Student puts life savings into Tesla – turns $30K into $250K – Investment guru or fool?

Patrick Hop, a 22-year-old UC Berkeley student made headlines a few weeks ago for his investment in Tesla.  All the articles about this guy are short on details, but what seems to be consistent is:

  • Patrick put his life savings (~ $30K) into Tesla stock in June of last year (with the stock at around $32)
  • In July of this year, Patrick dumped all the shares and re-invested his big earnings by buying January 2015 $130 call options (with the stock around $115)
  • His holdings in Tesla are valued at around $250K today (probably higher since I started writing this post weeks ago and Tesla stock now sits at $188)

The question this brings up – is this guy an investment guru or an investment fool?

As you might expect, anyone offering him advice when he decided to plop his life savings in a company where he couldn’t even afford the car the company produces told him to stay away.  As we all know, Patrick’s had the last laugh (at least for now).  Not only does this guy invest in a company that many thought would fail (Tesla short interest is STILL above 30%), but he did something that most financial planners/advisers would tell us NOT to do – throw all your eggs in one basket (still need to write about my struggles with “diversifying”).

Now, due to lack of details, I can only make some assumptions – like the $30K was his hard earned money saved up for investing / consumption and not his tuition money (in which case, I might have a different view of him despite making some big money – never invest what you can’t afford to lose).  We also don’t know much about his investment knowledge or risk tolerance; but by the fact that he’s studying applied math, and is doubling down on options, we might assume he has at least has some decent knowledge of the investment world.  We also don’t know if Tesla is the first stock he’s ever bought – but what a purchase if it was!

In this writer’s opinion, at least for the purchase of Tesla stock, the kid’s a smart investor who simply invested in a company who’s future he strongly believed in.  I’m an avid fan of investing in what you know / understand – if you lived and breathed the company, spent every waking moment of your life understanding the company, why wouldn’t you want to invest in it?  Some might view the investment of one’s life savings to be foolish, but I would argue that it’s no different from those who start up their own companies (although some might argue that at least they’re in control).  At 22, $30K might seem like a lot, but the kid’s working career hasn’t even started yet – and would he have lost his investment, he can probably make that back up in a couple of years after graduating.  As an investor, you can be more risk averse when you’re young and have no commitments like mortgages, day care, etc; and where it’s easier to make up that $30K than when you’re 65 and no longer working.

Part II of his investment really surprised me – having already made a paper gain of $78K, he sells his Tesla shares and buys January 2015 calls.  That takes guts as now he’s betting on the stock moving continuing it’s upward trend above $130 by January 2015.  Of course, that’s a long way out, and has played out amazingly well so far.  Is Patrick getting a little greedy?  I can probably say yes (he’s already making crazy money with shares; why risk options) – we can only hope he continues to make the right, errr, lucky, decisions up to 2015.

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One thought on “Student puts life savings into Tesla – turns $30K into $250K – Investment guru or fool?

  1. Pingback: 2013 Portfolio Year In Review | Fearless Cal's Investment Journal

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