Since the growth of the internet, Wall Street has always been at odds with technological innovators and society has always had a hard time choosing sides. Before the Dot Com Bubble burst financial analysts were baffled by how internet companies generating little to no revenue and were criticized for backwards thinking, of course after the burst they were back to being the voice of reason. Lately though that may be once again challenged as companies like Tesla are challenging the standard financial model by pouring lots of money into innovative ideas that may be great for society in the long run but may run financial risk for its stockholders. You may be impressed by Elon Musk’s Tesla but not so much at funding his trip to Mars.
The battle may not always be so obvious. Many tech companies have had to go on the defensive with their research and development (R&D) budget. Sony had to prematurely announce they were working on the PlayStation 4 to justify a high R&D budget. And companies like Yahoo have had to even yield to demands by lowering their spending allotment. This type of behaviour from its shareholders can hamper their vision and ultimately lower their earnings per share, hurting the very investors they are trying to appease.
For his part, Elon Musk has a very blunt response for those thinking of investing in his company “… if this scares you then take your money elsewhere”. This is advice many of us must consider when making investments. I am not saying you should invest in a Mars excursion, but when investing in any company you must look at the company’s vision and if this appeals to you, you must be willing to commit for the whole ride. This includes any shorter earnings due to high research cost or forgoing any dividends, so the company can use the funds to achieve their goal. If they are successful, your overall growth should outweigh any short-term pains.
Now this may seem risky but that’s what investment is, taking calculated risks to see an overall growth in your portfolio. If you decide its to risky for you then move on to a company whose vision is more to your likening.