Pierre, 49, is currently on a leave of absence from his government job in Ottawa to accompany his wife, a school teacher, on assignment in a tropical country. It’s our guess he may have also welcomed the opportunity to escape the frigid winters of Ottawa.
But if anything brings a greater sense of contentment for Pierre and his wife than a land of year-round days on the beach, gentle breezes and swaying palm trees, it could be the growth in the value of their tax-free savings accounts to a combined $3-million (confirmed by screenshots).
Right after opening their self-directed TFSAs in January of 2020, they deposited in each account the amount of $69,500 (cumulative total of contributions allowed in a TFSA since they were launched in 2009) and loaded up on shares in electric vehicle manufacturer Tesla Inc.
To fund their purchases of the Tesla TSLA-Q shares in 2020, they dug into their savings and also borrowed $50,000 from a line of credit (LOC). After 2020, the TFSAs were topped up with maximum annual contributions, taken out of their annual income.
It was a gutsy move to put so much into one stock. However, as Moshe Milevsky of the Schulich School of Business says in his book, Are You a Stock or a Bond?, people like Pierre and his wife can take on greater risks. Such persons include tenured professors, government employees, schoolteachers and others who have well-paying and secure jobs that provide solid pensions.
As Prof. Milevsky puts it, their human capital is stable like a bond, so their financial capital can take on more risk. The couple also have assets such as a house in Ottawa, registered retirement savings plans and holdings of cryptocurrencies. In short, if they lose money on their stocks and other financial assets, they can take it in stride.
Pierre had been following Tesla since its early days, regularly reading their financial reports and dissecting shareholder presentations. When Tesla’s Cybertruck was unveiled in late 2019, he decided it was time to invest.
Soon after their investment, Tesla stock accelerated like a Formula One car burning rubber out of a pitstop. “Unexpectedly, the market aligned with our views much faster than anticipated,” was Pierre’s understated recollection of Tesla’s sevenfold gain in 2020. The stock rose further into 2021, then trended down until early 2023 from where it rallied to an all-time high by 2024.
TFSA returns were augmented with income from sophisticated financial instruments such as covered call options and long-duration call options known as LEAPs. However, Pierre’s TFSA took a minor hit when he had to sell some Tesla shares to meet margin calls on Tesla put options sold in an account outside of his TFSA (i.e. a margin account).
Nonetheless, it was their buy-and-hold approach to Tesla’s stock that delivered most of the returns. Without the options and LEAPS, Pierre’s TFSA would have been higher and his wife’s lower, at about $1.4-million each for a combined value of $2.8-million.
Beginning in February of 2024, they began shifting funds out of Tesla into MicroStrategy Inc. MSTR-Q, one of the largest corporate buyers of bitcoin in the world. By the end of the year, the weighting across the two TFSAs for Tesla and MicroStrategy stood at approximately 57 per cent and 43 per cent, respectively. Pierre’s TFSA also had a tiny weighting in Palantir Technologies Inc.
Pierre and his wife paid off their LOC with monthly installments of $4,000. It took until 2023 because they were also funding contributions to their RRSPs and margin account. If they only had to pay down the $50,000 credit for Tesla, it would have taken just over a year; the lending rate was 7.2 per cent, so interest cost was $2,100, estimates Pierre. It was a small expense given the 2020 gain in Tesla’s stock turned the $50,000 loan into more than $350,000.
With over half their TFSAs in Tesla stock, the couple still had a large position in the company. So what do they make of U.S. President Donald Trump’s recent announcement that he plans to cut back on EV subsidies, emission targets and consumer tax credits?
“If anything, it will mostly hurt Tesla’s competitors who have yet to produce EVs profitably,” Pierre replies. “I do expect sales in the U.S. for the current Tesla lineup to slow down, but I also expect a cheaper model to be released in the coming year, which opens up a whole new level of demand …. In about five years, EV vehicles will be cheaper than internal-combustion vehicles.”
“More importantly,” he continues, “the automotive manufacturing business of Tesla should be surpassed by its energy storage business, and by the AI and software business, which includes self-driving vehicles.” He also favourably mentions the Tesla Bot, an autonomous humanoid robot able to perform repetitive, unsafe and boring tasks.
“If I was strictly interested in the automotive manufacturing business I would bet on the vehicles from BYD Company out of China. But automotive manufacturing is a tough business, with thin margins. The fact that the media and the market still see Tesla as a car company is how I know that TSLA is a misunderstood asset.”
To wrap up, Pierre observes that unfortunately, many people mistakenly think TFSAs are available only as “bank products” such as guaranteed investment certificates, paying fixed interest rates. It could be one reason why TFSA holders had an average balance of only $44,987 in 2024.
It is possible to get better returns, he argues, with self-directed TFSAs because they allow savers to invest in stocks, bonds and other financial assets of their choice. Even if they buy just a stock-market index fund (requires no stock-picking skills), they would likely be better off.
What an expert says
For an opinion on the TFSAs of Pierre and his wife, we interviewed Jennifer Tozser, a senior wealth adviser and portfolio manager (CFA, CFP) with Tozser Wealth Management at National Bank Financial.
“They have picked a stock, followed it, invested in it, and made some money – which is great for them,” Ms. Tozser said.
However, in her opinion, having a high concentration in one stock, borrowing $50,000 to leverage the investment, and then employing stock-option strategies, is a highly risky strategy not recommended for most investors.
Such strategies come with several downsides, Ms. Tozser said. A portfolio of one stock can be very volatile and severely test the nerves of most people, causing them to shed their investment at inopportune times. Interest rates on a line of credit can trend upward and eat into stock gains. Margin calls from a broker to put up more capital can also lead to deep losses and forced exits from a position (as Pierre did experience with his stock options – fortunately, to a small degree).
Moreover, most people just don’t have the expertise, time and temperament for such an active investment approach. And some luck is required, Ms. Tozser believes, for the kind of returns that generate TFSAs worth $3-million.
“Although the strategies that Pierre and his wife used can enhance returns, it is the extent to which they are being used in combination that is particularly worrisome,” Ms. Tozser said. Employing these strategies together would not be considered prudent. Most investors need a portfolio designed for long-term investment instead, she added.
Behavioural finance literature warns that the odds of consistently outperforming financial markets increasingly diminishes over the long run, Ms. Tozser cautioned. For example, those who have enjoyed a period of stellar returns can become overconfident in their skill set and ability to navigate tricky shoals. There is a risk of giving talent too much credit over luck.
See more from the TFSA Trouncers series by clicking here
Larry MacDonald is a regular contributor to The Globe and Mail and author of a new book, The Shopify Story: How a Startup Rocketed to E-commerce Giant.