Tesla Beat All the Trillion-Dollar Stocks. Berkshire Hathaway Did Even Better.

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What do Elon Musk and Warren Buffett have in common? Shares of both of their megacapitalization companies posted gains for the first quarter of 2022.

Investors probably aren’t surprised that

Berkshire Hathaway

(ticker: BRK/B) stock was up. It is a value stock, a category that outperformed growth shares in the quarter. That is what makes the strength of

Tesla

(TSLA), a growth stock, a big surprise.

Equally unexpected, considering traditional investing tenets, is that the shares outperformed all the other trillion-dollar stocks in the

S&P 500.

Tesla

stock ended the quarter with a gain of about 2%. It isn’t much, but investors are unlikely to have been upset considering the comparable numbers.

The

Russell 1000 Growth Index,
and the

Nasdaq Composite Index,
both dropped about 9% in the quarter. The

S&P 500
dropped 5%.

The

Russell 1000 Value Index
did better than most, dropping only 1% in the quarter. Berkshire stock, which isn’t in the trillion-dollar club, with a market capitalization of a bit less than $800 billion, gained about 18% in the quarter.

None of the other trillion-dollar companies posted first-quarter gains.

Alphabet

(GOOGL) and

Amazon.com

(AMZN) dropped about 4% and 2%, respectively.

Microsoft

(MSFT) fell about 8%.

Apple

(AAPL) dropped 2%.

Tesla isn’t supposed to outperform in a down market. Tesla is supposed to be a risker, more volatile stock that the others, so it should get hurt worse in market downdrafts.

Tesla’s so-called equity beta, a measure used to assess the riskiness of a stock, is roughly two. That essentially means the stock is twice as volatile as the overall market, making it risker by definition.

The beta for the other trillion-dollar stocks is about one. That means, roughly speaking, if the S&P 500 goes up 1%, investors should expect Amazon,

Alphabet
,

Microsoft
,
and

Apple

stock to go up by roughly the same percentage.

In the first quarter, the riskier stock won. Tesla might have beaten its trillion-dollar peers because the news it delivered was more surprising. Back in early January, Tesla reported delivering about 309,000 vehicles in the fourth quarter. That was far better than the roughly 275,000 Wall Street had projected.

Still, the ride for investors was a rough one. Tesla shares hit an intraquarter low of $700 on Feb. 24, putting it down about 34% for the year to date, only to rally more than 50% from there into the end of March. The intraquarter losses in the other four stocks averaged about 17%. None was worse than Tesla’s—indicating that beta worked as an indicator of intraquarter volatility.

A higher beta means, theoretically speaking, that investors should demand more return for Tesla stock than other large stocks. Investors should get more return for taking more risk.

Of course, it doesn’t always turn out that way in practice. Academic papers have long demonstrated a “beta anomaly“—the fact that for a long time, low-beta stocks have outperformed high-beta stocks. That just isn’t what’s supposed to happen, so academics have tried to find tools other than simple beta to measure individual stocks’ riskiness.

What happens to the trillion-dollar companies matters even for people trying to track the broader market with index funds. Tesla and its four trillion-dollar counterparts represent about 25% of the entire market capitalization of the S&P 500. They accounted for about 17% of the $2 trillion in market capitalization the index lost in the first quarter.

Write to Al Root at [email protected]