Dear Mr. Berko: A friend of 13 years wants to use a large part of his student loan money to buy 100 shares of Tesla Motors stock at $261. The people he talked to convinced him that Tesla could double in a year. He hasn’t asked me for advice, but I feel obligated to advise him.
I think he should buy 50 shares of Google, which has an excellent chance of appreciation in the coming year. I don’t know whether he’d take my advice, but I want to check with you and two other professionals, and see whether you also are bullish on Google.
— C.N., Columbus, Ohio
Dear C.N.: Student loan money is so easy to get that many borrowers use it for cars, vacations, drugs, stereo systems and other objects of comfort. Student loans are a farce, encouraging colleges to accept unqualified applicants and grow their bureaucracies. Read the following story, which occurred three years ago.
An acquaintance, a married woman with three children, needed a tedious, difficult surgical procedure. She and her house-husband carefully selected the surgeon with whom they were comfortable and whose reputation spoke of successes with this procedure. They also told their choice of surgeon to a longtime close friend.
The friend isn’t a medical doctor but has doctorates in a couple of medical-related fields. He is also a soft-spoken, kindly research professor at a teaching hospital who is adored by his students.
The professor friend recommended a surgeon at his teaching hospital, suggesting, quite logically, that this surgeon and this teaching hospital had superior care and facilities. My acquaintance and her husband concurred.
On Dec. 6, 2012, a day after checking into the teaching hospital, she died on the operating table. The husband is still haunted by his wife’s death and sometimes aimlessly asks, “If we hadn’t changed surgeons … ?”
The professor, of course, was sick with self-blame, lost a good friend and became a pariah to the family. They did not ask for his advice, although it’s believed the outcome would have been the same with the first surgeon.
Yes, I prefer Google (GOOG-$706) to Tesla any day of the year. GOOG has continually rising earnings, $71 billion in cash, profit margins of 22 percent and a smorgasbord of excellent digital products, and rumor suggests that GOOG will declare a dividend in 2016.
Tesla (TSLA, now trading at $209) is bleeding and burning huge amounts of other people’s money. CEO Elon Musk is overconfident; the stock is over-hyped; the vehicles are overpriced; and projections are too far over the rainbow for comfort. Musk has admitted that TSLA won’t make a dime until 2020, and even then it may not. He has teased investors with promises of glory, and now they’re frantic to make a profit.
Your friend didn’t ask for advice, so let him make his own choice — even if the right choice is obvious to both of us. If you gave your advice, your friend bought TSLA and the stock rose, he might accuse you of being a meddling dork, and you might lose the friendship. If instead he bought TSLA and it crashed in price, he wouldn’t remember your “don’t buy” advice, because he’d be frantic with worry and trying to figure out how to repay that student loan, perhaps seeing as the government may forgive that debt.
If you were to persuade him to buy GOOG, and it doubled in a year, I promise you that he wouldn’t recognize your input. However, if the market were to fall or GOOG goofed (be mindful of Google Glass) and the price crashed, your friend would be holding the short stick and might cast aspersions that would burn your friendship. There’s a Wall Street axiom: If the advice is good, the customer takes the credit; if the advice is bad, the broker takes the blame.
Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or email@example.com.