Can Investing in one Company make you a Millionaire?

We all know that investments can rise and fall in value. That a prudent investor spreads their risk across different sectors and across different markets. And we all remember our very first financial adviser, our Grandma, who told us not to put all our eggs in one basket.

Over the last few weeks the share price of GameStop – an ailing US computer game and DVD retailer – has been all over the news, because users of Reddit clubbed together to buy stock in the company, pushing up the share price and causing huge losses for professional traders and hedge funds who had bet big-time on the share price falling – a practice known as short-selling.

Whilst Reddit users wanted to “stick it to the man” the reality is that many of the small investors now have stock worth much less than they paid for it, after jumping on the bandwagon, whist some of the instigators who professed to be fighting for ordinary people have profited hugely by selling up at the end of January before the price crashed.  Will they share the wealth with everyone they persuaded to invest in what effectively became a pyramid scheme?  Don’t hold your breath…

But between Christmas and New Year there was a story on the BBC about the soaring share price of electric car maker Tesla which has created what it described as an ‘army of millionaires’ – the so-called ‘Teslanaires.’

Shares in Elon Musk’s company soared more than 700% in 2020, making Tesla the world’s most valuable car company, Elon Musk the world’s richest man (overtaking Jeff Bezos of Amazon) and making many investors in the company millionaires.

But as the article rightly points out, it has been a bumpy road for Tesla. In May of last year Elon Musk wiped $14bn (£10.2bn) off the company’s value when he carelessly tweeted that, in his opinion, the Tesla share price was too high.

We all need to remember that for every Tesla there is a Sirius. Sirius Minerals was a mining company, granted the right to mine potash in the North Yorkshire Moors near Whitby. Many local investors, swayed by stories of the potential returns, invested heavily, putting their life savings and pension lump sums into the company. But the shares steadily dropped, the company was eventually taken over with the shares trading at 5.5p and the local investors were left facing heavy losses.

Yes, shares like Apple, Nike and Starbucks may have produced spectacular returns for investors on their way to becoming household names, but many, many companies have gone in the opposite direction. April 2019 saw Debenhams go into administration and what could have been safer than the British high street? Surely people will always need to shop, they will always need new clothes… But that was before the pandemic when 2020 was the worst year for high street job losses and store closures in 25 years.

There will always be winners and losers in investing and the good news stories, the ‘Teslanaires,’ will always receive plenty of publicity. After all, ‘Investor takes sensible long term decision with their financial adviser’ is hardly a headline story.

We don’t give advice on investments, but we always recommend you take advice from someone who does. A carefully constructed portfolio, in line with your financial planning goals and consistently monitored by your financial adviser: it may not make the headlines, but it will certainly let you sleep at night.

If you’d like us to put you in touch with our trusted financial planners then get in touch.