Tesla's rise to retail investor fame: "It's always on people's minds"

• According to research, Tesla is predicted to have the highest net inflows from retail traders among all securities in 2023.
• The stock has experienced a surge in individual investor interest in recent years, reaching a pinnacle moment.
• Tesla's disruptive technology and future-oriented focus are reasons why everyday investors like the company.

Marko Sustic has bet big on this year.

In 2023, the investor, who works in the European auto industry, bought Tesla shares almost every month and doubled his position. Sustic believes that competitors won't be able to match Tesla's technology and has no other electric vehicle holdings.

The 32-year-old said, "It's impossible to keep up with them," while also owning two Tesla cars at his home in Croatia. "It's only a matter of time before the stock market explodes."

Tesla is expected to attract the most individual investor dollars of any security in 2023, according to Vanda Research.

Tesla's stock has surpassed even the S&P 500, the world's largest stock market index, highlighting its rapid rise to prominence among retail investors. Despite not being among the top 20 equities purchased by individual investors before 2019, Tesla has quickly gained popularity and recognition.

A banner year

The surge in Tesla's popularity among retail traders can be linked to its remarkable recovery in 2023, as stated by Christopher Schwarz, a finance professor at the University of California Irvine. Despite dropping 65% in 2022, the Elon Musk-led stock has more than doubled in value in the current year.

Nvidia, one of the "Magnificent 7" mega-cap technology names, has outperformed the market this year. While many investors have focused on Tesla and other disruptive technology companies in this elite group, Schwarz believes that Nvidia may be too expensive for many individual investors due to its more than tripling in value this year, which is largely driven by an appetite for all things related to artificial intelligence.

Schwarz believes that the attention of retail traders is drawn to Musk, who has recently purchased X, formerly known as Twitter. The Tesla CEO's contentious purchase has brought increased media coverage and scrutiny, according to Schwarz.

Schwarz stated that individual traders typically select stocks that stand out, are well-known, and align with current trends. Given Musk's image, the increasing visibility of Teslas on the road, and the growing concern about climate change, Schwarz believes that the stock meets the criteria for everyday investors.

Schwarz stated that people are always considering trading when they're searching for something to exchange.

‘That was a bargain’

Despite Tesla's recent turbulence, individual investors see it as an opportunity to buy shares at lower prices. They are confident that the share price will continue to rise.

As the pandemic hit in 2020, construction contractor Jeremy Ford in Virginia bought Tesla shares after his wife considered and eventually purchased one of the company's cars.

Ford has attempted to profit from buying and selling shares in Tesla based on news about the company over the past year. For instance, he sold some stock before the release of poor third-quarter delivery numbers, only to buy back again before the unveiling of Tesla's electric pickup truck.

The 48-year-old now has the same number of Tesla shares as he did at the beginning of 2023, but his cost basis has decreased. Ford has reallocated some of its profits to new investments in and Nvidia. While Nvidia is tracking to see the fourth largest net inflows this year, Ford is not in the top 20, according to Vanda data.

Although he has reservations about Musk's departure, he remains optimistic about Tesla's future due to its expansion into robotics and AI technology.

If you can identify a unique product that people adore and is different from others, you have the potential to earn a substantial amount of money," Ford stated. "In the future, I am confident that I will view the current stock price as a bargain.

‘Guts and heart’

Although Tesla has had a successful year on both Wall Street and Main Street, some analysts predict challenges ahead. Specifically, Roth MKM analyst Craig Irwin believes that profit margins may be impacted by further price cuts as growth slows down.

The stock could benefit from industry turbulence, as investors may turn to companies like Tesla, which have demonstrated their ability to design, manufacture, and sell vehicles.

Tesla's stock may remain "levitating" above its market value due to the loyalty of retail traders who are more likely to hold onto the brand than institutional investors.

Tesla is loved by many, according to Irwin, who stated that retail often relies on instinct and emotion.

Earlier this year, an analyst pointed out that changes in individual investor sentiment are crucial to Tesla's stock performance, and hedge funds pay attention to these trends when making investment decisions.

Tesla is not recommended to be bought or sold by Irwin on Wall Street, who has given it a neutral rating of "hold." According to LSEG's average analyst survey, the stock is expected to fall approximately 13% in the next year after its 2023 rebound.

Experts often mock retail investors for their inability to accurately predict market trends and effectively manage their funds.

Despite the decline of the "meme" stock craze, retail trading continues to be popular, with everyday investors putting more than four times the amount of money into their 20 most-bought securities in 2023 compared to all of 2018, according to Vanda data from early December.

This year, the flight to Tesla for Schwarz, the UC professor, is complex.

If individual investors are making larger bets on single stocks than funds that invest in diversified indexes like the S&P 500 ETF, it is concerning, he said. However, while spreading bets across a pool of stocks is safer, trying to pick certain companies is more desirable than not being in the market at all, he added.

If traders simply purchased the index and neglected their brokerage account password, they would be better off," he stated. However, "even if Tesla underperforms the market, it is still a better investment than merely spending it on meaningless consumption and not engaging.