EDITOR'S LETTERMerryn Somerset Webb
There was a telling sentence in Tesla founder Elon Musk’s letter to his staff discussing the possibility that the electric-car maker might leave the public stockmarket. If it did, he said, it wouldn’t necessarily be forever: the firm could return once it has entered a “phase of slower, more predictable growth” – for which you can probably read, once its private backers have enjoyed its major growth phase, extracted all the cash they can, and found the right point in the market cycle to sell it back to ordinary punters at a price that extrapolates past growth for ever and will eventually seem insane in retrospect.
The key thing to note is that while it’s fun to think that everything Musk does is exciting and new, this just isn’t. The number of interesting companies listed on developed stockmarkets is falling – and in particular the number of exciting growth companies listed is falling. That means that ordinary investors don’t get access to their growth, which has long-term implications for the returns to our equity portfolios (the ones our financial futures depend on); for wealth inequality; and by extension, for the future of capitalism.
There is already a strong feeling that the fruits of capitalism return more to the already rich (those who have the wherewithal to invest outside the normal routes) than the little bit rich. Without active equity markets, that will fast become more a truth than a feeling.
It is not, however, insoluble. Right now, being private looks more attractive than being public: there’s plenty of cash and a lot less scrutiny. The answer, then, is to make being public more attractive. How? Not by cutting back on the scrutiny and transparency, but perhaps with incentives for owners to want firms to be listed.
You could give listed companies a lower rate of corporation tax during the growth years; allow listed firms preferential rates for offsetting capital expenditure costs; or allow them to offset more debt interest than off-market firms. I’m not entirely certain what would work best. I am entirely certain that a strong ordinary shareholder base is a core pillar of capitalism; that allowing it to be eroded will lead to disaster; and that we need to have this conversation sharpish.
Back to Tesla. Should you buy while you still can, or should you go short? Scottish Mortgage manager James Anderson has been clear that, in his view, $420 a share hugely undervalues Tesla. He may be right in the very long term, of course. Shorter term we aren’t so sure. In this week’s issue, Matthew Partridge gives his view on this and there’s also a wider view from John Stepek on when and why to sell shares.
Finally, back to me. Our Adam Smith-themed show, The Butcher, the Brewer, the Baker and Merryn Somerset Webb, at the Edinburgh Festival Fringe, started this week. Tickets are selling fast – get yours here. And if you want to know more about Tesla, note that James Anderson is on stage with me on the 23 August.