(Bloomberg) – Elon Musk criticizes the state of the US financial markets.
Most read by Bloomberg
In a wide-ranging conversation with ARK Investment Management's Cathie Wood on Thursday, he lamented the heavy regulatory burden that publicly traded companies face, shareholder pressure that limits efficiency and the way passive investing fuels volatility.
The complaints add to a litany of complaints Musk has voiced over the years about the trade-offs that come with tapping into public markets to build some of his many ventures. His disdain for the strictness of U.S. securities laws has sometimes led to trouble with regulators, including a high-profile dispute with regulators over tweets about Tesla Inc. Musk is also chairman of SpaceX, one of the world's most valuable private companies.
“There is a lot of pressure, for example, immense pressure on a listed company not to have a bad quarter. So this can actually lead to a less efficient operation where you go to great lengths at the end of the quarter to not disappoint people,” Musk said in a Spaces discussion broadcast live on the social media platform X . The “time horizons There is a mismatch between investors and the long-term vision of a company.”
Musk has clashed with the Securities and Exchange Commission in the past, which he dubbed the “Shortseller Enrichment Commission” in 2018. This year, the billionaire agreed to pay a $20 million fine to resolve the agency's complaints about tweets that suggested he was taking Tesla private. As part of the agreement, he agreed to have future posts about his company deleted by an internal monitor called a “Twitter sitter.”
Musk later bought the social media platform and named it
The story goes on
Read more: Supreme Court asks SEC response to Musk's social media appeal
Musk said SpaceX's privatization also allowed it to take more appropriate risks compared to Tesla. However, one benefit of Tesla's IPO was the company's access to capital, he said.
Still, Musk told Wood that he wouldn't recommend companies go public “unless they really have to.” By privatizing Twitter, he was able to make dramatic changes to the company without the pressure of public investors. Twitter co-founder Jack Dorsey had long argued that the social media company was struggling because of public investors and encouraged Musk to take the company private to help turn around its business.
To learn more about Musk, subscribe to the Elon, Inc. podcast.
Wood and Musk also discussed how passive investing has penalized stocks that are not included in major indexes and unequally rewarded companies that are included in major benchmarks. Her comments come as academic critics continue to complain that the boom in passive investing is distorting stock prices and causing extreme market moves.
While Musk praised Vanguard Group Inc. founder Jack Bogle for bringing passive investing into mainstream finance, he said the money management trend has “gone too far.”
“The percentage of the market that is passive is simply too large right now. At the end of the day, someone actually has to make an active decision. “Passive investors depend on the decisions of active investors,” Musk said. “Essentially there are massive stock moves based on the decisions of maybe four or five active major stock pickers.”
Wood's flagship stock market fund ARK Innovation (ticker symbol ARKK) is actively managed and has almost no overlap with the S&P 500, according to a Bloomberg Intelligence analysis. Musk's Tesla joined the US benchmark about three years ago but has lagged since joining.
Wood has long been a fan of Musk. Tesla is currently the second largest holding in the ARK Innovation ETF.
Most read by Bloomberg Businessweek
©2023 Bloomberg LP
Comments are closed.