Billionaire investor Howard Marks says individual investors should 'absolutely cut back' their Tesla shares if they've already made huge gains

• Billionaire investor Howard Marks told Bloomberg TV that individual investors who have made large gains from owning Tesla stock should take some profits now as the electric-vehicle company soars to new records.
• "If he bought Tesla two years ago, he probably has a huge gain, it's probably a very disproportionate amount of his financial net worth, he should absolutely cut back," the Oaktree Capital Management co-founder said.
• Shares of Tesla gained as much as 7% on Tuesday, to $868 apiece.
• Sign up here our daily newsletter, 10 Things Before the Opening Bell.

Individual investors who have profited immensely off of their Tesla stock should "absolutely cut back," said legendary investor Howard Marks during a Bloomberg TV interview on Tuesday.

Bloomberg's Erik Schatzker asked Marks whether an individual investor should sell their Tesla stock after the electric vehicle company rallied 743% in 2020.

The Oaktree Capital Management co-founder responded that Tesla is an "extreme case," but investors who have a disproportionate amount of their wealth in the company should consider taking profits now.

"Certainly you describe an individual, not of great means, he should take some profits," Marks told Schatzker. "If he bought Tesla two years ago, he probably has a huge gain, it's probably a very disproportionate amount of his financial net worth, he should absolutely cut back." Shares of Tesla gained as much as 7% Tuesday, to $868 a share, after hitting a record high last week. The stock has climbed roughly 21% in 2021.

Read more: Julian Klymochko wakes up at 4:30 a.m. to manage an ETF that seeks to profit from the SPAC boom. The investing chief breaks down how the strategy works, and shares 2 new SPACs on his radar

Growth stocks like Tesla and other big tech companies soared to new records in 2020, achieving high valuations that are alarming to many traditional investors. Meanwhile, stocks in sectors hit hardest by the pandemic are trading at cheap valuations that may easily seduce investors looking for bargains.

---

But in Marks' latest investor memo published on Monday, he explained that traditional valuation metrics have been thrown for a loop in the "fast-changing world in which we live." The distinction between growth and value stocks is neither, "essential, natural, or helpful, especially in the complex world in which we find ourselves today," he said.

Marks warned in his letter that "investing on the basis of rote formulas and readily available fundamental, quantitative metrics should not be particularly profitable." He told Bloomberg that just because a stock has a high price-to-earnings ratio, it doesn't mean it's overvalued. Conversely, just because a stock has a low price-to-earnings ratio, it's not necessarily cheap.

Instead, investors will have to realize that "value can be found in many forms."

"I once asked a well-known value investor how he could hold the stocks of fast-growing companies like Amazon - not today, when they're acknowledged winners, but rather two decades ago," Marks said in the letter. "His answer was simple: 'They looked like value to me.' I guess the answer is 'value is where you find it.'"

Read more: A leading Wall Street firm asked 7 famous investors about their favorite stocks and the global trades they're using to stay ahead of the competition. Here's what they're betting on now.