How do financial markets ignore the whims of current affairs people?

Author: GUDORDI | 2023-06-14

Musk is well-known for his bold ideas and actions, which have also made him an idol to many people. (Asian News Agency)

Continuing from the previous article: “What kind of financial center does Hong Kong need?” 〉

People who are aware of current affairs will adapt to the world, while people who are ignorant of current affairs will try to change the world to suit themselves. Therefore, all human progress can only be driven by those who are ignorant of current affairs.
The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.
──Bernard Shaw (1925 Nobel Prize winner for Literature)

Above, the author mentioned that Musk recalled how he understood the way to achieve breakthroughs in SpaceX’s business from the “first principles” thinking of a physicist. Basically, Musk is an oddity, and Tesla, the company in which he is the majority shareholder, is also an oddity in the stock market. Tesla never made any money in the first 10 years since it went public in 2010. In terms of sales volume, Tesla accounts for less than 3% of the entire global automobile market, but its market value is larger than all listed automobile manufacturers in the world combined, which is surprising to many people. Due to the rapid rise in Tesla’s stock market value, Musk’s wealth has also increased, and he became the world’s richest man in 2021, when Musk was only 50 years old.

Never underestimate those who overestimate themselves

It is said that hatred of wealth and envy are one of the basic characteristics of human nature. From this perspective, provoking bad blood or even conflict among the rich may satisfy the deepest desires of many media and the public. Therefore, the views of the major traditional rich people on these new young rich people have become a subject of “close attention” by many media and public figures. Gates and Musk don’t agree with each other, and it is quite public that they have short-sold Tesla’s stock. In many public occasions, Buffett and Charlie Munger are often asked what they think of Tesla and Musk.

A few years ago, someone asked Charlie Munger in public what he thought of Musk. Charlie Munger then mentioned that a friend of his in Los Angeles once said something that he has always kept in mind, which is, “Never underestimate those high-ranking people.” never underestimate the man who overestimates himself. Charlemagne also said that it is better to hire people who have an IQ of 130 but think they only have an IQ of 120. Those who have an IQ of 150 but think they have an IQ of 170 will only bring you the most trouble.

On the other hand, Musk publicly said, “to be totally frank, I am not his biggest fan” (to be totally frank, I am not his biggest fan), and felt that he just sat in the office and watched the company every day. Annual reports and then analyzing how to allocate capital is “pretty boring really”. It can be said that many media and public figures have always been keen to stir up the “confrontation” between Musk, Buffett, and Charlie Munger in public, and this has been going on for many years.

Tesla is the first company to produce autonomous electric vehicles. (Wikimedia Commons)

Warren and I only look for easy things to do

At the recent annual Berkshire Hathaway Annual General Meeting, someone asked in a somewhat provocative manner whether Charlie Munger still felt that Musk overestimated himself in view of Musk’s achievements in recent years. The author feels that the answers given by Buffett and Charlie Munger are worth studying, and can also bring a lot of enlightenment to the nature of financial markets and what kind of financial center Hong Kong needs, so the excerpts are as follows:

Charlie Munger’s immediate response was: “Yes, I think Musk overestimates himself, but he is really talented, so he overestimates a person who does not need to overestimate himself…” (Yes, I think Elon Musk overestimates himself…but he is very talented. So he is overestimating somebody who doesn’t need to over-estimate…)

Buffett went on to say: “He is a very outstanding, outstanding person… I would say his IQ is probably higher than 170… He dares to dream, and his dreams are based on a foundation.” (He is a brilliant, brilliant guy…I would say that he might score over 170. He dreams about things…and his dreams have got a foundation.)

Charlie Munger then interjected: “If he had not tried to pursue some unreasonable and extreme goals, he would not have been able to achieve what he has accomplished so far in his life… He seems to like to do things that are impossible, but we are very It’s different… Warren and I would just look for things to do that are easy to do…” (He would not have achieved what he has in life if he hadn’t tried for unreasonably extreme objectives… He likes taking on the impossible job and doing it…But we are different…Warren and I are looking for the easy job we can identify…)

SpaceX is Musk’s private space transportation company. (Wikimedia Commons)

As long as you dare to think!

There is no doubt that Musk’s style of doing things is a bit like knowing that there are tigers in the mountains and preferring to travel to the mountains with tigers. Charlie Munger’s view also has merit. What can we say? For a moment, the author remembered the famous quote from Bernard Shaw, the 1925 Nobel Prize winner for literature, quoted at the beginning of this article. Maybe Musk is what Bernard Shaw referred to as a person who “doesn’t understand current affairs”?

A question that arises is, how do the financial markets view this company created by people who are ignorant of current affairs? Is there a lot of bubbles in Tesla’s valuation? This is not an easy question to answer – as Greenspan said, whether a bubble exists can often only be known in hindsight.

I remember that in an interview, Buffett was asked what Tesla’s valuation phenomenon meant. Buffett’s answer at the time is worth pondering. He said, “This represents the production of the United States… He is really innovative… This is America… As long as you dare to think about it, that’s it! This is amazing!” ( It shows what America produce!…He has got an idea…that’s America…you can dream it up! It is astounding!)

If Tesla had not been listed in the United States, would it have achieved today’s market valuation? We are not sure whether Tesla’s bright future can be realized, but the U.S. capital market can at least give these alternative companies a possibility, and giving opportunities to different types of companies to achieve various developments is one of the most basic functions of the capital market. ? From this perspective, no matter how big the problems are in the U.S. capital market, we may have to admit that it is still the strongest capital market in the world.

This leads to another question, which is how to develop Hong Kong as a financial center. Should it be like Buffett and Charlie Munger said: “Find something that is easy to do”, or should we be like Musk and be bold and innovative? Forge ahead? This is not a simple question. Let’s talk about it next time.

“Hong Kong’s Legendary Future” Series 33

Contact the author: Gudordi@proton.me