In one sentence: Using Tesla (about $389 a share, losing money, a market value near $65 billion) as the case, Phil explains why a company you love and a disrupting industry can't be valued with Rule #1 tools, why that puts it in the too-hard box, and how to treat such bets as separate "angel-style" money.
Key ideas
- Why people ask about Tesla. An electric car with very few moving parts (Phil says about 20, against roughly 2,000 in a gasoline car), very fast acceleration and top consumer ratings. The hosts admire Musk and the cars. [01:00–07:00]
- Self-driving may be slower than hyped. Danielle's experience with unreliable warning features makes her doubt the timelines. Phil points to Tony Seba's argument that disruption can come very fast (horses to cars in New York in about 13 years). [07:00–11:00]
- Price versus a normal car maker. GM's market value was about $56 billion with earnings near $7 a share on a $38 stock; Tesla's was about $65 billion with trailing earnings near minus $5 a share. Share price alone means nothing, since the share counts differ. Figures are as stated on air. [10:00–13:00]
- Buffett and Gates. Buffett's reply to Gates's push to buy tech, as Phil retells it: will it change how I chew gum? Buffett stays with businesses whose moats erode slowly. [13:00–14:30]
- Disruption reaches "safe" holdings. Industry-level change (electric cars, autonomous fleets that could cut the number of cars needed, lower oil demand) could hit GM, Ford, Chrysler, suppliers and oil companies that look steady. If you can't work out the industry's next 10–20 years, stay away. [14:00–18:00]
- The earnings arithmetic. At GM's roughly 10 times earnings, $65 billion would need about $6.5 billion of earnings, about $40 a share, when Tesla has none. Phil calls it too hard to justify; either the too-hard box or a pure gamble. [18:00–22:00]
- Loving it isn't a reason. You can't just buy what you love. Wait for a big margin of safety. Rivals with cash (GM, Ford, Mercedes, BMW) are ready to move in. [20:00–23:00]
- No rear-view mirror. Tesla has no 10-year record. Phil says the US hasn't gone more than about 10 years without a recession, so ten years of history shows how a company behaved when "the tide went out" and whether it came out stronger. Tomorrow should look like yesterday only if the moat and management stay the same. [23:00–26:30]
- Do the plain thing first. Build wealth with a few understood businesses bought at a large margin of safety in the next recession. Only then use surplus capital for angel-style bets on things you love, with the risk of loss accepted (Phil suggests watching Shark Tank for how they price deals). [26:00–29:30]
How it maps to RuleOne
- The stock page's trailing EPS and ten-year charts show instantly when there is no earnings history, so the sticker price can't be computed. That is the screen saying "too hard".
- Phil's "GM at 10x earnings" step is a quick check using the P/E and market cap on the page.
- Position sizing on /holdings/ is where a speculative sleeve could be kept separate and capped.
Buffett, Munger and Graham links
- Buffett's "stick to what you understand" and his reluctance to buy technology he can't predict is in his 1999 Sun Valley speech and many shareholder letters; the gum anecdote is Phil's retelling.
- Graham distinguishes investment from speculation in chapter 1 of The Intelligent Investor, which is the line Phil draws here.
- Munger's "too hard" pile is the box Tesla goes into.
Words to know
- Disruption: a new technology or business model that overturns an established industry.
- Market capitalization: share price times shares outstanding, the price of the whole company.
- Angel investing: putting money into early companies, usually with high loss rates.
Try this
Open /stock/TICKER/ for a company with negative or short earnings history. Note whether the sticker price can be computed at all. Then write what ten years of data would let you see that five do not.
Check yourself
- Why doesn't a $389 share price mean Tesla is "more expensive" than GM at $38?
Answer
Price per share depends on the number of shares. Compare market value to earnings: Tesla had losses, GM had large earnings. - Why does Phil want ten years of history?
Answer
It spans a recession, showing how the business and management behaved under stress. - Where does Tesla belong for a Rule #1 investor, and what is the alternative?
Answer
In the too-hard box; or as a small speculative bet with money you can afford to lose, separate from core holdings.
Short quotes
"You can't just go buy stuff you love. It just doesn't work that way." (Phil, ~22:30, auto-transcribed)