Sigh! tbh the wsj comments on this particular issue are mostly accurate, though the other issues are debatable.
1. Tsla is quite volatile.
2. If it drops significantly by some Y%, Musk's shares which are used as collateral would be called.
3. When that margin call gets triggered he'd be forced to sell X shares to meet it.
4. X is very large.
5. Since X is large, you have a ton of tsla on the market with no demand. Price will drop like a rock, by some Z%.
6. Say I and you hold Tsla shares. Obviously we are OK with a price drop of Y%, because we know the damn thing us volatile, yet we chose to buy into it because we believe in its upside.
7. But just because we are OK with Y% drop due to some macro event doesn't mean we are OK with this Z% additional drop due to the way Musk structured his personal investments.
In other words, ordinary investors could end up losing a ton of money (y + z) for no fault of their own, than if they had just lost y% which they had signed up for. Depending on what numbers you attach to y and z, you can make the case this is unfair or very unfair.
For his part, Musk claims the probability of the above is low, though definitely nonzero in today's uncertain market conditions.
1. Tsla is quite volatile. 2. If it drops significantly by some Y%, Musk's shares which are used as collateral would be called. 3. When that margin call gets triggered he'd be forced to sell X shares to meet it. 4. X is very large. 5. Since X is large, you have a ton of tsla on the market with no demand. Price will drop like a rock, by some Z%. 6. Say I and you hold Tsla shares. Obviously we are OK with a price drop of Y%, because we know the damn thing us volatile, yet we chose to buy into it because we believe in its upside. 7. But just because we are OK with Y% drop due to some macro event doesn't mean we are OK with this Z% additional drop due to the way Musk structured his personal investments.
In other words, ordinary investors could end up losing a ton of money (y + z) for no fault of their own, than if they had just lost y% which they had signed up for. Depending on what numbers you attach to y and z, you can make the case this is unfair or very unfair. For his part, Musk claims the probability of the above is low, though definitely nonzero in today's uncertain market conditions.