New Tech (Tesla) vs Old Tech (Energy Sector)

This is NOT a recommendation to buy TSLA stock, the stock of any automaker, or any stock or ETF representing the Energy Sector.  Hopefully, by now you know my view of the world - that picking individual stocks is a losing game over longer periods of time does not justify the fees for research and tax inefficiency.  Instead, you are better off lowering FEES and TAXES as much as possible and staying disciplined.

In the short run there are human behaviors that can strongly influence price movements, but betting one way or another on human emotions is also a losing game.  

Instead, this post is a quick review of Tesla's amazing run since its inception in 2010 and a comparison to the Energy Sector.  I suspected an inverse relationship between price movements in the Energy Sector and Tesla stock because in the simplest terms Tesla represents new tech and the energy sector is legacy tech.  

I also hope to show the fallacy in making investments just 'because the price is low'.  I have seen many other investment advisors overweight the Energy Sector after its precipitous price drop in 2014-2015.  This has proved to be a losing bet.  Why?  Because they had no reason to invest in the sector other than its price was low.  Price is not a reason.  Price is an effect.  What were these advisors' fundamental reasons that the Energy Sector would rebound?  Instead, they have found that their bets did not pay off.  They have lost betting on old tech when a new tech alternative was just beginning its epic rise.

Tesla's market cap ($390 billion) after its run-up this year is now basically equal to five well-known names ($391 billion).

You can also see that betting on these legacy automakers yielded an average 3% annual return since Tesla's inception in June 2010.  Nothing to write home about.  Especially when compared to Tesla's 55% annualized return over the same period.   The energy sector over the same 10+ year period has actually lost value.  This got me thinking about the relationship between Tesla and the S&P500's Energy Sector (i.e. Chevon, Exxon, Schlumberger, Kinder Morgan). 

I compared the time period after the major price drop in oil in 2014.  This graph shows a comparison of Tesla (TSLA) to SPDR Energy ETF (XLE).  They appear inversely correlated.

 

So let's invert the Energy Sector ETF (XLE) and take a closer look...

Hindsight is 20/20.  People only remember the success stories.   Nobody remembers the competitors and major issues Amazon faced during its infancy.   Nobody writes books about OnSale.com or Auction Universe.  Maybe that will be my next blog post!  I love short stories.

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