FSA NEWSWEEK

26th March 2021

Talking about Tesla: Bubbles and Bitcoin

 

Scott Berg, a global equity portfolio manager at investment management firm T. Rowe Price, has shocked investors after selling out of electric vehicle maker Tesla, citing its extremely high valuation. Berg has sold more than 90% of Tesla holdings from his global equity fund valued at over $US5B. At the same time, Berg has made a private investment in rival electric vehicle company, Rivian. 

 

Berg believes his sale holds true to his investment philosophy as investing has a valuation aspect, believing the $US500B market cap of Tesla is too high. He also looks to find companies which are benefitting from new trends and industry changes, selling his holdings in Boeing and Airbus when COVID-19 hit.

 

He believes that markets are at a volatile point due to issues such as; the internal political landscape shaping in the US, the external relationship with China, and the ongoing momentum of the coronavirus pandemic. Berg’s prediction is that “we are in a new bubble,” but adds that “there could be a long way to go,” and the immediate future will hold much market volatility.

TSLA has multiplied 7-8x in the last year since the March market crash in 2020

In other Tesla-related news, CEO Elon Musk announced that Tesla will allow the taking of Bitcoin as payment for purchase of their electric vehicles in the US, expanding to other regions of the world by the end of the year. This comes after the electric car maker purchased $US1.5B worth of BTC in the last month and that it would soon accept it as payment, garnering momentum for mainstream acceptance of using cryptocurrency as payment.

The option to pay using Bitcoin for a Tesla model order appears on the US website

Unlike other companies who accept Bitcoin and use specialist payment processors for crypto-fiat conversion, Musk declared that Bitcoin would not be converted. A strong supporter of cryptocurrency, the company founder criticised conventional cash on Twitter last month, declaring that it “has negative real interest,” and that “only a fool wouldn’t look elsewhere.”

 

Following Tesla’s investment in bitcoin last month, other large firms such as Mastercard have followed suit, with some predicting that cryptocurrency will become an increasingly common element of many more institutional investment portfolios.

 

References:

https://www.afr.com/markets/equity-markets/markets-are-in-a-bubble-says-tesla-seller-t-rowe-s-berg-20210324-p57dnj

https://www.smh.com.au/business/companies/elon-musk-says-you-can-now-buy-a-tesla-using-bitcoin-20210325-p57dty.html

The Problem with Investment Banking

Investment banking has long been notorious for its extreme working hours and stressful environment. This issue has once again been brought to light when a group of 13 junior analysts at Goldman Sachs presented their complaints in a survey about having to work an average of 95-100 hours a week in a report that was later leaked to the public lately this month.

The IB industry is one of high stakes. The investment banking division of a firm, or IBD, are responsible for bringing in deals for the business, fulfilling sales targets, competing against other banks for clientele, all the while maintaining the reputation of some of the greatest financial brands in the industry. One might argue that because most looking to get into investment banking are already aware of the workload and commitment, one would expect that analysts know what they’re in for and are willing to face the role head-on.

However, the survey taken suggests the workload was apparently beyond even the expectations of these 13 analysts, with one of them stating, “I didn’t come into this job expecting 9am-5pms, but I also didn’t expect consistent 9am-5ams either”. Evidence has also shown that the analysts asked that they be given Fridays after 9pm and Saturdays off – a policy that is already present at Goldman, but which they feel were not being respected by their managing directors.

Moreover, there are questions about how the working conditions have impacted the mental and physical health of analysts. The report included a concerning set of quotes from analysts such as: “There was a point where I was not eating, showering or doing anything else other than working from morning until after midnight”, and “My body physically hurts all the time and mentally I’m in a really dark place”.

Concerns regarding the demanding nature of this career have been around for a while and yet despite prior claims by Goldman Sachs and other investment banks to make changes, the problem remains unresolved. David Solomon, Goldman’s current CEO, has previously explained how rectifying the issue of overworking is more complicated than it seems, since long work hours are deeply ingrained into investment banking culture. He says, “If you don’t have a whole system of expectations, processes, accountability and metrics—if you don’t have an infrastructure to support cultural change—you won’t be successful.”

Thus far, Goldman has addressed the analyst’s report by promising to: increase recruitment of new junior bankers to spread the workload, reinforce its policy to have Saturdays off and avoid pitching new business activities if they exceed the current work capacity.

References:  

https://qz.com/work/1987287/why-are-goldmans-junior-bankers-still-complaining-about-overwork/

https://www.efinancialcareers.co.uk/news/2021/03/goldman-sachs-analyst-survey-working-hours 

https://fd-binary-external-prod.imgix.net/JHxu13NMxHm3PvR1NCk1YL3z5Pw.pdf?dl=Arbeidsomstandighedenonderzoek+Goldman+Sachs+%28pdf%29.pdf

The views expressed within this article are those of the authors and do not represent the views of the Finance Student's Association. All images and references in this article are for fair and educational purposes only. The content in this article is not intended as legal, financial or investment advice and should not be construed or relied on as such.