Question

Imagine that you had some extra money lying around that you can invest. Pick a company that you believe would be a good stock to own in your own portfolio. Defend your choice with quantitative and/or qualitative factors in a short analysis of a few paragraphs!

If you have a limited amount of money to invest either in a corporate bond or in the shares of the same company you picked in question 1, what would you choose? Explain your reasons. If you are making assumptions on which you are basing your decision, state these.

Answer 1

If I had some extra money to invest, I would have invested it into Tesla as I believe that this company is a leader in its respective segment of electronic car making and even though this company is trading at a very high premium, I expect it to go up as this company is leader of the electronic car making space and it is the future,so this company will be having an advantage over other players in the long run and this can maximize its overall rate of return and profit which will be turning into maximization of the shareholders value so I will be investing into this company for a longer term perspective and I believe that it can provide me with multi fold Returns.I also believe that this company has started to use its debt capital more efficiently and it will be trying to enhance its profits in the long run by utilisation of its capital structure in a better manner.

2. Yes, I would have still invested in Tesla because I would be inclined for long-term gains rather than short-term risk coverage and so I am always looking for a investment time horizon of more than five years and I am only investing into those companies which I believe to be fundamentally sound and I am very less sceptical towards the valuation of this company because companies are often rerated as their prospective are changed so even though Tesla has gone 10 times bigger I still believe that it has the capacity of growing much bigger and it is just the beginning so I will be investing into this company for a longer time horizon and I will rather invest in tranches by allocating my capital once the valuation of the company goes down and I will be acquiring more of this share, so I think I can maximize by the overall rate of return in this company for a longer period of time due to the monopolistic nature of its business and high technological leverage over its competitors.