Ross Gerber, the President and CEO of Gerber Kawasaki Wealth and Investment Management, known for his bullish stance on Tesla Inc TSLA, offered some crucial investing advice after witnessing a trader’s near wipeout of his margin account due to Tesla’s stock performance in 2022.
What Happened: Charles Harris, a portfolio manager at O’Neil Global Advisors Inc., saw his eight-figure margin account diminish to six figures as Tesla’s stock slumped throughout 2022. By Dec. 30, 2022, Tesla’s price plummeted to $123.18 at market close, marking a 69% drop from its Jan. 1, 2022, closing price of $399.93.
The stock’s year-long decline stemmed from various factors, including pandemic-induced supply chain disruptions, CEO Elon Musk‘s acquisition of Twitter (now known as X), apprehensions over escalating interest rates, and a Shanghai factory closure due to a COVID-19 outbreak.
Reflecting on his experience, Harris shared in a video on X, “If I have learned anything through this experience, it’s this: If you are going to hold a high-conviction stock that you believe to be a true market leader over a long period of time, it’s best not to do it on margin.”
“Had I not raised cash and taken some defensive measures, I most certainly would have completely wiped out my margin account. I nearly did,” he added.
Why It Matters: Margin investing involves borrowing money from a broker to amplify trades, a risky strategy only advisable when expecting to generate more profit than the interest paid on the loan.
Responding to the video, Gerber emphasized, “Crazy risk-taking makes no sense. Gambling is not investing.” He expressed empathy for Harris, acknowledging the shared challenges of 2022, while highlighting that his firm avoids margin trading.
Gerber urged all investors to consult a financial advisor to make informed decisions and protect their investments.
Price Action: Tesla shares closed up 2.5% on Wednesday at $175.66. However, the stock is down nearly 29.3% year-to-date, according to data from Benzinga Pro.
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