Missed Tesla’s 12,551% Rise? Don’t Feel So Bad.

If you missed it, you’re in good company. Tesla has only recently stopped being the most-shorted major stock, and only because those betting against it lost too much money. I missed Tesla too, initially seeing it as only a niche sports-car stock and later scoffing at Elon Musk’s grand ambition. And while obviously I’d like an extra $1 million as much as the next guy, I’m not distressed that I missed out.

Investors can’t afford regret. Every day brings new opportunities to become very rich, most of which we are bound to miss. Tesla’s 125-fold increase isn’t even the best gain since it listed. That honor, at least among the top 3,000 stocks in the U.S., goes to Xpel Inc., which makes film to protect car paintwork. It was a penny stock with a market value of a bit more than half a million dollars when Tesla came to market, and has since soared almost 170,000%, leaving Tesla in the dust.

None of us who missed Xpel are kicking ourselves. Penny stocks—even those on reputable markets like the Nasdaq, as Xpel is—don’t usually do anything special. They are difficult and costly to trade, hard to find information on and often deeply troubled. Many vanish without a trace.

There is plenty of scope for disappointment among larger stocks, too. There are nine companies trading today that have lost more than 99% of their value since June 2010. Plenty of others fell to zero.

This is the problem of active investment. On average, investors in public stocks make what the overall market makes, as measured by a very broad index such as the Wilshire 5000. It is easy to focus on the potential to get rich quick in Tesla, while forgetting the odds of getting poor quick in Hertz or Chesapeake Energy.

But it isn’t good enough just to shrug. If regret has a point, it is to learn from experience. Tesla brings several lessons.

•For the long-term investor, to get rich slow with a diversified portfolio you have to cope with people trumpeting far bigger gains. The best way to stay sane is to remind yourself that plenty of others are keeping quiet about their big losses.

•Overvalued stocks can turn into genuine businesses by exploiting their high prices, a type of self-fulfilling prophecy. This week Tesla announced plans to raise another $5 billion by issuing shares, bringing the total this year to $12 billion. The high share price is a huge competitive advantage, hurting rivals.

•There is no rule that a highflying stock has to crash to earth any time soon. Tesla could be dismissed as a bubble company with a ludicrous valuation in 2010, 2014 and 2017, at a minimum. Yet it has made huge gains, even as it flirted with bankruptcy, fought with the Securities and Exchange Commission, and repeatedly missed production promises.

•A charismatic leader matters. It helps that Mr. Musk reinvented the category of the electric car. But investors in Tesla don’t care that its cars have more quality problems than any other brand, that it is decades behind the industry best practice in production, or that Mr. Musk makes promises he can’t keep. Customers don’t care either. They like the brand so much they’re willing to ignore the many defects.

•When investors latch on to a trend, it can overpower common sense. Investors want the prospect of growth, they want disruptive innovation, and they want new, green, energy. Tesla ticks all the boxes, helping it soar this year, even before its latest boost from being accepted into the S&P 500. It might be stupidly expensive at 165 times forecast operating earnings, but just look at the potential! Electric cars are going to be the future (probably), and low-carbon electricity grids need backup storage to make wind and solar viable at scale. If Tesla can expand fast enough, the world is there for the taking.

Of course, customers might choose to buy an electric Porsche, BMW or Nissan instead. Governments might realize that heavy luxury electric vehicles combined with fossil fuel power stations emit more carbon than small, efficient, gas-powered cars. Or investors might stop valuing stocks according to their “addressable market,” and focus on realistic future earnings. None of that is for 2020, though.

•Searching IPOs for the next Tesla is likely to lead to disappointment. The average IPO since 1980 barely outperformed over its first three years, and only if the disaster of the dot-com era is excluded. Even then, more than all the gain came on the first day, according to data from University of Florida finance professor Jay Ritter. The gains went to those able to access the IPO subscription price.

Instead, the best way to outperform in the past decade was to latch on to large, disruptive-tech stocks. Tech stocks, broadly defined, with sales above $100 million were the only type of IPO to beat the market over three years from the first day’s close. The rest of the market followed a similar pattern, with Big Tech dominating to such an extent that the five biggest U.S. stocks are Apple Inc., Microsoft Corp. , Amazon.com Inc., Facebook Inc. and Alphabet Inc. The next decade might bring something new.

If you missed out on Tesla, the best thing for your peace of mind is not to dwell on what might have been. But do stay on good terms with any friends who bet big on Mr. Musk—they might invite you to their luxury beach houses.

Write to James Mackintosh at [email protected]