Tesla (NASDAQ:TSLA) shares are up another 7.7% this week after completing its stock split and announcing a $5 billion at-the-market offering. Tesla stock short sellers are understandably frustrated that it continues to skyrocket despite no major news from the company about its actual business.
I’ve repeatedly discussed how overvalued Tesla is compared to both auto stock and tech stock peers. But I’ve also been adamant that traders shouldn’t touch Tesla on the long or short side.
Even the most convicted Tesla bulls and bears must admit there is something screwy going on with the stock. Yes, there are theories about strange option trading or short squeezes or even organized crime. But I believe there is a better explanation for the Tesla bubble based on market psychology.
The Religion of Tesla Stock
One of the first things that stood out to me about Tesla starting late last year was just how much animosity there was between Tesla bulls and bears. I wrote several months ago about the reason why people love and hate Tesla stock so much is because a lot of people have made it a proxy for their political ideology. But I think one of the reasons why investors seem willing to buy Tesla shares at literally any price is because their association with Tesla is something more meaningful than simple politics.
For better or worse, the US has gotten less religious in recent decades. That trend away from religion has been particularly strong among younger Americans.
Andrew Sullivan is one of many writers who have theorized that as the U.S. has become less religious, politics has taken over to fill our psychological need to find meaning in the world.
“The need for meaning hasn’t gone away, but without Christianity, this yearning looks to politics for satisfaction… And like almost all new cultish impulses, they demand a total and immediate commitment to save the world,” Sullivan wrote in 2018.
I think part of the reason Tesla stock investors keep buying the stock no matter how high the stock price goes is because supporting the company and what it stands for makes them feel the same sense of meaning that religion does.
When TSLA investors buy the stock, it may not necessarily be only about making money. I think some of them just like to feel like they are a part of something that brings meaning to their lives.
Religion vs. Cult
In the past, I have referred to Tesla stock as a “cult” stock. I’m now making a distinction between “cult” and “religion” for two reasons. First, there is such a thing as a cult stock. A company like Fannie Mae (OTC:FNMA) is a cult stock because its investors value it more on what it could be than what it actually is. It is typically difficult to dissuade cult stock investors from their beliefs, which is why those stocks get the “cult” label.
I don’t necessarily think Tesla is a typical cult stock. There’s absolutely no rational reason why someone would buy shares of a stock on the day of a stock split that was announced weeks prior. It’s one thing to believe in a long-term technology growth story. It’s another to indiscriminately buy a stock that is up nearly 1,000% in the past year.
The second reason why I don’t think the “cult” label is appropriate for Tesla is because of the negative connotation of the word. The line between a cult and a religion is often very blurry. However, to me a cult is a belief system that was designed at least in large part to exploit its believers. I’ve seen no evidence that the belief system surrounding Tesla, alternative energy and technology is nefarious at all.
How to Play TSLA
At the end of the day, I don’t know if Tesla stock is a religion, a cult, a political movement or a new world order. But I do know one thing. Tesla does not behave like any other auto stock. It does not behave like Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) or any other big tech stock.
Something very unique is going on with Tesla. Until investors know exactly what it is, it’s simply not worth the risk to go long or short.
On the date of publication, Wayne Duggan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense,” which focuses on investing psychology and practical strategies to outperform the stock market.