(Bloomberg) — Elon Musk attacks the state of U.S. financial markets.
Most read on Bloomberg
In an in-depth interview with ARK Investment Management’s Cathie Wood on Thursday, he lamented the heavy regulatory burden publicly traded companies face, the shareholder pressure that limits efficiency and the way passive investing fuels volatility.
These complaints add to a litany of grievances Musk has raised over the years regarding trade-offs in leveraging public markets to build some of his many companies. His disregard for the rigidity of U.S. securities laws has sometimes led to problems with regulators, including a high-profile battle with watchdogs over tweets about Tesla Inc. Musk is also the chief executive of SpaceX, one of the most valuable private companies in the world.
“There’s a lot of pressure, like immense pressure on a public company not to have a bad quarter. So it can actually result in a less efficient operation, where you’re trying really hard at the end of the quarter to not disappoint people,” Musk said during a Spaces discussion streamed live on the social media platform X. “Time horizons” mismatch between investors and a company’s long-term vision.
Musk has previously had run-ins with the Securities and Exchange Commission, which he dubbed the “Shortseller Enrichment Commission” in 2018. That year, the billionaire agreed to pay a $20 million fine to resolve complaints from the agency regarding tweets suggesting he favored Tesla. . As part of the deal, he agreed to remove future posts about his company with an internal monitor, or “Twitter sitter.”
Musk later bought the social media platform and renamed it X. Earlier this month, he asked the U.S. Supreme Court to consider invalidating the requirement, arguing that it violated his freedom of expression.
Read more: Supreme Court asks SEC to respond to Musk’s social media appeal
Musk said keeping SpaceX private also allowed him to take more appropriate risks than Tesla. One benefit of Tesla’s IPO, however, 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.” Taking Twitter private allowed him to make sweeping changes within the company without pressure from public investors. Twitter co-founder Jack Dorsey had long argued that the social media company was in trouble because of public investors and encouraged Musk to take it private to help turn its business around.
To hear more from Musk, subscribe to the Elon, Inc podcast.
Wood and Musk also discussed how passive investing has punished stocks that aren’t in major indexes and unevenly rewarded companies that are in key benchmarks. Their comments come as academic critics continue to lament that the passive investing boom is distorting stock prices and causing extreme market moves.
While Elon Musk praised Vanguard Group Inc. founder Jack Bogle for introducing passive investing to traditional finance, he said the money management trend had “gone too far.”
“The percentage of the market that is passive is simply too high at this point. Ultimately, someone has to make an active decision. Passive investors depend on the decisions of active investors,” Musk said. “You basically get massive stock moves, based on the decisions of maybe four or five big active stock pickers.”
Wood’s flagship exchange-traded fund, ARK Innovation (ticker ARKK), is actively managed and has virtually no overlap with the S&P 500, according to a Bloomberg Intelligence analysis. Musk’s Tesla joined the U.S. 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 from Bloomberg Businessweek
©2023 Bloomberg LP
