Hi fellow investors,
This is Charlie Tian again. Today I want to address some comments and questions that were raised on the video that I did that was about comparing Facebook (NASDAQ:FB) and Tesla (NASDAQ:TSLA). I commented that Facebook was a much higher-quality stock than Tesla and there were a lot of comments that I want to address.
I do believe that Tesla is not a high-quality company. Looking at just the financials, you can see that it has very poor financial strength and a lot of bad signs. The Equity-to-Asset ratio is low and it has also not been profitable.
If you look at a company, you want to see that it has a strong balance sheet and that it has been making money. Otherwise it is not a high-quality company. For a low-quality company, it does not mean that you are not going to be making money, but your risk is much higher. This is the point that I was trying to convey.
It is true that I am comparing an IT company with a manufacturing company, but this comparison should not matter as the goal is to invest in a company and make money. Personally, I would prefer to invest in an IT company over a manufacturing company because the IT company is capital light and usually has a higher return on invested capital. Warren Buffett (Trades, Portfolio) would likely like a company like this that is capital light.
Another comment talked about looking at the growth of Tesla compared to Facebook versus their investments. If you are investing in the company, you have to think about the possible downsides of the company. If a company is not making money when the economy is good, what will happen to them if the economy sees a recession? Again, I am not saying that you will not make money, but you may lose a lot of money from this type of investment.
I would like to thank those who left kind comments. Again, investing involves a lot of risk. Investing in Tesla may make you a lot of money and I believe it can. However, the risk is high. You will always need to weigh the risk versus the return when considering investing in a company. Again, please feel free to leave comments and questions below and I will answer them as soon as possible.
See you again in the next one,
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This article first appeared on GuruFocus.