The best-performing stock I have ever owned has been in my stock portfolio since May of 2019.
At the time, this stock was a beaten-down dog that no one wanted to own. Even though I had a lot of faith in its potential, I still regarded buying this company as a high-risk investment and didn't invest as much capital as, in hindsight, I should have. But I have no regrets. At the time, it wasn't a profitable company and could have just as easily lost me my money.
But I still invested, and the gains I subsequently enjoyed were transformative.
Over the subsequent six years or so, I watched this stock shower gains that I had never seen before into my portfolio. The initial investment doubled in value, doubled again, and again, and doubled once more. After a few years, it became my largest single stock position by quite some margin. Over those six-and-a-bit years, I enjoyed an annual compounded growth rate of what I estimate to be around 74% per annum.
Will happily claim that this investment was thanks far more to luck than skill.
For quite a while, I held on through bouts of extreme volatility, convinced that this was a winner that would keep on winning.
But last year, I sold half my position in this company. And a few weeks ago, I exited entirely.
This winner, my best stock I ever bought, was none other than electric battery and vehicle manufacturer Tesla Inc (NASDAQ: TSLA). To this date, it has been, by far, the investment that has made me the most money. And that's in more than ten years of investing under the proverbial belt.
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Why did I sell Tesla stock?
So why cut my winnings with Tesla? Well, a few factors drove me to the conclusion that remaining invested in Tesla was a larger risk than taking my substantial profits off the table.
Firstly, competition.
When I first bought Tesla stock, its vehicles and batteries were clearly the best products on the market, at least in their categories. Tesla's electric vehicles were relatively cheap, yet offered superior range and charging times compared to rivals.
Today, that is no longer the case. Tesla has been losing market share to the plethora of Chinese brands that now populate the market, thanks to generous state subsidies. With electric vehicle government incentives axed in the United States, I don't see this trend reversing any time soon.
Plus, Tesla's latest big product, the controversial 'Cybertruck', has been less successful than originally hoped.
Secondly, leadership. You probably know where this is going.
Tesla and politics…
When I first invested in Tesla, Elon Musk was widely regarded as an inspirational genius, Iron Man in real life. He single-handedly transformed Tesla from a niche automaker into the largest car company (and briefly, company) in the world, one that exceeded the market capitalisation of even Toyota.
Even today, it is worth more than US$1 trillion – a feat only ever achieved by a handful of stocks.
Until a few years ago, this seemed impossible. But Musk made that happen.
However, like many observers, Musk's erratic behaviour over the past year or two became increasingly disturbing to me. As one of the world's largest companies, I expect its leader, who by the way is paid exceedingly generously, to devote most of their working life to its improvement.
I could tolerate the fact that Musk was running three or four other companies at the same time as Tesla. But when he decided to get into politics, I lost my patience. As people often say, politics is a dangerous game to get involved in for a public figure. From the moment you pick a side, you potentially alienate half a country.
Musk didn't just get involved, though; he seemed to devote his entire life to the cause. Suddenly, Musk was attending rallies, making inflammatory statements (and gestures), and wielding chainsaws. After the election of Donald Trump last year, he even spent months on end working not at Tesla, but at the 'Department of Government Efficiency'. All while Tesla dealerships were being vandalised and cars were graffitied.
Foolish Takeaway
I can tolerate some political activity from a CEO. For many, it is necessary. But when customers place bumper stickers like 'I bought this before Elon went crazy', you know you've got a problem. Put simply, I have never seen such a strong brand lose so much goodwill in such a short space of time.
So we have a part-time CEO, a trashed brand, and a product range falling behind its competition. Those three alarm bells were enough to make me hit the sell button. Luckily, when I sold both tranches of shares, the price was still relatively high. As it is today.
Right now, Tesla stock sits on a price-to-earnings (P/E) ratio of 187.7. That implies a lot of growth remains in front of Tesla. I don't think it does, so I sold out.
Perhaps time will prove it to be a mistake. But at this point, I am just happy to get out with my money and reinvest it somewhere else.
