For readers who don’t follow tech industry news, I will offer a brief history of the events surrounding Elon Musk’s saga surrounding his announced intention to purchase Twitter.  In January of 2022 Musk (then, the richest person in the world) started investing in Twitter stock.  In April, the parties reached an acquisition deal at Musk’s offered price of $54.20 per share.  This represented a substantial premium over the stock’s market price.  Within days of reaching the deal, Musk sold about $8.5 billion worth of his Tesla stock to help finance the purchase.  Beyond that, he receives several billions worth of financing from various parties.  In recent weeks, Musk has announced that he will terminate his acquisition of Twitter, pointing to the existence of many fake accounts on the platform.  About one week ago, Twitter sued Musk in Chancery Court in Delaware to force him to complete the deal.

No matter how we choose to view this case, it is a mess.  There seem to be no clear “winners”, right now, but that could all change when the case goes to court.  Twitter shareholders could win if Musk is forced to honor his offer price of $54.20/share (TWTR currently trades below $40/share).  Musk could win if he gets away at a relatively “minimal” cost of the $1 billion agreed-upon termination fee written into the original purchase agreement.  This is true, considering that the late April sale of his TSLA shares took place at a value more than $2 billion higher than where TSLA sits today!

Even for the wealthiest among us, I doubt that the private purchase of a public corporation is ever a serious consideration.  This begs the question, “What lessons can the rest of us take from such a debacle?”  I can think of three.

#1.  Avoid Emotional Spending and Impulse Shopping. 

In a TED interview, Musk said he wanted Twitter to be a "platform for free speech around the globe."  He insisted that he was not trying to get more wealthy off of the deal.  It is not my place to question someone’s motives or prerogative to express their beliefs with their investment dollar.  This does, however, have some signs of an emotional purchase.  

For those who are not in the market for multi-billion dollar impulse buys, I might recommend asking yourself a few questions before making a large purchase.  Are you considering a purchase in order to demonstrate status (think a luxury car or designer clothing item)?  Do you think the item you are considering will make you feel better about a temporary situation or problem?  Are you shopping out of boredom?

#2.  Budget for Large Purchases.   

An individual’s risk tolerance may be high or low, but that psychometric value is not the only factor in determining how assets should be invested.  For an individual financial goal, nothing may be more critical than a timeline.  After all, if you need to spend a large amount of money in six months, the last thing you want is for that money not to be there when you need it.  It is for this reason that it may not be appropriate to have it invested in stocks, much less one or two individual stocks!  

For the general public, we often recommend keeping a fully-funded emergency savings account to carry a household through a potential rough patch.  Beyond that, we manage portfolios of extremely conservative assets for any amounts that we anticipate being spent over the short term.

#3.  Manage for Risk.

In a word… Hedge.  When Elon went shopping for loans, he used his single largest asset as collateral.  This is his personal holdings in TESLA stock.  Unfortunately for him, TSLA has fallen around 40% since the beginning of this year, causing Musk’s net worth to decline by over $75 billion.  Should someone borrow against such an asset, a banker may be within their rights to force a borrower to pay back a portion of the debt.  In a case like this, forcing the sale of some stock in order to raise cash.  It is never good to be a forced seller.

To a more common investor, I would simply say to manage your risk.  There are many ways to hedge, but the simplest tool to reduce risk may be to diversify your portfolio so that you will not be cataclysmically affected by a poor outcome in any one company or area of the economy.  When investing in any large asset, be sure to ask yourself how long you plan to own it, and under what circumstances you might sell.  Ask yourself how you will react if this asset suffers a significant decline.  If this will adversely affect your lifestyle, perhaps this investment is not for you.

BONUS TIP. Read the Fine Print

Like many people, you may be asking yourself how the world’s richest man managed to get himself into such a quagmire.  After all, one fact that proves consistently true is that “the system” works in the service of the wealthy.  In this case, though, even that bias may not be enough to save Elon from some pain.  There are two specific terms of the agreement that make this true.  The first is the $1 billion contract provision mentioned above.  This “breakup fee” was designed specifically to prevent deals from falling apart.  The second specific detail that may end up costing Musk is that he explicitly waived his right to “due diligence” on Twitter in connection with the transaction.  The one detail that both of these terms share is that he signed a legally binding agreement including them.

For most people, the lesson here is rather straightforward.  Read the contract.  Then read it again.  Be careful what you sign.

Conclusion

You may not be one of the richest people on the planet, but that doesn’t mean that you can’t learn from one.  In fact, proper planning, some impulse control, and protecting yourself from foreseeable risks are all behaviors that can increase your chances of increasing your personal net worth over time.