Books on wooden deck with glowing graph illustrations and symbols
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In today’s stock market, the best stories win. Nowhere is this more evident than in Tesla stock.
The bullish thesis on Tesla is largely premised on a simple story. The cozy relationship between Elon Musk and President Trump could be very good for Tesla. Investors are buying the story big time. Elon Musk reportedly spent $277 million supporting President Trump and other Republican candidates in November. Since voting day, Tesla’s stock has soared 72%, increasing its market capitalization to a staggering $570 billion.
In a Bloomberg article about Musk’s dealings with Trump, Esha Day writes: There’s nothing left for the company, where demand for cars is still volatile and the future is becoming increasingly uncertain. Rather, it’s what investors see as a political masterpiece by Tesla leader Elon Musk, who actively supported President-elect Donald Trump on the campaign trail and played an unofficial role in his administration. It was something I accomplished. “What do you make of the fact that Mr. Musk has deep ties to the incoming administration?” said Steve Sosnick, chief strategist at Interactive Brokers. “You can assign almost any number you want.”
Tesla isn’t the only company benefiting from blockbuster stories. Story stocks are everywhere.
MicroStrategy (MSTR) is another prime example. The stock has increased 422% since the beginning of the year, adding about $69 billion to its market cap. MSTR currently trades at 122 times sales, which seems like an unreasonable valuation considering the S&P 500 trades at 3 times sales. But no one cares about MSTR’s forward-looking valuation or income statement, because what draws investors to the stock is a compelling story about the future of the company’s balance sheet.
MSTR’s balance sheet is dominated by Bitcoin. Led by a charismatic CEO named Michael Saylor, MSTR quickly transformed from a sleepy software company to a hyperactive Bitcoin earning machine. According to Saylor, Bitcoin is the best-performing asset in the history of the world and will undoubtedly become even more popular in the future, and MicroStrategy is an innovative company that will buy large quantities of Bitcoin before many other countries, companies, and citizens. He devised a new approach.
MSTR has been issuing shares since late October, when it announced plans to sell $21 billion worth of stock and the same amount of bonds to buy Bitcoin by 2026. The company currently holds 439,000 coins worth approximately $42 billion. The company owns just over 2% of the world’s Bitcoin, making it the world’s largest corporate holder.
Through creative storytelling, Thaler transformed a once stalwart company into a sexy way to tell the world’s top crypto story. In doing so, he catapulted his company into the Nasdaq 100.
Not every company or industry is as good at selling its story as Musk and Saylor. Top executives in the energy sector could learn a lot from these two.
Since November 25th, the S&P 500 Energy (XLE) ETF has fallen almost every day, dropping 11%. Crude oil is +4.0% in the same time frame. That basically makes no sense. There is usually a strong correlation between oil prices and the performance of energy stocks, as oil prices are the biggest factor influencing returns.
But these are not normal times. It is becoming increasingly clear that capital markets are becoming less essential. A higher share of the stock market than ever before is driven by retail and passive investors. This means there are relatively few professionally trained investors who know how to scrutinize fundamental numbers.
If energy CEOs want their company’s stock price to perform in line with its earnings power, they need to come up with a better story to win over investors. There’s a reason the energy sector is cheaper than other markets. That’s because the storylines running through this sector are a buzzkill. The industry needs to stand up to politicians who push the narrative that the use of fossil fuels will be phased out. Build your company’s story of innovation, transformation, and empowering humanity. P/E ratio follows.
Valuation has always played an important role in investing, but that role has changed over time. Modern investors, who make stock decisions by fixating too much on specific valuation metrics, are increasingly focused on big technology like social media, iPhones, meme coins, and other technologies where storytelling has become a big part of the investment calculation. You’re overlooking change.
If you’re looking for ideas for story themes for 2025, here are some areas where I think there’s a lot of opportunity: AI, quantum computing, drones, space, nuclear power, lasers, robotics, gig economy, fintech I will.
