Stock Market

Tesla (NASDAQ:TSLA) has been on a roll over the past week, with TSLA stock gaining 16% through May 31. The electric vehicle (EV) maker’s fanatical retail investors are a big reason for the gains. 

According to Bloomberg, retail investors bought more Tesla stock in May than in any month since August 2020. As of May 27, retail investors’ net buying in May was $708 million, behind only Apple (NASDAQ:AAPL) for net buying of mega-cap tech stocks.

Tesla shares have lost 34% since hitting $1,145 in early April. The S&P 500 is down almost 10% in the same period. Maybe it’s Elon Musk or the future stock split, but retail investors continue to pile into the EV stock. 

While I have a lot of respect for Elon Musk and Tesla’s position in the EV marketplace, I’m not sure this is the right time for retail investors to take risks. Hopefully, I’m wrong.   

Ticker Company Price
TSLA Tesla, Inc. $702.08

TSLA Stock and Retail Investors

A Bloomberg report points out that retail investors are starting to buy growth stocks again, with Tesla at the top of the list. One other reason for the buying could be related to the other press Musk has gotten from his potential bid for Twitter (NYSE:TWTR). 

As written by Esha Dey:

“‘In May, we’ve seen the strongest monthly buying of Tesla shares by retail investors since August 2020, when the company announced its first stock split,’ Vanda Research analyst Fabian Birli said. Whatever the reason — anticipation of another stock split, the army of Musk-fans doubling-down after the Twitter deal, or just plain dip-buying — there has been a ‘clear uptick in retail sentiment for Tesla since the start of the month,’ Birli added.” 

That’s not a reason to buy a stock, but retail investors have never been a predictable bunch. 

It Won’t Be Easy Hanging in There

In early May, Morgan Stanley (NYSE:MS) estimated that amateur investors had lost all of their gains made since Covid-19 began. Yet, as examples like Tesla demonstrate, they continue to hold their ground while many institutional investors have moved to significant cash positions. 

Further, Bloomberg reported that Bank of America’s (NYSE:BAC) private client business had pushed its customers to cash at the fastest pace since November, a tell-tale sign that the pros aren’t convinced we’re out of the woods.

Vanda Research believes retail investors will have a hard time hanging in and buying on the dip if the markets face any more uncertainty in 2022. I have seen nothing that suggests the second half of the year will be more straightforward than the first half. 

In fact, with the savings rate falling back to pre-Covid levels, it’s hard to imagine retail investors will continue buying once interest rates move up another half-point

Many retail investors will once again feel poorer because of the perfect storm of lower stock markets, higher interest rates, higher inflation, and lower real estate values.

Why Buy TSLA Stock Until There’s a Catalyst?

Last week’s rebound could be nothing more than a dead cat bounce. This means whether you’re considering Tesla or Apple, you first want to think about how you want to use your discretionary income.

Is it to bet on a stock, or should you be socking the cash away to save for a rainy day? I don’t know whether a recession is imminent, but I do know that the economic world we face is very textured and vague. No one knows whether things will be better in 30 days, 60 days, or six months. 

If you buy Tesla at this point — and I would say the same about all pure-play EV manufacturers — you better be darn sure we’re at the bottom and not about to take another leg down.

The investor who bought in June 2009 might have missed the bottom, but if they held for the next decade, they could have cared less that they didn’t time the market perfectly. I’d save your dry powder until the signs point to a solid rebound. In the long run, you’ll be happy you did. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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