A decade ago, Tesla (NASDAQ: TSLA) cars were already an increasingly common sight on city streets. They were far less common than they are now, but the electric vehicle (EV) maker was already a publicly listed company with a sizeable and growing business.
Had I bought Tesla shares back then, what would have happened since?
Huge returns
In short, I would now be thrilled! Over the past 10 years, Tesla shares have soared by 2,453%. That means, excluding currency effects, my initial £5,000 stake would now be worth a bit under £123,000.
Currency effects are real though. The pound is weaker versus the dollar compared to a decade ago. If it had bought when it was stronger back then, that would actually have worked to my advantage (if I was to sell the Tesla shares now and convert the money back into pounds).
But as an investor, when I buy foreign shares, I always consider such potential currency effects. They can work against me, not just for me.
Meanwhile, Tesla has not paid any dividends, so that £123,000 would be my total return.
Long-term investing mindset
So far, so good! But if I had bought the shares a decade ago and my £5,000 stake was now worth six figures, what might be my next move?
As a long-term investor, if I had held the Tesla shares for a decade, would I sell them now?
The answer depends on one thing. How the current share price compares to what I see as the long-term prospects for the business.
Having held shares for years with such a huge price increase could make me want to sell up. But it could also excite me and make me want to stay invested in the hope of further gains.
But too much emotion can be an investor’s enemy, not friend. So if I was in the fortunate position of sitting on a pile of Tesla shares that had ballooned in value over the past decade, my sell or hold decision would be based on how I felt the current share price reflected the carmaker’s future prospects.
Too much of a good thing
That said, there might be another reason for me to sell at least some of those shares, even if I thought they could still go higher. It’s called diversification.
With the huge success of Tesla shares, investing £5,000 in them 10 years ago could mean they would have taken on an outsized role in my portfolio.
Even if I am optimistic about a company’s prospects and think it is attractively priced, I still do not want it to have too big a role in my portfolio,. Nasty surprises are an ever-present risk.
Indeed, Tesla shares are still the fourth biggest holding in the portfolio of Scottish Mortgage Investment Trust. That suggests the fund managers continue to rate the vehicle maker’s prospects.
But the surging share price meant the carmaker represented an overly large proportion of the trust. So its managers decided to sell down some of the stake to stay diversified.
Even without having spotted what a bargain Tesla shares turned out to have been a decade ago, I can still learn some actionable lessons from its meteoric rise!
