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When things get wacky, take a step back

Tesla (TSLA) was up more than 20% at one point today (Feb. 5, 2020). The stock is up 57.9% in the past five days, 114% year-to-date, and 400% since the low early last summer. It would be too easy to think that this meteoric rise is not normal. A more accurate statement would be that it is not healthy.

When things get weird take a step back. Think through what makes sense and what doesn't. As tempting as it might be to say it's not normal, historically speaking it is. This happens every so often, most recently with Bitcoin in late-2017.


Tesla's meteoric rise over the past few months is eerily similar to the early 2000's when technology firms like Amazon, Cisco, and Qualcomm, among others, entered the final stage of their bull run. It wasn't that these companies weren't going to change the world. It was that their valuations got stretched to ludacris heights. Of course, the internet did change the world. Amazon and semiconductors would've been excellent investments over the past two decades. But not if one bought at the highs in February or March of 2000.


When things start to get wacky, it's crucial to step back and ask, "is it best to buy when something's as hot as it's ever been?" The answer is usually "no."

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