My problem with the "I'm betting on Elon" approach is that the market is clearly already betting on Elon, to the point of somewhere between 10-40x a sensible company valuation. If you buy now, you're betting on a clearly ridiculously-optimistic valuation being not quite ridiculously-optimistic enough. You're not the first person to have considered that the company might be successful and grow exponentially in the future -- that's already priced in to the stock!
Talking about long-term bets, it would be interesting to read about how the electric car future might tie into the driverless car future. My understanding is that we'll have many fewer cars around in the driverless future, even if the cars that we do have are electric.
Investors are surprisingly pessimistic. I am heavily invested in TSLA. I got out right before earnings call because CEOs like Elon don't seem to care about meeting Wall Street's expectations. I'll buy more in a week or two when the market is more favorable.
Almost all of the criticism I read of TSLA is regarding their financials. There is a lot of room for sentiment and investor confidence to improve. Things I care about(like Elon's track record & ridiculous amounts of ambition, improvements in battery technology, not using dealerships, the supercharger network, etc.) don't ever get mentioned.
Wall street seems to care about whether they'll be able to meet production goals, the amount of cash they have on hand to continue operations, etc.
Most importantly, as more consumers take delivery of their Model S' I'm expecting investor confidence and awareness to improve. They'll "see" the demand with their own eyes. My father is already mentioning to me that his friends are seeing Model S' pop up around town and people are talking about them. They want to know what it is. It's extremely common for retail investors to buy stock based on products that they see being used.
You're right in that I'm betting solely based on investor confidence improving. In my opinion, there is no other metric on which to price a stock.
This is otherwise known as the greater fool theory. I'm not saying that to suggest you're a fool. But you are a gambler, hoping for someone even more emotionally invested than you are to buy your shares. At the end of the day confidence is not sustainable. The bubble showed us that quite clearly. At some point, Tesla has to make sense, and there has to be a clear path from now until then or someone will lose a lot of money along the way.
Progress depends on the fool and the greater fool. The only way to be right always is to not take a position at all. Progress depends on people believing that the world can change for the better in unimaginable ways. Taking a position on unimaginable progress can appear foolish for pretty long periods of time and can ultimately also turn out to be foolish in retrospect. To be a pioneer you have to run the risk of being foolish.
Hype gets created automatically when someone credibly takes on a problem that most think cannot be done. The only way to sidestep is to do what Andrew Wiles did with the Fermat last theorem - but that might not be a valid strategy for a problem that requires more than a small team.
You hit the nail on the head with your question here. This guy does not sound like someone who really know what he's doing in the market. If you had already made the decision that you believe in Tesla and want to invest there is no reason to be buying and selling the stock based off of earnings reports. Particularly if you believe (as this guy does) that the CEO is not particularly concerned with Street estimates. Just buy and hold.
I too got out before earnings, and I'm not really sure where you get the idea that he doesn't know what he's doing.
I got out because I was up 20% (my target when I initiated the position) and my trailing stop was hit around the time the NYT story came out. I had set the trailing stop prior to earnings because their earnings typically lead to sell-offs because they aren't profitable (yet) and they were going to come up short of their initial estimates for cars delivered 2012 (even though it was revised down, people would still hold it against them). It had had a nice run in the weeks prior, so a correction seemed reasonably plausible anyway. It's just how the market goes, and I figured (correctly) that even if my stop got hit, it meant I would have an opportunity later to get back in at a lower price.
I believe in Tesla, but I also realize that there are going to be dips along the way that I can capitalize on. I think they'll turn a profit this quarter, and if they keep on track, their earnings reports won't be as volatile (at least in the negative direction) and I won't sell beforehand.
I guess it's just a matter of personal preference then. The difference between long term and short term capital gains tax makes what you describe here not worth the effort to me.
Well there are a lot of people who are long on a volatile stock who will get in and out to maximize their return in/cost basis etc. Holding and never exiting is another option but hardly makes you "unsavvy" if you're trading in and out. Having said that I agree options would be a better strategy if you feel comfortable that you can predict the short term market direction.
I think the NYT affair started cementing the idea of brand loyalty into the minds of their customers. US consumers love an underdog they can get behind in an "us vs them" type storyline.
It's so heavily shorted that there's a possibility of a short squeeze, which I would find quite delicious - not because I own TSLA, but because I want to see people hoping for failure get screwed.
Even a stock that is ninth most heavily shorted isn't necessary heavily against. The market is very very very long TSLA, they have bought into the idea and given it a lofty valuation as a result. People who are short are just balancing the optimism... it's not like they just want failure for failure's sake.
What makes you think that being short on a stock is the same as hoping for failure? I hope Tesla is fantastically successful, but I would consider shorting it if I were doing such things these days. They're two totally separate things.
I don't think they're separate. Shorting a stock means you make money from the stock's decline, and therefore from the company's failure. You hope to make money from your investment, so you hope for the company to fail, at least indirectly.
Furthermore, shorting a stock can harm the firm. Big short positions drive down the stock price, which affects public sentiment (their stock is down, they must be failing, I won't buy their car because they may not be here next year), makes it harder for them to retain employees, makes it harder to raise money by issuing more stock or bonds, etc. By shorting a stock, you are contributing to that company's failure (though of course the effect is miniscule for retail investors like me).
I would not buy even a undervalued stock for a tobacco company, because I don't want to support producers of tobacco products. And I don't want to impede progress in electric cars by shorting their producers, even if I think their stocks are overvalued. There's plenty of other investments available that align my finances with my hopes.
Short selling is nothing more than selling before you buy. If you believe that short selling drives prices down, then you believe that taking long positions drives it up. Neither is true.
Short selling provides more information and better liquidity to the market. It's a good thing.
Of course short selling drives prices down, while long positions drive prices up. That's basic supply and demand. What else could determine prices?
I agree that short selling is overall a good thing, though it can also be abused (e.g. naked shorts). I am not claiming any market abuse in the case of Tesla.
Most people do not buy individual stocks based purely on a risk calculation. They also want to believe that the firms are working for good, not evil, because buying a stock means you own part of that company, and therefore are in some small way responsible for its actions.
Short selling is the same, but in the opposite direction. You own a negative fraction of that company, and so your moral relationship to it has a minus sign. I think that Tesla is a good company. But some people think that owning no TSLA is still too much, and I hope they get burned (financially).
The short interest is only indicative of how many investors think that there is a greater chance TSLA is overpriced vs. underpriced. The short sellers may very well believe in Elon but they may also think that they have a superior risk-reward by shorting the stock right now. The high short interest is also indicative of investors having access to more ambiguous data, which is the case for a unique company with negative cash-flow and large market potential.
It's hard to believe in someone when your pay depends on their failure.
I compare it to companies who take out life insurance policies on their low-level employees, sometimes called dead peasant insurance. Would you want to work for a company that has a financial interest in your death? What if they told you that they believe in you, they really do, but the life insurance was so cheap that it was a superior risk-reward decision?
I would still say the company is wrong to do so: you should not bet against what you believe in, no matter how good you think the bet is. The stock market is not a game, and weaponized short selling can and has destroyed companies.
If you could short Tesla at a price of $135,000 per share, would you do it? I sure as hell would, and it has nothing whatsoever to do with my feelings about Tesla's business, except that it's not worth $135,000 per share today.
All right, but the "real" value of a stock is just one factor. Another one is the well-documented tendency of the public to be swept up in fervor for a company and an equity for reasons other than true value. That's another horse to ride.
Indeed. You buy when you think the the company undervalued and sell when you think it is overvalued. The order in which you do that is irrelevant and signals no emotion.
I believe the ingredients for a TSLA explosion are in place: small free float and large short interest. It just needs a spark...if press reaction is very positive, analyst upgrades would shortly follow. Retail investors will flock to the stock, followed by some institutions. If the latter is true, there would be no free float left.
In that scenario, short sellers would have to cover their positions, but be unable to find the shares to do so, resulting in a big (but temporary) stock blow-up.
>>You're not the first person to have considered that the company might be successful and grow exponentially in the future -- that's already priced in to the stock!
This is actually a flawed view, because it assumes perfect information by all market participants. George Soros goes into quite a bit of detail in the second part of his General Theory of Reflexivity. You should read it.
"Let me state the two cardinal principles of my conceptual framework as it applies to the financial markets. First, market prices always distort the underlying fundamentals. The degree of distortion may range from the negligible to the significant. This is in direct contradiction to the efficient market hypothesis, which maintains that market prices accurately reflect all the available information.
Second, instead of playing a purely passive role in reflecting an underlying reality, financial markets also have an active role: they can affect the so-called fundamentals they are supposed to reflect. That is the point that behavioral economics is missing. It focuses only on one half of a reflexive process: the mispricing of financial assets; it does not concern itself with the impact of the mispricing on the so-called fundamentals.
There are various feedback mechanisms at work which may validate the mispricing of financial assets, at least for a while. This may give the impression that markets are often right, but the mechanism at work is very different from the one proposed by the prevailing paradigm. I claim that financial markets have ways of altering the fundamentals and that may bring about a closer correspondence between market prices and the underlying fundamentals. Contrast that with the efficient market hypothesis, which claims that markets always accurately reflect reality and automatically tend towards equilibrium. There are various pathways by which the mispricing of financial assets can affect the so-called fundamentals. The most widely travelled are those which involve the use of leverage—both debt and equity leveraging. These pathways deserve a lot more research."
When you buy stock, you should scale in. He is clearly someone comfortable now with his purchase, if it dips, as far as he is concerned its on sale, scale in.
Talking about long-term bets, it would be interesting to read about how the electric car future might tie into the driverless car future. My understanding is that we'll have many fewer cars around in the driverless future, even if the cars that we do have are electric.