So, you want to make money in the stock market. Nice, so does everyone else. The age-old question you’re now faced with is, how? In short, you’ll need to invest in a stock that will increase in value over time. But this, unfortunately, isn’t so simple.
A critical part of this process is identifying your goals. There are two popular ways to approach this, via long-term or short-term gains. If you’re chasing long term appreciation, look no further than Tesla’s firm grip on the growing EV market. TSLA shares have risen almost 600% in the past year. Or that fact that some analyst predictions place the stock between $3000-7000 per share in the next five years.
This kind of price action is not without its risks, however. Are you building a portfolio that you hope to turn into a dividend-generating platform in your golden years? Or have you had your eye on the new Enzo for some time and are looking for the fastest way to get it into your garage?
There’s an appropriate investment strategy for each goal. In this article, we’ll be addressing the latter. Thus, we’re not just learning how to buy Ferraris, we’re learning how to buy Ferraris by putting money into their competition: Tesla.
How To Buy Tesla Stock
“It takes money to make money.” With that in mind, you’re going to need some starting capital. Just how much is all up to you. Typically, when investing in stocks for supplemental income, you should use a small fraction of the total amount in your retirement fund.
You should always avoid trading with funds you can’t afford to lose. This will potentially expose you to an unfavorable financial situation. It could also compromise your ability to remain rational about a trade if things don’t go your way early on. Staying solvent while the market remains irrational is tricky if you’re trading with your rent!
After you’ve allocated an appropriate amount of funds for investing, it’s time to pick a broker.
How To Buy Tesla: Choosing A Broker
We always recommend that you consult an official investment professional for more guidance when building your portfolio. With that being said, you’ve got a few options.
Trading stocks today is easier than ever. We’re fortunate to have many different trading platforms available in the palm of our hands. Many of these platforms frequently release new features and lower fees. Each of these platforms has their own strengths and weaknesses. The most popular broker platforms are:
- Interactive Brokers
- TD Ameritrade
- Charles Schwab
The above options are all good when it comes to buying tesla stock but my number one choice for a fee free brokerage is WeBull!
Ask any trader who they use most and they’ll give you a detailed explanation of their love-hate relationship with their broker. Finding the right one for you will depend on what your goals are and what aspect of trading is most important to you. Experienced traders search for advantages such as lower fees, reliable customer service, high-quality charts, great mobile platforms, and more.
Understanding TSLA & Volatility
Is Tesla a great company? It doesn’t necessarily matter. If you’re reading this, it’s because you understand that TSLA stock has made savvy investors a ton of money and you want to learn how to replicate their success. Long story short, this stock fluctuates as investors react to headlines when they make their trades.
Tesla is a hip company with a very hip CEO (Elon Musk). Naturally, it generates a ton of headlines and causes volatility. Volatility can be great because you might pick up 100 shares of TSLA on Thursday morning at its current price (as of 11/5/2020) at $438/share and sell Friday afternoon at $590. All of this can happen because of some crazy Tweet that no one was even expecting. The SEC has filed numerous lawsuits against Mr. Musk in the last few years because of his antics.
This type of volatility is obviously a double-edged sword. Regardless, it represents a tremendous buy-side opportunity with the right timing. This leaves one glaring question: How does one consistently generate a profit from a notoriously inconsistent stock run by an even more notoriously disruptive CEO? Or even more glaringly, how do you time that buy order?
TSLA stock is going to be extremely volatile compared to almost any index. This stock has consistent and seemingly random 2+ standard deviation daily moves. This could leave you holding the bag wondering where your annual savings just went if you bought after 3 days of 5% gains.
If you know it’s going to rain, you should bring a raincoat. Likewise, if you know Tesla is an extremely disruptive stock that swings heavily off of headlines, you should be sprinkling cash into the dips. This sets up your portfolio for success when Tesla inevitably swings back to the upside.
Big swings are inevitable, and your goal is to be on the winning side of that swing. You should be laser-focused on one very specific goal before submitting your buy-limit order: a competitive cost basis.
Have you ever heard of a man named Warren Buffet? Yeah, he’s the guy coaching you how to buy stocks right now, not me. I didn’t invent the strategy of ‘buying the dip’.
Regardless, Warren’s claim to fame is value investing. This is a tough sell for Tesla because of its highly subjective take on the concept of “profitability”. We’re in an age of automatic hedge funds that use Python data-scraping programs to generate buy/sell signals when the headlines change.
With this, big daily swings are inevitable. And while this can easily become overwhelming, it also creates an incredible opportunity to enter a position at a competitive cost basis produced by hilarious overselling from retail investors and robots alike. In essence, I’m not telling you anything new. Buy the dip.
How To Buy Tesla Stock: Perfecting Your Trade
Moving on now to Part Two of “How to Buy Tesla Stock”. We’ll cover the more emotional side of the trade, where most people end up losing money instead of making it.
If you’ve ever taken less money for a trade-in on your car at the dealership because they pressured you into it, this section is for you. Why’d you do it? Kelly Blue Book clearly said you could get at least 13k for your car, but you let it go for 11.5k just to get the deal to go through. Welp, there goes your profit on your trade.
Part of getting in and out of a trade profitably is patience. If you apply this to trading TSLA stock, you’ll start to see that the daily swings can cause you to feel a sense of FOMO, fear of missing out, on the next big rally. But what you should be more concerned about is actually participating in the next big drop that doesn’t recover for the next 6 months. What’s the best way to hedge against this risk? You guessed it: patience.
Strategies For Buying Tesla Stock
To put the concept of using patience while trading a volatile stock like TSLA into more functional terms, I’ll provide a few examples. As traders, we have a few tools in our toolbox when it comes to picking up shares of our desired stock. A few of these tools that can improve cost basis include:
- Buy limit orders: This is a type of buy order that allows you to select a specific price to be executed within a given timeframe that you’ve deemed appropriate and competitive (typically through technical analysis of the moving average, MACD, RSI, 50,100 bar support).
- Setting stock alerts: These can trigger when your stock (TSLA) is down a certain amount, or reaches a certain level that you’re interested in. Volatile stocks often touch these levels intraday without you realizing it and can quickly recover before you log on to check again. Modern-day brokerage apps typically provide this feature and allow you to jump in at the perfect moment to capitalize on these opportunities.
- Selling cash-secured put options: Aimed at investors with more capital to set aside per trade, this option provides a more dynamic alternative to buy limit orders. This strategy allows you to collect a premium against your trade that is collected in full once the contract of the option expires “out of the money” where the stock price settles above the strike price of the option at the time of expiration. If the stock settles below your strike price, you’re assigned the stock at hopefully a competitive price. One distinct advantage here is that your premium is retained and used to reduce your cost basis per share. Selling in higher volatility on down days typically garners higher premiums at better strike prices.
As you can see here the common denominator is that each strategy takes extra time to execute, which mitigates some of the inevitable humor errors inherent with every trade we make. While at first you might feel inclined to jump in with a market order to catch the daily wave, this tactic rarely scales effectively.
How To Buy Tesla Stock: Conclusion
Patience and consistency tend to win in the long run. When trading volatile assets like TSLA stock, stick to your guns with the cost basis you deem appropriate and find the best way to get it. Bring your raincoat, buy the dip, and then buy your Ferrari (or Model X) – all with the TSLA stock you just traded.