And it’s an increasingly popular route for many major firms.

From Fortune in 2016:

Uber, No. 1 on our new ranking of America’s most important private companies, is an extreme example of a significant trend. American business is increasingly shunning the traditional marker of making it—being publicly traded—in favor of private ownership.

While the total number of U.S. companies continues to grow, the number that are traded on stock exchanges has plunged 45% since peaking 20 years ago. IPOs, once a bubbling indicator of U.S. business dynamism, dried up after the dotcom bust in 2000 and have never recovered, even though today’s economy is far larger.

Some public companies, meanwhile, are repenting of their choice and returning to private ownership. Many other companies are simply staying private.

In fact, some of the biggest and most advanced companies in the world are privately owned. Have a look at the list below of the world’s top 10.

When Fortune published the article I’m quoting above, it also carried out a survey of CEOs.

It asked: “Do you agree or disagree with the following: It would be easier to manage my company if it were a private company rather than a public company.”

77% of the respondents agreed.

Freedom over money

However, it’s not exactly easy to raise enough money to buy back a massive company like Tesla.

If Musk does manage to take Tesla private, it will be the “largest leveraged buyout in history”.

And as The Guardian points out: “Analysts say Tesla doesn’t fit the typical profile of a company that can raise tens of billions of dollars of debt to fund such a deal.”

But it’s exactly this kind of naysaying by analysts that has pushed Musk to make this decision. That is, if it doesn’t all turn out to be a big stunt to hurt Tesla’s short sellers.

However, if it was I’m pretty sure he’d be looking at some serious market manipulation lawsuits, which I’m sure he’s aware of.

If it does all goes through, this surely has to be one of the most interesting things a major company has done for decades.

I mean how often does a company choose freedom over money?

If Musk is telling the truth, and that really is the reason. It’s a good one.

Until next time,

Harry Hamburg
Editor, Exponential Investor

 

Category: Technology

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