# The Perils of Shorting:  A Real Life Example



## Colm Fagan

The latest entry in my "Diary of a Private Investor" is a cautionary tale on the dangers of shorting shares. 

*A Tesla Halloween Horror Story   (Update 20 of "Diary of a Private Investor")*

Short sellers are the whipping boys of the finance world.  They borrow shares, then sell them on, hoping the price will have fallen by the time they have to buy them back and return them to their owners, many of whom are blissfully unaware that their shares were borrowed in the first place.  The short sellers win if the share price falls; they lose if it rises.

There is a belief in some quarters that what short sellers are doing is morally wrong, that they shouldn’t be allowed to bet on share prices falling.  I once shared that view.  A series of events eleven years ago caused me to change my mind.

In 2008, St Patrick’s Day fell on a Monday.  It was a bank holiday in Ireland, but the short sellers who chose that day to target the Irish banks were hard at work.  In what came to be known as the St Patrick’s Day massacre, they short-sold the Irish banks, causing their share prices to collapse.  Worst hit was Anglo Irish Bank, the poster boy of Ireland’s property boom.  

Official Ireland went apoplectic at what it claimed were faceless, unscrupulous profiteers who had the effrontery to question the stability of the Irish banks.  Regulators, politicians and bank bosses took to the airwaves, insisting that the banks were absolutely safe, that there was no need to worry.

The reprieve was short-lived.  Within months, the short sellers were proved right.  Anglo Irish went bust; the other banks went cap in hand to government, begging for bailouts.  Their shareholders were wiped out.  Taxpayers had to foot the bill for rescuing their depositors.  The short sellers were the canaries in the coalmine who had warned of impending doom.  If politicians and bank regulators had heeded their warnings a few months earlier, Irish taxpayers would have been saved billions.

This episode caused me to change my mind about short sellers.  No longer the baddies, they were now the good guys; heroes, not villains.  With the zeal of a convert, I was ready to short-sell companies I thought were overvalued.

Tesla, the electric car company, was a prime target.  I had long believed that its shares were grossly overvalued and had backed my judgement by shorting it.  By the end of May this year, I was feeling smug.  For every 100 shares I had shorted since opening my first short position in the stock in January 2018, I had closed 83, pocketing an average profit of $25 a share.  The other 17 of every hundred shorted shares still outstanding were now priced in the market at $185 each, and I was sitting on a paper profit of $122 a share compared with the average $307 at which I had opened the short positions.  Looking back now, I don’t know why I didn’t close my short positions entirely when the price fell below the $200 target I had set myself some time previously.  It’s too late now.  No use crying over spilt milk.

The window of opportunity didn’t remain open for long.  Soon, the price was back above $200.  Now that the price was above my target, I decided to increase my short position again.  For every 17 open shorted shares at end May, I added another 28 at an average of $242 a share.

At the start of last month, Tesla’s share price had risen to more than $240, but I wasn’t worried.  I could still close my entire position at a profit, but that wasn’t enough for me:  I wanted more.  The results for the third quarter would be released in a few weeks.  I was confident that they would disappoint the bulls and please the bears like myself.  The market would realise that I was right; the share price would fall; I would bag a handsome profit and ride off into the sunset, my satchels filled with gold.

Except that things didn’t quite work out as I had hoped.  The third quarter results were released after markets closed on Wednesday 23 October.  I reviewed them briefly that night and felt vindicated: revenues were down 8% from the same quarter in 2018; operating expenses were down 16%, mainly due to an 18% reduction in selling, general and administrative expenses.  Spending on research and development was also down, by a smaller percentage.  It seemed to me that Tesla was behaving like an outdated industrial metal-basher that was fighting off bankruptcy, trying to squeeze costs as revenues fell.  It was definitely not living up its billing as one of the world’s great growth stories.  I thought the market would agree and that the share price would fall when stock markets opened the following day.

I got it badly wrong.  The share price jumped more than $40 on Thursday and another $30 on Friday, the start of the Halloween bank holiday weekend in Ireland.  There was no need for ghosts or ghoulies to make it a scary Halloween for me:  losing $70 a share in just two days was more than enough to send shivers down my spine.

I still don’t understand why the share price rose so sharply after the results.  I eventually concluded that other investors had interpreted the expense reductions in Quarter 3 as evidence of improved efficiency, not as desperate cost-cutting, which was my interpretation.  Undoubtedly, the cost reductions transformed the bottom line:  net income in the quarter was $150 million compared with a loss of $389 million in the previous quarter.

As an old finance man, one of my favourite sayings is “Revenue is vanity; profit is sanity”, so I should have been impressed by the turnaround in net income despite the fall in revenues.  This time, though, I suspect the opposite is true, that Tesla’s failure to grow its revenues at anything approaching the rate needed to justify its current valuation will eventually bring the share price down to earth.

Its growth ambitions are not helped by the decision to cut spending on research and development (R&D), which for most businesses is the engine that drives future revenue growth.  R&D expenditure was over $100 million lower in the first nine months of 2019 than in the same period of 2018.  Tesla’s R&D spend is less than a tenth that of Volkswagen.

Tesla’s current valuation, based on today’s $350 share price, is $63 billion.  That’s a lot of mouths to feed.  In addition, there is the $13 billion owed to bondholders and the expensive share options to CEO Elon Musk and his top managers if the business succeeds.  In order to justify that valuation, a mature Tesla would need to be churning out profits of €2.5 billion a year, after deducting interest payments on its massive borrowings.  That’s a tall order for a company that lost almost $1 billion in the first nine months of 2019, much the same as it lost in all of 2018, and whose grand ambitions are not being backed by the necessary investment in research and development.

Based on that analysis, I think my wager is safe in the long-term, but I am haunted ever since that Halloween weekend by the quote attributed to the great economist (and keen private investor), John Maynard Keynes, who famously wrote:   “The market can stay irrational for longer than you can stay solvent.”

www.colmfagan.ie

PS:  Elon Musk enjoys sending consignments of shorts to Tesla’s critics when the share price rises after a results announcement.  Elon, if you’re reading this, I have a 36-inch waist, reducing to 34 if Tesla’s share price goes higher.


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## Gordon Gekko

Hi Colm,

Great piece, thank you.

In my view, the problem with shorting is that one can be 100% right, but one runs out of money before that manifests itself.
Gordon


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## Colm Fagan

Gordon Gekko said:


> the problem with shorting is that one can be 100% right, but one runs out of money before that manifests itself.


Hi Gordon.  First, thanks for the compliments.  Much appreciated.  You're absolutely right about money running out.  As I noted at the end of my piece, Keynes recognised that a long time ago.  I'm OK for the time being!


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## Sunny

John Maynard Keynes, who famously wrote:   “The market can stay irrational for longer than you can stay solvent.”

This is my favourite investing quote and pretty much sums up the risk that it often doesn't even matter if you are right. You still risk losing your shirt.


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## Andrew365

Colm,

How much does it cost you to fund the shot position daily? i.e. is there a time limit before you are forced to sell because the funding is too large? What platform do you short on?


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## EmmDee

Colm - Long Term Options are possibly an alternative for a short where timing is unclear. Options have a bit more complexity around their pricing (time value etc) so won't provide the same direct return. But they do allow a bit more breathing space if the price fluctuates


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## Colm Fagan

Andrew365 said:


> How much does it cost you to fund the shot position daily? i.e. is there a time limit before you are forced to sell because the funding is too large? What platform do you short on?


Hi Andrew.  I calculate the cost at around 0.8% a year (it's charged daily).  Charges may vary between providers and investor type (I now have the title of 'professional investor' - I'm not sure it's merited!).  No time limit before I'm forced to sell:  I do daily funded spread bets.  Obviously I'm forced to sell if I run out of money and can't meet the margin calls.  My Tesla short is with CMC markets.  I also have some historic positions with IG Index, but don't do new business with them.  I hope that answers all your questions.


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## declan11

Hi Colm,

Thanks for writing this piece.  I don't like Tesla as I feel Musk is too much of a media man. And its the second mouse that gets the cheese.
 I wonder why you choose to short any shares? I had thought you were looking for a relatively modest return of 4% plus inflation? Shares always have a tendency to rise in general over time so you are swimming against the current when shorting. I know its more exciting and rewarding when it goes right but I would find it difficult to do. Declan


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## Brendan Burgess

Colm

That is a great story. 

I have always argued that ordinary mortals like myself cannot pick winners. The corollary of that is that we can't pick losers either.

But in 2014, before the restructuring of AIB, the share price indicated that although it was losing money, it was worth more than all the big German and British banks. I posted about it here





__





						Is it possible to exploit the "overpricing" of AIB shares?
					

Is there any way to bet that AIB shares are overvalued? Is it possible to sell them short?



					www.askaboutmoney.com
				




But it was not possible to short them.

Then Bitcoin came along and I shorted that $14,500 in January 2018.  In advance, I decided to cash out when it fell to $3,000. It came close  to that. I felt clever but wondered why I had not shorted much more as it was so obviously overvalued.  But then it rose again.  It was very frustrating. It's at $8,500 now almost two years later and I still have the position open.

Then AIB again. Despite my firm belief that I cannot pick winners or losers, I heard that one of the main banks was going to cut mortgage rates significantly.  I shorted AIB but it was for a very small amount.   Ulster Bank cut the mortgage rates...and AIB's share rose.  I should have cut my position immediately but did not. I later closed out at a loss. Of course, AIB's share price today is a lot lower so I would have turned a profit eventually.

Then Tesla. When Musk announced that he had agreed a deal to buy out the company, I sold it short immediately. So I sold it short at the peak.  But I had no exit plan.  I was laughing all the way to the bank until that results announcement recently. I thought it was probably still overvalued, but I had enough. I got out. I made a reasonable profit on the transaction, but I had been up a lot more.

Just to put these in perspective. My total money at risk was never more than about 2% of my normal long-term portfolio.

My Bitcoin and Tesla shorts were intended to be long term shorts.

My AIB short was intended to be  a short-term one.

I don't think I would do a short-term one again.

I probably would do another long-term one but only for a very small proportion of my portfolio.

Just to add that I also had successful bets with Betfair on the Bitcoin price being below $5,000 at 31 December 2018. But I have lost all my winnings and a little bit more betting that it would be below $1,000 at 31 December 2019. 

Brendan


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## Fella

The unpopular opinion is that unless you have some information that the market doesn't you are just guessing and I said the same with Reinshaw and the same to Brendan with Bitcoin , it's just a gamble you have no idea what way Telsa will trade in the short term and you try to justify the price movement after it happens . Better to just admit you like a gamble and be honest with yourself because every short you take or Brendan is a coin flip your not going to profit long term and even if you did over such a small number of bets it would be too hard to attribute it to skill over luck . 
You'll lose by the spread and commissions is my guess if you simulated shorts over infinite runs.
It's an unpopular opinion and people like to look at the stock market and read about companies for hours on end , I know zero about the stock market but have made a massive profit investing with zero research other than buying low cost broad market trackers , I could easily show someone my portfolio which is a sea of green and huge percentage increases and pretend I spent more than 10 seconds hitting buy but I don't. There's enough people trying to get rich quick I'm happy to get rich slow . 

The perils of shorting is that half the time you win and have the time you lose , you might convince yourself you where right and double down and your on anothsr 50/50 bet , there's lads down the bookies doing the same everyday .


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## Colm Fagan

declan11 said:


> I wonder why you choose to short any shares?


Hi Declan.   I have a very simple philosophy:  if I think a share is cheaper than its fundamental value, I want to buy it; if I think it's dearer than its fundamental value, I want to sell it.  If I already have shares that I want to sell, it's an easy decision, but it's not so easy if I don't have the shares to sell.  It's not too unlike being introduced to negative numbers when you're going to school:  in your early years you learn "3 from 2 you cannot take".  Later on, you learn "3 from 2 gives minus 1"!
I once had a naive view that the occasional short would add some stability to my return, and would leave me less vulnerable to a major share sell-off, i.e. if the stock market collapses, my short positions should do well.  I've done an interesting analysis of my Tesla short position over the last 22 months, which indicates that that theory doesn't hold water, not always anyway.  I might write about it sometime.
Separately, there's an important addendum to my note to @Andrew365 :  if the share is dividend-paying, the short-seller has the additional cost of the dividend each half-year.  Needless to say, this is not a problem as far as my Tesla short is concerned 
Brendan, thanks for your additional insights.  Short-term calls are always very difficult.  In theory, I'm prepared to wait as long as it takes for reality to bite with Tesla.  There's the reality check of the audited accounts at year end, something you don't have with your bitcoin bets.  That's one of the reasons I wouldn't touch that bet.


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## Colm Fagan

Fella said:


> The unpopular opinion is that unless you have some information that the market doesn't you are just guessing


You're right 99% of the time, but there are rare occasions when the market is blatantly wrong.  Tesla's current valuation is one of those times (in my opinion, of course!).  Its share price is almost all hype by people who know nothing about finance; they just think Tesla = green = good, irrespective of the price.  I think the last few paragraphs of my article make a compelling argument for Tesla being grossly overvalued.  If anyone can point to a flaw in what I've written, I'll be glad to listen to them.


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## Brendan Burgess

Colm Fagan said:


> Brendan, thanks for your additional insights. Short-term calls are always very difficult. In theory, I'm prepared to wait as long as it takes for reality to bite with Tesla. There's the reality check of the audited accounts at year end, something you don't have with your bitcoin bets. That's one of the reasons I wouldn't touch that bet.



Hi Colm

What is your exposure as a percentage of your portfolio? 

If I go up the mountains for the day and find that in my absence the American government and Chinese government have publicly announced that they are selling all their gold reserves to buy Bitcoin and Bitcoin flies through the roof, I will have lost 1% of my portfolio's value. 

Maybe I am being too  conservative, but it's hard dealing with an irrational market. 

I have pointed out elsewhere that if I had been tuned into Bitcoin and spread betting in the early days when it was $800 , I would have shorted it then and would have lost my bet and sat there astonished as it rose towards $20,000.

Brendan


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## Brendan Burgess

Colm Fagan said:


> There's the reality check of the audited accounts at year end, something you don't have with your bitcoin bets. That's one of the reasons I wouldn't touch that bet.



That is a really interesting point. 

I know that Bitcoin is worth zero.  But as there are no accounts or ways to calculate a value, it is not possible to prove it.

I suspect that Tesla is worth something.  But I just don't know how much. 

Brendan


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## demoivre

Fella said:


> The perils of shorting is that half the time you win and have the time you lose , you might convince yourself you where right and double down and your on anothsr 50/50 bet , there's lads down the bookies doing the same everyday .



When you understand the difference between trading and gambling on say horse racing you are well on your way to making money from trading. 
My 4 trades this morning on FTSE futures resulted in  

-4 points
-3 points
 0 points
+15 points.

Do you get it now?


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## demoivre

Colm Fagan said:


> You're right 99% of the time, but there are rare occasions when the market is blatantly wrong.  Tesla's current valuation is one of those times (in my opinion, of course!).  Its share price is almost all hype by people who know nothing about finance; they just think Tesla = green = good, irrespective of the price.  I think the last few paragraphs of my article make a compelling argument for Tesla being grossly overvalued.  If anyone can point to a flaw in what I've written, I'll be glad to listen to them.



The fact that Tesla is , in your view, overvalued now doesn't mean it won't be even more overvalued in 3 or 6 months time. I saw it all in 1999/200 with technology stocks.  Judging sentiment would have made you money on the way up and on the way down.


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## Brendan Burgess

demoivre said:


> I saw it all in 1999/200 with technology stocks.



A very good point. 

I checked at the time to see was there any way I could exploit the crazy valuations of technology stocks but couldn't find one.

I am glad that I didn't, as I would have been burnt badly as crazy valuations became even crazier.

Brendan


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## Andrew365

You can gauge the short interest in the market


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## SlurrySlump

I used to trade a UK utility share called Kelda. I noticed that there was a trading pattern of about 20p per week. I would buy when low and sell when high.  Lots of weekly trades and lots of small profits. This was done on a T + 10 basis.
I then got the bright idea that I could make money by shorting it when it was high. So I was making money on both sides of the trade. This went on for awhile and then the market makers decided to adjust the price in to a new trading range and it all fell apart. Fun while it lasted though.


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## Fella

demoivre said:


> When you understand the difference between trading and gambling on say horse racing you are well on your way to making money from trading.
> My 4 trades this morning on FTSE futures resulted in
> 
> -4 points
> -3 points
> 0 points
> +15 points.
> 
> Do you get it now?



I'm not sure what you mean ? Your talking about trading the FTSE futures where I'm guessing your openning and closing positions quickly looking at signals and charts , it's not what I was referring to with Colm or Brendan , they aren't out to scalp the market and pick up a few pips here and there they are taking a decision over a longer time span.

I sat with a good friend of mine who is a professional currency trader and also trades Betfair , he thought me how to trade currencies but I just couldn't get it , he was in and out of the market all the time what I would call scalping a few pips here and there , with stop losses etc he was happy to pick up a very small profits and move onto the next trade. I've also tried and made money scalping racing markets myself , it is possible but its a different conversation to what I was referring to.

Congrats on your successful morning trading


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## Colm Fagan

Fella said:


> it's not what I was referring to with Colm or Brendan , they aren't out to scalp the market and pick up a few pips here and there they are taking a decision over a longer time span.


I agree.  Short-term trading is something I know nothing about.  A personal opinion is that it should be almost impossible to make money from this activity, especially when you allow for bid-offer spread.  What USP does a private individual have playing this game?  I have similar thoughts on @SlurrySlump 's suggested strategy.


Fella said:


> every short you take or Brendan is a coin flip


Obviously I disagree.  As I said in an earlier reply, you're right 99% of the time, but there are rare occasions when it's possible to say that the market is blatantly wrong.
I went back over past diary entries (all of which can be found somewhere on AAM, or more conveniently on my website www.colmfagan.ie) to check how many times I opined that the market was blatantly wrong on a stock.
The ones I found were as follows:
On 4/10/2015 I wrote that I thought Renishaw was substantially undervalued at £20.  It rose to over £50 last year.  Its current share price is £38.
On 6/12/2015 I wrote that I thought Apple was substantially undervalued at $117.  Its current price is $266.
On 7/1/2019 I wrote that Phoenix Group Holdings was "particularly undervalued" at £5.71.  Its current price is £7.19 (and its main attraction was the dividend of over 7%, which has to be added to the above return).
On 17/11/2019 I wrote that Tesla was grossly overvalued at $350.  Of course, I could be wrong, as I have been many times in the past, but I don't recall ever being proved wrong when I held a view as strongly as I do now.


Brendan Burgess said:


> I am glad that I didn't, as I would have been burnt badly as crazy valuations became even crazier.


Brendan, I hope that, like me, you would have been able to ride out the craziness and have come out intact the other side.  The people who can't ride out the craziness are professional fund managers who have to keep their investors and boards of directors happy.  We don't have those constraints.


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## RichInSpirit

My observation about shorts is that the price can move more than 100% in the upward direction. It can move 1000% or 10000% or more. It can only go down 100% max. 
If you get your money management wrong or your stop loss doesn't work it mightn't be pretty.


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## joe sod

Colm Fagan said:


> You're right 99% of the time, but there are rare occasions when the market is blatantly wrong. Tesla's current valuation is one of those times (in my opinion, of course!). Its share price is almost all hype by people who know nothing about finance; they just think Tesla = green = good, irrespective of the price.



I think thats it, you are the victim of "ethical investing" and the misallocation of capital. There seems to be an awful lot of money now largely owned by younger investors that only want to invest in stuff like this regardless of the financials. The corollary of this is that the oil companies have very strong financials and are making good money yet are being ignored by investors even by sovereign wealth funds including ireland's. That means that they are allocating capital to companies that don't deserve it financially but get it because of "ethics".


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## Brendan Burgess

Hi Richie

Initially, I was put off by the talk of unlimited losses.

I was also put off by all the warnings of the dangers of leveraging.

But it's very easy to manage.

Let's say I want to sell Bitcoin today at $8,000

I can sell one coin, set the stop at $12,000.   I am risking $4,000 to make $8,000

If I want to increase my risk/reward but still limit my losses to $4,000, I can sell two bitcoins and set the stop at $10,000. So I am risking $4,000 to make $16,000.  But there is a very good chance I will go bust.

If I want to reduce my risk , I could sell half a coin for $4,000 and set the stop at $16,000.  So now I am risking $4,000 to make $4,000

I would only use it for a long term short and I would not bet on short term movements. I did on AIB and learned my lesson.

Brendan


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## Brendan Burgess

This is the warning you get every time you log onto IG


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## Colm Fagan

As usual, some very good comments and questions - which is why I enjoy posting on AAM, despite the occasional abuse  
I'm surprised and disappointed, though, that there wasn't even a single question or challenge on any of the six paragraphs of what I thought was readily accessible analysis of Tesla's finances and strategy.  It's a sign of the times.  In ways, I should be happy, as it creates the occasional opportunity for profit for someone like me.


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## Fella

Colm Fagan said:


> Obviously I disagree.  As I said in an earlier reply, you're right 99% of the time, but there are rare occasions when it's possible to say that the market is blatantly wrong.
> I went back over past diary entries (all of which can be found somewhere on AAM, or more conveniently on my website www.colmfagan.ie) to check how many times I opined that the market was blatantly wrong on a stock.
> The ones I found were as follows:
> On 4/10/2015 I wrote that I thought Renishaw was substantially undervalued at £20.  It rose to over £50 last year.  Its current share price is £38.
> On 6/12/2015 I wrote that I thought Apple was substantially undervalued at $117.  Its current price is $266.
> On 7/1/2019 I wrote that Phoenix Group Holdings was "particularly undervalued" at £5.71.  Its current price is £7.19 (and its main attraction was the dividend of over 7%, which has to be added to the above return).
> On 17/11/2019 I wrote that Tesla was grossly overvalued at $350.  Of course, I could be wrong, as I have been many times in the past, but I don't recall ever being proved wrong when I held a view as strongly as I do now.



It reminds me of people who buy houses to do up and then sell on , they make a few changes and pat themselves on the back when they walk away with a profit , not realising that if they had of done nothing at all they would have made the same profit.

Seen as you quoting 2015 for Reinshaw and Apple if you had of bought the S&P 500 it was at 1950 at Start of October 2015 now its 3122
On 7/1/2019 the day you bought Pheonix group or wrote about them the S&P 500 was 2596 now 3122 
I invest every few months and my portfolio makes me look like a genius but I am just benefiting from a bull market which I think you have also , except I feel you become overly attached to positions and convince yourself you know better .
I don't mean to sound harsh , I admire you for putting stuff up in paper. but how many companies could you have put out there instead of Apple , Renishaw or Pheonix on them dates and had the same results ? The odds where very largely stacked in your favour it would of been harder to put up a loser as your seeing now with Tesla.


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## Colm Fagan

Brendan Burgess said:


> What is your exposure as a percentage of your portfolio?


Brendan, sorry for not getting back to you on this earlier.  As you know, I have a concentrated portfolio, for both long and short positions.  At end June, gross (negative) Tesla exposure was under 3% of my total long portfolio.  Now the percentage is above 8%, partly due to the price rise, partly to my decision to add to the short position as the price rose.  I'm still quite comfortable about my exposure. It's outside the top five in absolute terms.


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## Brendan Burgess

That would be too high for me. But each to their own.

You will probably be proven correct eventually. I hope you will still be wait that long.

Brendan


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## Brendan Burgess

Fella said:


> if you had of bought the S&P 500 it was at 1950 at Start of October 2015 now its 3122



That is a really good point for all stock pickers to think about.

It's not enough to say - My portfolio is up 20%.  There should be some benchmark. 

And it needs to be a lot longer than 2015 especially with a concentrated portfolio.   There are times when my portfolio (which was picked at random) would have  made me look like a genius and other times when it would have made me look like a fool. If I had written about it, I presumably would have been more inclined to write on the good days.

Brendan


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## zephyro

Colm Fagan said:


> I'm surprised and disappointed, though, that there wasn't even a single question or challenge on any of the six paragraphs of what I thought was readily accessible analysis of Tesla's finances and strategy.



@Colm Fagan that may be due to the apparent lack of any specifics in your first post to question or challenge though, for example what are your 2025 projections for total electric car sales, average sale price, Tesla market share %, net profit margin, etc. etc.


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## Colm Fagan

Fella said:


> if you had of bought the S&P 500 it was at 1950 at Start of October 2015 now its 3122
> On 7/1/2019 the day you bought Pheonix group or wrote about them the S&P 500 was 2596 now 3122





Brendan Burgess said:


> That is a really good point for all stock pickers to think about.


I agree with both of you at one level, but at another level, I use prices of individual stocks as guides to tell me, not only if their prices are too low/high, but also (in some cases) as proxies for whether the market as a whole is too low or too high.  Thus, I can use them as wider 'buy' or 'sell' signals.   Possibly, one can extrapolate from my Tesla valuation that not only Tesla, but the overall  market, is a bit stretched.  
In any event, I think that, if you take the respective stocks and compare them to their markets (i.e. UK market for UK stocks, US market for US stocks) and also factor in the dividends, my point is still valid. (I am too lazy to do the exact calculations).


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## Sarenco

Colm Fagan said:


> I am too lazy to do the exact calculations.


In that case, how do you assess the success or otherwise of your stock picking strategy?  Genuine question.


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## Colm Fagan

Sarenco said:


> In that case, how do you assess the success or otherwise of your stock picking strategy? Genuine question.


I accept it as a genuine question.
For someone my age, the biggest decision is how much to invest in shares versus how much to allocate to bonds/cash.  That is far more important than the secondary question of which shares to invest in.
As you know, the standard advice for someone aged 70 or over is to invest less in stocks, more in bonds.   That strategy delivers lower average returns but greater peace of mind.  I have discovered that I am more prepared to invest a high proportion of my fund in shares if I  know the companies in which my money is invested and if I have reasonable confidence on their future prospects (including earnings and dividends).  I would not be able to take that leap of faith if I was investing in a fund where I had no knowledge of whether the shares in the fund were overvalued or undervalued at any time.  It's likely that I would constantly worry that prices would fall through the floor.  I don't have that fear when I know my money is in durable businesses that will continue to earn profits come what may.
The fruits of that strategy since I took out the ARF in December 2010 is an average yearly money-weighted rate of return, net of fees and allowing for withdrawals over the years, into double digits.  That calculation is based on prices ruling at close of business on Friday last.
I don't know if the average return would have been marginally higher or lower if I had put the money in a low-cost fund that tracked the World Equity Index, but that's not the point.  The point is that I would never have had the courage to put all my money in a pure equity fund where, if market values fell by 10% overnight, I wouldn't know how to react.  I do know how to react if the value of one of companies in which I'm invested falls by that percentage - because I know the business; I know the company.
I don't know if I have explained myself well.   The main points I want to get across are:  (i) the real measure of success is total return on the fund (ii) that return should be higher if the money is invested in shares rather than bonds;  the choice of shares is of secondary importance; (iii) fear of volatility of share values is the main reason why people choose not to invest a high proportion of their savings in shares, particularly as they get older; (iv) investing in companies whose businesses I'm familiar with and where I have reasonable confidence on future earnings and dividends helps me to overcome that fear.  The fact that I get dividends in cash also helps, as it reduces the requirement to sell shares for 'pension income', possibly at an inopportune time; (v)  I don't know whether the shares I've chosen are doing better or worse than the market.  I think I am doing better, but even if I'm doing worse, I would have to do worse by more than the amount of the management fee before someone could claim that my strategy is flawed.


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## Sunny

I like your approach Colm but I would have a concern over the idea that you 'know the company'. Take Tesla for example. I agree with all your reasons to short the company but you have a risk that the company is one meaningful invention or development away from blowing your short out the water. No balance sheet or P&L is going to show you that. Of course you can look and say that the shrinking R&D budget makes this unlikely but it is still a risk that is very difficult to identify. 

Even some of your long positions. History is full of perfectly liquid cash rich businesses paying dividends that have collapsed over night because the picture wasn't what it seemed. 

I like your approach but it takes a brave man and to be honest, you have more capabilities than most including myself so I don't know if your strategy will ever win widespread approval but I have to say, I do tend to agree with you...


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## Gordon Gekko

Hi Colm,

I really enjoy your contributions to this forum and you are very brave to document your approach so publicly and without the veil of anonymity.

Nonetheless, I think your approach is deeply flawed. You do not have the resources to research and understand these companies but even if you did your strategy is too concentrated. Good companies can go bad for peculiar reasons. A couple of these and your pot is badly hit.

I fully accept your “sod bonds” approach and I too will always invest solely in equities, but I believe that you would be far better served with a more diversified all-equity approach, either with 30+ equities or a selection of funds.

Also, citing good absolute performance over a period that coincides with the current bull market doesn’t really mean a whole lot. What about relative performance? My fear is that you’re going to blow-up your retirement pot.

My strong advice is to abandon your self-managed approach, give it all to an investment manager who you trust, agree a diversified global all-equity approach, and spend your time enjoying yourself.

Gordon


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## Sarenco

@Colm Fagan 

Many thanks for your detailed and considered response.

Like others, I think you are bearing way too much diversifiable risk with your "better the devil you know" strategy but I do appreciate that psychology is important in investing.


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## Colm Fagan

There are a few different aspects to this discussion, many of which are far removed from the initial article about my Tesla short.
I will deal with just two of those aspects now:  my preference for direct investment instead of a pooled fund (taking as read that I'm not going near bonds - that's a completely different topic), and the concentrated nature of my portfolio.   Sceptics include @Gordon Gekko, @Sarenco, @Fella, even The Boss!!
At its simplest, I do what I do because I enjoy having shares in individual companies rather than units in a pooled fund.  I had an interest in stocks and shares since childhood, but it was completely theoretical until I set up my own company pension scheme in the mid-1990's having set up my own business a few years earlier.  Setting up a company pension scheme was an ideal opportunity to indulge myself.
I have a concentrated portfolio because I don't want to spend much time analysing financial statements.  I also like to feel that I know the businesses in which I'm invested.   That would not be possible with a large number of companies without having to make too much of a time commitment.  As regular diary readers know, I have just a few core stocks in my portfolio and they have remained remarkably consistent over the years.
I recognise that, in theory, I am running too much risk by having too many eggs in a small number of baskets but I believe that, over a long period, that risk reduces.  I'm already at this for 23 years; I hope to have another 5 years at least before circumstances (physical or mental) force me to give it up.  I think that's enough time for mistakes and coups to balance out.
As noted earlier, I find it easier to accept setbacks when I'm familiar with a business.  It helps me psychologically by allowing me to keep a higher proportion of my investments in the market.   It also helps me gain a better understanding of turning points in the market.
Finally, there are fees.   I reckon that, even if I do worse than the market, the margin of under-performance will not be more than the cost of managing the investments.  Even 0.5% a year mounts up over many years.
*But make no mistake:  if someone were to ask me what I would advise, I would tell them to put their money in a low-cost passive world equity fund, where they would get lots of diversification, etc. *
As you can gather from the above, performance is not the absolute be all and end all, but I have done well.
The figures I quoted earlier for the ARF were money-weighted, not time-weighted.  It would be difficult to compare them with published figures for unitised funds without going to a lot of effort.
From the start of 2014, I have kept detailed records of the performance of my total portfolio, which includes the ARF/AMRF, some non-exempt investments, a deposit account, and spread bet accounts (including my shorts).   Those records are sufficiently detailed to allow me to calculate time-weighted as well as money-weighted returns, so I can compare the overall return with those available from published unit funds.
I looked at the website rubiconic.ie.  The best performing active managed fund over the five years to end October delivered a return of 8.5% a year. The average return for seven funds from various companies was 7.4% a year.  My overall portfolio performance averaged 8.7% a year over that same 5-year period.   That is net of all charges, including the ARF/AMRF charges by the ARF administrator, all stamp duty, commission, withholding taxes, etc. It's also net of the bid-offer spreads when I'm buying or selling shares, and even bank charges on ARF withdrawals.
I think the results vindicate my approach.  Of course, I may not do as well in future as I have done over the last five years.  As I've said already, though, that's not the primary aim.


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## Gordon Gekko

But Colm, it’s too short a timeframe to infer anything.

I genuinely think that over a longer period you will do spectacularly worse than the market.

Would you not consider a halfway house? Say your pot is €2m; why not manage €500k of it yourself as you’re currently doing and stick the rest in an MSCI World ETF? That’d keep you engaged but also protect you in terms of diversification.


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## Colm Fagan

Gordon Gekko said:


> I genuinely think that over a longer period you will do spectacularly worse than the market.


Do you know something about my state of senility that my nearest and dearest are afraid to tell me?  I presume you know the theory that, if I just sit on my hands and do nothing (which is my default mode) then the expectation is that I will do exactly the same as the market.   I would 'genuinely' love to know why you think I will do 'spectacularly worse than the market'.


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## Brendan Burgess

Gordon Gekko said:


> I genuinely think that over a longer period you will do spectacularly worse than the market.



Hi Gordon

If I trade shares regularly, I will do worse than the market because the costs will eat into my profits.

But if I buy and hold a portfolio of 10 shares, I will do differently from the market.

I might perform better and I might perform worse.  But I can't see why I should expect to do worse? I would have thought it would be 50/50. 

The only reason I can think of  might be the argument that all of the returns come from 2% of the shares.  So it's less likely that if I have 10 shares I will have one of them.  Is that your argument?

Brendan


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## Colm Fagan

zephyro said:


> for example what are your 2025 projections for total electric car sales, average sale price, Tesla market share %, net profit margin, etc. etc.


I'm showing my age, but it reminds me of when I last had a full-time job, now over a decade ago.  I had to certify whether companies I was advising would be able to stay in business for the next 30, 40, 50 years to meet their liabilities.  My young colleagues did myriads of spreadsheet calculations, Monte Carlo simulations, the lot, projecting all sorts of possible futures for the company.  It was my job to integrate their calculations with what I knew of the business from my  interactions with the Board and senior managers.  I invariably found that the insights gained from understanding the mind of the CEO, the continuity and quality of the top management team, the consistency of the strategy and its execution from quarter to quarter, year to year, were far more important than all the spreadsheets and financial projections in the world in determining the company's ability to survive in the long-term.
Looking at Tesla, we know that Elon Musk is a genius, but can he lead a complex car manufacturing company? What about his state of mind, given some of the things he posts on Twitter and his 'lifestyle'? What about his ability to retain good people? What about consistency of approach to strategy? In a July 'news' update (here)  I quoted from the Q2 2019 Update letter to investors, where he wrote, in relation to FSD (full self-driving):  "We are making progress towards stopping at stop signs and traffic lights”.   What a statement to include in a quarterly update!  Was there anything in the latest quarterly update on whether they've managed that feat?  Probably not, given the R&D cutbacks.


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## Sarenco

Brendan Burgess said:


> I would have thought it would be 50/50.


According to Vanguard, the probability of a 10-stock portfolio outperforming the broader market is 34.5%.

You would have to hold over 500 stocks to get to a 50/50 coin toss.
https://www.vanguardinvestments.se/documents/institutional/increase-odds-of-owning-less-stock-that-drive-returns.pdf

To be fair, the Vanguard simulations ignore transaction costs and management fees.


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## Duke of Marmalade

Sarenco said:


> According to Vanguard, the probability of a 10-stock portfolio outperforming the broader market is 34.5%.
> 
> You would have to hold over 500 stocks to get to a 50/50 coin toss.
> https://www.vanguardinvestments.se/documents/institutional/increase-odds-of-owning-less-stock-that-drive-returns.pdf
> 
> To be fair, the Vanguard simulations ignore transaction costs and management fees.


_Sarenco_ I have before rubbished this Vanguard analysis but let me try again.
All models of the stockmarket are that prices are log symmetrical.
So let us take a very simple model of the market. It consists of only 2 stocks.  Each have the following distribution.
Chances are 50/50 of a 50% fall or a 200% rise.
A single stock portfolio will have a 50% chance of losing 50% and 50% chance of doubling. That is an expectation of 125%: (50% +100%)/2
A full double stock portfolio will have the following possibilities:
25% that there is 50% on both i.e. an overall return of 50%
50% that there is 50% on one and 200% on the other, a return of 125%
25% that there is a 200% return on both, an overall return of 200%
The expected return is 125% the exact same as a the single stock portfolio, but there is a 75% chance of a positive return versus a 50% on the single stock portfolio.
So yes, the odds are that the single stock portfolio will underperform the full portfolio but because the odds of the single stock portfolio shooting the lights out are higher it balances out.
But I agree that the single stock portfolio is riskier.


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## Gordon Gekko

Colm Fagan said:


> Do you know something about my state of senility that my nearest and dearest are afraid to tell me?  I presume you know the theory that, if I just sit on my hands and do nothing (which is my default mode) then the expectation is that I will do exactly the same as the market.   I would 'genuinely' love to know why you think I will do 'spectacularly worse than the market'.



Why do you believe that your concentrated portfolio of single stocks would do the same as the market?

Presumably you do what you do because you think you can generate alpha? Or is it to minimise fees?

My fear is based on a view that too many of your researched stocks will turn out to be duds and too few will turn out to be star performers.

This is partly based on my own view that we are living through a period of enormous disruption and technological change where the “winners” are even harder to identify. As a result, I believe that the DIY investor is even more of a lamb to the slaughter than ever.

If I were you, and I’m not, I’d take 80% of my money and put it into an MSCI World ETF or cheap global equity fund, I’d self-manage the other 20% of it as you’re currently doing, and I’d have fun writing about and comparing the performance of the two pots.


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## Gordon Gekko

Brendan Burgess said:


> Hi Gordon
> 
> If I trade shares regularly, I will do worse than the market because the costs will eat into my profits.
> 
> But if I buy and hold a portfolio of 10 shares, I will do differently from the market.
> 
> I might perform better and I might perform worse.  But I can't see why I should expect to do worse? I would have thought it would be 50/50.
> 
> The only reason I can think of  might be the argument that all of the returns come from 2% of the shares.  So it's less likely that if I have 10 shares I will have one of them.  Is that your argument?
> 
> Brendan



My argument is that none of us have the resources to pick the right 10. It’s not just blind luck (i.e. pick any 10). We’re picking them, and we just don’t have the skill to do so. And yes, much of the return comes from a smaller number of star performers. I don’t have to nous to identify the next Amazon; so I outsource the management of my money.


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## Brendan Burgess

Hi Gordon

I agree that none of us can pick systematically pick  winners. But by that criterion, surely Colm can't systematically pick losers either? (If you think he can, then you should short his buys and buy his shorts) 

So the expected return should be the same as the market. He is as likely to outperform as to underperform.

Brendan


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## Gordon Gekko

Brendan Burgess said:


> Hi Gordon
> 
> I agree that none of us can pick systematically pick  winners. But by that criterion, surely Colm can't systematically pick losers either? (If you think he can, then you should short his buys and buy his shorts)
> 
> So the expected return should be the same as the market. He is as likely to outperform as to underperform.
> 
> Brendan



But aren’t you then assuming that nobody can pick winners and that it’s all a game of chance?

How much of the return from global markets is coming from the US, from tech, and from certain specific companies?

Apple is up by nearly 80% this year. It’s in my global equity fund and it’s in my ETF; it might not be in my concentrated stock portfolio.

In this era of technological change and disruption, I fear that someone like me trying to pick stocks will be left owning this generation’s Kodak, maybe a couple of okay performers, and seemingly good companies that get blown away by technological advancement that I don’t understand.


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## Sarenco

I'm really not equipped to debate actuarial models, assumptions, etc.

So I will rely on common sense.

It would be obvious to a blind man that the bulk of historic stock market returns are attributable to a very small minority of stocks (Exxon, Apple, etc).

So the likelihood of picking 10 winning stocks at random from a menu of more than 10,000 publicly traded stocks globally seems pretty small.  On the other hand, the likelihood of picking 10 losers seems pretty high.

Once you accept that a small minority of stocks are "super performers" then it seems obvious to me that your chances of picking "winners" increases as you add stocks to your portfolio.  Conversely, the more concentrated the portfolio, the greater the odds of missing out on the winners.

In other words, the distribution of returns is not symmetrical - there are far more "losers" than "winners".  It's not a 50/50 bet.

Of course, market cap matters.  Pick the 10 biggest stocks in the U.S. market by market cap and you can be pretty sure that you won't be a million miles off the S&P500 after 10 years.


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## joe sod

Sarenco said:


> So the likelihood of picking 10 winning stocks at random from a menu of more than 10,000 publicly traded stocks globally seems pretty small. On the other hand, the likelihood of picking 10 losers seems pretty high.


 
but as the majority of stocks have positive beta and generally rise in price over time, surely the probablity even by chance of picking 10 winners is higher than picking 10 losers


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## Fella

Its like prize bonds the market total % return is the same , you could buy 10 prize bonds or 10,000 prize bonds (well neither of them is not enough to get winners regularly ) but because majority of the market % return is made up of bigger prizes the chances of a higher return in prize bonds increase as you buy more bonds .


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## Sarenco

joe sod said:


> but as the majority of stocks have positive beta


Could you rephrase that in English that we can all understand?

In other words, what do you mean by "majority", "beta" and "generally"?


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## Duke of Marmalade

Sarenco said:


> I'm really not equipped to debate actuarial models, assumptions, etc.
> 
> So I will rely on common sense.
> 
> It would be obvious to a blind man that the bulk of historic stock market returns are attributable to a very small minority of stocks (Exxon, Apple, etc).
> 
> So the likelihood of picking 10 winning stocks at random from a menu of more than 10,000 publicly traded stocks globally seems pretty small.  On the other hand, the likelihood of picking 10 losers seems pretty high.
> 
> Once you accept that a small minority of stocks are "super performers" then it seems obvious to me that your chances of picking "winners" increases as you add stocks to your portfolio.  Conversely, the more concentrated the portfolio, the greater the odds of missing out on the winners.
> 
> In other words, the distribution of returns is not symmetrical - there are far more "losers" than "winners".  It's not a 50/50 bet.
> 
> Of course, market cap matters.  Pick the 10 biggest stocks in the U.S. market by market cap and you can be pretty sure that you won't be a million miles off the S&P500 after 10 years.


If you pick a stock at random you have the exact same expectation as the whole market.  Of course if you pick the whole market your returns will vary between -10% and + 20% whilst if you pick 1 stock it will be between -30% and + 40%.
But you are right, you are more likely to lose with a small portfolio but this is compensated by having a higher chance of shooting the lights out.


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## Duke of Marmalade

Sarenco said:


> Could you rephrase that in English that we can all understand?
> 
> In other words, what do you mean by "majority", "beta" and "generally"?


It certainly needs some defining since the average beta is 1 by definition, and a negative beta would be truly bizarre


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## Gordon Gekko

Duke of Marmalade said:


> If you pick a stock at random you have the exact same expectation as the whole market.  Of course if you pick the whole market your returns will vary between -10% and + 20% whilst if you pick 1 stock it will be between -30% and + 40%.



That makes no sense at all.

Call me old fashioned, but I reckon if you pick the whole market, your portfolio’s performance is likely to mirror that of the market.


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## Brendan Burgess

Gordon Gekko said:


> That makes no sense at all.



What the Duke is saying is...

If the market rises between -10% and +20%, an individual stock might rise between -30% and +40%. 

But the expected outcome is the same. 

Consider a coin toss.

If I toss 100 fair coins and bet €1 on heads every time - my expected return will be zero.  My actual return will probably be somewhere between -€10 & +€10 or between - 10 cents per toss and + 10 cents per toss.

If I toss only one coin, I will either win €1 or lose €1.  But my expected return will still be zero.

Which comes back to your statement that you expect Colm to lose a lot of money.

His expected return will be the same as the market. But it could be significantly lower or significantly higher.

Brendan


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## Sarenco

But picking a single stock at random is not a simple coin toss.  That's really the point.

The probability that you will pick a loser is far higher than the probability that you will pick a winner.

Again, the distribution of stock returns is not symmetrical - there are far more losers than winners.  It's not a 50/50 bet.


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## Brendan Burgess

Sarenco said:


> the distribution of stock returns is not symmetrical - there are far more losers than winners.



Hi Sarenco 

Is this definitely true?  

I think it might be true for all shares from the initial flotation. 

But is it true for long established companies with long records of profits? 

It might be, but it surprises me. 

My gut feeling, and it's only a gut feeling, is that, over the long term,  out of 10 shares, 2 bomb, 2 give fantastic returns, and 6 give moderate returns. 

Brendan


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## Sunny

Has this not gone a bit off topic into financial theory. Colm doesn't randomly select his shares using his trusted Ouija board (or maybe he is!) so is this not all a bit moot talking about returns of randomly selected stocks. People mightn't agree with his approach but there is no financial or statistical rule that says he is going to be wrong either...


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## Duke of Marmalade

Sarenco said:


> But picking a single stock at random is not a simple coin toss.  That's really the point.
> 
> The probability that you will pick a loser is far higher than the probability that you will pick a winner.
> 
> Again, the distribution of stock returns is not symmetrical - there are far more losers than winners.  It's not a 50/50 bet.


Ok so we have a market of 99 stocks which will lose everything and a single stock which will jump to 200.  My expectation when holding the whole market is to double my money. a priori  I have the exact same expectation if I just pick a stock at random.
But I concede that you have a point on the likelihood of losing. And your point is valid even if all stocks have the same log symmetrical* prospects..
A bit off topic for sure but GG did make an erroneous assertion about the prospects for Colm’s “strategy”.

_*  the chances of the stockmarket going to zero are obviously much less than of it going to +100%.  So it would not be reasonable to posit that performance prospects are symmetrical. But log(zero)is a very big negative number and so it is quite a bit more reasonable to posit that performance prospects are log symmetrical_


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## Blackrock1

are we not missing the factor that Colm isn't an average Joe. His whole career was centred around the stock market. So while i wouldnt back myself to pick winners and would take (and do take) gordons approach, i would give Colm a better chance than me.


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## Andrew365

I have the following philosophy. It takes 1 hour (max) to buy a broad-based market ETF. Picking individual stocks, if done correctly take hours of research. Yes theoretically you could have +/- % over the market but is the time spent trying to beat the market worth it? 

This strategy, you will win with the market and lose with the market, for example my US Equity ETF is up 20% YTD and I have spent exactly 0 hours doing anything with it. 

I have approaching 15 years in derivatives, I used to work on one the largest Equity trading floors on Wall Street, and not many people are setting around picking stocks.


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## Colm Fagan

Gosh, I go out for an evening, have a few scoops, sleep on in the morning, and wake up to a barrage of posts, most of which have absolutely nothing to do with me or my approach to investing!
The main thing that got me was @Gordon Gekko 's belief that I won't just do worst than the market in future, but that I'll GENUINELY do SPECTACULARLY worse than it.  I really don't know where he (assuming Gordon isn't a woman in disguise!) got that idea from, and still don't, despite his efforts to explain himself, for example his VIEW that too many of my researched stocks will turn out to be duds and that there is ENORMOUS disruption, which I won't be able to identify but presumably which experts out there know everything about and will have their clients invested in those companies.
The core issue is that Gordon GENUINELY (he loves that word) believes that there are professional fund managers who know which stocks are going to do well in future and which will do badly.  I thought about this issue in some detail in an earlier thread and I took one of his comments as a headline for a diary entry:  "A guy in the attic" (Update 12, dated 9 March last).    The conclusion from that article that the market is (normally) right explains the default assumption that my portfolio will deliver market performance - on average.
The Vanguard article that @Sarenco quotes is a load of self-serving rubbish - and the Duke had shown it to be rubbish a long time ago.  I don't know why it keeps being resurrected.   Its purpose was to persuade people to buy Vanguard funds.
I'm sorry now that I gave details of my past performance relative to the market.  I honestly don't care whether the market stands on its head, so long as I earn the risk-free return plus 4%/5% in the long-term.  I choose stocks that I think - based on DCF calculations - will deliver that return.  Of course I get it wrong at times, but some deliver more than the target.  I don't give a damn whether I'm missing out on the 2% (or whatever) of stocks that will deliver fantastic returns, so all the discussion on that topic was completely irrelevant as far as I'm concerned.
Finally, thank you @Blackrock1 for crediting me with wonderful knowledge of the market, but my entire professional life was spent on the other side of the balance sheet, trying to determine how much should be set aside for liabilities to insurance company policyholders, not deciding where that money should be invested.  However, I believe that a lifetime in business, much of it spent interacting with Boards, CEO's, FD's, and senior managers in my role as a consultant, have helped me to identify companies that will succeed and those that will fail.  Which brings me back to where I came in on this thread - Tesla and Elon Musk!!


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## Sunny

Andrew365 said:


> I have the following philosophy. It takes 1 hour (max) to buy a broad-based market ETF. Picking individual stocks, if done correctly take hours of research. Yes theoretically you could have +/- % over the market but is the time spent trying to beat the market worth it?
> 
> This strategy, you will win with the market and lose with the market, for example my US Equity ETF is up 20% YTD and I have spent exactly 0 hours doing anything with it.
> 
> I have approaching 15 years in derivatives, I used to work on one the largest Equity trading floors on Wall Street, and not many people are setting around picking stocks.



I wouldn't expect any trading floor to be sitting around picking stocks. If you asked a trader about a company's fundamentals, I think they would snap their braces laughing....

But that doesn't mean Colm's approach is wrong. He is not trying to beat the market like a traditional fund manager who claims he can add huge alpha returns. He is trying generate returns that he has calculated he needs to live on. Big difference


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## Andrew365

Sunny said:


> I wouldn't expect any trading floor to be sitting around picking stocks. If you asked a trader about a company's fundamentals, I think they would snap their braces laughing....
> 
> But that doesn't mean Colm's approach is wrong. He is not trying to beat the market like a traditional fund manager who claims he can add huge alpha returns. He is trying generate returns that he has calculated he needs to live on. Big difference



Yes I don't disagree with Colm's approach. I just factor in the time element, if I had the time I would follow his approach.


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## Sunny

Colm Fagan said:


> Gosh, I go out for an evening, have a few scoops, sleep on in the morning, and wake up to a barrage of posts, most of which have absolutely nothing to do with me or my approach to investing!



That's why Gordon is worried about you....You are just drinking away the returns...The stock market could have crashed this morning during your lie in......


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## Colm Fagan

Andrew365 said:


> I have the following philosophy. It takes 1 hour (max) to buy a broad-based market ETF. Picking individual stocks, if done correctly take hours of research. Yes theoretically you could have +/- % over the market but is the time spent trying to beat the market worth it?



HI Andrew.  I have every sympathy with you, but I want to disabuse people of the notion that I spend half my life looking at company accounts, etc.  I don't!
My three largest holdings, which together account for around two-thirds of my (long) portfolio at the moment, and have done for ages are:  Phoenix Group Holdings (first bought in 2014), Renishaw (first bought in 1998), Apple (first bought in 2012).  I spent some time researching each of these at the start and I take a look at their annual/half-yearly reports, but they take very little time.  It's much the same with my other holdings, most of which I have held for many years and which take hardly any of my time.  For example, update 16 of 14 August was about Town Centre Securities, which I've held since 2000.  


Sunny said:


> .The stock market could have crashed this morning during your lie in.


It did (to an extent)!  I'm not worried, though, as I'm happy with the fundamentals for my main holdings, so a price setback is not a cause for panic.


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## Sarenco

Duke of Marmalade said:


> Ok so we have a market of 99 stocks which will lose everything and a single stock which will jump to 200. My expectation when holding the whole market is to double my money. a priori I have the exact same expectation if I just pick a stock at random.


Sorry Duke but that makes absolutely no sense to me.

In the real world, nobody expects to capture whatever future return the broader stock market provides by simply buying one stock.


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## Duke of Marmalade

Sarenco said:


> Sorry Duke but that makes absolutely no sense to me.
> 
> In the real world, nobody expects to capture whatever future return the broader stock market provides by simply buying one stock.


_Sarenco_,  we are going off topic. Do you want to post your Vanguard report as a separate thread?


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## Sarenco

Duke

This really has nothing to do with the Vanguard report.

You keep on insisting that if you pick a stock at random you have the exact same expectation as buying the whole market.

Sorry but that makes no sense to me.


----------



## Duke of Marmalade

Sarenco said:


> Duke
> 
> This really has nothing to do with the Vanguard report.
> 
> You keep on insisting that if you pick a stock at random you have the exact same expectation as buying the whole market.
> 
> Sorry but that makes no sense to me.


We are using two different definitions of expectation.  You are using the colloquial meaning and of course one stock will definitely perform differently from the whole market.
The mathematical definition of expectation, which is what I was using, means on average what is the expected outcome.  Thus following _The Boss_' example your expectation on the toss of a fair coin is zero, the same expectation as not tossing the coin at all. Can we put this rabbit to sleep


----------



## Sarenco

Duke of Marmalade said:


> The mathematical definition of expectation, which is what I was using, means on average what is the expected outcome


I see.  You will have to forgive us mere mortals that aren't familiar with the special meaning that actuaries apply to ordinary words.


----------



## Duke of Marmalade

_sarenco, _with all due respect, I don't think you should be reading things like the Vanguard report if you are not familiar with a term which would be explained in the first lesson on statistics of a lower level Leaving Cert student.


----------



## Brendan Burgess

Sarenco said:


> You will have to forgive us mere mortals that aren't familiar with the special meaning that actuaries apply to ordinary words.



Hi Sarenco

I think that the terminology Expected Return is fairly standard in investment or gambling. It's not used exclusively by actuaries.  I used it here:



Brendan Burgess said:


> Consider a coin toss.
> 
> If I toss 100 fair coins and bet €1 on heads every time - my expected return will be zero. My actual return will probably be somewhere between -€10 & +€10 or between - 10 cents per toss and + 10 cents per toss.
> 
> If I toss only one coin, I will either win €1 or lose €1. But my expected return will still be zero.
> 
> Which comes back to your statement that you expect Colm to lose a lot of money.
> 
> His expected return will be the same as the market. But it could be significantly lower or significantly higher



But I can understand the confusion.

The expected return is the same whether you buy one stock, 100 stocks, or the entire market.

But the outcomes will be different.

Brendan


----------



## Brendan Burgess

How's That Stock Going to Do? Expected Return May Tell You
					

Expected return is the amount of profit or loss an investor can anticipate receiving on an investment. Based on historical data, it's not a guaranteed result; rather, it's a tool used to determine whether an investment has a positive or negative average net outcome.




					www.investopedia.com
				



.


----------



## Sarenco

Duke

I trust Vanguard to give words their ordinary and natural meaning in their presentations.

I'm sure it's true that the expected return of a single stock is identical to the return on the market as a whole in some theoretical, mathematical sense.

So what?  What possible relevance is that in constructing an equity portfolio?


----------



## Duke of Marmalade

Sarenco said:


> Duke
> 
> I trust Vanguard to give words their ordinary and natural meaning in their presentations.
> 
> I'm sure it's true that the expected return of a single stock is identical to the return on the market as a whole in some theoretical, mathematical sense.
> 
> So what?  What possible relevance is that in constructing an equity portfolio?


Trying to get slightly back on topic.  GG said Colm was doomed to underperform the market in the long run.  The fact is that Colm's expectation (sorry I can't think of any better term) is the same as the market's.
But I agree with you that, ignoring any skill factor for the sake of argument, the likelihood is that he will underperform the market.  This is compensated for by a chance that he will greatly outperform the market and together they produce an equal average prospect (or expectation ) .


----------



## Sarenco

Brendan

The Investopedia article says that the expected return of a portfolio of securities is the weighted average of the expected return of its component parts.  I think we can all agree that is self-evidently true.

However, Duke is saying that the expectation of somebody acquiring a single stock is the same as somebody acquiring the entire market.


----------



## EmmDee

Sarenco said:


> the expected return of a portfolio of securities is the weighted average of the expected return of its component parts.  I think we can all agree that is self-evidently true.



It's not actually - it takes reasonably sophisticated maths knowledge to prove it's validity. And things we think are statistically "self evident" are often not

And "expected return" has a meaning - irrespective of what you think the lay version (or understanding) is. It's analogous with people dismissing evolution as a "theory" without understanding the word has a meaning and is the same meaning applied to the "Theory of Gravity". 

If expected returns is a problematic concept, then it is better to get familiar with these terms


----------



## Duke of Marmalade

Sarenco said:


> Brendan
> 
> The Investopedia article says that the expected return of a portfolio of securities is the weighted average of the expected return of its component parts.  I think we can all agree that is self-evidently true.
> 
> However, Duke is saying that the expectation of somebody acquiring a single stock is the same as somebody acquiring the entire market.


Please _Sarenco _let this one go, let me have the last word  .  A holding of one stock is a portfolio so far as the mathematics are involved.


----------



## Brendan Burgess

Sarenco said:


> However, Duke is saying that the expectation of somebody acquiring a single stock is the same as somebody acquiring the entire market.



I don't want to trawl back through his posts, but if he said that, it's not what he meant.

The Expected _Return _from a single stock (or coin toss) is the same as that of the market (or a series of coin tosses) 

The expectation is different because it's an different term.   The expectation as the Duke has pointed out is that there is a greater chance that he will underperform the market which is compensated for by the small chance that he will significantly outperform the market.

The reason we are discussing this is that Gordon said that he should expect to greatly underperform the market which is not correct. 

Brendan


----------



## Fella

If 10,000 people all buy 1 different stock each , then they will all have the expected return of the stock market but the distrubition of returns will be fairly large.
Where as 1 person buying 10,000 stocks should get the expected market return and smaller variance.
I don't know the maths for it but if only a handful of the 10,000 stocks are making the bulk of the returns then it would seem like the odds are stacked against the individual stock holders beating the market , hmmmm I can see how expected return is the same if you ran unlimited simulations but the variance is so high holding fewer stocks .


----------



## Sarenco

Brendan Burgess said:


> I don't want to trawl back through his posts, but if he said that, it's not what he meant.


You may well be right but I will let _Duke_ confirm or otherwise.


----------



## Sarenco

EmmDee said:


> If expected returns is a problematic concept, then it is better to get familiar with these terms


No, expected return is not a problematic concept.

That wasn't the phrase that Duke used...


----------



## Duke of Marmalade

Oh dear, we are getting our Y-fronts in a twist.  Expectation is the precise mathematical term.  I think it is equivalent to Expected Return as used by _Boss_.


----------



## Duke of Marmalade

Fella said:


> If 10,000 people all buy 1 different stock each , then they will all have the expected return of the stock market but the distrubition of returns will be fairly large.
> Where as 1 person buying 10,000 stocks should get the expected market return and smaller variance.
> I don't know the maths for it but if only a handful of the 10,000 stocks are making the bulk of the returns then it would seem like the odds are stacked against the individual stock holders beating the market , hmmmm I can see how expected return is the same if you ran unlimited simulations but the variance is so high holding fewer stocks .


That is correct.  Let us imagine a fair lotto (I know that is a challenge to even the most fertile imagination).  Someone who buys one ticket is most likely to lose but there is a small chance she will multiply her stakes a million fold.  Her expectation is that she will get her money back.  Someone who buys a million tickets also has an expectation of getting their money back.  They have a far better chance than person A of actually winning but the very most they can hope to achieve might be to double their money.


----------



## Colm Fagan

Of more relevance to this thread,  all my long stocks are falling in value today.  There is one riser though.  You’ve guessed it!


----------



## RichInSpirit

Colm Fagan said:


> Of more relevance to this thread,  all my long stocks are falling in value today.  There is one riser though.  You’ve guessed it!


Tesla?


----------



## Sunny

Aren't Tesla releasing an Electric Truck or something this week? Presume there is reaction to that. How do you deal with product announcements like this Colm? Especially with a short position. Do you just ignore them and stick to long term view??


----------



## Colm Fagan

Sunny said:


> Do you just ignore them and stick to long term view??


Yes, it only matters when I close the position.    Hype is par for the course with Tesla. I only get worried if something happens that I think changes the fundamentals- or I run out of money to fund margin calls!


----------



## Duke of Marmalade

Colm Fagan said:


> Of more relevance to this thread,  all my long stocks are falling in value today.  There is one riser though.  You’ve guessed it!


Jayz Colm!  You don't even have negative beta


----------



## RichInSpirit

Getting back to your original question about Tesla I watched a YouTube where it was speculated that Tesla is years ahead in the area of electric vehicles. And has significant intellectual property built up in the area of motors, batteries, self driving technology, etc. And also has supply chains built up for scarce raw materials for batteries.
That competitor car companies even huge established ones could go bust because of Tesla's dominance and the old car companies inability to adapt to a changing marketplace.


----------



## Sarenco

I suspect investors in Tesla have a greater expectation of return than would be justified by the expected return of the stock.


----------



## Colm Fagan

RichInSpirit said:


> And has significant intellectual property built up in the area of motors, batteries, self driving technology, etc


First of all, I know nothing about cars, so I must rely on statements from the company and from analysts.   In relation to Autopilot and Full Self-Driving (FSD),  Tesla's Q2 update letter at the end of July reads:  "We are making progress towards stopping at stop signs and traffic lights." You can find it [broken link removed].    That doesn't seem like "years ahead" to me.  There was no mention in the Q3 update on whether they had made progress in the quarter in stopping at stop signs and traffic lights.  The cut in R&D expenditure doesn't augur well.  Instead, this quarter they're talking about a gigafactory in Shanghai that's going to do the devil and all, followed by one in Berlin.  Two quarters ago, all the talk was of Robotaxis, whereby your Tesla would be driving around by itself all night, ferrying party-goers home from night-clubs so that you could earn money on your car while you slept (but don't worry about cleaning up the sick in the morning).  Would you like to work as a senior executive in an organisation like that, where the strategic narrative kept changing?


----------



## Gordon Gekko

Colm,

Again, your approach scares me. You’re taking investment positions in respect of Tesla yet you freely admit that you know nothing about cars!

To reiterate, my fear in relation to your concentrated approach is based on:

- Your inability to analyse the companies properly because of your relatively limited resources

- It being harder to identify winners nowadays because of the great technological disruption

- The fact that market returns come from a small number of stocks and most stocks are neutral or duds; ergo with your concentrated approach you’ll have too few stars and too many duds with the result being material underperformance.

Again I would urge you to stick 80% of your money into a global ETF or an ILIM or Zurich global equity fund. Then apply your crazy investment plan to the other 20%. Have fun comparing the two and writing about it safe in the knowledge that the gin and tonics will keep flowing.


----------



## Sunny

A few more drinks Colm I think....









						Tesla demo: Cybertruck's armoured windows shatter during embarrassing launch event
					

The launch of the company's first pickup truck did not go entirely to plan as Elon Musk targets America's best-selling vehicles.




					news.sky.com


----------



## Duke of Marmalade

Tesla down 6% today, Wall Street up, negative beta indeed 

Newsflash!  Shares of car manufacturers have been suspended on world stockmarkets.  It follows the announcement by Elon Musk that he has discovered a cheap and effective way to harness solar energy that will make the ordinary family saloon as powerful as a Formula 1 car.  On the grey market shares in General Motors were trading down 95% whilst Tesla was up 10,000%. 
Mr Musk also announced that he was granting Colm Fagan a lifetime supply of shorts.  A range of patterns were available from green and white with an orange waistband to Union Jack.  It is understood that Mr Fagan has chosen green and red.
In other reaction Greta Thunberg said it was the happiest day of her short life whilst Donald Trump tweeted that it was fake news.

_*  note for moderators:  I do not believe this is off topic, it highlights for AAM readers the dangers of short positions_


----------



## Firefly

Colm Fagan said:


> In relation to Autopilot and Full Self-Driving (FSD),  Tesla's Q2 update letter at the end of July reads:  "We are making progress towards stopping at stop signs and traffic lights." You can find it [broken link removed].    That doesn't seem like "years ahead" to me.


Hi Colm,

Thanks for all your input to this thread, I find it very interesting.

I would personally be a sceptic of Tesla, and am not nearly capable of valuing a company, however 2 things are changing my mind: 

1. A colleague of mine picked up a new Model 3 last week and to be fair it's an object of desire and had everyone talking. 

2. The self-driving capability is an area where, if they do get a lead they could probably more money licensing it than making cars. The following video looks pretty impressive








						Full Self-Driving
					

https://ts.la/FSD




					www.youtube.com


----------



## galway_blow_in

only ever shorted a security once , that was a german car company which had a problem with its diesel filtration system , think i made a few hundred euro as it was well into the haircut


----------



## Colm Fagan

Thanks @Firefly   The video is very impressive.
You're right that the real risk to my short position is if they have a big lead in some key area, such as Full Self-Driving.  I'm lucky that this seems not to be the case.  I read an article on the subject in the FT in February last.  Here's the link, but it's probably behind a pay wall





						Subscribe to read | Financial Times
					

News, analysis and comment from the Financial Times, the worldʼs leading global business publication




					www.ft.com
				



The article says that Waymo, the Google (Alphabet) subsidiary, has a big lead in this area.  The article includes a chart showing Waymo with 11,018 miles per manual intervention, followed by GM with 5,205.  Some of the big players come nowhere.  For example, Apple had 1.15 and Uber had 0.35.  Tesla didn't appear anywhere.  Someone asked in the comments section of the paper why Tesla wasn't shown and someone else replied that their figure was zero, which seems to tally with the extract from the Q2 2019 investor update quoted above.  I don't know how that fits with the video you posted, but I'm more prepared to believe the FT (and even Tesla's own Q2 earnings announcement)!
There is the additional consideration, mentioned in my article, that Tesla are scrimping on R&D spend.  That's never a recipe for world leadership.


----------



## declan11

Well Colm, you can't be saying your posts are not generating responses on this thread. I have nothing intelligent to add to the financial debate but I wonder did Musk deliberately plan to break those windows. He has got major media exposure from it anyway!


----------



## Colm Fagan

declan11 said:


> I wonder did Musk deliberately plan to break those windows. He has got major media exposure from it anyway!


Hi Declan.  "All publicity is good publicity”?  Interesting thought, but I doubt it.  He looked stupid making a sales pitch in front of two shattered windows.  I wonder if the whole thing was a sham, since I can't see how a truck with reinforced steel on the outside could ever see the light of day.  It won't get regulatory approval.  God help the poor pedestrian that got hit by one of them.

While I'm on to you, Declan, I gave an overly simplistic, even trite, answer to  your earlier question (#8 in this thread, my answer #11) on why I short shares when the expectation is that they'll deliver positive real returns in the long-term.   Sorry.

I've been thinking about it since, and the reality is much more complicated than what I wrote about buying if a share is trading at less than its fundamental value (in my opinion, of course) and selling if it's trading at more than its fundamental value, where the "sell" decision can mean shorting if I don't have the share already.

My more considered answer is that there is a threshold for selling shares.  If I have shares in company A that I think are trading above their fundamental value, I don't normally sell, for the reason you outlined, i.e. they should eventually "grow into" their market value.  If I've identified another Company B that I think will perform much better than A and if I don't have any other source of funds, then I will consider selling A to fund the purchase.  That calculation (often done implicitly rather than explicitly) must allow for the costs of selling A and buying B (including CGT etc.)  The example I quoted last month illustrates that thinking in action.  (You can find it elsewhere on this forum or on my website www.colmfagan.ie)

There is a higher threshold again for shorting a company's shares.  I must believe strongly that, not only will it under-perform the market, but it will deliver a negative nominal return over the next (say) two years or less, and that I can fund the margin requirements if the price goes mad in the meantime.   That's a very high bar.  I'm also loath to short a company that's paying (or is likely to pay) a dividend, because you have to fund dividend payments as well as the (albeit low) borrowing costs for the shares themselves.  It's also extremely dangerous to short a company that could be taken over at a premium to the current market price.  Neither of the last two considerations applies in Tesla's case.

A final word of caution is that,  in the words of theatre magicians, shorting is definitely NOT a trick to be tried at home without considerable (limited risk) practice.  You could lose your shirt - and much more - in the blink of an eye.


----------



## Fella

The problem to me is there is more to the share price than the balance sheet , I don't know much about Tesla but maybe there is a belief that this it's just a matter of time before Tesla breakthrough and become huge and there's a Tesla in every driveway. 
The market can easily stay irrational for a long time it's more than just the total number of shares * share price to value a company .

If it was as simple as company values then the smart people would short all the investment trusts trading above NAV and sit back and clean up , how do you account for investment trusts trading above NAV for years on end , we can see they are over valued in the true value sense but some of these continue to stay above NAV for prolonged periods and then the share price rises and the NAV continues to rise above that. Is it not fair to say that people belief in Elon Musk and the value he potentially will bring to the company will keep it inflated indefinitely until the time it is actually a very valuable company both in financials and sentiment ?


----------



## Colm Fagan




----------



## Colm Fagan

i don’t know what I did there!  I’ll reply to @Fella later.


----------



## Brendan Burgess

Fella said:


> The market can easily stay irrational for a long time it's more than just the total number of shares * share price to value a company .



Hi Fella

That is a key point.  

And it means that you should only allocate as much of your total portfolio so that you can sit it out for a very long time or handle a big increase in the share price and be prepared to lose your allocation.

There are a few potential outcomes to Tesla and other "obviously" overvalued shares
1) The share price can fall to their correct value
2) They can remain overvalued indefinitely
3) Their value can rise to match their share price

Bitcoin has no value, so its price must fall at some stage to zero.   Having said that, it has remained irrationally valued for much longer than I expected.
Tesla - I just don't know. It is worth something, but I have no idea what. I would expect that Colm is correct and that it is way overvalued , but there could be some breakthrough so that situation 3) happens.

Brendan


----------



## Fella

Brendan Burgess said:


> Hi Fella
> 
> That is a key point.
> 
> And it means that you should only allocate as much of your total portfolio so that you can sit it out for a very long time or handle a big increase in the share price and be prepared to lose your allocation.
> 
> There are a few potential outcomes to Tesla and other "obviously" overvalued shares
> 1) The share price can fall to their correct value
> 2) They can remain overvalued indefinitely
> 3) Their value can rise to match their share price
> 
> Bitcoin has no value, so its price must fall at some stage to zero.   Having said that, it has remained irrationally valued for much longer than I expected.
> Tesla - I just don't know. It is worth something, but I have no idea what. I would expect that Colm is correct and that it is way overvalued , but there could be some breakthrough so that situation 3) happens.
> 
> Brendan



I suppose where I disagree with colm on Tesla is I don't think that Colm can know more than the markets .I believe that any functional market with enough action on both sides will find it's equilibrium at a fair value , the value may not make sense financially but there will be people with in-depth knowledge of Tesla and the future and what is coming down the line  , and Colm is not one of them .
He is taking a big risk , Telsa could announce any breakthrough in technology and he could face a huge loss on a gamble , he could also make a huge gain , but it's also a gamble .


----------



## Brendan Burgess

Fella said:


> Telsa could announce any breakthrough in technology and he could face a huge loss on a gamble



It's more of an investment decision than a gamble. 

And it's one of a portfolio of investments.

If he has a limit on his loss, then that is fine. 

Brendan


----------



## Fella

Brendan Burgess said:


> It's more of an investment decision than a gamble.
> 
> And it's one of a portfolio of investments.
> 
> If he has a limit on his loss, then that is fine.
> 
> Brendan



Well I would say it's a gamble 
When you log into your stock broker account do you get a warning saying 70% of people lose money investing ? I think not
When you long into your IG index you get such a warning .
Shorting is a gamble and the outcome is chance , it is no difference than going to a roulette wheel in my opinion , you cannot predict short term movements.
Investing in stocks long term has a positive expected return , shorting doesn't .


----------



## Duke of Marmalade

Fella said:


> Well I would say it's a gamble
> When you log into your stock broker account do you get a warning saying 70% of people lose money investing ? I think not
> When you long into your IG index you get such a warning .
> Shorting is a gamble and the outcome is chance , it is no difference than going to a roulette wheel in my opinion , you cannot predict short term movements.
> Investing in stocks long term has a positive expected return , shorting doesn't .


I agree with a definition of gambling which says it is chasing a win whilst accepting a negative expectation (in the mathematical sense, _Sarenco_).  But is this a subjective test or an objective one?  Clearly a roulette wheel objectively passes this test to be called a gamble.  But as I understand him, Colm judges that Tesla is overvalued just as Boss thinks Bitcoin is a BOHA.  Therefore Colm does not see himself as gambling, whereas you do - but that is just your judgement.


----------



## Gordon Gekko

It’s a point that I’ve made before, and it is in no way personal to Colm. How on earth can the proverbial “man in his attic” think that he can outwit the hedge funds and the professional fund managers? How can he be spotting something in the P&L of one of the most talked about stocks in the world that gives him an edge over others with far greater resources?

I also have an issue with Colm’s targeted return; it’s been easier to deliver over the time period in question because of the bull market notwithstanding his concentrated approach. But is he “storing up” higher annual returns for the winter that will surely come?

I’m sorry, but I stand by my contention that the approach in question is deeply flawed.


----------



## Colm Fagan

Hi @Fella   You've covered a lot of ground in relatively few words.  Unfortunately, it will take many more words to address your questions/comments, but I'll try to deal with a few in this post, and maybe deal with the rest later.


Fella said:


> The problem to me is there is more to the share price than the balance sheet ,


Of course!  I rarely look at the balance sheet when evaluating businesses, unless they're investment trust type businesses.  If you go back to my original post in this thread, I spoke primarily about revenues and expenses (including spend on R&D, etc).  I don't recall mentioning the balance sheet once.    I mentioned Tesla's total market value, not to compare it with the balance sheet value of the assets, but to ascertain how much it should be knocking down in annual profits when it's mature to justify that valuation.  The $2.5 billion figure I arrived at was calculated at 4% of the market value on Friday last.


Fella said:


> maybe there is a belief that this it's just a matter of time before Tesla breakthrough and become huge and there's a Tesla in every driveway.


You're absolutely right there.  That's what's driving the share price.  Yet the figures and considerable research (which I didn't go into in the article) don't support that belief.   For example, I dealt earlier in this thread with the claim that it has a lead in self-driving technology.    It's miles (excuse the pun) behind Google and other leading players in that space.  It's simply not investing enough in R&D.  You can't make a silk purse out of a sow's ear.

I used the "market is irrational" quote at the end of my article.  Countless people have used it in the course of this thread.  I think we all get the message by now.  The trick is to make sure you can stay solvent until logic prevails.  I reckon I'll be able to manage that.



Fella said:


> If it was as simple as company values then the smart people would short all the investment trusts trading above NAV and sit back and clean up


First of all, investment trusts are completely different animals to companies like Tesla.  It's a red herring to drag them into this discussion, but I'm happy to take the question.  For starters, it's important to point out to readers that the vast majority of investment trusts trade at a discount to NAV.  In my diary update 16 of 14 August, titled "Psst, looking for a bargain?", I discussed an investment trust that was trading at a 47% discount to Net Asset Value (NAV), which explains the title of the article. I know of one very special investment trust that is trading at a premium to NAV. That's Berkshire Hathaway, Warren Buffett's company. I need to be careful what I say about Berkshire Hathaway, since I'm a director of one of its subsidiaries. Some say BH is trading at a premium to NAV because I'm on the board of a subsidiary, but the real reason may have more to do with Warren Buffett    Investors believe that, despite his age, he'll be able to keep delivering the goods in future.  Naturally, I can't comment.



Fella said:


> Is it not fair to say that people belief in Elon Musk and the value he potentially will bring to the company will keep it inflated indefinitely until the time it is actually a very valuable company both in financials and sentiment ?


Yes, they do believe in Elon Musk, but my point is that the belief has gone beyond the rational.  It is now completely irrational.  That's my opinion, of course.  It's an opinion that is based partly on technical analysis (and I have probably downplayed the extent to which I've got my head around some of the numbers and the projections), but it is based more on a lifetime's experience of dealing with people running companies.  I don't believe that Elon Musk has the temperament or the people skills to run a large-scale manufacturing business.  As I wrote in an earlier post, the strategic goals keep changing quarter by quarter, the top personnel have short careers with the company, its capital position is shaky, it is not spending enough on R&D.   There are a myriad more problems that could make it practically impossible to succeed long-term.   I believe that, in some of these non-technical areas, my understanding of the challenges and the difficulties of overcoming them are superior to that of "the market", which is composed to a large extent of 28-year old whizz kids who know very little about the real world and pay far too much attention to what comes out of their spreadsheets, often based on questionable assumptions.


Fella said:


> I don't think that Colm can know more than the markets .I believe that any functional market with enough action on both sides will find it's equilibrium at a fair value ,


As I've written already, you're absolutely right 99% of the time (of course I don't mean that literally, but it's of the right order).  I'm just saying that this is one of the 1%'s where it's wrong to trust the market.  I see it a bit like Trump supporters.  An awful lot of people believe in Trump even though logic says they shouldn't.  The same is true of Elon Musk.  Their belief is keeping the share price high, even though practically every analysis of the company I've read from any of the big investment houses conclude that it is woefully overvalued.  As you say, that overvaluation could continue for a very long time, but reality will eventually prevail, through the profit and loss account (and the balance sheet, if Tesla needs to raise more capital - a strong possibility before too long, in my opinion).  It could take a couple of years before reality prevails.  I think it will prevail before then, but even if it takes that long,  I'll still be OK.    As Brendan intimates, I have a contingency plan, just in case I'm wrong.  And I have been known to be wrong, as I've recounted many times in my diary entries.  If I'm wrong, it's not the end of the world.  I'll survive.


----------



## Brendan Burgess

Fella said:


> Shorting is a gamble and the outcome is chance , it is no difference than going to a roulette wheel in my opinion , you cannot predict short term movements.



Hi Fella

I fully agree with you that one cannot predict short term movements.  And either buying or selling for the short term is gambling.

But that is not what "shorting" means.  I have shorted Bitcoin and Tesla but for the long-term.  I was in Tesla for about a year. I have been in Bitcoin for almost two years

Just as I cannot pick a winning stock, I can't pick a losing stock either... most of the time. But when the market has gone completely irrational as it has done with Bitcoin, I think it's an investment rather than a gamble. 

These are very rare opportunities. The price of Bitcoin. The price of AIB shares before the restructuring.  The dot.com bubble.  

I think that Colm's short is fundamentally sound, but it's risky.




Fella said:


> Investing in stocks long term has a positive expected return , shorting doesn't .



Agree generally.


----------



## Duke of Marmalade

Fella said:


> When you log into your stock broker account do you get a warning saying 70% of people lose money investing ? I think not
> When you long into your IG index you get such a warning .


I don't get that warning.  Being long a stock on IG is economically the same as being long the stock with your stockbroker - except for the costs.  The stockbroker costs more up front what with commission and stamp but after about 4 years the cost of rolling over a long position on IG start to exceed the upfront costs of direct holdings.
Since we have been enjoying a fairly sustained bull run and the majority of IG punters are long, they should on balance be ahead of the game.
I don't want to go too far off topic but the punters also benefit from their gains, including divies, being tax free.


----------



## Fella

Duke of Marmalade said:


> I don't get that warning.  Being long a stock on IG is economically the same as being long the stock with your stockbroker - except for the costs.  The stockbroker costs more up front what with commission and stamp but after about 4 years the cost of rolling over a long position on IG start to exceed the upfront costs of direct holdings.
> Since we have been enjoying a fairly sustained bull run and the majority of IG punters are long, they should on balance be ahead of the game.
> I don't want to go too far off topic but the punters also benefit from their gains, including divies, being tax free.



Surely it's not the same do you get dividends been long at IG?


----------



## Duke of Marmalade

Fella said:


> Surely it's not the same do you get dividends been long at IG?


Yep, otherwise shorties would have a field day coming to ex div


----------



## Fella

Duke of Marmalade said:


> Yep, otherwise shorties would have a field day coming to ex div



It's still not the same though unless you had a unlimited bank , returns are rarely linear so even if a stock did well over 3 years , the person buying on the spreadbet would likely be wiped out by market volatility , that's perhaps why so many customers lose ? Whereas the person that buys the share is not forced to sell


----------



## Duke of Marmalade

Fella said:


> It's still not the same though unless you had a unlimited bank , returns are rarely linear so even if a stock did well over 3 years , the person buying on the spreadbet would likely be wiped out by market volatility , that's perhaps why so many customers lose ? Whereas the person that buys the share is not forced to sell


_Fella_ I don’t get that.  A deposit plus a FSB  long is exactly equal to a straight long


----------



## Fella

Duke of Marmalade said:


> _Fella_ I don’t get that.  A deposit plus a FSB  long is exactly equal to a straight long



Well we have gone a bit off track and got onto long positions , my premise is still that shorts are gambling , interestingly when doing more reading about spreadbetting this has come up before , you are fairly consistent with your opinion I will give you that and you posts have educated me in a previous thread on this subject . 

But ..... but  Duke 2008 would say Colm was gambling ........

_Now when it comes to stock trading I believe that all short positions have a negative expected return so short selling is in my book always gambling (unless hedging a direct long position).

Long positions should have a positive expected return but if the position is only very short term the risk would be disproportionate to the small positive expectation. In my book short term long positions are also gambling.

Of course, the Boss' definition is a bit more subtle, it refers to performing an activity over the long term. Perhaps a persistent strategy of short term long trading is in the long term investing after all, if you see what I mean._

Its just interesting to read that this has came up before I guess its not so clear cut https://www.askaboutmoney.com/threads/is-financial-spread-betting-gambling-or-investing.70918/page-7


----------



## Colm Fagan

@Duke of Marmalade and @Fella
You're both right; it's just that you have different starting assumptions.  The Duke is assuming that someone taking up a long position deposits the full cost of the shares with the provider.  Very few do, I would think.  Most just put up the margin requirement (5% or whatever).  That's the situation Fella is referring to.  If I only put up the margin, any fall in the share price means I have to put up additional funds.  Even the best calls are likely to have a few wobbles along the way, so additional margin calls are almost inevitable.    There's a golden mean, where you put up more than the margin requirement but not the full cost of the shares.


----------



## Gordon Gekko

Thanks for completely ignoring my posts Colm.

Very disappointing.

Similarly, I will not be engaging with you either from here on in.


----------



## Duke of Marmalade

my thinking has moved on. Gambling has a subjective element. If I were to short Tesla or any other stock I would be gambling as I believe in the EMH. I shorted bitcoin at over 14000, only short I ever undertook, I did not believe I was gambling. Colm does not think shorting Tesla is gambling, ergo he isn’t gambling.


----------



## Fella

Thanks @Colm Fagan for such a detailed response, I do wish you well on your Tesla short. I will be keeping an eye on the market to see how you fair out, I'm not closed minded and ultimately these debates help me learn for myself and it's something I may consider doing if I feel strongly about a company like you do.

And @Duke of Marmalade thanks for the information, learned some info from your replies on both this and other thread, I'll have to take a longer look at long positions at spread companies to see if it's viable alternative consider that there is no tax implications , could be a loop hole although I'm sceptical!


----------



## Fella

Duke of Marmalade said:


> my thinking has moved on. Gambling has a subjective element. If I were to short Tesla or any other stock I would be gambling as I believe in the EMH. I shorted bitcoin at over 14000, only short I ever undertook, I did not believe I was gambling. Colm does not think shorting Tesla is gambling, ergo he isn’t gambling.



Can't have it both ways if shorting is not gambling going long is not investing.


----------



## Duke of Marmalade

Fella said:


> Can't have it both ways if shorting is not gambling going long is not investing.


Yep, and to Colm going long Tesla would most certainly not be investing.


----------



## galway_blow_in

Duke of Marmalade said:


> my thinking has moved on. Gambling has a subjective element. If I were to short Tesla or any other stock I would be gambling as I believe in the EMH. I shorted bitcoin at over 14000, only short I ever undertook, I did not believe I was gambling. Colm does not think shorting Tesla is gambling, ergo he isn’t gambling.



I know a guy who lost 5 k on a Galway v mayo match a few years ago and tends to be either in a terrific or foul mood after the weekends premiership , his cousin ( who is my neighbour) told me earnestly one day that said four figure wager maker "isn't a gambler"


----------



## Duke of Marmalade

galway_blow_in said:


> I know a guy who lost 5 k on a Galway v mayo match a few years ago and tends to be either in a terrific or foul mood after the weekends premiership , his cousin ( who is my neighbour) told me earnestly one day that said four figure wager maker "isn't a gambler"


I'm fond of the odd punt myself.  If the unit of currency is cents I too punt in four figures. I think I regard each individual punt as an investment - I do think I have spotted good value.  However, the empirical evidence of an accumulated loss suggests that I am really a gambler, I just don't recognise it at the point of making the punt.  _Fella _believes Colm is gambling on Tesla but, to bring closure to this sidebar, I am trying to persuade him that to Colm a Tesla short is not a gamble.


----------



## RichInSpirit

This is an article about the real life perils of shorting. A change was made in the market overnight or when the market was closed. Stop losses didn't work or weren't honoured and ordinary punters quickly ran up debts the size of mortgages. https://www.irishtimes.com/business...m-euro-franc-peg-abolition-1.2080096?mode=amp


----------



## Brendan Burgess

Hi Fella

My original view was that spread betting was betting i.e. gambling.  I was firmly of that view. 

It took a long time for me to understand and accept that spread betting a long stock for the long-term was very close to buying the stock itself. 

So instead of buying 1,000 Ryanair shares, I go long on 1,000 shares. But I must have the €13,000 behind it. 

Any other use of it is gambling.  (Apart from the very rare occasions where a stock is overvalued to a huge extent.)

Brendan


----------



## Colm Fagan

Brendan Burgess said:


> So instead of buying 1,000 Ryanair shares, I go long on 1,000 shares. But I must have the €13,000 behind it.
> 
> Any other use of it is gambling.


Gosh, Brendan,  it that not being too dogmatic?  Long spread bet with 0% leverage is investing, but long spread bet with 1% leverage is gambling?


----------



## Duke of Marmalade

Colm Fagan said:


> Gosh, Brendan,  it that not being too dogmatic?  Long spread bet with 0% leverage is investing, but long spread bet with 1% leverage is gambling?


I think the _Boss_ can't really get the title financial spread *betting *out of his head. If a transaction on the FSB markets is deemed gambling then the exact same economic proposition in the conventional markets must also be gambling.  _Boss _is effectively saying that any geared investment is gambling, and perhaps that's what he means.


----------



## Brendan Burgess

No, that is not what I mean at all. 

My problem was with the word "betting" but I have got over that. 

But most people do use spread betting for betting i.e. gambling. 

I would also consider borrowing to invest in shares as fairly close to gambling.  That is why I think that leveraged spread betting is gambling.

Brendan


----------



## Fella

About a decade ago now I was posting on an American gambling forum , there was a guy who claimed to be making money on football handicaps (American football) , he was convinced he could beat Pinnacle ( one of the best sportbooks in the world at the time who never close anyone's account ) .
We were in similar disagreement I believed he had to beat Pinnacle line pre game to be a winner he didn't , he bet 1.95/1.95 lines on the handicap , we agreed on a large bet between us straight up over the season , I barely knew the rules of NFL but I have seen thousands of professional arbers who lay excess on betfair been net betfair losers and I was aswell over hundreds of thousands of bets . Win and bookies lose at betfair , you can't beat efficient markets that are liquid .

Anyway he took whatever line he wanted on any and every game all season and got the 1.95 and the deal was I got the opposite side at 2 (evens ) , well it didn't take long for me to get consistently ahead and he paid me out 3/4 way through the season out of embarrassment. 

It's easy to beat a bookie but to beat a market that is openly traded and liquid it's almost impossible long term , definitely gambling unless you have knowledge that is not in public domain, Tesla is also one of the most shortest stocks if not the most.


----------



## Colm Fagan

Fella said:


> you can't beat efficient markets that are liquid .


I agree with you in theory, but the timescales for determining success or failure in business are much longer than those required for determining winners and losers in horse races or football games.  This fundamental difference makes comparisons misleading.  Fundamentals ultimately prevail in business.   It may take years, but they are sure to in the long-term.  That's a racing certainty 

The time required for fundamentals to prevail is longer than the time horizons of the vast majority traders, for whom this year's bonus is often the main driver of behaviour.  Also, I don't have to answer to outside investors nor to a Board of Directors (I tell my other half very little of what's going on!).  Not having pressures for short-term results allows me to make decisions that I think will deliver good long-term results, even if there's the occasional blip, as there was at Halloween for Tesla.

In investment, as in business, doing what is right in the long-term, even if it's costly in the short-term, is the recipe for enduring success.  At least that's what I think, and results to date haven't proved me wrong.    I agree that the last ten years have been generally good for stock markets, so it's been relatively easy to do well in absolute terms over that period, but I've also done well in relative terms, at least over the last five years.   I do realise though that there are some out there who believe that I haven't demonstrated good performance for anything near long enough to reach a definitive conclusion.  They're probably right.


----------



## Sunny

Out of curiouristy Colm, have you ever done a back testing exercise on your portfolio especially as you say it hasn't changed much?


----------



## Colm Fagan

Is this what you're looking for (from #38 in this thread) ?


Colm Fagan said:


> The figures I quoted earlier (>10% a year average since December 2010) for the ARF were money-weighted, not time-weighted. It would be difficult to compare them with published figures for unitised funds without going to a lot of effort.
> From the start of 2014, I have kept detailed records of the performance of my total portfolio, which includes the ARF/AMRF, some non-exempt investments, a deposit account, and spread bet accounts (including my shorts). Those records are sufficiently detailed to allow me to calculate time-weighted as well as money-weighted returns, so I can compare the overall return with those available from published unit funds.
> I looked at the website rubiconic.ie. The best performing fund over the five years to end October delivered a return of 8.5% a year. The average return for seven funds from various companies was 7.4% a year. My overall portfolio performance averaged 8.7% a year over that same 5-year period. That is net of all charges, including the ARF/AMRF charges by the ARF administrator, all stamp duty, commission, withholding taxes, etc. It's also net of the bid-offer spreads when I'm buying or selling shares, and even bank charges on ARF withdrawals.


By the way, I think that the "it hasn't changed much" is part of the reason for the good performance.  I try to minimise the amounts wasted on switching between investments.  In some ways, that's a vindication of @Fella 's view that the market is always right.  If stocks A and B are both priced correctly in the market, switching between A and B is equivalent to throwing money down the drain.


----------



## RichInSpirit

I like this new pickup truck.


----------



## Andrew365

How is the short now after Tesla dropped 6%?


----------



## Fella

I actually really like the truck also , I think they will be huge could really appeal to younger people and those going through a mid life crisis like me !
I'm not going to buy the truck but today I did go long on Tesla its not a rational investment but I do like what I've read about Tesla since Colm started the thread . It makes up well less than 1% of my investment portfolio and its just for some interest.


----------



## Colm Fagan

@Fella  You should have done your long trade with me, since I increased my short position at the open today.  It would have saved us both a few bob in brokerage costs and bid-offer spreads!  
In answer to @Andrew365 , my plan at the moment is to ignore price movements - in either direction - between now and when the full year results are published, probably at the end of January.   In the meantime, I won't get too excited or depressed by moves in either direction.  Massive short-term volatility is par for the course with Tesla.


----------



## Fella

@Colm Fagan I'll say one thing in favour of your strategy in that it gives you an interest and if your into financial markets which you clearly are then it's certainly more entertaining than buying a global ETF. 
As an ex advantage gambler who tried his best to not get emotionally invested in his positions I do sometimes miss that thrill. 
Maybe me small Tesla long can give me that .


----------



## Andrew365

Colm Fagan said:


> @Fella  You should have done your long trade with me, since I increased my short position at the open today.  It would have saved us both a few bob in brokerage costs and bid-offer spreads!
> In answer to @Andrew365 , my plan at the moment is to ignore price movements - in either direction - between now and when the full year results are published, probably at the end of January.   In the meantime, I won't get too excited or depressed by moves in either direction.  Massive short-term volatility is par for the course with Tesla.



Did you have a chuckle when you saw the truck though? That thing is going to put the company out of business.


----------



## EmmDee

Andrew365 said:


> Did you have a chuckle when you saw the truck though? That thing is going to put the company out of business.



Reminded me of the car designed by Homer Smpson


----------



## Brendan Burgess

Fella said:


> I'm not going to buy the truck but today I did go long on Tesla its not a rational investment but I do like what I've read about Tesla since Colm started the thread .



That is brilliant. As you say, it's not a rational investment.  It's a bit of fun and it's probably a good idea to allocate a small bit of your portfolio to a bit of fun. 

Since closing my short position in Tesla, I have changed sides.  It's great to see a challenger and it would be great to see him succeed. But he could still succeed brilliantly and not justify the share price. 

Brendan


----------



## Brendan Burgess

Fella said:


> I actually really like the truck also , I think they will be huge





Andrew365 said:


> That thing is going to put the company out of business.



Shows you why stock picking is so difficult.   No one really knows how that will do. I suspect that it will be either huge or disastrous. I doubt if it will be a mild success or failure.

Brendan


----------



## Firefly

I wonder will Tesla merge with an established car maker at some stage? Their USP is on the technology side and whilst they have produced some nice cars, much of this work is doing what the that established makers do for their bread & butter...the body, the chassis, the breaks, the wheels, the bits & bobs....


----------



## Brendan Burgess

Firefly said:


> I wonder will Tesla merge with an established car maker at some stage?



That is the big risk for short sellers.  Someone else might buy them out at an irrationally high price. 

Brendan


----------



## Andrew365

Nearly every car maker has some form of electric car now. The question is what is harder, making cars or the battery technology? If it is the former you'd think the incumbents will eventually beat out Tesla.


----------



## Colm Fagan

Brendan Burgess said:


> That is the big risk for short sellers. Someone else might buy them out at an irrationally high price.


Brendan, I agree, but it won't happen.  I already mentioned this risk in #102 above, and dismissed it. 


Colm Fagan said:


> I'm also loath to short a company that's paying (or is likely to pay) a dividend, because you have to fund dividend payments as well as the (albeit low) borrowing costs for the shares themselves. It's also extremely dangerous to short a company that could be taken over at a premium to the current market price. Neither of the last two considerations applies in Tesla's case.


There's no chance of Tesla being taken over at anything close to its current valuation.  By my reckoning (I could be wrong), its market capitalisation (at $350 a share)  is 150% that of BMW.   That (to me) seems ridiculous.  Honestly, I could make a stronger case for Tesla to be worth $35, or possibly even $3.50, a share rather than $350.


----------



## Firefly

Brendan Burgess said:


> That is the big risk for short sellers.  Someone else might buy them out at an irrationally high price.
> Brendan


Expensive. I'm thinking a reverse takeover where Tesla merge/buy an established car maker.


----------



## Firefly

Andrew365 said:


> Nearly every car maker has some form of electric car now. The question is what is harder, making cars or the battery technology? If it is the former you'd think the incumbents will eventually beat out Tesla.



Might be the decent thing to do, but a tough one for investors must have been giving away their patents....





						All Our Patent Are Belong To You
					

Yesterday, there was a wall of Tesla patents in the lobby of our Palo Alto headquarters. That is no longer the case. They have been removed, in the spirit of the open source movement, for the advancement of electric vehicle technology.




					www.tesla.com


----------



## Colm Fagan

Firefly said:


> I'm thinking a reverse takeover where Tesla merge/buy an established car maker.


Sounds great, but if you're a director of an established car maker and Tesla approaches you with a takeover offer, the first thing you'll say is "Show me the money!"    No way you'll be prepared to take Tesla stock.  That's where we hit the first snag.  Tesla doesn't have the spondulicks, and wouldn't be able to raise the money.  It's current bonds have junk status (professional bond investors are more discerning than people who buy the company's shares), so it wouldn't be able to raise money from that source.  It tried the "Saudi Sovereign Wealth Fund" trick last year.  No luck.   It can't try that one again.  I can't think of anywhere else, other than existing Tesla shareholders.  I doubt if they'll be suckered into buying even more shares in the company at an inflated price.


----------



## Gordon Gekko

Hi Colm,

These guys, Baillie Gifford, have delivered 500% return over the last 10 years. The Scottish Mortgage Trust is one of their flagship investment vehicles. Tesla is one of their biggest holdings.






						Scottish Mortgage Investment Trust | Global Investment Trust | Low-cost Actively Managed Equity Fund | Baillie Gifford | Individual Investor
					

Find out more about Scottish Mortgage Investment Trust.



					www.bailliegifford.com
				




Yet you’re “in your attic” picking holes in Tesla’s business model and shorting the stock on the basis that you have some edge.

This is crazy stuff.

I am genuinely worried for you.

Gordon


----------



## Brendan Burgess

Hi Gordon

I would be more worried by these holdings than I would be by Colm's






Having said that, Colm's is too concentrated for my liking.

Brendan


----------



## Firefly

Colm Fagan said:


> Sounds great, but if you're a director of an established car maker and Tesla approaches you with a takeover offer, the first thing you'll say is "Show me the money!"


I'm thinking an established car maker who is behind in the race for electric vehicles. A partnership of sorts could be agreed where Tesla will drive on p) with the electric / battery technology & self-driving side of things and the established car maker would build the bodies & all the bits and use their distribution networks.


----------



## Gordon Gekko

Hi Brendan,

The fund in question is actually a FTSE 100 company so it’s pretty big. There are around 90 stocks in the fund. Amazon is one; from the literature, they were early stage investors in 2005. That’s not a bad eye for a bargain. And they’re one of a tiny few who Jeff Bezos actually meets each year.

They increased their Tesla position earlier this year. They’re also investors in things like Lyft and SpaceX.

I just find it preposterous that you have the managers of one of the most successful and largest investment trusts in the UK backing Tesla...guys with a proven track record of pretty stellar results...guys who are specialist tech investors and actually sitting down face to face with people like Elon Musk and Jeff Bezos and probing them for information...and then you’ve a guy like Colm looking at the accounts at his kitchen table and thinking that he has an edge when he shorts the stock!

It doesn’t matter that it’s Colm...it could be anyone...it’s lunacy!

Gordon


----------



## Colm Fagan

Brendan Burgess said:


> I would be more worried by these holdings than I would be by Colm's


Brendan.  I agree!   I wonder if any of them has ever paid a dividend?  Hardly suitable investments for a risk-averse pensioner like myself!


----------



## Colm Fagan

Gordon Gekko said:


> I am genuinely worried for you.


Gordon, I know that by now:  you've told us all often enough!  It's nice that you care about me so much.


----------



## Gordon Gekko

Colm Fagan said:


> Brendan.  I agree!   I wonder if any of them has ever paid a dividend?  Hardly suitable investments for a risk-averse pensioner like myself!



Total return should be an equity investor’s focus...what about the view from across the Atlantic that a dividend represents failure? You’ve run out of ideas to grow the reinvested dividend.


----------



## Gordon Gekko

Colm Fagan said:


> Gordon, I know that by now:  you've told us all often enough!  It's nice that you care about me so much.



I care about you but also anyone else who follows your lead, ‘DIY invests’ and then blows themselves up down the line.

Imagine I had to back one of the following:

- Colm ‘in his attic’
- The managers of a FTSE 100 investment company who specialise in tech, who identified Amazon, who have delivered returns north of 500% over the last decade, and who actually meet and grill people like Elon Musk and Jeff Bezos face to face

The former is short Tesla. The latter is long Tesla and increased their position this year.

Who does it make more sense to back?


----------



## Fella

Brendan Burgess said:


> Hi Gordon
> 
> I would be more worried by these holdings than I would be by Colm's
> 
> View attachment 4154
> 
> Having said that, Colm's is too concentrated for my liking.
> 
> Brendan



Scottish mortgage is my biggest holding its done very well over the last few years I had no idea what the fund was made up of , I bought it because it was cheap from charges point of view and very liquid .


----------



## Fella

Everything you buy is par value , doesn't matter what you buy . Some will get lucky others won't , I don't think theres enough evidence to even say Warren Buffett is more skilful than Colm , I think there are thousands of other investors in the attic that could do what Buffett did but who is to say its skill or luck theres no enough evidence. Of course people will think its silly to say this but you only need to get to a certain level and then you can influence the market and Buffett just needs to buy anything for its price to rise and hes also benefited hugely from time in the market hes 90 or something and investing consistently since he was very young , anyone investing that long and regularly would be up hugely also.

So I am not that impressed with Scottish mortgage stock picker over Colm but I like the diversity it gives me and I think shorting has a negative expected return so yeah I'd be more concerned with Colm's approach than Scottish mortgage.


----------



## Colm Fagan

Gordon Gekko said:


> I care about you but also anyone else who follows your lead,


Gordon, I'm not looking for anyone to follow my lead.  As I've said countless times, I don't claim to be the best investor in the world.  On the contrary, I've given numerous examples of mistakes I've made to show that I'm far from that.  Neither have I a burning desire to beat "the market" or "the professionals".  I just want to get a good long-term return, which I define as a money-weighted return over my investing lifetime (net of fees) that beats risk-free returns by around 5% a year on average.  I'm not worried about volatility along the way.  In fact, I embrace it as a surer way of getting the target return in the long-term.

I like to have a clear DCF model of how I'll get that return from the shares in which I've invested.  Sometimes that model is in my head rather than in a spreadsheet.  I can't see how anyone can complete that model for Tesla with any degree of confidence.


----------



## Brendan Burgess

Gordon Gekko said:


> Who does it make more sense to back?



Hi Gordon

Strange as it may seem, I think that Colm is more likely to perform. 

These guys have been lucky. They made a few concentrated bets which paid off. 

I don't know much about them, but they are not Warren Buffetts.  They picked high risk stocks which paid off. I am sure that there are other fund managers who had the same strategy, but they were unlucky and so we haven't heard of them.

Both The Scottish Mortgage Investment Trust and Colm are risky but I reckon that Colm's strategy is less risky. 

Brendan


----------



## joe sod

Brendan Burgess said:


> I don't know much about them, but they are not Warren Buffetts. They picked high risk stocks which paid off. I am sure that there are other fund managers who had the same strategy, but they were unlucky and so we haven't heard of them.



Neil woodford being one, he had a great track record avoiding both the dot com crash and the financial collapse in 2008, because of this he became the top fund manager in britain


----------



## Sarenco

joe sod said:


> Neil woodford being one, he had a great track record avoiding both the dot com crash and the financial collapse in 2008, because of this he became the top fund manager in britain


Until he crashed in spectalour fashion.

A shining example of the fact that past performance is no guide to future returns.


----------



## Gordon Gekko

Sarenco said:


> Until he crashed in spectalour fashion.
> 
> A shining example of the fact that past performance is no guide to future returns.



You’re playing a fourball at Augusta National. Tiger Woods’ stroke average is 69; some other pro has never played the course. Who should you partner? After all, “past performance is no guide to future returns”...

That phrase is totally misused. It is meant to imply that just because you earned X in the past, you may actually earn Y in the future.

It does not imply that Warren Buffett is less likely, on balance, to do better prospectively than Colm, you, me, or my dog.

Mr Buffett, or the guys at Baillie Gifford, or Tiger Woods are more likely to do better...to suggest otherwise is just silly. They may not, but they’ve a better chance.


----------



## Brendan Burgess

It's not like choosing Tiger Woods to play with.

It's more like betting on Tiger Woods to win a tournament.

You don't need to know anything about golf. The odds on Tiger Woods are set by the people who do know about him and the other players.

So someone like me who knows nothing about golf is likely to have the same outcome from a series of bets as someone who knows a lot about golf.

If Gordon has been winning all year and Sarenco has been losing all year, that past performance says nothing about future performance.

(Minor exception: There are stats based sports betting syndicates who have a small edge and exploit pricing errors in the market.)

Brendan


----------



## Gordon Gekko

I fundamentally disagree Brendan.

You would be right if investing or backing a player was merely luck. 

But it’s not.

To continue the betting analogy, why does someone like Jeremy Chapman (a golf pundit) do so well in terms of picking winners?

Because, like investing, it’s not luck!

Baillie Gifford are better tech investors than most other people.

Hence, past performance can provide some guidance in relation to the likelihood of good future returns.


----------



## Brendan Burgess

Hi Gordon

I have pointed out that there are exceptions in investing (Warren Buffett) and Betting ( stats based & maybe Chapman) 

I don't know about Bailie Gifford.  Maybe they have been doing it as long as Buffett and their record is significant. But based on the evidence you used, they have just been lucky. They made big bets which have paid off in the recent past.    

Brendan


----------



## Andrew365

Gordon Gekko said:


> I care about you but also anyone else who follows your lead, ‘DIY invests’ and then blows themselves up down the line.
> 
> Imagine I had to back one of the following:
> 
> - Colm ‘in his attic’
> - The managers of a FTSE 100 investment company who specialise in tech, who identified Amazon, who have delivered returns north of 500% over the last decade, and who actually meet and grill people like Elon Musk and Jeff Bezos face to face
> 
> The former is short Tesla. The latter is long Tesla and increased their position this year.
> 
> Who does it make more sense to back?



Past performance is not indicative of future performance in investing, just look at Neil Woodford. The last 10 years anybody could have made good money in the market, it has been a bull run. 

Shorting Tesla is a perfectly legitimate strategy, as is going long. The fool is the person who chooses either of these strategies based on this forum.


----------



## elacsaplau

A dhaoine uaisle,

Very interesting thread - fair play to all.

Just a few comments:

1. Climate change is a big problem which requires urgent and multi-pronged actions. One area requiring action is the better use of technology. Whilst Colm may very well be right in his views regarding the finances of Tesla - personally, I wouldn't like to be hoping to profit from the demise of a such a company. Be careful what you wish for.

2. In an earlier post, a few days ago, Colm acknowledged, something along the lines, that his concentrated portfolio approach was not suitable for the majority of folk. I wanted to quote the precise text with a view to applauding this admission - as I have consistently argued that Colm's approach is not appropriate for the majority of folk. Further, I had not previously noticed Colm make such an admission. Anyway, it looks like said post has been edited...….and the acknowledgement withdrawn?*

For the avoidance of doubt, there is overwhelming evidence that the majority of people will do better in a fully diversified portfolio.

3. In relation to return expectations....



Brendan Burgess said:


> The Expected _Return _from a single stock (or coin toss) is the same as that of the market (or a series of coin tosses)



I'm a bit rusty on investment theory, Brendan, but I'm having a hard time with this argument. Just trying to get my head around it. Jury is out!

First of all, at a very simple level, in an efficient market, shouldn't rational investors be rewarded with greater returns for taking on greater risks? If yes, it follows that if the return expectations are all the same, then the risks of individual equities are all the same which doesn't make sense to me as we would be saying that there is no difference in the risk profile between defensive and speculative stocks? Otherwise put, wouldn't the rational investor need a higher expected return to compensate for increased risk of speculative versus defensive stocks?

At a technical level - admittedly I'm a little rusty here - but from memory....
(a) Isn't the Beta of the market overall equal to 1 and calculated based on the cap weighted Betas of component stocks?
(b) Won't each component stock have its own Beta?

In other words, won't the return expectation of the market equal the weighted average of all the return expectations of the stocks in the market?


_* Looks like I got this bit wrong _ - _as pointed out by Sarenco in post 177 below. Am pleased with this correction!_


----------



## Gordon Gekko

Andrew365 said:


> Past performance is not indicative of future performance in investing, just look at Neil Woodford



Repeating a generic caveat and citing specific examples is not a coherent argument.

You, and others, seem to be misunderstanding what the statement means.

“Past performance is not indicative of future performance”; all it means that the future may not mirror the past.

But who is more likely to outperform? Specialist tech investors with a track record? Tiger Woods? Jeremy Chapman? Pep Guardiola? Warren Buffett?

Past performance IS a factor when considering whether someone in any field will perform going forward. To suggest otherwise is crazy in my humble view.

Gordon


----------



## declan11

I see Musk has announced orders for 250,000 of these Cybertrucks in the first week worth 10 billion dollars at their sale price of $39,000. Maybe we are all wrong to doubt him


----------



## Andrew365

Gordon Gekko said:


> Repeating a generic caveat and citing specific examples is not a coherent argument.
> 
> You, and others, seem to be misunderstanding what the statement means.
> 
> “Past performance is not indicative of future performance”; all it means that the future may not mirror the past.
> 
> But who is more likely to outperform? Specialist tech investors with a track record? Tiger Woods? Jeremy Chapman? Pep Guardiola? Warren Buffett?
> 
> Past performance IS a factor when considering whether someone in any field will perform going forward. To suggest otherwise is crazy in my humble view.
> 
> Gordon



What exactly does Tech mean? That is such a broadstroke definition. What does successfully investing in Amazon have to do with investing in Tesla? These are two different industries, that is why you have research analysts that spend their career in the Auto industry and research analysts in the Tech industry. 

David EInhorn is a pretty famous and successful investor and he is the biggest shorter of Tesla. 

I agree past performance is an indicator but not a predictor otherwise there would be no need for banks to spend billions trying to predict and simulate potential future outcomes. If we take WeWork as an example, Softbank vision fund has been one if not the most successful Tech investment vehicle since 2000. Softbank just lost 8 billion on their WeWork investment. 

Lastly, Tiger Woods, does not win every tournament he plays because there are equally qualified people who play better, have studied the course more, more experience on that course etc. Just because Woods won in Augusta didn't mean he was going to win the British Open.


----------



## Andrew365

declan11 said:


> I see Musk has announced orders for 250,000 of these Cybertrucks in the first week worth 10 billion dollars at their sale price of $39,000. Maybe we are all wrong to doubt him



Somewhat arbitrary numbers as you just had to pay a $100 (fully refundable) deposit. It is not a commitment of $10bln dollars.


----------



## Sarenco

elacsaplau said:


> In an earlier post, a few days ago, Colm acknowledged, something along the lines, that his concentrated portfolio approach was not suitable for the majority of folk. I wanted to quote the precise text with a view to applauding this admission - as I have consistently argued that Colm's approach is not appropriate for the majority of folk. Further, I had not previously noticed Colm make such an admission. Anyway, it looks like said post has been edited...….and the acknowledgement withdrawn?





Colm Fagan said:


> *But make no mistake: if someone were to ask me what I would advise, I would tell them to put their money in a low-cost passive world equity fund, where they would get lots of diversification, etc. *


----------



## Sarenco

Gordon Gekko said:


> “Past performance is not indicative of future performance”; all it means that the future may not mirror the past.


There are dozens, if not hundreds, of studies showing that the past performance of an active manager is a poor predictor of future results.  Hence the obligatory regulatory health warning.

Only a tiny number of active fund managers have ever managed to outperform their benchmark on a sustained basis over anything like the long-term.


----------



## Duke of Marmalade

Gordon Gekko said:


> Past performance IS a factor when considering whether someone in any field will perform going forward. To suggest otherwise is crazy in my humble view.
> Gordon


Of course, in general, past performance is absolutely key to assessing future prospects.  Our whole examination system is based on it, our criminal justice system is based on it,  HR policy from recruiting football managers* to promoting staff is based on it.
The very fact that when it comes to investment management the authorities single out past performance as not subscribing to the almost universal principle only serves to emphasise the caution.  Many studies have been performed to show that alpha is an illusion.

* _albeit we have the reversal of the usual situation here, the bigger your failure as a football manager seems the more sought after you are_


----------



## Gordon Gekko

Sarenco said:


> There are dozens, if not hundreds, of studies showing that the past performance of active managers is a poor predictor of future results.  Hence the obligatory regulatory health warning.
> 
> Only a tiny number of active fund managers have ever managed to outperform their benchmark on a sustained basis over anything like the long-term.



Fine, but who would you fancy to do better going forward, a specialist fund manager with a track record or me in my kitchen?


----------



## Brendan Burgess

Gordon Gekko said:


> a specialist fund manager with a track record or me in my kitchen?



I think your performance would be the same, but you should be a lot cheaper.

Brendan


----------



## Sarenco

Gordon Gekko said:


> Fine, but who would you fancy to do better going forward, a specialist fund manager with a track record or me in my kitchen?


Whoever promises to invest in the most diversified portfolio, at the lowest cost.


----------



## Firefly

Gordon Gekko said:


> Fine, but who would you fancy to do better going forward, a specialist fund manager with a track record or me in my kitchen?



Would that be be you & Colm in the same kitchen?


----------



## Fella

Gordon Gekko said:


> Fine, but who would you fancy to do better going forward, a specialist fund manager with a track record or me in my kitchen?



You need to stop moving from the attic to the kitchen.


----------



## Fella

Gordon Gekko said:


> Fine, but who would you fancy to do better going forward, a specialist fund manager with a track record or me in my kitchen?



The fund manager could influence the price , sell a lot of current stock into the market in the hope of driving the price down so you can buy back more kinda thing , i'm not sure if fund managers do that but if your buying a lot you have more influence over the price , so they could in theory get the price cheaper than an individual.


----------



## Brendan Burgess

Hi Fella

I think it works the other way around.

If Gordon decides to buy €100k worth of stock in,say, Ryanair, it won't have any impact on the price whatsoever.

But if a fund manager invests €100m, it will push the price up, so he will pay more than Gordon.

So I think I will put my money with Gordon - in the kitchen or the attic. 

Brendan


----------



## Fella

Brendan Burgess said:


> Hi Fella
> 
> I think it works the other way around.
> 
> If Gordon decides to buy €100k worth of stock in,say, Ryanair, it won't have any impact on the price whatsoever.
> 
> But if a fund manager invests €100m, it will push the price up, so he will pay more than Gordon.
> 
> So I think I will put my money with Gordon - in the kitchen or the attic.
> 
> Brendan



I think but I could be wrong that its possible to influence the market if a large fund want to buy a stock , if they already own the stock they could quickly dump a lot of that onto the market in the hope that others will see it dropping and sell also , then they buy more at a lower price. Anyway thats way off track .


----------



## Sarenco

Fella said:


> I think but I could be wrong that its possible to influence the market if a large fund want to buy a stock , if they already own the stock they could quickly dump a lot of that onto the market in the hope that others will see it dropping and sell also , then they buy more at a lower price.


Market manipulation of that nature is illegal.


----------



## Colm Fagan

Gosh, I'm getting lost at this stage, being dragged from the attic to the kitchen!  In the circumstances, I think I'll go outdoors and join @Gordon Gekko on the golf course!


Gordon Gekko said:


> You’re playing a fourball at Augusta National. Tiger Woods’ stroke average is 69; some other pro has never played the course. Who should you partner? After all, “past performance is no guide to future returns”...


As with all analogies, this one has its limitations, the biggest of which is mentioned at the end of this post, but we can still take a few lessons from it. 

This is a peculiar type of golf competition, in that most people prefer not to play themselves.   Instead, they want to link their fortunes to Tiger, Rory, or whoever their favourite golfer (i.e. fund manager) happens to be - for a fee.    There are a few of us however who like to play our own game rather than have a professional play on our behalf.

Contrary to what Gordon says, I've been playing Augusta National for 23 years now , all of it as an amateur.   I have never entered a competition and haven't kept a detailed record of my scores over the entire period, but I haven't made a fool of myself.  The most important point is that I've enjoyed my golf and I have knocked down good scores, as outlined in #34 and #38 above.   And I haven't had to pay a penny to the professionals.  I'm happy to continue playing my own game, despite Gordon exhorting me to give it up and let the professionals play on my behalf.

The big limitation of the golfing analogy is that there aren't professionals out there who can beat the amateurs hands down.  I'm not going to repeat the Abigail and Beatrice parable of my "A guy in the attic" article, but the basic message is that, 99% of the time (once again, not to be taken literally, but it's of the right order), market prices reflect the accumulated knowledge of the top professionals, so the ordinary Joe Blog will do just as well as the professionals for 99% of the holes.  That's before charges.  After charges, they have a good chance of doing better than the professionals.


----------



## Fella

This is all setting up nicely for a friendly competition , colm v Gordon , 1 year 10 stocks each who beats the market most ! Ah heck let everyone join , see if there's any undiscovered Warren buffetts


----------



## Gordon Gekko

But Buffett doesn’t manage stocks on a one year basis. It would be very dangerous to base one’s decision on such a short time-horizon.


----------



## Brendan Burgess

Fella said:


> 1 year 10 stocks each who beats the market most !



Agree with Gordon on how meaningless this would be.



Fella said:


> I did go long on Tesla its not a rational investment



But it could be fun to have a competition on the price of Tesla at the end of 2020 - a bit like the competition on Bitcoin.

Brendan


----------



## Colm Fagan

Brendan
I'm happy to play the game, recognising that it's only a game.  I think you guys know my long-term forecast:  I don't plan to close my position until the price has fallen to less than $200.  I'll have to give some thought to whether it will have fallen to that level by the end of next year. 
You'll have to include a rule that the price will be adjusted for any rights issues or stock splits/ consolidation in the meantime.  That should be straightforward.


----------



## Fella

Brendan Burgess said:


> Agree with Gordon on how meaningless this would be.
> Brendan



It would show how meaningless following a stock picker is , some people would be well up and others well down and I wouldn't expect those that know more about stocks and investing to do any better than your average Joe


----------



## Gordon Gekko

But it wouldn’t be “Colm vs Gordon”. Colm runs his own concentrated equity portfolio; I outsource the running of mine because I believe that neither Colm nor I have the expertise or resources to manage money successfully. I also believe that such a concentrated approach is unwise.

Something in the back of my mind tells me that Colm started doing this in 2014, is that correct? I just checked and the annualised return from my equity portfolio for the last 5 years is 10.16%. The AMC is 0.45%, and there is no VAT, no bid/offer spread, or no transaction or trail commissions payable. The ‘Reduction in Yield’ is only marginally higher than the AMC so I would contend that my costs are circa 0.5% per annum.

That’s what I’d be throwing into the pot in terms of comparing “my performance” with Colm’s over the last 5 years; 9.66% annualised. And that’s the approach I’ll hopefully be taking over the coming years.

People are entitled to their views, but I don’t believe that the “man in the attic” (or kitchen!) has much of a chance of doing better. In fact, as I’ve said before, I think he’ll do materially worse.


----------



## Firefly

Brendan Burgess said:


> But it could be fun to have a competition on the price of Tesla at the end of 2020 - a bit like the competition on Bitcoin.
> 
> Brendan



$150 for me so!


----------



## elacsaplau

Gordon,

Do you mind sharing how you implement this strategy please? - i.e. what investment vehicle/mechanism you are using; what index are you tracking, etc.?

At a general level, I have very little doubt that a low cost index tracking approach is the best solution for most investors most of the time - so long as the index being tracked is sensible! And low cost is really important - I read somewhere recently (perhaps on this site)……._in investment you get what you don't pay for!_


----------



## Colm Fagan

Gordon Gekko said:


> I just checked and the annualised return from my equity portfolio for the last 5 years is 10.16%. The AMC is 0.45%, and there is no VAT, no bid/offer spread, or no transaction or trail commissions payable. The ‘Reduction in Yield’ is only marginally higher than the AMC so I would contend that my costs are circa 0.5% per annum.
> 
> That’s what I’d be throwing into the pot in terms of comparing “my performance” with Colm’s over the last 5 years; 9.66% annualised. And that’s the approach I’ll hopefully be taking over the coming years.


Gordon
I really don't understand your preoccupation with how my portfolio has performed over the last 5, 10 years or whatever, but if you insist on doiing the comparison, I suggest you compare like with like.  The figures I gave were for my *total portfolio*, including my ARF/AMRF, my non-exempt investments, spread bet accounts, and a deposit account.  They were also net of the ARF/AMRF provider's charges, bank charges on ARF (and other) withdrawals, etc.  You gave figures for your *equity portfolio *only.  I don't know what proportion of your total investments that represents.  To make the comparison fair, you should include all your investments, including any post office savings accounts, bank deposit accounts, etc.  That's what I included in the figures I gave. 
It so happens that I put practically everything into "equities", but I don't see "equities" as you see them.  For example, one of my equity holdings has a dividend yield of more than 7% a year, so I consider it as pseudo corporate bond, the property unit trust could be classified as a property investment, etc.


----------



## Gordon Gekko

No. Instead, can you help us to compare like with like and disclose how your share investments have done over the last 5 years?

i.e. total return gross of tax and net of costs (so whether it’s ARF, pension, or personal shouldn’t matter). I have my figure and it‘s 9.66% annualised.

It would be helpful to exclude the deposits; I have cash equal to approximately 10% of the value of my equity portfolio and it earns zero, but I don’t see it as relevant to the discussion.


----------



## Andrew365

What does successfully investing in Amazon have to do with investing in Tesla? They are different industries, if anything a Fund manager who has a track record in investing in Tech companies should not be investing in Tesla.


----------



## Sarenco

Gordon Gekko said:


> ...can you help us to compare like with like and disclose how your share investments have done over the last 5 years?


To what end?

Colm has never claimed to be a better stock picker than any professional or to be able the beat the market and is not trying to improve the risk-adjusted return on his portfolio or to limit his risk of bombing out completely.

Colm has told us (I'm paraphrasing) that he derives a significant degree of comfort or reassurance from having a more direct connection and understanding of the highly concentrated portfolio of publicly traded companies in which he holds (or shorts) shares.  

I struggle to understand why anybody would voluntarily expose themselves to such a high degree of idiosyncratic, diversifiable investment risk.  But I do understand that psychology (however irrational) plays a huge role in investing success.

To be fair, Colm has been at pains to emphasise that he doesn't advocate that anybody follows his approach.


----------



## Colm Fagan

Gordon Gekko said:


> disclose how your share investments have done over the last 5 years?


This is ridiculous.  Total return is all that matters.  Do you want me to split it into its component parts just to please you?  I've better things to do with my life.


----------



## Gordon Gekko

Colm Fagan said:


> This is ridiculous.  Total return is all that matters.  Do you want me to split it into its component parts just to please you?  I've better things to do with my life.



I am talking about total return. My question is pretty simple; what has the total return on your share investments been since you commenced this approach (which I think from memory was 5 years ago)?

But never mind.


----------



## Colm Fagan

Are you sure you're not looking for the total return on the shares in my portfolio which have factories in Indonesia making widgets for midgets?  This is getting more ridiculous by the minute.


----------



## Gordon Gekko

Colm Fagan said:


> Are you sure you're not looking for the total return on the shares in my portfolio which have factories in Indonesia making widgets for midgets?  This is getting more ridiculous by the minute.



Sorry Colm, but I am exiting this conversation. I am surprised and disappointed at the tone of your post. You are courting publicity in relation to your strategy but you won’t subject it to any meaningful analysis. You claim that you’re not advocating that others follow your approach but the problem is that people will. Vague innuendo is thrown out about the cost of giving money to professionals to manage versus your own approach. The problem is that the real cost (i.e. the opportunity cost) of the self-managed approach is typically gargantuan...underperformance and loss of wealth. You would be wise to remember the old adage, “if you thought professionals are expensive, try hiring an amateur”. The disdain for professional money managers that is being fed by this thread is preposterous. Yes, there are bad managers out there and guys like Woodford who lose their way and do silly things. As is the case in any walk of life. I would simply urge others not to follow Colm’s lead; you will probably lose.


----------



## Sunny

This whole thread has gone ridiculous. People are openly discussing taking long and short positions on one share which I didn't think we were allowed to discuss.  

What does it matter what Colm does? It is interesting to read and I enjoy his posts but anyone who takes his advice or anyone elses advice about following a particular investment strategy from this site needs their head examined....


----------



## elacsaplau

Sarenco said:


> To be fair, Colm has been at pains to emphasise that he doesn't advocate that anybody follows his approach.



At a general level, my take-aways from Colm's diaries and his posts on AAM are:

1. He prefers a very concentrated equity portfolio; and
2. He argues that individual retirees currently (i.e. forgetting about his pooling proposals) should invest, pretty much, all of their ARF in equities.

Colm is perfectly capable of managing his affairs as he sees fit. However, frequently, I have tried to point out to Colm that both of the above approaches are not suitable to the majority of investors. Regrettably, all too often, when I attempt to challenge Colm, the thread degenerates into the type of exchange in the above few posts. In the latest exchange, it is quite clear to me what Gordon was asking. Arguably, to ask as Sarenco did "to what end" is legitimate...…..but it is completely bogus and disappointing to repeatably try to misinterpret what Gordon was asking.

A few days ago, I saw that Colm had acknowledged that his advice to others would be to invest in a low cost world passive index. I was pleased by this as I do not recall Colm making such an admission previously. Yesterday, when I went to quote this admission (in my post #172), I couldn't find the relevant statement. In post #177, Sarenco quoted what I had missed and subsequently I corrected, without prompting, my wayward post.

So personally, I think that it's a bit of a stretch to say that Colm has been at pains to advocate that others don't follow his approach.

Nonetheless, I am very happy that the message goes out that investing one's equity allocation in an appropriate low cost passive all equity fund is the way to go for the over-whelming majority.

In relation to the make-up of one's equity allocation, if Colm believes that the great unwashed should "do what I say, not what I do", one wonders what (again as I have asked before to no avail) is the point of the investment diaries? I share Gordon's fear that certain will be led by what they believe is a thought leader and that there is a reasonable likelihood that they will get mushed, at least to some extent, as a result.

Colm's advocacy of almost total allocation to equities in one's ARF is similarly dangerous. Ordinary folk who follow this advice are taking on excessive risk. This, however, is beyond the scope of this thread.



Sunny said:


> This whole thread has gone ridiculous. People are openly discussing taking long and short positions on one share which I didn't think we were allowed to discuss.
> 
> What does it matter what Colm does? It is interesting to read and I enjoy his posts but anyone who takes his advice or anyone else's advice about following a particular investment strategy from this site needs their head examined....



Fair comments, Sunny.

Colm has been afforded a special status on AAM which allows him - uniquely - to discuss shares of particular interest to him. With such privileges comes certain responsibilities. Colm is an intelligent and very experienced businessman and an awful lot of what he writes makes sense. Regrettably, in my experience, Colm tends to take my robust criticism of his views, very personally - which is not my attention. [It is true that when I am at the receiving end of the type of deliberate obfuscation apparent in the above posts that I have, on occasion, reacted in kind!]

It is because so much of what he writes makes sense that I believe that certain folk will not be able to distinguish the _wheat from the chaff _in his posts. Getting back to what I have understood as his two central themes -it is great that Colm himself has acknowledged that point 1 is inappropriate to the majority. Someday, hopefully soon, the word will clearly emanate from this site that all-in equity with your ARF is not that smart for most people!


----------



## Duke of Marmalade

I note that the thread has become highly personalized at times.  Colm is at an unfair disadvantage in that his challengers are anonymous.  There is no disclosure of potential conflicts for example.


----------



## elacsaplau

Duke,

Chances are that your post is directed at me - at least in part?!

If you believe that anything that I said is unfair, I am sorry. That said, I took great care in making sure my comments were measured. If there is anything in particular that you feel is inaccurate or unfair, I will correct the record if your feedback is appropriate - in the same way as I corrected, without prompting, the mistake that I made yesterday in post #172. [Just to note, I'll be heading on a flight shortly so I may be a little while in responding].

I strongly disagree with Colm's strategy - I am not worried for him personally but just deeply concerned about the messaging. All I have ever tried to do is to point this out and also.....to point out the difficulties that I have experienced in pointing this out - i.e. in many other threads, I am _Gordon_...........and, in my opinion, my words were not afforded appropriate respect in various ways. The bottom line is that I don't want the ordinary man to try out Colm's approach _at home!_

I get it that people can greatly attach to their views. Ultimately, my primary concern is what's right - not who's right. Shouldn't we all be of this view? So again, if anything that I said is _ad hominem, _I apologise.

The attachment between one's views and one's being invariably poses challenges because it is often very difficult for us mortals to distinguish between the two. I am guilty of it myself and need, in the words of DeMelo, to be careful of my attachments. And these attachments seem to particularly thrive on internet forums! My favourite reminder of the overlap between the person and the thought/action comes from, arguably, our greatest poet.....

O chestnut tree, great rooted blossomer,
Are you the leaf, the blossom or the bole?
O body swayed to music, O brightening glance,
How can we know the dancer from the dance?

As my tendency is to answer questions asked of me, I am happy to disclose that I believe that I do not have any conflicts of interest in this regard. In any event, irrespective of my personal circumstances or interests, real debate of the issues should be what ultimately matters.

Finally, separate from the investment discussions, the use of the term "midget" is now generally viewed as pejorative, if not outright offensive and is, in my opinion, highly inappropriate.


----------



## Fella

Colm Fagan said:


> @Fella  You should have done your long trade with me, since I increased my short position at the open today.  It would have saved us both a few bob in brokerage costs and bid-offer spreads!
> In answer to @Andrew365 , my plan at the moment is to ignore price movements - in either direction - between now and when the full year results are published, probably at the end of January.   In the meantime, I won't get too excited or depressed by moves in either direction.  Massive short-term volatility is par for the course with Tesla.



When I bought Tesla less than a month ago it was 332 its 376 as I type , you shorted the same day . My position is not enough for me to become emotionally involved its just a bit of fun , I wouldn't like to see you lose a lot of money on this as its not winning me a lot . How much is this Tesla rise costing you? Do you just stay in and keep taking the hit , I really feel your making a mistake shortening this company , I genuinely like your posts and you seem like a good guy I'm always fearful when I hear of been doubling down I've seen many a shrewd gambler chasing big value bets that had a positive EV but ending up bust because of staking strategy.


----------



## Colm Fagan

Hi @Fella.  Yes indeed, you're doing very well at the moment! Well done!

I still stand by what I wrote in #140 above:



Colm Fagan said:


> my plan at the moment is to ignore price movements - in either direction - between now and when the full year results are published, probably at the end of January. In the meantime, I won't get too excited or depressed by moves in either direction. Massive short-term volatility is par for the course with Tesla.



I've seen nothing since the Q3 results were announced to cause me to change my assessment of the stock.  Yes, Musk won the 'pedo' court case, but that has nothing to do with the company's business prospects.  Therefore, since my view on the company's prospects haven't changed,  I've retained my short position.   In fact, I increased it again last week!

As you surmise, the price rise is proving costly, and each 5% rise costs more than the last 5%.  That's a sobering thought.

Of course, I can't let my belief that Tesla is ridiculously overvalued cause me to lose my shirt.  I assure you that I'm aware of that risk.  It helps that the long positions in my portfolio are rising in value at the same time, and the increase in the value of my long positions is significantly more than the loss I'm suffering on my short positions.  (I have one other short position, which I plan to write about in my next update.   I had hoped to publish it this week but it will probably be delayed until the new year for domestic reasons.  I'm also losing on that short position, but it's a different type of loss to the Tesla one, for reasons that will become clear when I write the update.)

It's important to qualify my statement above that the gains on my long positions are greater than the losses on my short positions.  That's true, but the gains are mostly unrealised, while the losses have immediate cash consequences, both in terms of there being less cash available in my spread bet account and also an increase in margin requirements.   It's important to have contingency plans to deal with the resulting cash flow challenges.

The time may come when I will have to throw in the towel, if either (a) the value of my short position in Tesla comes to represent an unacceptably large proportion of my overall risk exposure, or (b) I see hard evidence that the company really is worth much more than I think it's worth.   In relation to (a), I haven't yet reached my risk limit with Tesla, although it's getting closer.  In relation to (b), I haven't seen any hard evidence that it's worth anything close to what the market values it at.

It will be humiliating if I have to concede defeat, but I've bitten the bullet on losing positions before and lived to tell the tale.  This time will be no different, though a bit more high profile!

PS:  I should have asked if you (or any other contributors) have seen anything since the Q3 results were announced that would cause the company's market value to increase.


----------



## Fella

Colm Fagan said:


> Hi @Fella.  Yes indeed, you're doing very well at the moment! Well done!
> 
> I still stand by what I wrote in #140 above:
> 
> 
> 
> I've seen nothing since the Q3 results were announced to cause me to change my assessment of the stock.  Yes, Musk won the 'pedo' court case, but that has nothing to do with the company's business prospects.  Therefore, since my view on the company's prospects haven't changed,  I've retained my short position.   In fact, I increased it again last week!
> 
> As you surmise, the price rise is proving costly, and each 5% rise costs more than the last 5%.  That's a sobering thought.
> 
> Of course, I can't let my belief that Tesla is ridiculously overvalued cause me to lose my shirt.  I assure you that I'm aware of that risk.  It helps that the long positions in my portfolio are rising in value at the same time, and the increase in the value of my long positions is significantly more than the loss I'm suffering on my short positions.  (I have one other short position, which I plan to write about in my next update.   I had hoped to publish it this week but it will probably be delayed until the new year for domestic reasons.  I'm also losing on that short position, but it's a different type of loss to the Tesla one, for reasons that will become clear when I write the update.)
> 
> It's important to qualify my statement above that the gains on my long positions are greater than the losses on my short positions.  That's true, but the gains are mostly unrealised, while the losses have immediate cash consequences, both in terms of there being less cash available in my spread bet account and also an increase in margin requirements.   It's important to have contingency plans to deal with the resulting cash flow challenges.
> 
> The time may come when I will have to throw in the towel, if either (a) the value of my short position in Tesla comes to represent an unacceptably large proportion of my overall risk exposure, or (b) I see hard evidence that the company really is worth much more than I think it's worth.   In relation to (a), I haven't yet reached my risk limit with Tesla, although it's getting closer.  In relation to (b), I haven't seen any hard evidence that it's worth anything close to what the market values it at.
> 
> It will be humiliating if I have to concede defeat, but I've bitten the bullet on losing positions before and lived to tell the tale.  This time will be no different, though a bit more high profile!
> 
> PS:  I should have asked if you (or any other contributors) have seen anything since the Q3 results were announced that would cause the company's market value to increase.



Ah Colm I didn't want to hear you increased your short position last week .
I think I'll close out my position as when I check it I just think poor Colm hope he ain't lost his whole lifes work over this .
Best of luck , please don't short it anymore be happy with been right if company goes to the wall in a few years , you called it .


----------



## Brendan Burgess

Fella said:


> When I bought Tesla less than a month ago it was 332 its 376 as I type ,



I hadn't been following the price since I closed out my position. I had sold it at 376 so I would be losing now. 

Brendan


----------



## Fella

Tesla 402  this thread could become famous , I wonder how long Colm can hold on . Maybe this thread will open peoples eyes to the fact no matter what you think you know your guessing as much as the next guy .


----------



## Colm Fagan

Hi @Fella.  I never cease to be amazed at people who claim to be long-term investors but who nevertheless worry about (or celebrate) short-term moves in the market values of stocks in their portfolios.  In fairness, that criticism doesn't apply to you.  As I recall, you see yourself as a trader rather than an investor, and I'd say you're a good one too.
As I think you know by now, that's not my style.  I try to take a long-term (five years plus) perspective for all my investments.  There is no doubt that my timing with Tesla hasn't been ideal - and that's an understatement - but I'm not particularly worried, as I believe the fundamentals haven't changed, so my assessment of the company hasn't changed either.   In overall terms, the cost of the Tesla short hasn't been a major drag on the return on my portfolio.  I checked yesterday (in response to another correspondent) and the overall value of the portfolio had risen more than 8% in the period from 31 October to close of business yesterday.  And that's after allowing for the impact of the Tesla short.  
As I said much earlier in this thread, my first real decision point is likely to be when the financial results for 2019 are announced.  I think they're due in early February.  I don't envisage having any problem keeping my short position open until then.  I doubt if I'll be adding any more to it in the meantime though!


----------



## Fella

Colm Fagan said:


> Hi @Fella.  I never cease to be amazed at people who claim to be long-term investors but who nevertheless worry about (or celebrate) short-term moves in the market values of stocks in their portfolios.  In fairness, that criticism doesn't apply to you.  As I recall, you see yourself as a trader rather than an investor, and I'd say you're a good one too.
> As I think you know by now, that's not my style.  I try to take a long-term (five years plus) perspective for all my investments.  There is no doubt that my timing with Tesla hasn't been ideal - and that's an understatement - but I'm not particularly worried, as I believe the fundamentals haven't changed, so my assessment of the company hasn't changed either.   In overall terms, the cost of the Tesla short hasn't been a major drag on the return on my portfolio.  I checked yesterday (in response to another correspondent) and the overall value of the portfolio had risen more than 8% in the period from 31 October to close of business yesterday.  And that's after allowing for the impact of the Tesla short.
> As I said much earlier in this thread, my first real decision point is likely to be when the financial results for 2019 are announced.  I think they're due in early February.  I don't envisage having any problem keeping my short position open until then.  I doubt if I'll be adding any more to it in the meantime though!



I generally wouldn't care about short term movements in fact I almost never look at my portfolio. I had an email from degiro telling me that IRES had dropped more than 10% and they where obliged to tell me , I didn't bat an eyelid and it's a large enough paper loss if I want to think about it , but I dont have to make a decision I'm still in my 30's so ill likely make it back someday.

With the short the loss is unlimited , my IRES can only go to zero . I admire you for putting yourself out there , I'm honestly not trying to remind you constantly of your position , it's interesting for me to watch a seemingly very intelligent man engage in what I would call grown up gambling . It's interesting to me as an ex gambler , I'm trying to think what I would do , there was a time I found a huge value bet but had to stop myself after taking more and more , I stopped at a certain % of my bankroll even though I was getting 3/1 on a 1/2 shot it lost but meh . I overstaked that bet , going forward I remember I had to have a better plan and not double down , so I would just look for 5 companies like tesla's and short them all and spread the variance .

Sorry for off topic ramble ! I promise not to check tesla price for 6 months.


----------



## Colm Fagan

Fella said:


> there was a time I found a huge value bet but had to stop myself after taking more and more , I stopped at a certain % of my bankroll even though I was getting 3/1 on a 1/2 shot it lost but meh . I overstaked that bet ,


We are all influenced by our backgrounds.  Your background as a gambler influences your thinking.  My background (over 50 years of it!) in risk management influences mine.  
I'm comfortable with my exposure to the risk of a (further) significant upward movement in the Tesla share price:  it is less than a third of my exposure to the risk of a similar downward movement in my largest long holding. 
The nature of the risk is also an important consideration.  I had a much smaller short position in another stock, which I closed at a loss even though the fundamentals were in my favour, because I reckoned that, in this bull market, there was a non-trivial risk of the company being taken over at a significant premium to the prevailing share price.  I believe there is no such risk for Tesla.  
Of course, if the share price keeps rising, to the extent that Tesla represents a dangerously high proportion of my total risk exposure, I will have to bite the bullet and bring my exposure back within my risk appetite.  That's still some distance away.  I'll also have to concede defeat - and possibly close the position entirely - if I conclude that the company really is worth anything remotely close to what the market says it's worth.  I can't envisage how that will happen.


----------



## Brendan Burgess

Fella said:


> With the short the loss is unlimited



Hi Fella

I used to think this but I don't anymore.  I probably thought that because that is what everyone said and I didn't really think about it. Or maybe because it's the way I actually have used the shorting. 

I have a short position in Bitcoin.  I sold it at $14,400 

In theory I have the potential for an unlimited loss. But IG Index does not allow that. I had to set a stop loss.  From memory, I set the stop loss at $24,400. In other words, I was prepared to lose $10,000 and set my limit at that.  If the price suddenly spiked while I was not watching it, it would have been automatically closed out.  I would be disciplined. If it had hit $24,400 I would have admitted defeat. 

So I look at this as an investment of $10,000 in exactly the same way as if I had bought $10,000 worth of Ryanair shares.  Either can go to zero.

Of course, my potential gain on Ryanair would be unlimited, whereas my potential gain on Bitcoin is limited to $14,400. 

My approach to spread betting  might be unusual. $10,000 gives me exposure to one Bitcoin.  Of course, I could have short sold 5 Bitcoin instead and set the limit at $16,400.  I would have made 5 times as much, there would have been a much higher risk that I would have been wiped out.

And my Bitcoin and Tesla exposure were a much smaller percentage of my portfolio than Colm's. 


Brendan


----------



## joe sod

@Fella interesting that you revealed a position in Ires, also interesting that this stock has been targeted by shorters , it's fundamentals are great yet it has been targeted by shorters because they think it will be targeted by big government in Ireland . Tesla is in the opposite situation, it's fundamentals are terrible as colm Fagan has pointed out yet it is not been shorted but it's share price has been driven up. Even though it's fundamentals are terrible it is being talked up by big government and sentiment as the future. I made a reference to ethical investing in an earlier post being responsible for the rise in price, that Tesla is seen as a "good" stock.
It begs an interesting question is "big government" now more important than fundamentals , it seems that the markets are now  buying this theme judging by the performance of these two shares. Of course everything could all correct again in a recession and that this new theme confined to the dustbin like many others in the past


----------



## Colm Fagan

Brendan Burgess said:


> If it had hit $24,400 I would have admitted defeat.


Brendan, would you really have admitted defeat?  If, at that point, you still thought that Bitcoin would eventually be worth zero (or practically zero), surely the right course of action would be to part close your position, so that you still had (somewhat lower) exposure to the (in your view higher) probability of the price falling from that elevated level?  That's what I envisage doing if Tesla gets to the point where it represents too high a proportion of my total risk exposure.


----------



## RedOnion

joe sod said:


> Ires, also interesting that this stock has been targeted by shorters , it's fundamentals are great yet it has been targeted by shorters because they think it will be targeted by big government in Ireland . Tesla is in the opposite situation, it's fundamentals are terrible as colm Fagan has pointed out yet it is not been shorted but it's share price has been driven up


This is very confusing, unless I've got completely wrong data. You're saying Tesla is not being shorted?
26% of the total volume of Tesla shares were shorted yesterday.
The latest I've seen on IRES is <1% of their shares are shorted.


----------



## Brendan Burgess

Colm Fagan said:


> Brendan, would you really have admitted defeat?



Hi Colm

That was my plan anyway and I don't have the same risk appetite that you have. 

I remember the dot.com bubble thinking that shares were way overvalued and they doubled further.

If I had known about it, I would have sold bitcoin at $1,400 three years ago, only to watch it rise 10 fold after that. 

I will face the same issue when Bitcoin falls to $3,000.  I know that it's still worth nothing and will eventually fall to zero, but I will have made enough at $3,000 to cash in. 

Brendan


----------



## joe sod

RedOnion said:


> This is very confusing, unless I've got completely wrong data. You're saying Tesla is not being shorted?
> 26% of the total volume of Tesla shares were shorted yesterday.
> The latest I've seen on IRES is <1% of their shares are shorted.



Yes I take your point, but as you well know shorting is very dynamic activity, therefore in the case of Ires it was the target of shorters until they achieved their price move then they move off as it is too risky for them and the stock is too cheap. Obviously Tesla is the opposite because the price has risen so much it is now ripe for shorters. Those markets change very quickly by the hour. But they feed off assumptions and themes as I discussed above


----------



## Fella

Does the high level of shorting of Tesla stock add an extra layer of danger , I'm just imagining the more the stock rises then shorters closing positions are going to contribute to the stock rising further again as they have to buy.


----------



## RedOnion

joe sod said:


> Yes I take your point, but as you well know shorting is very dynamic activity,


Yes, there has always been very large short position on Tesla.
The first short on IRES was in September. There was never a large short position.


----------



## RedOnion

Fella said:


> Does the high level of shorting of Tesla stock add an extra layer of danger , I'm just imagining the more the stock rises then shorters closing positions are going to contribute to the stock rising further again as they have to buy.


Yes, without talking about specific shares.
Google 'short squeeze'. Some hedge funds start essentially betting that there'll be a squeeze rather than investing based on the fundamentals of the company.


----------



## Brendan Burgess

Presumably the short squeeze is only a temporary phenomenon? 

Neither shorting nor squeezing can alter the fundamental value of a company.  (Unless excessive shorting ruins confidence in a company.) 

So a short squeeze might well force out a few Tesla shorts in the short-term but it wouldn't affect a long-term shorter like Colm.

Brendan


----------



## RedOnion

Brendan Burgess said:


> So a short squeeze might well force out a few Tesla shorts in the short-term but it wouldn't affect a long-term shorter like Colm.


Absolutely.
If you've enough funds to cover it, you're fine. But there are examples of hedge funds running out of funds to cover their positions.


----------



## Duke of Marmalade

Colm Fagan said:


> I'm comfortable with my exposure to the risk of a (further) significant upward movement in the Tesla share price:  it is less than a third of my exposure to the risk of a similar downward movement in my largest long holding.
> Of course, if the share price keeps rising, to the extent that Tesla represents a dangerously high proportion of my total risk exposure, I will have to bite the bullet and bring my exposure back within my risk appetite.


Colm, I am trying to analyse the math behind these two statements. I presume that you see the risk of a percentage movement of x% as being broadly constant across the price range. That would mean Tesla would need to more than triple in price before it matched the risk on your largest long holding. You would have taken a bit of a hiding by the time the Tesla share price was over 1200.


----------



## Colm Fagan

Hi Duke
First of all, I'm making this up as I go along, so don't take what I'm saying as gospel.  This is a new experience for me too!
My thinking at present is that I will be comfortable to allow my absolute exposure to Tesla to increase to the level of my third largest (long) holding.   I'm still some way from reaching that point (which I don't plan to divulge).   If the price increases beyond that, the (tentative) plan is to close the short position in enough shares to keep my absolute exposure at that of my third largest holding.  Thus, if the price keeps rising, I will keep buying back shares.  Taking your example, if the price ever gets to 1200, I will have exposure to a much smaller number of Tesla shares (I'll also be a heck of a lot poorer!).
As I think I said earlier, all this presupposes that I continue to believe that Tesla is ridiculously overvalued.  If I ever change my mind and conclude that there's a reasonable chance that its fundamental value is close to the current market value, then I'll close the entire short position immediately.

There's an important postscript.  All these transactions are taking place outside my ARF.  I wouldn't be allowed by law to have spread bets in the ARF in any event.  That means I'm unlikely ever to end up on the breadline!


----------



## RedOnion

Colm Fagan said:


> I'm making this up as I go along


You're not alone in that regard! 

It's very interesting to read your posts, and see things from another person's perspective.


----------



## Colm Fagan

The best piece I've ever read on the dangers of shorting is the blog:

https://lt3000.blogspot.com/2018/08/the-real-cautionary-tale-of-david.html 

If I had seen it before I opened my Tesla short, I might have done things differently!

I've extracted a few quotes to give a feel for its quality:

*  "Consequently, a long value, short growth book is almost certain to cause you tremendous pain from time to time (and particularly late cycle)"

_*  "To succeed as a value investor, it is absolutely essential that you are investing from a position of strength not weakness, and have the ability to 'stay the course' when markets move against you, but the risk of being a forced buyer as a short seller is very real_."

*  "A clear mark of a flawed investment thesis is that it makes no reference to price"

_*  "In markets, there is no such thing as a mechanical rule which always works - judgement and rationality in each individual situation are what matter." _

There's lots more of similar quality.  Enjoy!  It's my Christmas present to AAM readers!


----------



## tosullivan

the problem with shorting bitcoin, is that you might have a number in your head for your stop loss as to what you want to risk, but you need to check the resistance levels aswell as these wicks can take you out really quickly.  Sometimes these resistance levels can be just outside your stop loss that you have in your head so you need to consider that when playing the trade
Same scenario goes for a long


----------



## Bronte

Colm I find it odd you don’t want to divulge the price. In fact it makes me sceptical you’re being honest with yourself.


----------



## Duke of Marmalade

Colm Fagan said:


> The best piece I've ever read on the dangers of shorting is the blog:
> 
> https://lt3000.blogspot.com/2018/08/the-real-cautionary-tale-of-david.html
> 
> If I had seen it before I opened my Tesla short, I might have done things differently!
> 
> I've extracted a few quotes to give a feel for its quality:
> 
> *  "Consequently, a long value, short growth book is almost certain to cause you tremendous pain from time to time (and particularly late cycle)"
> 
> _*  "To succeed as a value investor, it is absolutely essential that you are investing from a position of strength not weakness, and have the ability to 'stay the course' when markets move against you, but the risk of being a forced buyer as a short seller is very real_."
> 
> *  "A clear mark of a flawed investment thesis is that it makes no reference to price"
> 
> _*  "In markets, there is no such thing as a mechanical rule which always works - judgement and rationality in each individual situation are what matter." _
> 
> There's lots more of similar quality.  Enjoy!  It's my Christmas present to AAM readers!


Thanks for the pressie.  Some thought provoking stuff, not least that some genius called Einstein or whatever made a complete fool of himself causing his fund to lose 30% in a bull market.
As someone who likes to follow the math I was interested in the observation that with a short if things go against you in the short term and you want to maintain your risk exposure you have to lessen your bet and thus ultimately make less than you initially expected even if you are proven right in the end.  And vice versa for a long bet.  But I always look for the mirror of these examples.  What he is saying is that if you maintain the same risk exposure but are ultimately proven right your actual profit will be path dependent.  With a short, if that path initially goes against you your final profit will be reduced compared to your initial expectation and vice versa for a long position.  But if the path follows your judgement the situation is reversed and the long position delivers less than your initial expectation and again vice versa for the short.  One up for the short since presumably on balance you believe the path will follow your initial judgement.

Then we see the ubiquitous 100% rise has the same chance as a 50% fall.  Most buy into this log symmetry but it suggests that shorts in general are very poor value bets in the sense that you are getting less than even money on 50% outcomes.


----------



## Colm Fagan

Bronte said:


> Colm I find it odd you don’t want to divulge the price. In fact it makes me sceptical you’re being honest with yourself.


You may be right!  As I admitted, I'm in new territory with how my Tesla short has developed, so I'm making up the rules as I go.   I'm also trying to digest the lessons from the excellent blog I recommended last night (which @Duke of Marmalade also quoted.  Duke, not having your maths ability, it will take me a while to get my head around your argument, but I hope to eventually).    

Another response to Bronte's point is that I'm more comfortable telling what I've done than what I plan to do, which is related to my final quote from lt3000's excellent blog:


Colm Fagan said:


> "In markets, there is no such thing as a mechanical rule which always works - judgement and rationality in each individual situation are what matter


The world may look quite different by the time I have to make the call on whether to close part of my Tesla short position.


----------



## Fella

I don't get how you would still be involved Colm if the price ever got to 1200 , if I was sure something was over valued at 300 and then it moved to 1200 I would be well out of the market I would cut my losses well before that and admit to myself I just have no clue where this company is going. If I was short 300 I think I'd be out before 500.  Tesla can hang around over valued for years until it eventually is valuable , I really am struggling to see the edge here .

I'll be honest since I have exhausted / fell out of love with most avenues in the sports world, I have put aside a sum of money with which I am going to risk trying to trade the financial markets , its why I have questioned so much and I have learned a lot from this thread. I have looked at how share prices have moved and there is no clear pattern that I have identified , there are no areas that stand out to me yet. My feeling is that the time to make real money is when we hit a bear market .


----------



## joe sod

Duke of Marmalade said:


> Then we see the ubiquitous 100% rise has the same chance as a 50% fall



I dont understand this statement, that would mean a rise fom 100 to 200 has the same chance as a fall from 100 to 50, really !!, explain


----------



## Duke of Marmalade

joe sod said:


> I dont understand this statement, that would mean a rise from 100 to 200 has the same chance as a fall from 100 to 50, really !!, explain





			
				LT3000 said:
			
		

> _The two are inversely equivalent, geometrically. A 50% decline from $100 to $50 requires a 100% gain to get back to $100; and a 100% gain from $100 to $200 requires a 50% decline to get back to $100._


Okay, it's not quite what LT3000 said.
Most models of the stockmarket are at least approximately "geometrically" or "log " symmetrical.  Thus it might assume that on average we expect a 5% rise with the chances of being -100% to +5% being equal to the chances from +5% to +infinity%.  Thus in absolute terms the lower half only spans 105 percentage points whilst the upper half spans an infinity of outcomes.  This wouldn't make sense if we say had the chances of being 50% below 105% the same probability as the chances of being 50% above 105%.  What for example would be the equivalent downside to say  a +500% upside.  The most common way to resolve this is to take logarithms and this in effect means the chances of being 1/x times our expected return of 105 is the same as the chances of being x times it.  (log (1/x) = -log(x)).  taking x = 2 that means the chances of 1/2 are the same as the chances of 2.
Sorry, I'm sure I made a hash of that explanation.  But there is sort of common sense behind it.


----------



## Brendan Burgess

tosullivan said:


> you need to check the resistance levels aswell as these wicks can take you out really quickly.



Sorry, but I have no idea what this means. 

_If _you are talking about the mumbo jumbo of technical analysis resistance levels, then it would have no part in my investment strategy.

Brendan


----------



## joe sod

Duke of Marmalade said:


> Okay, it's not quite what LT3000 said.
> Sorry, I'm sure I made a hash of that explanation.  But there is sort of common sense behind it.


well i dont understand some of the maths but i get the gist of it , a stock can only fall at most by 100% whereas there is no limit on how much it can rise by maybe  many multiples potentially , therefore on balance shorting is dangerous because you only have a 100% to play with on the downside whereas you could have many multiples of 100% theoretically on the upside , therefore potentially you could need an infinite sum of money to protect that short.
It also shows that over time if you are diversified and dont jump in and out you are going to make money in stocks because maybe the couple of stocks that rise by many multiples will more than cancel out the couple of stocks that go to 0%


----------



## Duke of Marmalade

Yep, that explains it better than moi.  The unlimited risk is not really an issue as the _Boss_ has pointed out as you can put in a stop loss, but the asymmetrical nature of the absolute risk does have the other effects you describe.


----------



## tosullivan

Brendan Burgess said:


> Sorry, but I have no idea what this means.
> 
> _If _you are talking about the mumbo jumbo of technical analysis resistance levels, then it would have no part in my investment strategy.
> 
> Brendan


If you're investing then resistance & support levels shouldn't really concern you then


----------



## Colm Fagan

Duke of Marmalade said:


> What he is saying is that if you maintain the same risk exposure but are ultimately proven right your actual profit will be path dependent. With a short, if that path initially goes against you your final profit will be reduced compared to your initial expectation and vice versa for a long position. But if the path follows your judgement the situation is reversed and the long position delivers less than your initial expectation and again vice versa for the short. One up for the short since presumably on balance you believe the path will follow your initial judgement.


Hi Duke.  I've finally got my head around what you're saying.   I agree with you in theory but there are a few practical problems.  One is that maintaining the same exposure implies adding to the short position as the price falls.   That goes against the grain.  Adding to your long position when the price falls (averaging down) is more natural.   At least that's been my experience.   A second practical problem is that there generally isn't a clear end date.   Taking my own experience with Tesla, my original plan was to close my short position when the share price fell below $200, but when it got there, I decided that it would go even lower, and failed to grasp the opportunity.  The rest is history, as they say.


----------



## RichInSpirit

Hi Colm. Was watching this YouTube about Tesla, https://youtu.be/DPp3309BlpA. 
It's probably from a Tesla fan but even if you regard it as rubbish it shows how a lot of their fans and perhaps investors view the company.


----------



## Colm Fagan

Hi @RichInSpirit    You're right on all counts.  Tesla has attained a sort of cult status in some quarters and certain people are prepared to buy the stock regardless of the fundamentals.  That's a genuine concern for people like me, but one has to believe that truth will win out eventually, especially if shareholders are asked to cough up more capital to fund continuing growth (survival?). 

Thanks for the link to the YouTube video.  I haven't had the time to look at it yet, but I was speaking to someone yesterday who mentioned a youtube video which indicated that Tesla was far ahead of the competition in self-driving cars, battery technology, etc.  In answer to that, I refer you to what I wrote earlier in this thread:


Colm Fagan said:


> First of all, I know nothing about cars, so I must rely on statements from the company and from analysts. In relation to Autopilot and Full Self-Driving (FSD), Tesla's Q2 update letter at the end of July reads: "We are making progress towards stopping at stop signs and traffic lights." You can find it [broken link removed]. That doesn't seem like "years ahead" to me. There was no mention in the Q3 update on whether they had made progress in the quarter in stopping at stop signs and traffic lights. The cut in R&D expenditure doesn't augur well. Instead, this quarter they're talking about a gigafactory in Shanghai that's going to do the devil and all, followed by one in Berlin. Two quarters ago, all the talk was of Robotaxis, whereby your Tesla would be driving around by itself all night, ferrying party-goers home from night-clubs so that you could earn money on your car while you slept (but don't worry about cleaning up the sick in the morning). Would you like to work as a senior executive in an organisation like that, where the strategic narrative kept changing?





Colm Fagan said:


> The (FT) article says that Waymo, the Google (Alphabet) subsidiary, has a big lead in this area (i.e. self-driving cars). The article includes a chart showing Waymo with 11,018 miles per manual intervention, followed by GM with 5,205. Some of the big players come nowhere. For example, Apple had 1.15 and Uber had 0.35. Tesla didn't appear anywhere. Someone asked in the comments section of the paper why Tesla wasn't shown and someone else replied that their figure was zero, which seems to tally with the extract from the Q2 2019 investor update quoted above. I don't know how that fits with the video you posted, but I'm more prepared to believe the FT (and even Tesla's own Q2 earnings announcement)!
> There is the additional consideration, mentioned in my article, that Tesla are scrimping on R&D spend. That's never a recipe for world leadership.


----------



## Brendan Burgess

Wall Street is very divided on Tesla 

_Wall Street analysts have a consensus price target of $301.83 on Tesla and 11 "buy" ratings, 10 "hold" ratings, and 15 "sell" ratings, according to Bloomberg data. _

Maybe that is not too surprising given the odd nature of the company.  Losing money but with a great product. 

Brendan


----------



## Colm Fagan

Brendan Burgess said:


> Wall Street is very divided on Tesla


Brendan, methinks you're trying to wind me up!
I saw a piece recently from a Morgan Stanley analyst, Adam Jonas, who arrived at a bull case valuation for Tesla of $500 a share, a price target of $250 and a worst case scenario of $10 a share.  
There's no doubt, analysts are geniuses, worth every cent they're paid!


----------



## Brendan Burgess

Colm

Not at all.  I was just underlying how little they know and how pointless most analysis is.  $10 to $500 ? Well he will be right.

From the little bit of bullish analysis I have read, I have not seen anything other than generalisations about deliveries being ahead of expectations. But none of it is crunched down into profit and cash flow projections.

Brendan


----------



## elacsaplau

Brendan Burgess said:


> Losing money....



Brendan - why do you say that in !relation to current earnings?! [The next reported quarter may be negative but I'd happily wager that it won't be...…….like its predecessor!]


----------



## Fella

Brendan Burgess said:


> Colm
> 
> Not at all.  I was just underlying how little they know and how pointless most analysis is.  $10 to $500 ? Well he will be right.
> 
> From the little bit of bullish analysis I have read, I have not seen anything other than generalisations about deliveries being ahead of expectations. But none of it is crunched down into profit and cash flow projections.
> 
> Brendan



If the analysts know nothnig what hope has your average Joe , people disagree some think its over valued some think its undervalued , so we have short sellers and buyers its a functioning market as I have been saying all along , it should be close enough to par value at any given time on the stock market.
Google algorithms mean that I get lots of tesla stories on my news feed because I googled tesla last month , I try not look at price and I'm half wishing I invested more but  poor Colm.


----------



## Brendan Burgess

Fella said:


> it should be close enough to par value at any given time on the stock market.



Hi Fella

For most shares, the price reflects their intrinsic value.   

But from time to time, a mania grips the market, and a share can be way overvalued.  While I don't have Colm's certainty that it's hugely overvalued, I would be fairly sure that Tesla has lost any connection with its intrinsic value.  When I next have a bit of cash, I will probably short it again. 

Brendan


----------



## Fella

Brendan Burgess said:


> Hi Fella
> 
> For most shares, the price reflects their intrinsic value.
> 
> But from time to time, a mania grips the market, and a share can be way overvalued.  While I don't have Colm's certainty that it's hugely overvalued, I would be fairly sure that Tesla has lost any connection with its intrinsic value.  When I next have a bit of cash, I will probably short it again.
> 
> Brendan



I would agree with you if the stock wasn't so heavily shorted already. There is a lot of negative press about Tesla but reading about the company there is alot of very good things , for me the price does not seem outrageous , I could argue its undervalued as the potential seems huge , i've read some convincing arguments for it both been under and over valued . I am not sure its clear cut either way.


----------



## Colm Fagan

Colm Fagan said:


> In answer to @Andrew365 , my plan at the moment is to ignore price movements - in either direction - between now and when the full year results are published, probably at the end of January. In the meantime, I won't get too excited or depressed by moves in either direction. Massive short-term volatility is par for the course with Tesla.


Yes, I was expecting volatility but this is ridiculous!  Tesla alone caused a loss of close to 5% of my total portfolio in 2019 and more than that in the first two working days of 2020.  Sore, but the losses must be seen in context:  overall portfolio performance in 2019, including the Tesla short, money on deposit, etc. was more than 27%, and I broke even in the first couple of days in  2020 despite the Tesla price rise in the wake of the announcement of strong sales in 2019, thanks mainly to a jump in the Renishaw share price on Thursday (after a fall of around the same amount on the last day of 2019).
Still, there's no escaping the fact that I would be around 10% better off now if I'd closed my Tesla position at the start of 2019.  A poster on another forum quoted a stock market proverb to me:  "Don't short a story stock in a bull market".  Tesla is a story stock and we're in a bull market.  Pity I didn't hear - or take - that advice before I decided to hold on to the short position.
I now face a dilemma.  My exposure to Tesla is so big that another significant price increase could cause serious damage, especially if the rise comes when other shares are falling in value.  At the same time, while I'm not as certain now as I was a few months ago that its "true" value is less than $200 a share, I'm absolutely certain (in my own mind, of course) that it's worth nowhere near its current $440.
So what to do?
I've decided to start implementing the plan I outlined a few weeks ago of closing a portion of my short position at each price rise from here on, so that my (absolute) exposure to the stock remains around its current level.  It's now my third largest exposure, having edged ahead of Apple (in which I have a significant long position), and which also rose strongly in recent weeks, so much so that I got a touch of vertigo (again!) at the Apple share price and decided to reduce my exposure, netting a nice profit for myself.


----------



## Brendan Burgess

Colm Fagan said:


> but the losses must be seen in context: overall portfolio performance in 2019, including the Tesla short, money on deposit, etc. was more than 27%, and I broke even in the first couple of days in 2020 despite the Tesla price rise in the wake of the announcement of strong sales in 2019,



Hi Colm

That is the real point. If Tesla was 1% of your portfolio, you wouldn't worry about it. 

But if it's 20% of your portfolio, you do need to be careful. 

Brendan


----------



## Fella

Colm Fagan said:


> Yes, I was expecting volatility but this is ridiculous!  Tesla alone caused a loss of close to 5% of my total portfolio in 2019 and more than that in the first two working days of 2020.  Sore, but the losses must be seen in context:  overall portfolio performance in 2019, including the Tesla short, money on deposit, etc. was more than 27%, and I broke even in the first couple of days in  2020 despite the Tesla price rise in the wake of the announcement of strong sales in 2019, thanks mainly to a jump in the Renishaw share price on Thursday (after a fall of around the same amount on the last day of 2019).
> Still, there's no escaping the fact that I would be around 10% better off now if I'd closed my Tesla position at the start of 2019.  A poster on another forum quoted a stock market proverb to me:  "Don't short a story stock in a bull market".  Tesla is a story stock and we're in a bull market.  Pity I didn't hear - or take - that advice before I decided to hold on to the short position.
> I now face a dilemma.  My exposure to Tesla is so big that another significant price increase could cause serious damage, especially if the rise comes when other shares are falling in value.  At the same time, while I'm not as certain now as I was a few months ago that its "true" value is less than $200 a share, I'm absolutely certain (in my own mind, of course) that it's worth nowhere near its current $440.
> So what to do?
> I've decided to start implementing the plan I outlined a few weeks ago of closing a portion of my short position at each price rise from here on, so that my (absolute) exposure to the stock remains around its current level.  It's now my third largest exposure, having edged ahead of Apple (in which I have a significant long position), and which also rose strongly in recent weeks, so much so that I got a touch of vertigo (again!) at the Apple share price and decided to reduce my exposure, netting a nice profit for myself.



I admire your posting and your honesty. I genuinely would like to see you do well on Tesla. One thing that I learned the hard way and is that humans are absolutely terrible at making decisions. We can't do it we carry around so much bias with us and we cannot be trusted to make the right financial calls, its why I would always back a computer to outperform a human . When I read that your reducing your exposure to Apple and failing to just close out and admit that Tesla is a loser reminds of certain ex gamblers I used to consult with . Apple could skyrocket now and at the same time so could Tesla , the problem you have with your short on Tesla is its effecting your long positions IMO but you may not see that . If Tesla was a good short at 300 or whatever it was when your shorted it then its an even better short now at 450 . 

I don't mean to be harsh , but you put yourself out there posting in the newspaper the diary of a private investor and a people may follow thinking they are investing when in fact they are no better off that going to a roulette wheel . My diary would not make good reading though " if you want to get market returns just by an index tracker " if you want more risk buy individual stocks but you will get more volatility , if you want to lose your money quickly start spread betting .


----------



## joe sod

Just looking at the disaster over in australia with the bushfires, everyone queuing up at the gas stations to fill up with fuel to get them out of the danger zones. Imagine that scenario with electric cars, firstly the electricity network would go down as happened and even if it didnt, imagine the panic of trying to get onto the charging points to get charged before the fires hit.
I would not like to be depending on electric fire trucks or electric helicopters to douse the fires with water. Somehow I still think we are a very long way from electric technology replacing petroleum.  I can see the 2030 deadline for the sale of petrol and diesel cars being pushed out as it approaches.
People wonder why we are not having the revolutionary changes in energy technology like we had with communications technology, it was relatively easy to make the big leaps there, it is very difficult with energy. It will be very difficult to "move beyond petroleum"



Fella said:


> I would always back a computer to outperform a human



well on appollo 11 the computer was about to crash the moon lander until neil armstrong took over control and landed it manually


----------



## Duke of Marmalade

Colm Fagan said:


> Sore, but the losses must be seen in context:  overall portfolio performance in 2019, including the Tesla short, money on deposit, etc. was more than 27%...


Compared this with my humble ARF which is 100% in Global equities.  It grew 12.7%.  I better start reading your diary


----------



## Colm Fagan

Guys/gals
Thanks for all your comments.  I'm almost a full-time carer at the moment, so it could be a while before I get back to you.


----------



## Alkers86

joe sod said:


> Just looking at the disaster over in australia with the bushfires, everyone queuing up at the gas stations to fill up with fuel to get them out of the danger zones. Imagine that scenario with electric cars, firstly the electricity network would go down as happened and even if it didnt, imagine the panic of trying to get onto the charging points to get charged before the fires hit.


With home charging, you wake up every day with a full "tank" of electricity.


----------



## joe sod

Alkers86 said:


> With home charging, you wake up every day with a full "tank" of electricity.


Have you looked at whats happening in australia, everything goes down in those fires,  the electricity network, the internet, everything. The electric cables are strung across massive distances on poles, therefore very vulnerable to fires. You need to put yourself in that situation where you need to get out fast. The only thing that does that is petroleum


----------



## Colm Fagan

Fella said:


> I don't mean to be harsh , but you put yourself out there posting in the newspaper the diary of a private investor and a people may follow thinking they are investing when in fact they are no better off that going to a roulette wheel .


I definitely see myself as investing, not gambling. I believe that sound investment principles will eventually win the day.  Past returns on my portfolio support that contention, but I recognise that the portfolio’s concentrated nature means that I could get a good result, even over a long period, purely by chance. 

I believe however that the main reason for the good returns is a preparedness to back my judgement to the hilt whenever I’m convinced that a share is seriously mispriced.  For example, I increased my exposure to Phoenix Group Holdings around this time last year, despite it already accounting for more than 30% of my total portfolio.   See the final paragraph of  Diary Update 10 of 7 January 2019.  

The return on Phoenix Group between then and year end was 48%, made up of 31% (price), 8% (dividend), 6% (currency).   Earning 48% on more than 30% of the portfolio helped deliver a full-year return of 27% on the total portfolio – despite the disaster with Tesla.

I’m in trouble when I’m pitted against gamblers rather than investors.  That has been my experience with Tesla over the last few months.  I believe that Tesla is a gamble, pure and simple, that the price is crazy but that it will all come good in the end (from my perspective).  I could be wrong.  I’ve been wrong in the past.  (See the diary updates on my disasters with WPP, Samsonite, AMP.)   Unlike professional fund managers, I’m more than ready to admit to mistakes.  They are great learning experiences.  If Tesla proves to be another learning experience, the lesson I will take from it is to know when I’m in a casino and to make my exit with the least possible pain.


----------



## Fella

Colm Fagan said:


> I definitely see myself as investing, not gambling. I believe that sound investment principles will eventually win the day.  Past returns on my portfolio support that contention, but I recognise that the portfolio’s concentrated nature means that I could get a good result, even over a long period, purely by chance.
> 
> I believe however that the main reason for the good returns is a preparedness to back my judgement to the hilt whenever I’m convinced that a share is seriously mispriced.  For example, I increased my exposure to Phoenix Group Holdings around this time last year, despite it already accounting for more than 30% of my total portfolio.   See the final paragraph of  Diary Update 10 of 7 January 2019.
> 
> The return on Phoenix Group between then and year end was 48%, made up of 31% (price), 8% (dividend), 6% (currency).   Earning 48% on more than 30% of the portfolio helped deliver a full-year return of 27% on the total portfolio – despite the disaster with Tesla.
> 
> I’m in trouble when I’m pitted against gamblers rather than investors.  That has been my experience with Tesla over the last few months.  I believe that Tesla is a gamble, pure and simple, that the price is crazy but that it will all come good in the end (from my perspective).  I could be wrong.  I’ve been wrong in the past.  (See the diary updates on my disasters with WPP, Samsonite, AMP.)   Unlike professional fund managers, I’m more than ready to admit to mistakes.  They are great learning experiences.  If Tesla proves to be another learning experience, the lesson I will take from it is to know when I’m in a casino and to make my exit with the least possible pain.



27% return or 270% return wouldn't make me judge your selections any different , I bought Tesla at ~320 and it got to around 500 but I'd be embarrassed to call that an investment . I am happier with my return matching the market returns as a whole through a portfolio of investment trusts.
It's possible I'm wrong and you have an advantage over the market somehow and you can identify value that others can't, but I find it even hard to type it out that it may be true . It's just something we probably aren't going to ever agree on .


----------



## Colm Fagan

Fella said:


> I am happier with my return matching the market returns as a whole


I don't know why you (and some others on this forum) have such an obsession with "matching the market returns".  For me, investing is something completely different.  It's being part-owner of a small number of businesses and staying with them for the long haul.  I share the joy of their successes and the pain of their failures.  If that's not investing, I don't know what is.

I keep a weather eye on the published market values of the companies in which I've invested.  If the market thinks they're worth more than the value I place on the businesses, I might sell down a portion of my holding.  Similarly, if I think the market is valuing them at less than I think they're worth, I might add to my holding.

It so happens that, over the long-term, this approach has delivered superior returns but, as I've said many times on this forum, that's not the purpose. Personally, I think the good returns relative to the market are mainly because my approach keeps costs to a minimum, so all other things being equal (true if the market is efficient, which I think is your contention), I'm likely to do better than if I had put my money (I hesitate to use the word "invested") in a collective vehicle where there's a wide range of charges, some of them transparent, but lots hidden.    Being familiar with the companies in which I've invested, having been with some of them for more than 10 years, also helps returns, because I have a good idea when they're being overvalued and when they're being undervalued by the market.


----------



## Andrew365

Tesla just topped $500


----------



## Fella

Andrew365 said:


> Tesla just topped $500





Colm Fagan said:


> I don't know why you (and some others on this forum) have such an obsession with "matching the market returns".  For me, investing is something completely different.  It's being part-owner of a small number of businesses and staying with them for the long haul.  I share the joy of their successes and the pain of their failures.  If that's not investing, I don't know what is.
> 
> I keep a weather eye on the published market values of the companies in which I've invested.  If the market thinks they're worth more than the value I place on the businesses, I might sell down a portion of my holding.  Similarly, if I think the market is valuing them at less than I think they're worth, I might add to my holding.
> 
> It so happens that, over the long-term, this approach has delivered superior returns but, as I've said many times on this forum, that's not the purpose. Personally, I think the good returns relative to the market are mainly because my approach keeps costs to a minimum, so all other things being equal (true if the market is efficient, which I think is your contention), I'm likely to do better than if I had put my money (I hesitate to use the word "invested") in a collective vehicle where there's a wide range of charges, some of them transparent, but lots hidden.    Being familiar with the companies in which I've invested, having been with some of them for more than 10 years, also helps returns, because I have a good idea when they're being overvalued and when they're being undervalued by the market.



We got a little off topic my fault for talking about market returns I'm not that interested about market returns , I've said plenty of times there is nothing wrong would investing in a few companies for more risk , that's investing . 
The thread on perils of shorting if you read back my posts I'm clearly saying - shorting is gambling pure and simple you have no clue what way Telsa will move short term and it's akin to going to the roulette table , this is been Bourne out not with Tesla at 516 or so at last check , I've no problem with investment articles on pheonix holdings or whatever it is , but any article on shorting under the heading of investing is crazy.


----------



## Brendan Burgess

Fella said:


> shorting is gambling pure and simple you have no clue what way Telsa will move short term and it's akin to going to the roulette table ,



Hi Fella

Gambling is doing something with an expected negative return.
Investing is doing something with an expected positive return.

Buying a portfolio of shares for the longer term is investing.
Playing roulette  is gambling.

The vast majority of shorting is gambling. 

But by shorting Tesla, Colm was not gambling.   He started out with a positive EV.   He was not doing it for the short term.  Tesla was clearly overpriced. Unfortunately for Colm, it is even more overpriced now.  The fact that an investment turns sour does not mean that it was not an investment.

His exposure is part of a balanced portfolio.  Some of his investments will pay off. Some will go bad. But they are all investments.

The fact that a roulette player wins, does not mean that it was investing. 

Brendan


----------



## Brendan Burgess

I think it's time to short Tesla again, but I am not sure how to manage my exposure. 

Say I want to invest $1,000. 

I could sell  20 shares at $ 500 each. If they rise by 100% which they might do, I will lose my $1,000.  If the share price falls to $200, I will earn $600.

Or I could sell 40 shares at $500 each, but if they rise by 50% , I will lose my $1,000.  If the share price falls to $200 I will earn $1,200 

I am not sure which to do.

I am facing a similar issue with Bitcoin at the moment. You can back it at 12/1 to being below $1,000 at the end of 2020. 




__





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Bitcoin will fall to zero at some stage. I am astonished it has not done so by now.  So if I bet $1,000 now for the end of the year, I might well lose it.  But if  I lose it, I will probably get good odds again this time next year.  

Maybe place a small bet on Tesla which I can afford to lose completely. And if I do lose it, put on another similar bet. 

If someone offered me 11/10 on a coin toss, I would not place my entire wealth on it despite having a positive EV. 

But if I knew that the bookie would remain open, I would happily wager a series of €1,000 bets. 

I am in the money on Bitcoin already, having shorted it at $14,300 two years ago. 

I had to cash my Tesla position to pay my income tax in November.  I was very lucky that I did, as I would be down now. 

Some poker players take their initial stake off the table and play just with their winnings. But I never agreed with this strategy in poker, so I don't see why it should apply to investing either. 

Brendan


----------



## Fella

Brendan Burgess said:


> Hi Fella
> 
> Gambling is doing something with an expected negative return.
> Investing is doing something with an expected positive return.
> 
> Buying a portfolio of shares for the longer term is investing.
> Playing roulette  is gambling.
> 
> The vast majority of shorting is gambling.
> 
> But by shorting Tesla, Colm was not gambling.   He started out with a positive EV.   He was not doing it for the short term.  Tesla was clearly overpriced. Unfortunately for Colm, it is even more overpriced now.  The fact that an investment turns sour does not mean that it was not an investment.
> 
> His exposure is part of a balanced portfolio.  Some of his investments will pay off. Some will go bad. But they are all investments.
> 
> The fact that a roulette player wins, does not mean that it was investing.
> 
> Brendan



He started out with a negative EV , it is wrong to say shorting has a positive EV. 

How is or was Tesla clearly overpriced ? 
Because you and Colm decided you know better than the market as a whole ? You have no clue what price Tesla should be , either have I or either has Colm . There is nothing clear about it , the company has divided opinion more than any other , it is heavily shorted and every article you will read will contradict the next and some advisors saying it is over priced and some saying it could hit xxxx price .

Shorting is 100% gambling it is not investing , investing has a positive expected return as stocks trend upwards over time therefore shorting has a negative expected return and is gambling .


----------



## Brendan Burgess

Fella

I would have agreed with you 100% before the dot.com bubble.

But that taught me that there are rare opportunities where the market price bears no relationship to the underlying value.

If I felt that CRH were overvalued by 20% , I would not short it. that is not a sufficient margin.

But AIB a few years ago was completely out of kilter. I wrote about it at the time. Unfortunately it was not possible to short. Despite the share prices showing that a loss making AIB was worth more than a combination of profitable UK banks and despite warnings from the AIB Chief Executive and the Minister for Finance, this overpricing persisted for a few years.

Bitcoin and Tesla are so out of kilter with their fundamental value, that shorting them has a positive EV.
(Discussion of Bitcoin in this thread)

Brendan


----------



## Colm Fagan

Fella
I presume you don't have any objections to what I wrote earlier today:  


Colm Fagan said:


> I keep a weather eye on the published market values of the companies in which I've invested. If the market thinks they're worth more than the value I place on the businesses, I might sell down a portion of my holding. Similarly, if I think the market is valuing them at less than I think they're worth, I might add to my holding.


It's not a big step from there to selling a stock I think is grossly overvalued, but which I don't already own.  I agree that the dynamics are very different (the nature of those differences is a big learning experience for me at the moment), but the fundamentals are much the same.  It reminds me of when I was in primary school.  First we were told  "2, take away 2 leaves  zero.  Zero, take away 2 can't be done".  In a higher class we were told that you could actually take 2 away from zero, result minus 2.


----------



## Brendan Burgess

Colm Fagan said:


> First we were told "2, take away 2 leaves zero. Zero, take away 2 can't be done".



Hi Colm

I bet you challenged that at the time?

And, of course, you were proved right eventually.  

Brendan


----------



## Fella

Colm Fagan said:


> Fella
> I presume you don't have any objections to what I wrote earlier today:
> 
> It's not a big step from there to selling a stock I think is grossly overvalued, but which I don't already own.  I agree that the dynamics are very different (the nature of those differences is a big learning experience for me at the moment), but the fundamentals are much the same.  It reminds me of when I was in primary school.  First we were told  "2, take away 2 leaves  zero.  Zero, take away 2 can't be done".  In a higher class we were told that you could actually take 2 away from zero, result minus 2.



What I honestly think is, if the market thinks a company is worth more than you do the market is more than likely right and you are wrong The outcome of your actions is down to chance. I think individual cases can go either way but ultimately the market will be better at predicting the value of all the companies you own and have spent a lifetime reading about than you are. This is very hard for people to accept.


----------



## Fella

There is absolutely nothing wrong with gambling , I gamble all the time , but I don't fool myself that I am investing. Shorting is grown up gambling for people that have an false belief they have an advantage , we carry so many bias around its very easy to fool ourselves that we have an advantage when we don't. Shorting and investing should never be under the same heading .


----------



## Andrew365

Brendan Burgess said:


> Hi Fella
> 
> Gambling is doing something with an expected negative return.
> Investing is doing something with an expected positive return.
> 
> Buying a portfolio of shares for the longer term is investing.
> Playing roulette  is gambling.
> 
> The vast majority of shorting is gambling.
> 
> But by shorting Tesla, Colm was not gambling.   He started out with a positive EV.   He was not doing it for the short term.  Tesla was clearly overpriced. Unfortunately for Colm, it is even more overpriced now.  The fact that an investment turns sour does not mean that it was not an investment.
> 
> His exposure is part of a balanced portfolio.  Some of his investments will pay off. Some will go bad. But they are all investments.
> 
> The fact that a roulette player wins, does not mean that it was investing.
> 
> Brendan



Can I just ask what is your supporting material for it being overpriced?


----------



## Andrew365

Brendan in a separate thread you stated that a well diversified equity portfolio has less risk than holding cash and over the long run it will return value. Yet here you are saying Tesla is going to decrease? I haven't seen you provide any analysis other than anecdotally comparing Tesla to AIB. 

If on one hand you believe overtime Equities only go up, you must have some strong insight to go against that in the case of Tesla. 

I hope you wouldn't short 20 shares or you would be on the hook to deliver those 20 shares which would cost you 20k plus funding costs. 

Tomorrow Elon Musk could die and Tesla share price could tumble and your short would work out, but would you say you were right or you just got lucky?


----------



## Brendan Burgess

Andrew365 said:


> Can I just ask what is your supporting material for it being overpriced?



Hi Andrew 

All the bulls are talking about the wonderful technology, but they never convert that into earnings forecasts. 

The bears crunch the numbers. Or, in fact, it is the other way around. Anyone who crunches the numbers becomes a bear. At the end of the day, a company must be valued based on its profits and cash-flow.  It's possible, maybe even likely, that Tesla will become consistently profitable at some stage in the future.  But it will not justify a valuation in excess of Ford and General Motors combined. 

Brendan


----------



## Brendan Burgess

Andrew365 said:


> I hope you wouldn't short 20 shares



I have bought many shares over the years. 

I have only shorted three - including Bitcoin.  I tried a fourth but there was no market. 

These opportunities of overpricing driven by mania come along very rarely. I doubt I would short 20 shares over my life. 

Brendan


----------



## RedOnion

Andrew365 said:


> Brendan in a separate thread you stated that a well diversified equity portfolio has less risk than holding cash and over the long run it will return value. Yet here you are saying Tesla is going to decrease?


Come on Andrew, you're an intelligent guy.
There's a huge difference between a buy & hold strategy long term on a well diversified portfolio, versus share picking, whether long or short positions, with a shorter term view. The risk is at the other end of the scale.
You're comparing this to a conversation about a 20+ year horizon.


----------



## Andrew365

Brendan Burgess said:


> Hi Andrew
> 
> All the bulls are talking about the wonderful technology, but they never convert that into earnings forecasts.
> 
> The bears crunch the numbers. Or, in fact, it is the other way around. Anyone who crunches the numbers becomes a bear. At the end of the day, a company must be valued based on its profits and cash-flow.  It's possible, maybe even likely, that Tesla will become consistently profitable at some stage in the future.  But it will not justify a valuation in excess of Ford and General Motors combined.
> 
> Brendan



Again Brendan, this is speculation, where is your evidence? The last statement suggest you have doubt in your prophecy.


----------



## Andrew365

RedOnion said:


> Come on Andrew, you're an intelligent guy.
> There's a huge difference between a buy & hold strategy long term on a well diversified portfolio, versus share picking, whether long or short positions, with a shorter term view. The risk is at the other end of the scale.
> You're comparing this to a conversation about a 20+ year horizon.



My point was, Tesla would likely be part of a well diversified strategy. However, on a standalone basis the opinion is it can only decrease in value, in my opinion Brendan is mixing concepts to support his views with no evidence to support.


----------



## Andrew365

Brendan Burgess said:


> I have bought many shares over the years.
> 
> I have only shorted three - including Bitcoin.  I tried a fourth but there was no market.
> 
> These opportunities of overpricing driven by mania come along very rarely. I doubt I would short 20 shares over my life.
> 
> Brendan



You quoted 20 shares, you realize you would have to borrow the shares and sell them at the market price today? You hope the price decreases so that you can buy them back at a cheaper price and give them back to the person you borrowed from. Your potential losses are uncapped, if you didn't close out before the shares hit 1k, you would hten have to buy the shares at market price (20* 1lk = 20k), you sold them for 10k initially resulting in a loss of 10k plus your daily funding fee. 

In my opinion based on your comments you are 100% speculating based on not understanding why the valuation is greater than Ford Motors. Shorting at the best of times is very risky, and general left to large investors with an agenda i.e. they are doing other things to move the share price down. 

Tesla is shorted quite a bit by investors, so you are not alone in doing it, but I summarize that they know more than you and if your short was successful it would be nothing more than luck. Case in point, over the last 3 months Tesla has increased 67%, your short would have lost you significant money.

I agree with Fella, in this case your use of Shorting is nothing more than gambling.


----------



## NoRegretsCoyote

Anglo was successfully shorted in 2008 because some traders presumably had information about deteriorating asset quality in the loan book.

Shorting is for investors with deep pockets and some level of information about a firm's business model or performance that is not in the public domain.

I don't think @Brendan Burgess has this information, nor is he claiming he has.


----------



## Sunny

NoRegretsCoyote said:


> Anglo was successfully shorted in 2008 because some traders presumably had information about deteriorating asset quality in the loan book.
> 
> Shorting is for investors with deep pockets and some level of information about a firm's business model or performance that is not in the public domain.
> 
> I don't think @Brendan Burgess has this information, nor is he claiming he has.



Anglo was successfully shorted because of Sean Quinn and his use of CFD's to build up a nearly 25% position in the bank. Once the share price started to fall, Quinn basically opened to door to hedge funds to test his ability to fund margin calls. And the hedge funds were correct. The fact that Anglo itself was a complete basket case was an added bonus to them.

I think at this stage, Colm must be ready to admit defeat with Tesla or at least I hope he is. I actually agree with his overall view on the company but I was talking to someone recently who knows this company well and he couldn't decide if the share price was going to double or if we were looking at another Enron where the share price would go to zero overnight. His view was fundamentals were improving but there was so much scepticism on the Street among analysts that was it was very difficult to make a call. And to be honest, if he was unsure, I wouldn't like to make a call one way or another either. Certainly not in the next 6-12 months. 

The problem with shorting a stock is that you are usually taking a contrarian view to the market and although you might be right, it is very difficult to go against the masses. They can afford to be wrong for a lot longer than you will be able to afford to be right when you are funding margin calls. We are also in a very strong bull market at the moment so picking a stock to fall in a market like this is very difficult.


----------



## Andrew365

Sunny said:


> Anglo was successfully shorted because of Sean Quinn and his use of CFD's to build up a nearly 25% position in the bank. Once the share price started to fall, Quinn basically opened to door to hedge funds to test his ability to fund margin calls. And the hedge funds were correct. The fact that Anglo itself was a complete basket case was an added bonus to them.
> 
> I think at this stage, Colm must be ready to admit defeat with Tesla or at least I hope he is. I actually agree with his overall view on the company but I was talking to someone recently who knows this company well and he couldn't decide if the share price was going to double or if we were looking at another Enron where the share price would go to zero overnight. His view was fundamentals were improving but there was so much scepticism on the Street among analysts that was it was very difficult to make a call. And to be honest, if he was unsure, I wouldn't like to make a call one way or another either. Certainly not in the next 6-12 months.
> 
> The problem with shorting a stock is that you are usually taking a contrarian view to the market and although you might be right, it is very difficult to go against the masses. They can afford to be wrong for a lot longer than you will be able to afford to be right when you are funding margin calls. We are also in a very strong bull market at the moment so picking a stock to fall in a market like this is very difficult.



Did Enron in part not collapse because they were able to get accrual counting treatment for their mark to market positions essentially hiding masses of losses? 

"The market can remain irrational longer than you can remain solvent". It is just baffling that Brendan who appears to be risk averse is considering such a risky position, based on a comparison to AIB and Ford. 

I do not know Tesla in detail, but they have at least forced every other car manufacturer to switch to electric. Tesla has challenged the incumbents and Elon is clearly a clever guy, albeit a bit irrational. I did have a friend working in Tesla in California and the usual issues arise from a company that is going through rapid growth.


----------



## Sunny

Andrew365 said:


> Did Enron in part not collapse because they were able to get accrual counting treatment for their mark to market positions essentially hiding masses of losses?
> 
> "The market can remain irrational longer than you can remain solvent". It is just baffling that Brendan who appears to be risk averse is considering such a risky position, based on a comparison to AIB and Ford.
> 
> I do not know Tesla in detail, but they have at least forced every other car manufacturer to switch to electric. Tesla has challenged the incumbents and Elon is clearly a clever guy, albeit a bit irrational. I did have a friend working in Tesla in California and the usual issues arise from a company that is going through rapid growth.



Yes that is what brought Enron down. Not saying the same as Tesla but would I be surprised if there were a few hidden bodies???? Eh......


----------



## NoRegretsCoyote

Sunny said:


> Anglo was successfully shorted because of Sean Quinn and his use of CFD's to build up a nearly 25% position in the bank. Once the share price started to fall, Quinn basically opened to door to hedge funds to test his ability to fund margin calls. And the hedge funds were correct. The fact that Anglo itself was a complete basket case was an added bonus to them.



And if Anglo hadn't been a complete basket case how do you think the hedge funds would have done?


The Quinn CFD story was just a sidenote. The real story was the awful state of its loanbook, not trading on the secondary market for its shares.


----------



## galway_blow_in

im not near smart enough to ever even consider shorting anything for longer than a few days , only ever had one short position in my life ,i shorted VW in 2015 but that was only from 110 down to below a hundred, was in and out from one end of the week to the other

tesla seems like a peculiar company to short , the amount of hope and optimism surrounding that company is pretty large, lots of companies make electric cars but TESLA does something special even mechanically they are not that much better , the brand is pretty unique and brand strength is an important component of success.


----------



## Sunny

NoRegretsCoyote said:


> And if Anglo hadn't been a complete basket case how do you think the hedge funds would have done?
> 
> 
> The Quinn CFD story was just a sidenote. The real story was the awful state of its loanbook, not trading on the secondary market for its shares.



Hedge funds would have done just fine because they knew who they were facing against on the market. They weren't betting on Anglo failing. They were betting the share price falling enough to force Quinn to unwind his position. Quinn built up a 25% stake through leveraged CFD's. Everyone on the market knew this stake was there and was being built on (except for Anglo executives apparently). Once the financial crisis hit and people started looking at Irish Banks, hedge funds immediately focused on Anglo Irish Bank because they knew that Quinn with such a large leveraged stake would be crippled by margin calls if the stock fell or he would have to unwind the position which would have led to a huge amount of Anglo Stock hitting the market and seeing the stock fall. So even before the market was aware of the magnitude of the actual problems in Ireland, hedge funds had decided to take on Quinn because he was vulnerable. And because the stake was so large, this made Anglo vulnerable hence their ridiculous decision to lend to Quinn to make margin calls and find buyers for some of the stake. 

Quinn's CFD's didn't cause the liquidation of Anglo Irish Bank but it brought the bank to the attention of some very smart people who understood what Quinn was doing and took him on by shorting the stock to test his resolve. Quinn of course just continued to believe the share price would rise and that the short sellers could be beaten. To be fair, even the regulator and Government fell for the line that short sellers were to blame. They because an easy target rather than looking at the real reason until it was too late. 

Anyway, that is OT and has nothing really to do with Telsa who are a like a shiny new toy in an industry that is facing significant change in the years to come. Personally I don't think they are going the last the pace like many of those lovely internet companies that set up when the internet took off and I agree with everything Colm has said. But I also wouldn't short it. It could just as easily hit the sun at $1000 before burning up at which stage, I would be long gone!


----------



## Brendan Burgess

Sunny said:


> They can afford to be wrong for a lot longer than you will be able to afford to be right when you are funding margin calls.



This is a key point.

Although I know that Bitcoin will fall to zero, I can't predict its path. So I would only ever put around 1% of my portfolio at risk. 

Likewise with Tesla.  I would not be treating it as equal to a part of my portfolio. 

So if I sell it at $500 I will set aside enough money for it to rise to $750 or $1,000 and then bow out if it hits that amount.  

Brendan


----------



## Andrew365

Sunny said:


> Yes that is what brought Enron down. Not saying the same as Tesla but would I be surprised if there were a few hidden bodies???? Eh......



A few hidden in the trunks! What has interested me is that analysts were valuing the company on their ability to meet production targets. Musk had claimed he would have a fully automated production line that could meet the necessary targets. As I understand it was not the case, and in the end even the software developers were detailing the cars. 

It is a sign of the time that we should not rely on traditional valuation metrics to understand the true value of the company. Look at Twitter or Netflix for example, in the early years analysts look at the number of new users etc. Many new companies are loss making, for example of the IPOs last year to sample UBER and Peloton, both are loss making and Uber even said they may never be profitable. However, Uber and Peloton are both disruptors and have offered a top notch product that as an active user of both, I can't see the companies not existing simply because they aren't profitable.


----------



## Brendan Burgess

Andrew365 said:


> Uber even said they may never be profitable. However, Uber and Peloton are both disruptors and have offered a top notch product that as an active user of both, I can't see the companies not existing simply because they aren't profitable.



You are quite right! 

This time it is different. 

Profits and cash flow are so 20th Century.  

Uber provides a great service. It may never be profitable. But so what? 

Brendan

p.s.  How do I put in an irony smiley just in case it goes over people's heads?


----------



## Andrew365

Brendan Burgess said:


> You are quite right!
> 
> This time it is different.
> 
> Profits and cash flow are so 20th Century.
> 
> Uber provides a great service. It may never be profitable. But so what?
> 
> Brendan
> 
> p.s.  How do I put in an irony smiley just in case it goes over people's heads?



Brendan we need to work on opening your mind a little, your examples always tie back to the financial crisis or things that have happened. Ireland is still somewhat behind some global trends, I was lucky enough to live in a city Uber first launched and saw it constantly evolve and develop their product. Uber as an example has over 100 million users a month taking at least one trip, that is the equivalent of 20 x Irelands population, but sure they aren't profitable so they are going to fail, everyone short it. 

p.s. How do I put in an irony smiley just in case it goes over people's heads?

P.p.s my view is that companies should not last forever, they should constantly innovate to the point they aren't needed. There should not be 100 year old incumbents.


----------



## Sunny

Andrew365 said:


> Brendan we need to work on opening your mind a little, your examples always tie back to the financial crisis or things that have happened. Ireland is still somewhat behind some global trends, I was lucky enough to live in a city Uber first launched and saw it constantly evolve and develop their product. Uber as an example has over 100 million users a month taking at least one trip, that is the equivalent of 20 x Irelands population, but sure they aren't profitable so they are going to fail, everyone short it.
> 
> p.s. How do I put in an irony smiley just in case it goes over people's heads?
> 
> P.p.s my view is that companies should not last forever, they should constantly innovate to the point they aren't needed. There should not be 100 year old incumbents.



Plenty of people are shorting it. I think Uber was one of the most popular and lucrative short trades last year. No company can be loss making forever. It doesn't matter how many people use the service. Shareholders demand return. If you are not generating returns for shareholders in the long term then forget about it. Uber are being given time to work out how to make money out of their offering but to be honest I can't see it. They are facing some pretty stuff headwinds with driver terms and conditions, security, regulatory concerns, climate change etc. The IPO was very disappointing. I give it 2 years and 4 months!


----------



## Brendan Burgess

OK, so I have shorted Tesla at $536.   

I have set myself a stop at $1000.  In other words, if it doubles in price, I will close my position at a loss. My exposure is in the order of 1% of my portfolio.  

I have set myself a limit of $200. In other words, I will close my position if it falls to $200. 

What I find interesting is that IG prices go up and down even though the market is actually closed. 

Andrew, your post about Uber really explains to me how such manias develop. People lose all sense of logic and reason in the face of a useful product.   I must look into shorting Uber.  It's the dot.com bubble all over again. But this time it's easier to short it.

Brendan


----------



## RedOnion

Brendan Burgess said:


> What I find interesting is that IG prices go up and down even though the market is actually closed.


There's nearly always trading going on.
Nasdaq Pre-Market (4:00-9:30 a.m. ET) and the After Hours Market (4:00-8:00 p.m. ET).


----------



## Brendan Burgess

Ah, ok. I thought that was unofficial, but they must be using those prices. 
Brendan


----------



## Andrew365

Brendan Burgess said:


> OK, so I have shorted Tesla at $536.
> 
> I have set myself a stop at $1000.  In other words, if it doubles in price, I will close my position at a loss. My exposure is in the order of 1% of my portfolio.
> 
> I have set myself a limit of $200. In other words, I will close my position if it falls to $200.
> 
> What I find interesting is that IG prices go up and down even though the market is actually closed.
> 
> Andrew, your post about Uber really explains to me how such manias develop. People lose all sense of logic and reason in the face of a useful product.   I must look into shorting Uber.  It's the dot.com bubble all over again. But this time it's easier to short it.
> 
> Brendan



Brendan, I hope your punt pays off. 

I notice that you have not been able to state what specifically in Tesla's financials indicates to you that the shareprice will decline, that let you to decide to short. Also you have not indicated a timeline for this investment? With the vagueness provided this allows you to be always right if the share price actually declines, for example if Musk announces tomorrow that he has built a rocket to send him to Mars next month and the shareprice falls would you claim a victory? What I am saying, is if the shareprice falls for whatever reason you will claim a victory but if the share price increases, it is a mania and the market is wrong? 

In terms of the floor you have set indicates a 63% price decrease. I want to highlight that is a shock of -63%, this is over double what the Federal Reserve stress Equities under a Severely Adverse (Worse than 2008 Financial Crisis) in stress testing. That shock of 30% can be thought of as a 6 month move in Equity prices. The 63%, I have not done analysis but I would suggest that is 1-2 year move, implying you are going to keep the position open for 2 years. Can you clarify how long you think it will take Tesla to go to $200? 

There are two options for a move to $200 / -63%
1. There is a market wide decrease in Equities + Idiosyncratic under performance by Tesla. This would still require a significant decrease in the wider Equity market. If this is your belief then hedge your equity portfolio. 
2. This decrease is a purely idiosyncratic event contained to Tesla only and no market contagion. In the case of an event causing a 63% decrease in share price, it is probably going to go to 0. 

In summary you might as well set the level to $0 or actually set it to a level that is actually achievable from general price corrections.


----------



## Fella

This is a rare opportunity to short Tesla , there's a lad in a casino somewhere who is jumping all over red because there's been 5 blacks in a row . You's both are as dillusional as each other


----------



## Andrew365

Fella said:


> This is a rare opportunity to short Tesla , there's a lad in a casino somewhere who is jumping all over red because there's been 5 blacks in a row . You's both are as dillusional as each other



Referring to me? I would not short Tesla, but there are plenty of large investors shorting it for what I am sure is there own well researched reasons and they have hedged accordingly, and have exact profit targets. 

I think Brendan's rational for shorting is nothing more than a gamble. Hence why he has set floors at $200 and $1000 randomly.


----------



## Sunny

Andrew365 said:


> Brendan, I hope your punt pays off.
> 
> I notice that you have not been able to state what specifically in Tesla's financials indicates to you that the shareprice will decline, that let you to decide to short. Also you have not indicated a timeline for this investment? With the vagueness provided this allows you to be always right if the share price actually declines, for example if Musk announces tomorrow that he has built a rocket to send him to Mars next month and the shareprice falls would you claim a victory? What I am saying, is if the shareprice falls for whatever reason you will claim a victory but if the share price increases, it is a mania and the market is wrong?
> 
> In terms of the floor you have set indicates a 63% price decrease. I want to highlight that is a shock of -63%, this is over double what the Federal Reserve stress Equities under a Severely Adverse (Worse than 2008 Financial Crisis) in stress testing. That shock of 30% can be thought of as a 6 month move in Equity prices. The 63%, I have not done analysis but I would suggest that is 1-2 year move, implying you are going to keep the position open for 2 years. Can you clarify how long you think it will take Tesla to go to $200?
> 
> There are two options for a move to $200 / -63%
> 1. There is a market wide decrease in Equities + Idiosyncratic under performance by Tesla. This would still require a significant decrease in the wider Equity market. If this is your belief then hedge your equity portfolio.
> 2. This decrease is a purely idiosyncratic event contained to Tesla only and no market contagion. In the case of an event causing a 63% decrease in share price, it is probably going to go to 0.
> 
> In summary you might as well set the level to $0 or actually set it to a level that is actually achievable from general price corrections.



I have not looked into Tesla share price in any detail but the 12 month low is 178.97 and the 12 month high is 537.32. That doesn't make Brendan's floor look stupid. You mention the FED stress test but that test is based on the market, not an individual share. Ask the fed what their stress test would be for a bank holding a huge position in a single share and ask them if a 63% price decrease is ludicrous.....


----------



## Fella

Andrew365 said:


> Referring to me? I would not short Tesla, but there are plenty of large investors shorting it for what I am sure is there own well researched reasons and they have hedged accordingly, and have exact profit targets.
> 
> I think Brendan's rational for shorting is nothing more than a gamble. Hence why he has set floors at $200 and $1000 randomly.



I was referring to Brendan


----------



## Andrew365

Sunny said:


> I have not looked into Tesla share price in any detail but the 12 month low is 178.97 and the 12 month high is 537.32. That doesn't make Brendan's floor look stupid. You mention the FED stress test but that test is based on the market, not an individual share. Ask the fed what their stress test would be for a bank holding a huge position in a single share and ask them if a 63% price decrease is ludicrous.....



I built a model for an idiosyncratic stock event based on a large holding and 63% was not the number .

Tesla has been range bound between ~250 to ~400 through 2017 to mid 2019. It then dropped to a low of 187 and has rebounded to 500. The market has also gone up 30% in that time, so roughly Tesla has outperformed the market by 30%. In order to fall back to 200 it would be viable that the entire market also falls 30%. I did indicate a 67% would be a 1-2 year move.

I really need Brendan to comment on his timeline and whether he thinks the move to back to 200 is a Tesla specific event and the rest of the market remains flat. In that case I standby that for a 67% move on Tesla only the issue would be significant enough that the company is likely done.


Sunny, 

As an afterthought, my point 1 in the post was meant to indicate that a 63% move is valid given a wider market decrease plus the idiosyncratic move of Tesla. However, the point I was trying to stress is that Brendan is shorting Tesla as an isolated idiosyncratic move of 67%, that is what I don't believe valid without the company probably going bust.


----------



## NoRegretsCoyote

Andrew365 said:


> *I really need Brendan to comment on his timeline* and whether he thinks the move to back to 200 is a Tesla specific event and the rest of the market remains flat. In that case I standby that for a 67% move on Tesla only the issue would be significant enough that the company is likely done.



Exactly. Brendan is not making a falsifiable claim if he's not giving a timeline.

Ultimately the value of every security will fall to zero so if you're not giving a timeline you are not saying anything meaningful.


----------



## Brendan Burgess

Folks

I cannot provide a timeline as I cannot predict the madness of crowds. 

In my opinion, Tesla is way overvalued.  I fully accept that it could still double in value.  I am prepared to lose 100% of 1% of my portfolio, which is why I put that at risk. 

I have no illusion that I might lose all this money. 

It's quite possible that I might have to close my position and then the Tesla share price subsequently collapses. 

  In my opinion the price is driven by mania.  Look at the earlier comment here to show how some people can completely lose touch with reality. 



Andrew365 said:


> Uber and Peloton are both disruptors and have offered a top notch product that as an active user of both, I can't see the companies not existing simply because they aren't profitable.



So people who think that profits don't matter are pushing up the price of Tesla because of the hype and those who have looked at the numbers are shorting it. 

I think that the odds are in my favour but that is all.

It is not like Bitcoin which is worth zero and will eventually be priced at zero.  But it's like Bitcoin in that it is driven by mania, and by any analysis.

And there is an element of luck in it. I considered it way overvalued at the start of November but I had to close out my position as I need the cash to pay my tax bill.  I was steeped.  I decided to short it about 10 days ago, but as I was on holidays for a week, I decided to wait until I came back so I would not be checking the price all the time. Again I was steeped. 

If Tesla falls to $200, I will not be claiming some extraordinary insight.  

It is a small part of a diversified portfolio of shares. That is all it is.


----------



## Sunny

I don't know enough about Tesla one way or another and I don't have up to date figures. Quick google is showing a
historic implied volatility of between 40-60% and is climbing again this month. I applaud anyone brave enough to make a call one way or another. Like I said previously, I would be very wary of shorting a stock in this market though.


----------



## Brendan Burgess

NoRegretsCoyote said:


> Ultimately the value of every security will fall to zero



Where are you getting this from?


----------



## Sunny

NoRegretsCoyote said:


> Ultimately the value of every security will fall to zero so if you're not giving a timeline you are not saying anything meaningful.



How do you figure that?


----------



## Sunny

Brendan Burgess said:


> Where are you getting this from?



I am hoping we are going to hear something that will lead to a Nobel Prize because this could change everything....


----------



## NoRegretsCoyote

@Sunny @Brendan Burgess 

Political entities collapse and firms eventually go out of business if you take a very long view.

As Brendan is not putting a timeline on his predictions, I presume he is taking a very long view


----------



## Andrew365

Brendan Burgess said:


> In my opinion the price is driven by mania.  Look at the earlier comment here to show how some people can completely lose touch with reality.
> 
> 
> 
> So people who think that profits don't matter are pushing up the price of Tesla because of the hype and those who have looked at the numbers are shorting it.



Brendan you have taken my comment out of context, which is ok if you need to do that to support your gamble. 

I am not an investor in Peloton, Uber or Tesla, but I am an active user of Peloton and Uber. My view is the valuation of companies is changing, this is proven by UBER who have 100 million users a month but have yet to make a profit. These are high growth companies that are not going to be profitable for a period of time, but just because they are not currently profitable does not mean they are going to fail. You also have to remember the largest shareholders in these companies have already likely made multiples on their initial investment, so maintaining not being profitable can run longer. 

I am actually just really surprised that you are so certain but have yet to provide one shred of evidence to support your rational.

The first rule of investing is don't invest in what you don't understand. You have taken a gamble and I think you should call it that. Or by all means share your analysis and maybe we will agree. 

Note, I have never said what way Tesla is going to go, but if I was in your position I would be setting my profit taking much closer to 25%.


----------



## Brendan Burgess

Andrew365 said:


> It is a sign of the time that we should not rely on traditional valuation metrics to understand the true value of the company. Look at Twitter or Netflix for example, in the early years analysts look at the number of new users etc. Many new companies are loss making, for example of the IPOs last year to sample UBER and Peloton, both are loss making and Uber even said they may never be profitable. However, Uber and Peloton are both disruptors and have offered a top notch product that as an active user of both, I can't see the companies not existing simply because they aren't profitable.



How can I say that I took your comments out of context? 

You have clearly said that "I can't see the companies not existing simply because they aren't profitable" 

Maybe you meant something else, but this is what you said. 

Look lads 

We had these exact same  conversations during the dot.com bubble.  People were buying shares in any company that added .com to their name.  When those of us using traditional valuation metrics of profitability and cash flow pointed out that this was irrational, we were told that we were old fashioned.

A share price must reflect the company's future profitability and cash-flow or its break-up value. 

No wonder how useful Uber is if it never makes a profit, it will close eventually.  

Brendan


----------



## NoRegretsCoyote

Uber has a large user base. The last time I checked it makes a loss of about $1 per ride.

To me this doesn't seem unreasonable in the context of building market share. Once established and a mature brand that people trust, there is plenty of scope for increasing prices.

Also, when mature it won't invest as much in R&D.


----------



## Sunny

Everything said here was said during the dotcom bubble. Everything. Markets don't change. Bubbles happen. Bubbles get forgotten. Bubbles happen again. 

By the way, property prices in Bulgaria are currently yielding over 10%...…...


----------



## Andrew365

Amazon.com is doing ok.......


----------



## Duke of Marmalade

Sunny said:


> I have not looked into Tesla share price in any detail but the 12 month low is 178.97 and the 12 month high is 537.32. That doesn't make Brendan's floor look stupid. You mention the FED stress test but that test is based on the market, not an individual share. Ask the fed what their stress test would be for a bank holding a huge position in a single share and ask them if a 63% price decrease is ludicrous.....


You beat me to it.  I think if my bank's assets were 100% in Tesla shares I wouldn't be too impressed by the Fed's 30% stress test.


----------



## Duke of Marmalade

My understanding of the various theories on rational markets is that we assume that all relevant information is available to the market and it is only fresh info that will shift the market price, subject of course to a bit of random supply and demand noise.  The persistent daily increase in the Tesla share price over the last few weeks in the absence of a flow of news suggests to me an element of irrationality at play.  I won't be shorting though because as folk have remarked the market could stay irrational for longer than my nerves can stand.


----------



## RedOnion

Andrew365 said:


> Amazon.com is doing ok.......


Yes, they're also profit making.


----------



## Daddy Ireland

Have no interest financially in Tesla.  However, I do believe EV are the future andTesla are leaders and a long way ahead of the pack and will move up and beyond 1k mark.


----------



## paul00s

Brendan Burgess said:


> OK, so I have shorted Tesla at $536.
> 
> I have set myself a stop at $1000.  In other words, if it doubles in price, I will close my position at a loss. My exposure is in the order of 1% of my portfolio.
> 
> I have set myself a limit of $200. In other words, I will close my position if it falls to $200.
> .......



I am considering taking out a short as well, just in a slightly different way. The day before the next earnings (mid Feb i believe) selling a $0.06 spread bet with a 10% guaranteed stop loss, by my reckoning i'm risking roughly $350 if the share price goes up 10% and the guarantee got triggered.


----------



## joe sod

galway_blow_in said:


> the amount of hope and optimism surrounding that company is pretty large, lots of companies make electric cars but TESLA does something special even mechanically they are not that much better , the brand is pretty unique and brand strength is an important component of success


You could have said the same thing about DeLorean, in fact there are a lot of similarities between John Delorean and elon musk. Delorean was a talented car designer , he developed an iconic car loved by the celebrity set and featured in famous movies. But ultimately he did not have the capital to take on the major car manufacturers, he could not mass produce the cars and iron out the glitches.
Didn't elon musk have a run in with the securities and exchange commission over lying to the market about the Saudi wealth fund.


----------



## Andrew365

RedOnion said:


> Yes, they're also profit making.


It is also almost 25 years old.


----------



## Andrew365

Duke of Marmalade said:


> You beat me to it.  I think if my bank's assets were 100% in Tesla shares I wouldn't be too impressed by the Fed's 30% stress test.


 To explain the FRB stress test, it is an instantaneous one day shock calibrated to ~6 month historically the worst moves. Correct me if I am wrong but the entire stock market has not dropped 30% in a day.


----------



## Andrew365

I get the sense of some sour grapes left over from the dot.com bubble here. At least there is only 1% of the portfolio being put at Risk, it is still too much too gamble in my opinion. Bubbles come and go, stocks get overvalued but shorting a stock because you think the share price is overvalued in the same way as Dotcom is just baffling. 

A new company trying disrupting an established market is not going to be profitable, but how dare they try....hold on let me get my pitchfork. 

Given we talk about sensible investing on this forum, I am still waiting for the evidence relevant to Tesla for the case to short other than anecdotally it "smells funny".


----------



## Duke of Marmalade

Andrew365 said:


> To explain the FRB stress test, it is an instantaneous one day shock calibrated to ~6 month historically the worst moves. Correct me if I am wrong but the entire stock market has not dropped 30% in a day.


Watch my lips.  I wasn't talking about the whole sm, I was talking about Tesla.


----------



## Sunny

No offence Andrew but you brought up FED stress tests when they are not relevant when talking about a single stock. I come from a era in banking where quants ruled the world. I analysed and bought and sold CDO's, CDO squared and even to my shame, one CDO cubed. I have seen rating models that told me Iceland was a AAA rating while CDS spreads were at 600bps. I have seen AAA ABS portfolios with default probability of close to 0% default. I have seen VAR models tell me that the most I can lose in 1 day with a 99% confidence level was 500k which was laughable when black swan event that the model said couldn't really happen in the real world happened. I have heard bankers tell me that the repo market for bank bonds will always be there until it wasnt. I was told recovery rates on senior bonds of 40% that fed into all models was sensible when very rarely did I see a recovery rate of anything approaching 40%. I was told Government Bonds were as good as cash until they weren't. 

So if you are asking me if I think a share price of am individual share can fall over 60% when it has risen by over 60% in six months is possible then 100% yes. And I dont care what a model tells me. Especially on an event and news driven stock with a historic implied volatility of 40-60%.

Doesn't mean I would short it but it certainly doesn't mean I would invest either. If you are so confident about companies like uber and Tesla, then you can fill your boots on the long side and wave at Brendan and Colm. Joy's of the market.


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## Sunny

By the way, I dont have recent figures but at one stage last year, the CDS market was pricing a default by Telsa at about 40% in the next 5 years. And yet the equity market has seen its share price rise by over 60% in six months on the back of nothing but generating some free cash flow and increased sales. Telsa still hasn't proved it will have the ability to meet any large increase in demand through their current production lines so. China could just as easily close them down over there as quickly as they let them in. Musk is the Donald trump of business so who knows what that brings. There are numerous other reasons I dont believe in Telsa and that's without even following the stock but Colm has done great analysis before this thread went off topic.


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## Andrew365

Sunny said:


> No offence Andrew but you brought up FED stress tests when they are not relevant when talking about a single stock. I come from a era in banking where quants ruled the world. I analysed and bought and sold CDO's, CDO squared and even to my shame, one CDO cubed. I have seen rating models that told me Iceland was a AAA rating while CDS spreads were at 600bps. I have seen AAA ABS portfolios with default probability of close to 0% default. I have seen VAR models tell me that the most I can lose in 1 day with a 99% confidence level was 500k which was laughable when black swan event that the model said couldn't really happen in the real world happened. I have heard bankers tell me that the repo market for bank bonds will always be there until it wasnt. I was told recovery rates on senior bonds of 40% that fed into all models was sensible when very rarely did I see a recovery rate of anything approaching 40%. I was told Government Bonds were as good as cash until they weren't.
> 
> So if you are asking me if I think a share price of am individual share can fall over 60% when it has risen by over 60% in six months is possible then 100% yes. And I dont care what a model tells me. Especially on an event and news driven stock with a historic implied volatility of 40-60%.
> 
> Doesn't mean I would short it but it certainly doesn't mean I would invest either. If you are so confident about companies like uber and Tesla, then you can fill your boots on the long side and wave at Brendan and Colm. Joy's of the market.



Sunny, I do not disagree with what you are saying and the CDS spread is the best piece of information posted here for the case of shorting Tesla. I have never come across a short without a time limit, it just is not logical to me from an investment perspective. 

I brought the FED Stress Tests up as Tesla is part of the Market and I was trying to tease out the rationale for setting the exit point at $200 and over what time frame, which as you point out is larger than the historical implied volatility of Tesla. As I pointed out the entire US Market has increased ~30% in the last year with Tesla outperforming. Do you not agree that a large fall to the magnitude of 67% happens either as a complete idiosyncratic standalone event in Tesla or a combination of the market decreasing and Tesla decreasing more than the market? 

If it is the latter and Brendan has other long exposure the US Equity market then more than 1% of his portfolio is at risk. I was just hoping for some more rationale and reason for the short other than speculation. 

For now, I have accepted this short as a Gamble, I don't like shorts, it infers that you want the company to fail. I guess I am just an optimist looking for companies that are trying to make a difference succeed.


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## Gordon Gekko

I do not believe that any of us have the experience or depth of knowledge to opine on Tesla’s future prospects. That is why my Tesla position is via the investment manager, Baillie Gifford. They were early supporters of Amazon and Netflix, and have a good track record in this space.

I read a summary of their investment case for Tesla and I like what I read:

- Electric vehicles are better than their internal combustion counterparts. They are faster, safer, and can absorb new technology. The view is that if the price point is the same for an equivalent unit, the EV wins. This has been achieved in the US with the Model 3 vs the BMW 3 Series, hence the 400,000 Tesla units sold last year.

- The Chinese deal is transformational. Without having to go in via a joint venture, they’re now manufacturing in the world’s biggest car market without tariffs. Brand building and winning the Chinese consumer around fundamental Chinese issues such as air quality would be transformational.

- It is not an automotive business in the traditional sense so people need to stop viewing it that way; it’s a software business. Tesla vehicles will get better as they age in terms of user experience, unlike ‘normal’ vehicles which decline in quality.

- The internationalisation of production will be a huge driver of growth as costs go down and quality goes up. They were manufacturing in Silicon Valley!

- The Model Y SUV will be transformational; SUVs command a price premium but cost the same to build!

- There have been self-inflicted blows to the balance sheet but they’re done; this is now a business with strong cashflows and profitability on the horizon.

- Baillie Gifford saw their large holding in Amazon fall by 1/3 in 2006 and then 1/2 in 2008; it happens with such businesses. They firmly believe in Tesla.

And I believe in Baillie Gifford; they know a damn sight more about picking growth ‘winners’ than any of us.


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## Sunny

This thread is actually a good example  of the psychology of investing and the inherent bias we have.  If I came on here and offered an investment opportunity with a fund manager who would actively manage your investment but had a brilliant track record with picking growth stocks and were early investors of Amazon and netflix, I bet the majority of people would say a monkey would have as good a chance of picking growth stocks that will outperform. 

I dont doubt the skill of Baille Gifford but I bet you that you actually like the idea of Tesla yourself even without realising it and this just re-enforces it. I could show you research that raises doubt about the China market and raises questions about growth without significant money raising. But it probably wouldn't make any difference. We all seem have our views and I dont think we are going to change each others minds. 

Meanwhile Brendan will probably start selling ad space on AAM to pay for increasing margin calls.........


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## Brendan Burgess

Sunny said:


> Meanwhile Brendan will probably start selling ad space on AAM to pay for increasing margin calls.........



I would love to have the tech skills to put up a spoof ad for Tesla


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## Gordon Gekko

Sunny said:


> This thread is actually a good example  of the psychology of investing and the inherent bias we have.  If I came on here and offered an investment opportunity with a fund manager who would actively manage your investment but had a brilliant track record with picking growth stocks and were early investors of Amazon and netflix, I bet the majority of people would say a monkey would have as good a chance of picking growth stocks that will outperform.
> 
> I dont doubt the skill of Baille Gifford but I bet you that you actually like the idea of Tesla yourself even without realising it and this just re-enforces it. I could show you research that raises doubt about the China market and raises questions about growth without significant money raising. But it probably wouldn't make any difference. We all seem have our views and I dont think we are going to change each others minds.
> 
> Meanwhile Brendan will probably start selling ad space on AAM to pay for increasing margin calls.........



Not quite, but you are on to something.

I want Tesla to succeed. I want companies like Tesla to succeed. I want Elon Musk to succeed. The world needs people like him.

But I do put my faith in Baillie Gifford who identified companies like Amazon and Netflix early on.


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## Andrew365

Gordon Gekko said:


> Not quite, but you are on to something.
> 
> I want Tesla to succeed. I want companies like Tesla to succeed. I want Elon Musk to succeed. The world needs people like him.
> 
> But I do put my faith in Baillie Gifford who identified companies like Amazon and Netflix early on.



The world does need people like him! There was a comparison to the Delorean earlier but as far as I am aware the Delorean design didn't change the way car doors open. Tesla pioneered EV's and every car manufacturer has moved faster towards EV in response, ultimately the forward-thinking of Tesla could be its downfall. Interestingly Musk is the longest-tenured CEO of a Car Company globally, whether that is good or bad. We should take a step back and appreciate his success.


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## Duke of Marmalade

Andrew365 said:


> To explain the FRB stress test, it is an instantaneous one day shock calibrated to ~6 month historically the worst moves. Correct me if I am wrong but the entire stock market has not dropped 30% in a day.


It is an instantaneous shock, that is happening in an instant.  The stock market never has and probably never will fall instantaneously by 30%.  It is a theoretical construct and is used as a proxy for a 6 month shock, as it would take 6 months to adjust to the shock.


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## Gordon Gekko

I get the sense that some people think Tesla is a niche player in the market; they’re outselling Mercedes and BMW in the US!

We cannot just look at profitability alone when we’ve seen businesses grow their customer/user base and then pivot into massive profitability.


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## Sunny

Here is an interesting piece. No idea if he is right or wrong but anyway I dont think it really matters at this stage. People either believe or they dont. 









						Expect Flat Unit Sales For Tesla In 2020
					

While Tesla’s unit sales rose 4-5% in the U. S. overall in 2019, they actually fell—my modeling shows a decline of 4-5%—in the fourth quarter.




					www.forbes.com


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## Brendan Burgess

Andrew365 said:


> We should take a step back and appreciate his success.



Let's be absolutely clear. I think he is a very talented guy and has built a great car and I wish him well.

But that does not make his company worth €86 billion. 

Likewise I love using Uber and I wish we had it in Dublin, but it's hard to see how it can make any profit, much less a profit to justify its current valuation. 

I hate tobacco companies, but they are very profitable. 

Brendan


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## NoRegretsCoyote

Brendan Burgess said:


> Likewise I love using Uber and I wish we had it in Dublin, but it's hard to see how it can make any profit



Taxi dispatch operators were profitable business for decades, and Uber is just doing the same thing a lot more efficiently.

Why do you think it can't increase its margins once it has the market share and an established user base?

At the moment it loses $1 a ride, which is not astronomical.


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## Andrew365

Duke of Marmalade said:


> It is an instantaneous shock, that is happening in an instant.  The stock market never has and probably never will fall instantaneously by 30%.  It is a theoretical construct and is used as a proxy for a 6 month shock, as it would take 6 months to adjust to the shock.



Correct, the point is to test the strength of the business if such a shock were to happen, and a way to make banks hold more capitals. Since the Financial Crisis, a lot of banks have now stopped the complex products they offer and are a large portion of the business is vanilla. These products are generally well hedged to within x of the market, and given the low markey volatility in the last few years it needs this shock. If 30% actually happened in one day, we would most likely have bigger worries than the value of our Equity portfolios.


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## Andrew365

Brendan Burgess said:


> Let's be absolutely clear. I think he is a very talented guy and has built a great car and I wish him well.
> 
> But that does not make his company worth €86 billion.
> 
> Likewise I love using Uber and I wish we had it in Dublin, but it's hard to see how it can make any profit, much less a profit to justify its current valuation.
> 
> I hate tobacco companies, but they are very profitable.
> 
> Brendan



Brendan,

I would still love to hear, you rational for setting at $200, was it simply because it traded at that last year? Here is what appears a slightly bullish way to value but none the less it brings up some valid points. Note, I don't know if it is worth $86bln but given I am not investing in it I don't need to, I would expect that you could rationalize your investment. Even if you have only risked 1%, why risk any of it without proper due diligence? 

_"Regarding the bears, it’s amusing to see how many people insist on analyzing Tesla through old-school methods of valuation. It’s like they’ve already forgotten how Amazon.com Inc. AMZN, -0.40%  raced up from $50 a share in 2008 to $500 a share in 2015 despite a lack of earnings per share." 

"In the bullish camp, it’s equally ridiculous to see people get worked up when discussing how awesome Tesla’s cars are, how cool Tesla CEO Elon Musk is and how in 10 years this company will have single-handedly transformed the global economy — and heck, maybe started an economy on the moon, too. It’s all well and good to be an optimist, but any decent investor knows that getting emotional about a particular product or stock is a surefire way to make mistakes with your money. "_









						Here’s how to rationally value Tesla’s stock
					

Drop the irrational and extreme bull and bear calls on the share price.




					www.marketwatch.com


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## Sunny

The one thing I hate is how every company is apparently a 'technology' company. I have worked for two US financial institutions. In both places, I heard the same line. 'We are technology companies with a banking licence'. No you are not so stop trying to compare yourself to google and Fintech companies just because you have a large technology budget. You are a bank. You make your money the same way any other bank does at the end of the day and that is how you will be judged. 

Its the same with Tesla. They might have a large technology budget and might place large emphasis on technology in cars but at the end of the day, they are a car maker. They need supply lines, they need factories, they need showrooms or other sales channels, they need manufacturing staff, they need commodities and they need people to buy their cars. They are not Amazon or Google or Facebook.


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## Brendan Burgess

Andrew365 said:


> I would still love to hear, you rational for setting at $200, was it simply because it traded at that last year?



Hi Andrew 

Sorry, I had meant to address this very good question. 

There is no particular rationale for closing out of Tesla at $200.   I thought it important to set a price though when buying in. 

Maybe $200 is the "right" price for the stock, in which case I should close out long before e.g. $300. 


It's very difficult to price a stock which is not making profits and shows no sign of making sustainable profits any time in the near future. It's easy to say it's not worth $86 billion. It's much more difficult to say that it is worth $20 billion. 

I will review it if it falls towards $300. 

The last time I shorted it , I hadn't got an exit plan and would have made a much higher profit had I exited earlier. 

The only comparison I have is Bitcoin. It's worth zero, but I will close out at $3000.  The rationale there is that I will have made a good profit and there is every chance that it might rise again and I would short it again when it rises again. 

Brendan


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## Andrew365

Sunny said:


> The one thing I hate is how every company is apparently a 'technology' company. I have worked for two US financial institutions. In both places, I heard the same line. 'We are technology companies with a banking licence'. No you are not so stop trying to compare yourself to google and Fintech companies just because you have a large technology budget.



Sunny 100% my pet hate as well, oh and we are now a Tech company so feel free to wear chinos on a friday.


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## Gordon Gekko

Brendan Burgess said:


> Let's be absolutely clear. I think he is a very talented guy and has built a great car and I wish him well.
> 
> But that does not make his company worth €86 billion.
> 
> Likewise I love using Uber and I wish we had it in Dublin, but it's hard to see how it can make any profit, much less a profit to justify its current valuation.
> 
> I hate tobacco companies, but they are very profitable.
> 
> Brendan



Hi Brendan,

They have a product that you and I love, a gargantuan amount of users, and access to what is one of the most important resources of the 21st Century, data.

I believe that it is unwise to dismiss that.

It is not analagous to you and I opening, say, a shop where profitability is the key indicator. How many of the tech giants looked like basket-cases financially?


----------



## Sunny

Gordon Gekko said:


> Hi Brendan,
> 
> They have a product that you and I love, a gargantuan amount of users, and access to what is one of the most important resources of the 21st Century, data.
> 
> I believe that it is unwise to dismiss that.
> 
> It is not analagous to you and I opening, say, a shop where profitability is the key indicator. How many of the tech giants looked like basket-cases financially?



Problem being for every facebook, there is a Bebo. For every Google, there is a lycos and it's $12.5 billion valuation. List is endless. Is there a chance that Uber will be the next google or facebook? Maybe. But not based on their current business model. You are seeing legislation in the US because of traffic congestion. London took away it's licence. There are climate change concerns. Uber Eats is loss making and there are no indications about how they will make it profitable. It's a great business idea but a $100 billion business? I just don't see it.


----------



## demoivre

Brendan Burgess said:


> OK, so I have shorted Tesla at $536.
> 
> I have set myself a stop at $1000.  In other words, if it doubles in price, I will close my position at a loss. My exposure is in the order of 1% of my portfolio.
> 
> I have set myself a limit of $200. In other words, I will close my position if it falls to $200.



Is there more than a 50/50 chance of  success here? If there isn't your expected return is negative here which counters your argument that you are an investor !


----------



## Andrew365

Brendan Burgess said:


> Hi Andrew
> 
> Sorry, I had meant to address this very good question.
> 
> There is no particular rationale for closing out of Tesla at $200.   I thought it important to set a price though when buying in.
> 
> Maybe $200 is the "right" price for the stock, in which case I should close out long before e.g. $300.
> 
> 
> It's very difficult to price a stock which is not making profits and shows no sign of making sustainable profits any time in the near future. It's easy to say it's not worth $86 billion. It's much more difficult to say that it is worth $20 billion.
> 
> I will review it if it falls towards $300.
> 
> The last time I shorted it , I hadn't got an exit plan and would have made a much higher profit had I exited earlier.
> 
> The only comparison I have is Bitcoin. It's worth zero, but I will close out at $3000.  The rationale there is that I will have made a good profit and there is every chance that it might rise again and I would short it again when it rises again.
> 
> Brendan



Thank you Brendan, you should operate by a profit target rather than value of the stock. Currently, you are targeting a 67% return, but you should revisit at increments of 10% given you don't have a time limit. For example after a 20% price decrease, there might be market news that changes the outlook, making a further drop unlikely or more likely.


----------



## Brendan Burgess

demoivre said:


> Is there more than a 50/50 chance of success here?



Absolutely. 

It's not like buying  a share where the long term upside is unlimited. 

So I am risking $500 to earn $300 

So if it were only a 50/50 bet it would not be a good bet. 

The problem is the timing. I would be fairly confident that Tesla will fall to about $100. The difficulty is that it might rise to over $1,000 before it falls to $100.  

I will keep it under continuous review.  If there is a material positive change which boosts the underlying value, I will close my position. 

Brendan


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## Duke of Marmalade

500$  _Boss_ you seem to have an advantage over the rest of us, you can move the market.  Just as you did when you shorted bitcoin.


----------



## Fella

Brendan Burgess said:


> The problem is the timing. I would be fairly confident that Tesla will fall to about $100.
> Brendan



I can't understand your thinking here ? Even though I didn't agree with you on Bitcoin I could see your rational for saying its a bag of hot air. But Tesla you really think will fall to 100 , Tesla is producing a quality product that is in very high demand , I can only see demand increasing . I don't know where the price is going to go from here but I would be very very surprised if it went that low.


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## Brendan Burgess

Fella said:


> Tesla is producing a quality product that is in very high demand , I can only see demand increasing .



And I fully agree with you. 

But that is not enough. 

If the price today were $5,000  you would be very surprised at my forecast of $1,000. 

The price has to be related in some way to future profitability. 

It's not enough to say "the cars are shinier than anyone else's, therefore the stock price is justified".

Brendan


----------



## Fella

Brendan Burgess said:


> If the price today were $5,000  you would be very surprised at my forecast of $1,000.



Of course because I don't think the market is going to be that wrong , I find it fascinating that you can be fairly confident on this and the same with Bitcoin going to zero its bordering on arrogance dismissing the market as a whole and the intellects on both side of the buy sell line that ultimately have set the line as it is now.


----------



## elacsaplau

Brendan Burgess said:


> The price has to be related in some way to future profitability.



Brendan, 

You may be right that Tesla is overpriced. However, I'd really appreciate it if you would answer a few specific questions please?

1. Do you accept that Tesla made a profit in its last reported quarter - Q3 2019?

2. Do you accept that it is likely to report a profit in Q4 2019 - results to be published later this month?

3. Do you accept that it is likely to report a profit for the full year 2020?


----------



## Sunny

elacsaplau said:


> Brendan,
> 
> You may be right that Tesla is overpriced. However, I'd really appreciate it if you would answer a few specific questions please?
> 
> 1. Do you accept that Tesla made a profit in its last reported quarter - Q3 2019?
> 
> 2. Do you accept that it is likely to report a profit in Q4 2019 - results to be published later this month?
> 
> 3. Do you accept that it is likely to report a profit for the full year 2020?



Not really sure what they are going to answer but my view:

1. Yes. Of about $150m. Telsa have announced profitable quarters before. The last two quarters of 2018 were profitable before they then announced a $700m loss in Q1 of 2019.
2. Probably but see above
3. I don't see it to be honest but it could. Lets see what Q1 results are like. 

Tesla is a news driven momentum stock. It also has a lot of investors that want to believe in the company and that makes it difficult for people who are bearish. The shares have risen over 100% in three months which is a multiple of what analysts were expecting. So if analysts, can be so wrong on the bullish side, Brendan's price target of $200 doesn't seem ridiculous. Indeed $200-$300 is the price target for a lot of analysts even after the rally. But of course they could be wrong again and the share could go to $1000 or default overnight. Anyone who claims they can call this stock at the moment is bluffing but a 100% rally in three months is a bubble but it could go up another 100% before bursting and that's the problem with trying to short it


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## James Kirk

Although i have been checking into Askaboutmoney from it's birth I have never posted a comment before but this thread has been most interesting and engaging. Before I go any further just to say I am a long time Tesla share holder and will continue to be for years to come.

From the begining of tesla there has been a narrative sold by vested interests that at every turn created fear, uncertainty,and doubt (FUD) about Tesla and Musk.  That's to be expected  because Musk and Tesla are massive disrupters  to two big industries, energy(oil) and auto's.  That narrative has been a huge headwind for Tesla but because of the strength of Musk and the absolute determination of his employees they have beaten the odds and are now one of fastest growing auto company in the US and possible the world.  Unfortunately there are many that have swallowed the fud and shorted the company with the absolute conviction that they will go bankrupt at any minute. They have last billions between then. 

So i was very surprised to see Brendan Burgess, someone I would see as very sensible join the band wagon. This is the line that has me here.

Brendan, you said
 "It's very difficult to price a stock which is not making profits and shows no sign of making sustainable profits any time in the near future"

I assume you have read the Tesla accounts and have researched where sales and revenue are going in the future? Have you? Or have you read the figures on Seeking Alpha or such?  Tesla WILL be profitable in 2020.

  When I read the posts here there is a lack of any hard figures. That is made all the more clear by the short bet you have made. You have left a scope from $100 to $1000 of a share price???   Would the sensible side of you not look at that huge difference and think it's telling you something?  What it says to me is "I haven't a clue whats going to happen but it's going to $100 for sure"  That's not investing, that just gambling.

I am posting because I am interested in knowing why someone that is not really into shorting and knows there way around money came to this decision on Tesla.


----------



## James Kirk

Sunny said:


> Not really sure what they are going to answer but my view:
> 
> 1. Yes. Of about $150m. Telsa have announced profitable quarters before. The last two quarters of 2018 were profitable before they then announced a $700m loss in Q1 of 2019.
> 2. Probably but see above
> 3. I don't see it to be honest but it could. Lets see what Q1 results are like.



Good to see numbers getting involved.

1. $150 mil is correct.

2.  Yes they will. depending on what was invested in R&D and in G3 but in the region of $220 mil.

3. Touch and go.   Coming into Q4 tesla had stock on hand. Mostly in transit to the EU and China. So in Q4 they sold more than they produced. For Q1  they start with almost no inventory. added to that, at the start of the year they  have down time to do maintenance and modernise the production lines. Q1 production will be hit. Less sales less revenue.  They do have G3 in China this year so that's an unknown for Q1 especially. 
So Q1 is hard to call. It could be + or - $150 mil.  

4.  After that Q2 should be back to normal production and a positive return in every Q after that.  

Going back to Q1 20.  If that is a positive Q then the prize is big as regards the SP. Q2 will be positive so that would make 4 straight profitable quarters and certain inclusion in the S&P 500.  One of the reasons the SP has shot up in the last while is because of shorts. Almost 30% of shares were shorted coming into Q4. Thats down to 20% at year end as shorts got hammered and threw in the towel. That was a lot of share buying to cover positions. With the borrowed shares now burned the actual number of shares active is reduced.  When Tesla does make the S&P the demand for shares is going to shoot up instantaneously as every tracker HAS to buy in.  If the demand for covering shorts drove the price what will it be like when that happens.


----------



## Andrew365

James Kirk said:


> Although i have been checking into Askaboutmoney from it's birth I have never posted a comment before but this thread has been most interesting and engaging. Before I go any further just to say I am a long time Tesla share holder and will continue to be for years to come.
> 
> From the begining of tesla there has been a narrative sold by vested interests that at every turn created fear, uncertainty,and doubt (FUD) about Tesla and Musk.  That's to be expected  because Musk and Tesla are massive disrupters  to two big industries, energy(oil) and auto's.  That narrative has been a huge headwind for Tesla but because of the strength of Musk and the absolute determination of his employees they have beaten the odds and are now one of fastest growing auto company in the US and possible the world.  Unfortunately there are many that have swallowed the fud and shorted the company with the absolute conviction that they will go bankrupt at any minute. They have last billions between then.
> 
> So i was very surprised to see Brendan Burgess, someone I would see as very sensible join the band wagon. This is the line that has me here.
> 
> Brendan, you said
> "It's very difficult to price a stock which is not making profits and shows no sign of making sustainable profits any time in the near future"
> 
> I assume you have read the Tesla accounts and have researched where sales and revenue are going in the future? Have you? Or have you read the figures on Seeking Alpha or such?  Tesla WILL be profitable in 2020.
> 
> When I read the posts here there is a lack of any hard figures. That is made all the more clear by the short bet you have made. You have left a scope from $100 to $1000 of a share price???   Would the sensible side of you not look at that huge difference and think it's telling you something?  What it says to me is "I haven't a clue whats going to happen but it's going to $100 for sure"  That's not investing, that just gambling.
> 
> I am posting because I am interested in knowing why someone that is not really into shorting and knows there way around money came to this decision on Tesla.



JK, much like the markets can stay irrational longer than you can stay liquid, I feel you will be experiencing the same issue trying to get answers to your questions.

I was equally surprised by the gamble and why I have been probing for evidence of research.


----------



## joe sod

Sunny said:


> Tesla is a news driven momentum stock. It also has a lot of investors that want to believe in the company and that makes it difficult for people who are bearish. The shares have risen over 100% in three months which is a multiple of what analysts were expecting.



From the posts on this thread that is very true, the emotion and engagement with this stock from both sides is unique. However it is not a facebook where it was more a great idea that people latched onto or a google where it was just great software close to the start of internet search engines. It was easy for these companies to become profitable because they did not have high costs or expensive assembly lines.With Tesla they have to develop very difficult technology and are limited by the laws of physics,its not the same as facebook or even apple the obstacles they have to climb.
Ultimately they have to win against the big car companies that have a long history of producing very complicated products , producing a modern diesel car is still not easy. Therefore I still think that the likes of Toyota or Nissan will still be able to overtake Tesla in electric cars especially if they take them on with pricing. Because electric cars are still a small share of the overall car market they have not needed to take on Tesla yet,they are not going to cannibalise their conventional car sales by competing with Tesla on pricing.


----------



## Brendan Burgess

Fella said:


> I find it fascinating that you can be fairly confident on this and the same with Bitcoin going to zero its bordering on arrogance dismissing the market as a whole and the intellects on both side of the buy sell line that ultimately have set the line as it is now.



Hi Fella

First of all I am confident that Bitcoin will go to zero. It is a bag of hot air.

I am fairly sure, but not confident, that Tesla will fall to around $100. 

As I think I have said before on this thread, I don't believe that the ordinary punter can outperform the market. 

So for shares such as Ryanair, CRH or Bayer (all companies I have shares in) I think that today's price is a fair reflection of their value. But noone is manic about these companies or their shares. 

During the dot.com bubble, people were manic.   I argued until I was blue in the face that the prices were not justified. You can probably find the discussions online.  It's very similar to this discussion. "These companies are the future - forget bricks and mortar."  " Profits are irrelevant." "One more share split and I will be a millionaire." 

So when a mania happens as there is for Bitcoin and Tesla, it's possible to profit by short selling.  There is a risk that the mania may get even worse but I reckon that the odds on a fall far outweigh a continuation of the mania.  And, unlike the big shorts, I am allocating only a very small part of my portfolio to both bets.   I will not be squeezed.  The price may rise and I may have to close my position.  But they are small parts of a portfolio.

Brendan


----------



## Brendan Burgess

elacsaplau said:


> 1. Do you accept that Tesla made a profit in its last reported quarter - Q3 2019?
> 
> 2. Do you accept that it is likely to report a profit in Q4 2019 - results to be published later this month?
> 
> 3. Do you accept that it is likely to report a profit for the full year 2020



1. Yes, they reported a profit. 

2. I don't know. 

3. I don't know. 

But short term profits or losses are not very relevant. A company could be losing money for the next 3 years and could still justify a valuation of $86 billion. 

But no one, as far as I know, is forecasting profits which would justify that valuation.  

Brendan


----------



## elacsaplau

Hi Brendan,

The reason for the specific questions is that you have described Tesla as loss-making in a few threads. Now, you are admitting that you don't know what the market expects in terms of current profitability. This is not particularly impressive analysis!


----------



## Gordon Gekko

Hi Brendan,

When a company has a great product and a bucketload of customers, it is unwise to dismiss its prospects purely on the basis of profitability or lack thereof today.

Were you saying the same thing about Facebook?

Take Uber as an example; you and I agree that we really like the product. They have a truckload of users. They have a truckload of data. We appear to be at an inflection point in terms of electric vehicles, autonomous vehicles, vehicle sharing, etc. Most experts predict that it a relatively short period of time, very few if any of us will own cars and they’ll be autonomous. The market is perhaps simply pricing in a view that Uber (or Tesla) could be the winner.

You know this, but the share price is simply Mr Market’s view of the present value of the company’s discounted future cashflows. What has profitability today got to do with that? Banks make profits, so do oil companies; but I wouldn’t buy them with your money!

“But they don’t make any money” isn’t sufficient in terms of an argument.

Gordon


----------



## Sunny

elacsaplau said:


> Hi Brendan,
> 
> The reason for the specific questions is that you have described Tesla as loss-making in a few threads. Now, you are admitting that you don't know what the market expects in terms of current profitability. This is not particularly impressive analysis!



They are loss making. Making a quarterly profit does not make you profitable. I bet the pattern will repeat last year. Two profitable quarters at the end of 2018 and then big loss in Q1 2019. I haven't looked at any accounts in detail but the company themselves are guiding down Q1 and Q2 next year. Even the sales figures in Q3 that got everyone excited didn't translate to a corresponding jump in revenue. Tax credits for their vehicles in the US are ending next year so lets see at the end of 2020 how demand stands up and even if it does, whether they can meet this surge in demand that everyone seems to be expecting.

Comparing Brendan's short position of that he has already said he is willing to lose with professional hedge funds who are constantly shorting and rebalancing is ridiculous. If people are buying shares because they expect Tesla to be the next Google, then I don't see anything wrong with Brendan deciding to take the opposite view. He is not going to get burnt on margin calls so good luck to him. If it goes against him, he will have forgotten about it after a couple of pints and will be a good story at the next AAM Christmas party.


----------



## Brendan Burgess

Gordon Gekko said:


> the share price is simply Mr Market’s view of the present value of the company’s discounted future cashflows



Hi Gordon 

As I have pointed out before, the share price of the boring companies is Mr Market's view of the present value.

But Tesla's share price is driven by mania. 

And I have pointed out that the current profitability or lack of it is not very relevant in Tesla's case. 

Uber themselves have said that they might never make a profit. 

Brendan


----------



## Brendan Burgess

Sunny said:


> If it goes against him, he will have forgotten about it after a couple of pints and will be a good story at the next AAM Christmas party.



If it goes in my favour, it will be an even better story.  

I must remember to invite Colm this year. 

Brendan


----------



## elacsaplau

Brendan Burgess said:


> And I have pointed out that the current profitability or lack of it is not very relevant in Tesla's case.



Brendan,

This is not consistent with previous posts - where you consistently said, incorrectly, that it was loss-making. You really have not presented any figures to justify your position.


----------



## Sunny

elacsaplau said:


> This is not consistent with previous posts - where you consistently said, incorrectly, that it was loss-making. You really have not presented any figures to justify your position.



Have I missed something?? When did Tesla stop being loss making?? Surely, we are not claiming that a quarterly profit means a profitable business now???


----------



## Itchy

Very interesting discussion! Credit to @Colm Fagan for his discussions. 

Aswath Damodaran is a Valuation expert. For those looking for a comprehensive valuation he blogs here 









						Tesla's Travails: Curfew for a Corporate Teenager?
					

A blog about markets, finance and all things money related.




					aswathdamodaran.blogspot.com
				




On Tesla (from last June) he notes:

“I also listed possible, perhaps even plausible, scenarios where Tesla's value per share could be higher than $400/share, but argued that it would require the equivalent of a royal flush for the company to get there, a combination of a ten-fold increase in revenues, an operating margin of 12% and reinvesting more like a technology than an automotive company. Since the stock was trading at close $360 at the time of the valuation, I concluded that it was significantly over valued.”

That said, he is also a shareholder! 

BB is right, the stock is affected by sentiment more than fundamentals. The volatility around earnings, Musks tweets and production figures is excessive.  It is affected by mania. That said, where it ends up is another question!


----------



## sabre Man

Sunny said:


> Tax credits for their vehicles in the US are ending next year so lets see at the end of 2020 how demand stands up and even if it does, whether they can meet this surge in demand that everyone seems to be expecting.



Tax  credits ended 31 December 2019.


----------



## elacsaplau

As James Kirk and I have said in recent posts and Andrew said previously, there is a huge absence in numbers in Brendan's posts. [Sorry to personalise this Brendan - it's simply intended in the spirit of debate, etc.]

It seems to me that Brendan's line is that Tesla is overvalued because the price is too high and variations thereof. It may very well be true that it's overvalued - I simply don't know and haven't done any serious research into it.

Yesterday, I put into google: "Tesla earnings estimates" and the first link to appear was this -


I am making no claims that this is a particularly good link. Nonetheless, we have to start somewhere. Anyway, this link provides the consensus earnings estimates (EPS forecasts) for the years ending 2020, 2021 and 2022 from some analysts.

If the consensus estimates are broadly correct, then you can see how the current price is justifiable and that when Tesla's price was circa $300, it wasn't crazily overpriced as has been suggested.

It follows that Brendan must feel that the earnings estimates are seriously wrong. All I would like to know is:

- why does Brendan believe this
- what earnings level does Brendan anticipate over the next few years

I genuinely would like to know!

[All that said - even if Brendan's financial argument is compelling, I'm really not sure if I'd personally be able to get on the shorting Tesla bandwagon. I am too concerned with climate change to hope for poor outcomes for a company which has done so much to raise the bar for EVs.]


----------



## Brendan Burgess

elacsaplau said:


> there is a huge absence in numbers in Brendan's posts.



Hi elacs

You are not personalising it at all.  I don't mind being asked to back up my arguments. 

I have not crunched the numbers myself. But plenty of other people have. 

I will repeat the point. The price here is not driven by numbers. It is driven by mania.   And the maniacs think that everything will go right for Tesla and nothing will go wrong and the rest of the car industry won't develop their own cars.  And therefore Tesla is worth more than General Motors and Ford combined.  It's not.   In the same way that AIB was not worth more than Deutsche Bank and a few other European banks combined. 



elacsaplau said:


> I am too concerned with climate change to hope for poor outcomes for a company which has done so much to raise the bar for EVs.



I think that Tesla is a great car and that Elon Musk is a great guy. I do _not_ hope for a poor outcome for his company.  I just want to see the share price fall back to where it should be. 

Brendan


----------



## elacsaplau

Thanks Brendan,

I guess, like Thomas, I need to put my hand in the wound for myself and not rely on hearsay!!

Or, given the nature of the nature of Tesla's activities, to kick the tyres with my own boots!


----------



## Brendan Burgess

A good balanced article in the Financial Times 

Tesla's soaring price defies the bears 

_ The sharp rally has left most Wall Street analysts struggling to justify their much lower share price forecasts — while giving the Tesla bulls new confidence to predict that the stock will move even higher. 

...

 In the middle of 2018, Pierre Ferragu, an analyst at New Street Research, came up with the Street’s most ambitious forecast at $530 a share. That price was topped for the first time this week. Mr Ferragu now argues that the company’s clear technology and product lead over other carmakers could justify a share price of as much as $2,000. _

...
_
 If Tesla’s more reliable financial and operational performance have put the business on a stronger footing, however, it cannot entirely explain a share price that has flown so far ahead. At close to $100bn, its market capitalisation is nearly double that of General Motors, a company with net income of $8bn last year and nearly 20 times the number of vehicle sales. 

...

 Fund manager Ark Invest predicted this week that the robotaxi business could lift Tesla’s shares to as much as $6,000. But with the prospect of fully autonomous vehicles receding further into the future, most analysts have remained wary of attributing any value to this hypothetical new market. _


----------



## James Kirk

Brendan Burgess said:


> And therefore Tesla is worth more than General Motors and Ford combined. It's not.


What is Ford worth?  It's sp is down about 50% over the last few years.  It's revenue is stagnant for the last 10years as are the sales.  While Ford has 160 billion of revenue it has 154 billion of debt. The debt is junk rated.  Worst of all possibly is the dividend policy. At over $6 per share they pay out 110% of profits. They are borrowing to pay the dividend. 
GM are a little better in that they only pay out 25% of profits on dividends. They have $147billion revenue they have debt of $105 billion. Both sales and revenue are both going in the wrong direction though. AND they are only there because the government bailed them out (like AIB)   These two are hardly great reasons to base an investment decision to short Tesla on in my opinion.


----------



## Brendan Burgess

Hi James

But they are making profits so they can pay dividends. 

But your overall point that the car business is very volatile and goes through periods of severe losses is very valid. 

Brendan


----------



## Brendan Burgess

Yahoo Finance has a good summary of all the forecasts.









						TSLA Price Target | Tesla Stock Forecast & Ratings
					

See Tesla price target based on 27 analysts offering 12 month price targets for Tesla in the last 3 months. The average price target is $534.15 with a high forecast of $928.00 and a low forecast of $44.52. The average price target represents a -40.72% decrease from the last price of $901.00.




					www.tipranks.com
				









I am surprised that the highest is only up 20% from the current price, while the lowest is down about 90%.

Maybe I need to review my $200 close out target.

Brendan


----------



## James Kirk

"Maybe I need to review my $200 close out target. "

I think there are higher prices but it depends who they included in the 26. Before you do the above it might be a good idea to see who the analysts are.  they include guys with massive short positions that have cost them millions over the last few years. You don't want to end up like them. 

One name on the list for sure in Adam Jonas, a highly thought of Auto analyst from Morgan Stanley.  I forget where his price is today ($350 maybe) but his range was from $10 to $600 so a very tight range...not.   His job is counting cars manufactured, extrapolating, and working from there. Unfortunately his record is poor.  In 2016 he predicted M3 2018 production of 5k. Actual was 146k (+2900%).  He predicted 2019 total production of 247K. Actual 367K (+50%).  He predicted 500k in 2025. He's likely 5 years wrong on that.  He was also wrong on every other number he called eg. average car selling price, margin per car, model mix ect. 

Just to balance that, even though they were right so far , the bulls at the other end have the robo taxi  priced in. A self driving car is a huge step for most today so It will be a while before many people will get into a driver less taxi to my mind. Even though self driving cars are close, the  infrastructure in many countries will need a huge investment. I have been in a ModelS on auto (for a few minutes) in rural Ireland. Its only then you realise how poor the road marking are. 

PS. great result for SpaceX today.


----------



## James Kirk

I have shares in Tesla for the last few years that have done really well.  but i'm going to put my money where my mouth is and buy a few more. I'm not a big time investor or anything and actually had decided to a couple of years ago to invest through a second pension rather than directly ( more tax efficient at my stage in life). 
However, when I look at Tesla, and I do in-depth,  everything points to a bright future.  I'v been invested here long enough to know it's quite capable of dropping back below $400, especially after Q120 which has the potential to be loss making.  My target is $1000/share and I'll be happy if it hits that in 4 years even thought i think it's possible in 2 but the market (and events) may have other ideas. Time will tell.


----------



## sabre Man

If you only view Tesla as a car company, you're only seeing part of the picture. I think most analysts don't consider the energy storage side and solar roofs, which could be huge in the future.

Long TSLA and also a Tesla owner.


----------



## Andrew365

Tesla jumps another 6% at the open......Brendan shall I get you a towel to mop the sweat from your brow*?

*I mean this in jest only. 



I hope this turns out to be a very nice earner for those who invested early on.


----------



## Fella

Brendan Burgess said:


> Yahoo Finance has a good summary of all the forecasts.
> 
> 
> 
> 
> 
> 
> 
> 
> 
> TSLA Price Target | Tesla Stock Forecast & Ratings
> 
> 
> See Tesla price target based on 27 analysts offering 12 month price targets for Tesla in the last 3 months. The average price target is $534.15 with a high forecast of $928.00 and a low forecast of $44.52. The average price target represents a -40.72% decrease from the last price of $901.00.
> 
> 
> 
> 
> www.tipranks.com
> 
> 
> 
> 
> 
> View attachment 4224
> 
> I am surprised that the highest is only up 20% from the current price, while the lowest is down about 90%.
> 
> Maybe I need to review my $200 close out target.
> 
> Brendan



Assuming that analysts have a clue is your number 1 mistake , analysts are statistically terrible at predicting how a stock will do .


----------



## Duke of Marmalade

My first 201 reg sighting - a Tesla. Is this a bull indicator or whatever the chartists call them?

_I took this with my old Brownie so don’t be reporting me for use of mobile phone_


----------



## Brendan Burgess

Duke of Marmalade said:


> My first 201 reg sighting - a Tesla. Is this a bull indicator or whatever the chartists call them?



That is mine. I bought it with my Bitcoin profits. 

Brendan


----------



## jhegarty

Duke of Marmalade said:


> My first 201 reg sighting - a Tesla. Is this a bull indicator or whatever the chartists call them?



I think this proves we will hit $600 today.


----------



## elacsaplau

At current prices, does Brendan need to swallow his pride and......return to Debenams?!


----------



## Daddy Ireland

elacsaplau said:


> At current prices, does Brendan need to swallow his pride and......return to Debenams?!


Not yet.   Wait for the price to pass 750 on its way to inevitable 1000.


----------



## James Kirk

I don't think Colm's name for this thread could have been more apt.


----------



## SPC100

100 billion market cap /4000 profit per car(random back of the envelope guess) = 25 million cars need to be sold for my investment to double (or be paid back).

How many years will it take to sell 25 million cars in total?

100 billion * 6 p.c. wanted return / 4000 profit per car =1.5 million cars to be sold a year.  How many years before Tesla are selling 1.5 million cars a year.


----------



## Brendan Burgess

Folks
I have moved the battery discussion to a separate thread as this thread is about shorting. 






						Tesla's battery technology discussion
					

Ultimately they have to win against the big car companies that have a long history of producing very complicated products , producing a modern diesel car is still not easy. Therefore I still think that the likes of Toyota or Nissan will still be able to overtake Tesla in electric cars especially...



					askaboutmoney.com
				




Brendan


----------



## Brendan Burgess

Hi SPC

I am trying to follow your calculation.

I want a 6% return on my investment in shares.

The market cap of €100 bn, means that they have to make profits of €6b at some time in the future to justify that.

To make profits of €6bn, they must sell 1.5 million cars at €4,000 net profit each. 

How many cars will they make in 2020 and what is the profit expectation? 

Brendan


----------



## SPC100

Yes.  I'm trying to figure out something about what has to happen to justify the price. Or how bad/unreasonable the mania might be.



> *Global passenger car sales* fell to 80.6 million in 2018 from *81.8* *million* new units sold in 2017, which was the first annual decline since 2009, Fitch said. Worldwide sales in 2019 look likely to fall by another 4% to around *77.5* million new vehicle sales.



So to be selling 1.5 million cars a year they need to own 2% of global market.

https://focus2move.com/world-car-group-ranking/
The top ten car brands by volume each account for between 3 and 10 percent of global sales.

Using these assumptions, It seems, If you believe Tesla can own 2 or more percent of global market in a few years (and make 4k profit per car) price doesn't seem off the wall.


----------



## SPC100

From wiki



> Tesla delivered 367,500 cars in 2019, 50% more than in 2018 and more than triple the number sold in 2017. At the end of 2019, Tesla's global sales since 2012 totaled over 891,000 units


----------



## SPC100

> *Global EV sales* totaled about 2.1 million for 2018, an increase of 64% compared to the *total* sold in 2017.



So they have about 20p.c. of global ev market sales. If they keep market share and the ev percent of global market increases about 5 fold. They are then selling about 2 million cars a year.


----------



## SPC100

So if
-they can make 4k profit a car
-and ev sales grow from 2.5 to 10 percent of global cars sold
-and Tesla maintain their twenty percent of the ev market
i.e. Tesla grow annual numbers of cars sold 4-5 fold

Then
I can get a 6p.c. Return at current price.

My take: the brand is strong enough, and evs are strong enough to sell well beyond this volume in a few years. The key question is can Tesla grow to deliver profitably at this volume. And how many years would we have to wait.


----------



## James Kirk

SPC100 said:


> So they have about 20p.c. of global ev market sales. If they keep market share and the ev percent of global market increases about 5 fold. They are then selling about 2 million cars a year.


SPC. good job on the research. Just to add a bit to your figures.  The 20% market share for 2018 is very low because the M3 was just coming off the production lines. In 2019 the M3 alone have a 60% US EV market share.  In the overall auto market Tesla had a US 2019 market share of 1.3% up for .75% at the end of 2018. When the M.Y starts delivery shortly that share will rise sharply. 

 As China is the biggest market for EV global sales and Tesla were only shipping MS & X in 2018 the % of Tesla sales would be low. I have no doubt that by the end of 2020 the China Tesla EV market share will well above the 20%.

Same goes for Europe. M3 sales are flying and with China producing their own cars Tesla will have more scope to supply the European market.

The 5 fold market increase in EV global market share is too low as well. from 2013 to 2016 the market grew x5. from 2016 to 2019 the market grew x4.7 .


----------



## James Kirk

Brendan Burgess said:


> How many cars will they make in 2020 and what is the profit expectation?



From the people I would trust online estimate is 550,000 for 2020 and 1.1m for 2021.  Profits are a little more difficult because of G3 ramp, MY ramp and G4 construstion  but for 2020 over $ 2billion. Next Wednesday might shed more light on that. Expectations for Q419 is a $400 mil profit.


----------



## Colm Fagan

It has been a torrid few months for my short position in Tesla.  I sometimes ask myself if I have completely misjudged the company. 

I’ve looked again at my analysis and the conclusion is the same.  Putting it bluntly, Elon Musk is probably the most egregious example I’ve ever come across of a manager who promises the sun, moon and stars, but comes up short.

A few examples, taken from quarterly updates from January 2018, illustrate my point:

Jan 2018: *“In 2018, we expect to begin generating positive quarterly operating income on a sustainable basis”.*  The company had negative operating income in four of the seven quarters since then.  Shareholders suffered total losses of almost $2 billion in the following seven quarters.

Jan 2018: *“There were initial concerns that sales of Model 3 would cannibalise Models S and X.  The opposite is true.”  * Models S and X sales fell, almost a third, from 99,500 in 2018 to 66,750 in 2019.  Margins on Models S and X are much higher than on Model 3. 

Jan 2018: *“thrilled to surprise everyone with the next generation Roadster”.  Also unveiled the Semi (a truck) which “launched Tesla into a new product category”. * Neither vehicle has yet seen the light of day.  They are promised sometime in 2020., more than two years later.  Don’t hold your breath. 

April 2018: *“Gross profit should grow much faster than operating expenses”. * Gross profit fell in Q4 2018 and Q1 2019.  In the most recent quarter (Q3 2019), gross profit was less than 80% of the corresponding figure twelve months earlier. 

July 2018: *“Expect to hit 10,000 Model 3 a week (130,000 a quarter) sometime next year.” *  The highest quarterly figure in 2019 was almost 30% shy of that expectation. 

Jan 2019: *“Expect to have positive GAAP profit in every quarter beyond Q1 2019”. *Losses in Q1 and Q2 2019. 

April 2019: *“Enabling our customers to use the Tesla ride-hailing network fleet and generate income”* This refers to the famous/infamous robotaxis, which supposedly will enable Tesla owners earn extra money by telling their cars to ferry partygoers while they sleep.  Don’t worry about putting the kids into a car reeking of booze and cheap perfume the next morning.  Musk claimed in a press conference the same month that *Tesla would only earn sustainable profits after it had built a global network of fully self-driving robotaxis.* 

July 2019: *“We believe our business has grown to the point of being self-funding”* Just after tapping shareholders and bondholders for more than $2.5 billion. 

July 2019:  In relation to autopilot and Full Self-Driving (essential for robotaxis): *“We are making progress towards stopping at stop signs and traffic lights.” * No report since then on whether the monumental challenge of stopping at stop signs has been surmounted.

October 2019: *“One accident for every 4.34 million miles driven in which drivers had Autopilot engaged.  The national average is one accident for every 0.5 million miles.” *  Grossly misleading.  Autopilot is engaged on motorways.   The vast bulk of accidents happen off motorways - probably near stop signs and traffic lights, which are proving such a challenge for Tesla’s autopilot. 

Tesla can boast some great achievements, but at what cost?  By September 2019, it had taken around $18 billion from shareholders (in current money terms) and another $13 billion from bondholders.  Shareholders have no prospect of getting any return on their investment for years into the future (if ever).  They lost a further billion dollars in 2018 and again in the first nine months of 2019. 

Yet those same shareholders seem to think that, in five years’ time, Tesla will be generating profits of over $5 billion a year.  Hope springs eternal. 

That explains why I’m still short Tesla.


----------



## Brendan Burgess

Hi Colm

That is very interesting but would that not be typical of any new business venture? 

He has a vision and a plan, but it's very difficult to get the timeline right for that plan. 

In other words, he might well achieve his targets but just a few years late. 

Especially, when he is trying such ambitious things. 

I too am short Tesla. But for a much smaller amount and while I expect to make a profit on my position, I am prepared for the fact that I might be wrong and that I might lose money.  Or even if I am right, that the market remains wrong for a long time.

Brendan


----------



## Sunny

That's very interesting Colm. For me, I am very interested in the trend where they are announcing great Q4 results as we approach year end and then we revert to loss making quarters in the new year. I am not suspicious by nature but..........


----------



## Colm Fagan

Brendan
Of course losses are to be expected in the early years of a new venture.  For any business however, young or old, the golden rule for managers should be to under-promise, over-deliver.  One could argue that this rule is even more important for a new venture.   Aside from breaking this golden rule, some of Musk's statement (and I'm not even going near his tweets, which are notorious) are highly misleading, to say the least.  Take, for example, the one on accidents, quoted above. 
There is the additional point that Tesla hardly qualifies as a "new business venture" at this stage.  It's more than 10 years old.


----------



## Colm Fagan

Sunny said:


> For me, I am very interested in the trend where they are announcing great Q4 results as we approach year end and then we revert to loss making quarters in the new year. I am not suspicious by nature but....


Hi Sunny.  Yes, I had noticed the contrast between Q4 2018 and Q1 2019 (Op profit of £0.41 billion falls to Op loss of $0.52 billion) but I didn't know if the same had happened on previous occasions.    I gather from you that it has.


Brendan Burgess said:


> I am prepared for the fact that I might be wrong and that I might lose money. Or even if I am right, that the market remains wrong for a long time.


So am I - although I agree that I have far more at stake than you.  I should add that reading some of the posts on this thread has helped me understand why the price has reached its current level and why it could take a long time for reality to dawn for some people.


----------



## Brendan Burgess

Colm Fagan said:


> it could take a long time for reality to dawn for some people.



Is that on us or on them?


----------



## jhegarty

Brendan Burgess said:


> Is that on us or on them?



We find out on Wednesday.


----------



## Brendan Burgess

Hi J

I don't think we find out for  a  very long time.  Wednesday might be a chapter, but that is all it will be.

Brendan


----------



## Fella

I do wonder when will reality dawn on Colm and Brendan that there is no point in shorting its clear from even reading your own posts that yous agree that even though you could be fundamentally right , short term predictions are impossible and its nothing more than a gamble. Sorry to repeat it ad nauseam
but the truth doesn't change.


----------



## Colm Fagan

@Fella  It may surprise you, but we're not far apart.  In fact, at a younger age, I could have been you (but without your insights from gambling).    I believed that the market was always right.  I've changed my mind, but not by much. 


Fella said:


> short term predictions are impossible and its nothing more than a gamble.


I agree completely, but I don't invest for the short-term.  My normal investment horizon is a minimum of five years.  An investment horizon that long works fine for long positions, as a trawl through some of my earlier diary entries will show, but I've gained a new insight over the last few months, that an investment horizon this long is fraught with risk for short-selling, partly for the reason alluded to by @declan11 in post #8 on this thread, that prices always tend to rise over the long-term, so you're swimming against the current when shorting.   I've learned an expensive lesson. 
I would also like you to ponder a second thought in relation to your thesis that 'the market is always right'.   Just over three months ago (on 21 October) Tesla's share price was $253.30.  It has more than doubled since then.  Was the market right on 21 October and is it still right today?  What has happened in the intervening period to change the 'right' price from $253 to $565?   Not sales.  Sales volumes for 2019 were at the low end of expectations, so shouldn't have affected the price.  Could it be profits?  A small profit was recorded for the third quarter, but that was after sharp reductions in R&D and in Sales and General Expenses compared to a year earlier, hardly reasons for the share price to double.    A more telling fact is that the target price for the stock, as per the main analysts covering Tesla, has hardly moved in the period.  So why has the share price doubled?  I put it down to the 1% of the time (not precise, but of the right order) that the market is wrong.  I agree with you for the other 99% of the time.


----------



## Fella

@Colm Fagan I don't believe the market is always right but I do believe that long term going against the market is a losing strategy. Tesla could be well over valued I have no clue , I have no idea what price the stock should be I don't study company finances .
So why do I  have a problem with shorting Tesla ?
Someone could tell me they have been to the future and Tesla stock is worth 0 , they ran out of money and the company is bust. But that information alone is not going to make me short the company , I would need to know the time frame . Tesla could rise to 10,000 first and then fall . 
Tesla is not trading on the same metrics that where used to value companies before , they are a company that divides opinion , some people believe in the future everyone be driving Tesla's some believe they will be bust . It's hard to value a company like that , I've read alot about Tesla and without getting into the company and battery technology etc it seems to me that the are ahead of the rest .
It confuses me why someone like yourself whom undoubtedly has great financial knowledge and has built up a large portfolio over the years would want to try and value a company like Tesla using the same old metrics . And then risk a large part of your portfolio in shorting it ? 
You regularly say your up xx% or whatever even accounting for the Tesla shorts but are they realised gains or paper gains ? 
Long term and shorting don't go together and it's a dangerous game , you keep referring to long term but you can't short a volitile company like Tesla long terms without serious risk to financial and mental health , how many times have you to add money to keep your positions , the losses are realised straight away .
At your age where you seem to be withdrawing part of your pension from investments a stock market crash combined with Tesla shorts going wrong could wipe out years of hard work , and for me it's no more than a gamble. 
Is there not a better strategy , if I really believed Tesla was going to bust I would look at what companies would benefit without Tesla , is there a leading Chinese equivalent you could buy ?      

In regards to why Tesla price has doubled I don't know , was the market right before again I don't know . From looking at market returns in companies that are not as volitile as Tesla I notice that the trend of stocks are rarely linear , good news doesn't necessarily equate to price rises straight away . I would imagine the reasons for this are quite complex and to do with weight of money etc.
You could argue Tesla price was artificially been held back due to the volume of shorting in the market , a sudden rise created a short squeeze and the added publicity etc caused some more buying and the price is inflated now. Again I don't know , and I don't think you or Brendan do either , I don't think there's any financial advantage shorting Tesla , I expect you will making a negative expected value bet due to spread and I'm fine with that , I gamble sometimes but my gambling doesn't form part of my investment portfolio because I recognise it as what it is .


----------



## Brendan Burgess

Hi Fella

I will try to explain it to you.

If I gave you odds of 11/10 on a coin toss and you were happy that it was a fair coin and that I was good for the bet would you take the bet? 

It's short term.
You will either win 11 or lose 10 

If you would bet, how much would you bet? 

Would that be a gamble or an investment?

Brendan


----------



## Fella

Brendan Burgess said:


> Hi Fella
> 
> I will try to explain it to you.
> 
> If I gave you odds of 11/10 on a coin toss and you were happy that it was a fair coin and that I was good for the bet would you take the bet?
> 
> It's short term.
> You will either win 11 or lose 10
> 
> If you would bet, how much would you bet?
> 
> Would that be a gamble or an investment?
> 
> Brendan



I would bet a % of my net worth.
That would be an investment.

My problem is I don't see how you come to the conclusion you have 11/10 in this case of bigger . You are saying it's a value bet but I don't think you have any facts to back it up.
Whatever the outcome is of Tesla is irrelevant to me and this thread .

My fundamental opinion is shorting is gambling , I have read nothing on this thread to make me think otherwise,  76% of IG customers lose money that is not investing.
Your counter argument is Tesla is the rare chance like Bitcoin like the dotcom bubble , but I don't agree , I'm not going to just take your word over the markets .

Even knowing a stock will definitely go to zero you cannot guarantee profits , I am looking at it from a " how can I profit " viewpoint you and Colm are looking at it from " this is over valued " view point , we all might agree Tesla is double the price it should be , but I can't see any gauranteed income from that knowledge, whereas you's two think it's enough to short it as the value has to be on your side . It doesn't , unless you can time the decline .


----------



## Fella

With a fair coin toss , if you win you get paid . Tesla could lose money and the stock price could still rise that's the problem and could keep rising until the coin toss is now 10/11 against you but your still in the market trying to get out .


----------



## Brendan Burgess

Fella said:


> we all might agree Tesla is double the price it should be , but I can't see any gauranteed income from that knowledge



But you are prepared to invest in a coin toss. There is no guaranteed income. There is an EV. 

If you are convinced that Tesla is double the price it should be, then you should be prepared to short sell it in a manner similar to mine.

You stake a % of your portfolio that you are fully prepared to lose in its entirety - like the coin toss. 

Some of the time, you will lose your entire stake. 

More of the time, you will make a profit. 

So let's say I bet €100. I shorted it at 536

I set my stop at 1,000 

I might lose my entire €100 just as I could do in the coin toss. 

I will repeat that although I believe that shorting Tesla has a positive EV, I don't have Colm's confidence to put 10% of my portfolio on it.

These occasions are very rare. Bitcoin is another example. 

I would expect to make money by shorting both.  But I could lose on both. And another one might not come along in my lifetime. 

Brendan


----------



## Brendan Burgess

Fella said:


> but your still in the market trying to get out .



I think that people are scared of short selling because they see the losses as unlimited. 

IG forces you to set an automatic stop.  I would choose to do it anyway.

So I won't be trying to get out. I will close my bet at 1,000 either voluntarily or automatically. 

Brendan


----------



## Fella

Brendan Burgess said:


> But you are prepared to invest in a coin toss. There is no guaranteed income. There is an EV.
> 
> If you are convinced that Tesla is double the price it should be, then you should be prepared to short sell it in a manner similar to mine.
> 
> You stake a % of your portfolio that you are fully prepared to lose in its entirety - like the coin toss.
> 
> Some of the time, you will lose your entire stake.
> 
> More of the time, you will make a profit.
> 
> So let's say I bet €100. I shorted it at 536
> 
> I set my stop at 1,000
> 
> I might lose my entire €100 just as I could do in the coin toss.
> 
> I will repeat that although I believe that shorting Tesla has a positive EV, I don't have Colm's confidence to put 10% of my portfolio on it.
> 
> These occasions are very rare. Bitcoin is another example.
> 
> I would expect to make money by shorting both.  But I could lose on both. And another one might not come along in my lifetime.
> 
> Brendan



I am not sure what price Tesla should be , but either are you but lets assume you are correct , you quoted a figure of 100 as a get out. 
So if your right and its worth 100 and the market is acting totally irrationally , so you start shorting it the day it passes 100 , it goes to 150-200-250-300-350-400-450-500-550-600-??-?? you are shorting every time it rises . 
This is getting really really expensive but its ok you KNOW eventually you are going to be proved right , so even though you are losing your shirt for a couple of years on end you are going to hang on till the market starts to act rationally. You can convince yourself that you made the right call , that you had an advantage but you will learn an expensive lesson that theres a difference between been ultimately proved right and making money.


----------



## Brendan Burgess

Hi Fella

Let's be clear. I do not short any stock which I think is overvalued.  Your analysis would be correct for the vast majority of stocks. 

It has to be a rare occasion like Bitcoin where it's maniacally overvalued.  It can still rise further and I will lose my money. 

So with Bitcoin, when it falls to $3,000 I will close my short position.  Not because I think $3,000 is a fair value, but because the mania may cause it to rise again. 

Tesla is a bit different because it has some value.  I am not sure, but if gets to $300 before it gets to $1,000 I will close my short position.

Brendan


----------



## Fella

I think we have to agree to disagree on this one I respect your opinion on the matter .

My view with Bitcoin and Tesla is that if you cannot understand how the price got to where it is today , I don't know how you think you can predict it's future path .


----------



## joe sod

Fella said:


> Is there not a better strategy , if I really believed Tesla was going to bust I would look at what companies would benefit without Tesla



Yes, would a better strategy not be  to just go long on the big car makers like Toyata or Volkswagon. I think Tesla overtook Volkswagon last week in market capitalisation, I dont buy that for 1 second.  Tesla is a good brand yes but it is not that far ahead in technology.


----------



## Brendan Burgess

joe sod said:


> would a better strategy not be to just go long on the big car makers like Toyata or Volkswagon,



Not really.

I hope that Tesla will survive and continue to produce innovative new products.  I just happen to think that the share price is too  high by a large factor. 

But even if Tesla announced tomorrow that it was closing, I am not sure that the other car makers would increase in value. 

Brendan


----------



## Sunny

Not really because car making is a very unforgiving industry for shareholders. Maybe we will all be driving electric cars in 10 years time but the cost of getting there could claim numerous victims in the industry. We have all seen GM, Ford, Chrysler, Fiat, VW etc etc that have had problems in the past ten years making traditional cars. It's an industry I have never liked.


----------



## sabre Man

Colm Fagan said:


> July 2019:  In relation to autopilot and Full Self-Driving (essential for robotaxis): *“We are making progress towards stopping at stop signs and traffic lights.” * No report since then on whether the monumental challenge of stopping at stop signs has been surmounted.
> 
> October 2019: *“One accident for every 4.34 million miles driven in which drivers had Autopilot engaged.  The national average is one accident for every 0.5 million miles.” *  Grossly misleading.  Autopilot is engaged on motorways.   The vast bulk of accidents happen off motorways - probably near stop signs and traffic lights, which are proving such a challenge for Tesla’s autopilot.



Stop signs and traffic lights are now visible in the car, so there's some progress.

Autopilot is engaged not only on motorways, but also works great on twisty Irish roads in the dark.


----------



## Thargor

sabre Man said:


> Stop signs and traffic lights are now visible in the car, so there's some progress.
> 
> *Autopilot is engaged not only on motorways, but also works great on twisty Irish roads in the dark.*


How do we know that? Is it even legal to switch it on in this country?


----------



## joe sod

@Colm Fagan  well you are getting a bit of a break now on your Tesla short, a much bigger fall than the Dow yesterday, maybe its exposure to China that is hitting Tesla now. Usually when something out of left field hits a sky rocketing stock like Tesla, then investors pause for breath and thought and the enthusiasm dissipates. Even when the corona virus fear goes away again the enthusiasm to keep driving this stock higher will also be gone.


----------



## Colm Fagan

Hi @joe sod   Thanks for your concern!  I need all the comfort I can get these days  but I'm with @Brendan Burgess in thinking that it could take some time for this particular story to play out.   Full-year results tomorrow, but they may not advance the discussion much.  I'm reconciled to having to hold out, possibly for another 12 months, before closing my position.  I could end up losing heavily, but Tesla's execution has to be almost ************************* to justify anything close to the current market valuation.  As @Sunny noted yesterday, car makers have not been kind to investors.  Lots can go wrong: design flaws, product recalls, assembly line hiccups, etc.  With its low investment in R&D, Tesla is more prone to banana skins than most.


----------



## sabre Man

Thargor said:


> How do we know that? Is it even legal to switch it on in this country?



Autopilot was nerfed due to EU regulations last year, which actually makes it less capable but it still works well in Ireland and can be activated anywhere where the car can see the lanes.

I encourage you to check out EV TV Ireland on YouTube, where you can find a playlist of Autopilot videos which demonstrate how Autopilot works in Ireland.


----------



## Fella

I fear I may be turning into @Colm Fagan as this month I did invest in one company which I like instead of my usual investment trust or REIT , maybe I am a young Colm after all!


----------



## Colm Fagan

Hi @Fella   I hope that it was also at the right price!  It's no good buying into a company you like at too high a price.


----------



## James Kirk

Colm Fagan said:


> Hi @joe sod      I'm reconciled to having to hold out, possibly for another 12 months, before closing my position.  I could end up losing heavily, but Tesla's execution has to be almost ************************* to justify anything close to the current market valuation.  As @Sunny noted yesterday, car makers have not been kind to investors.  Lots can go wrong: design flaws, product recalls, assembly line hiccups, etc.  With its low investment in R&D, Tesla is more prone to banana skins than most.



that's a lot of negativity with short "investing" in one paragraph  Colm. 
1.  12 months of waiting for the market to turn on Tesla when it hasn't in 10 years.
2. If Tesla keep doing what they are doing you will loose heavily.
3. S*it happens to auto makers and you hope it happens to Tesla as well. 
4. For a company not spending as much as some on R&D  they continue to leave the auto industry in the dust with pipe line and innovation.  
5. What banana skins?  Look at the graph of Tesla growth and compare to the "most" in the auto industry. I think Tesla are growing sale at over 60% compounded.


----------



## joe sod

James Kirk said:


> For a company not spending as much as some on R&D they continue to leave the auto industry in the dust with pipe line and innovation.



Well Tesla is very far from the Ford Model T progress, it only sold 367,000 cars last year, 11 years after it started production
The model T sold 11,000 units in 1909 at a price of $23,500 in todays dollars
by 1920 it sold a 1,400,000 units at a price of $5041 in todays dollars

and this long before automated  assembly lines and computers. So Tesla will not be joining the Model T in revolutionary changes in car manufacturing. They are not growing fast enough and they are not getting their unit cost down like Ford managed to do way back when. In other words Tesla will not be producing "the peoples car", they are just too expensive.


----------



## Colm Fagan

Hi @James Kirk
You really are an Elon Musk fan!


James Kirk said:


> 1. 12 months of waiting for the market to turn on Tesla when it hasn't in 10 years.


The market has turned on Tesla many times, even since I started following it in 2018.  I opened my first short position in January 2018 at $362 a share and closed it later that year at an average $307 a share.  I opened my second short position at $310 a share and closed it at $281 a share.  I also made profits on my third and fourth short positions.  As everyone knows, things haven't gone so well recently (what an understatement!), but the race isn't over.  You can rest assured that the market will turn on Tesla many times in future.


James Kirk said:


> 2. If Tesla keep doing what they are doing you will loose heavily.


What has Tesla been doing?  It took $18 billion from shareholders and another $13 billion from bondholders, it's losing money hand over fist, yet shareholders think it will pay them back over five times what they paid in.  My money is on the boy who said the emperor had no clothes. 


James Kirk said:


> 3. S*it happens to auto makers and you hope it happens to Tesla as well.


S**t has already happened - many times.   Last year for instance, it took a charge of more than $120 million for buy-back guarantees on some of its cars.  Last year too, Walmart sued it for solar panels that allegedly caused fires at seven of its stores.  It accused Tesla of  “years of gross negligence and failure to live up to industry standards”.   The case was settled in November.  I don't know how much it cost Tesla.  We'll probably know tomorrow night. 


James Kirk said:


> 4. For a company not spending as much as some on R&D they continue to leave the auto industry in the dust with pipe line and innovation.


They don't.  You saw what happened with the Cybertruck 'launch'.  I quoted earlier from the Q2 report in relation to FSD (full self-drive), that Tesla said it was 'making progress with stopping at stop signs and traffic lights.'  Not exactly awe-inspiring.   Waymo (the Google subsidiary) leads the field in FSD by miles (actually thousands of miles).  Tesla is nowhere.  


James Kirk said:


> 5. What banana skins? Look at the graph of Tesla growth and compare to the "most" in the auto industry. I think Tesla are growing sale at over 60% compounded.


Volkswagen sells 10 million cars a year, Tesla less than 400,000, yet its market value is greater than Volkswagen's.  That's anticipating a hell of a lot of growth.


----------



## SPC100

__





						The Perils of Shorting:  A Real Life Example
					

Yahoo Finance has a good summary of all the forecasts.  https://www.tipranks.com/stocks/tsla/price-target    I am surprised that the highest is only up 20% from the current price, while the lowest is down about 90%.  Maybe I need to review my $200 close out target.  Brendan   Assuming that...



					www.askaboutmoney.com
				




It only has to keep it's market share consistent and ev grows 4-5 fold. And make 4k profit per car.

I think everyone agrees that the ev market share is growing and Tesla is very desirable brand. And with enough time they can ramp production.

The question is what profit can they make per car.


----------



## elacsaplau

Colm Fagan said:


> ……..it's losing money hand over fist



This is simply not true.

The last two quarters (yes - confirmed here first!!)……...have been profitable. The full-year 2020 is very probably going to be profitable also.

Tesla may very well be over-priced but let's stick with the facts please.


----------



## Brendan Burgess

elacsaplau said:


> This is simply not true.



Hi elacs

It's debatable. 

I could have a business that is profitable some months but loss making on an annual basis. 

With the wide scope open to companies to calculate profits, it's relatively easy to report a profit or a loss in any quarter or even in any year.  It's more difficult to report consistent profits every year, if there are no underlying profits. Although Irish banks did manage it. 

So what can we say about Tesla? 

1) It has had huge accumulated losses which is what you would expect from a company in its early days 
2) It has reported profits in the last two quarters 

So I would say "It has been losing money hand over fist" rather than "It is losing money hand over fist".

Brendan


----------



## Colm Fagan

Hi @elacsaplau
I don't know if you were crowing when Tesla recorded profits for shareholders in Q3 and Q4 of 2018, which were higher than will be recorded for the corresponding quarters in 2019.     I remind you that the profits in Q3 and Q4 of 2018 were followed by losses of $0.7 billion and $0.4 billion in Q1 and Q2 of 2019 respectively.   Overall, both 2018 and 2019 were highly loss-making.


elacsaplau said:


> The full-year 2020 is very probably going to be profitable also.


Do you realise the scale of the challenge Tesla has to overcome to justify its current market value?   The market assumes that it will turn the corner very soon - it probably has to be this year- and that profits will grow quickly from there.  In an earlier post, I reckoned that it will need to be generating profits for shareholders of $5 billion a year (and increasing consistently) five years from now to justify the current valuation.  The true figure is probably higher, as I've implicitly assumed that they won't go back to shareholders for more funds (more piggies at the trough) nor that seepage in the form of share awards to Musk and his buddies won't be excessive.  I haven't gone into the details of his package, but I suspect that, if the company is making that much money in five years' time, Elon Musk will grab a significant slice, leaving less for ordinary shareholders.
As I said to @Fella yesterday, it's great to invest in a good company, but it has to be at the right price.


----------



## elacsaplau

Brendan Burgess said:


> So I would say "It has been losing money hand over fist" rather than "It is losing money hand over fist".



Well, not really, Brendan! "Donald Trump is a good President" is debatable! You could argue either way!! This is different!

The former statement is true, is actually and factually correct - the latter is simply not. It should be seen in the context of Colm's recent post giving out about Musk making things up or, at least, making statements with insufficient precision . Black pots, kettles and all that! Just my $0.02........


----------



## elacsaplau

Colm Fagan said:


> Do you realise the scale of the challenge Tesla has to overcome to justify its current market value?



Colm, 

You are arguing a separate point here. [If I said that the front door of house no. 3 on that street is green - telling me that no. 4 is definitely blue is not particularly relevant and may even serve to distract from confirming the colour of number 3!]

The above relates to the extent of the challenge to create sufficient profits to justify current valuations. I am not disputing that.

All I was saying is that the blunt statement that Tesla is losing money hand over fist is wrong or, at the very least, highly, highly misleading.

Put it another way - are you saying that Tesla will definitely be loss-making in 2020?

Very serious question - what % probability would you ascribe to Tesla to being profitable for the full year 2020?


----------



## Colm Fagan

@elacsaplau   I honestly don't have a clue what you're talking about, referring to colours of front doors!  I thought we were discussing whether Tesla's current share price was reasonable.  I was trying to address that question sensibly and logically.  I was hoping for a response in the same vein.  
As regards whether Tesla will make a profit in 2020, I simply don't know.   What I'm saying is that, if the pattern of 2018/19 is repeated, we'll see losses in the first two quarters of 2020, which will more than wipe out the profits in the last two quarters of 2019.  These will then be followed by small profits in the final two quarters of the year; however the main point is that, if Tesla is to have any hope of justifying its current share price, it needs to start making profits consistently, and quickly.  The profits must keep growing so that they reach $5 billion a year by 2025, and keep growing from there, without any significant dilution of existing shareholders' interests.   You can then start thinking about the colours of front doors.


----------



## Sunny

elacsaplau said:


> This is simply not true.
> 
> The least two quarters (yes - confirmed here first!!)……...have been profitable. The full-year 2020 is very probably going to be profitable also.
> 
> Tesla may very well be over-priced but let's stick with the facts please.




The facts are that the last two quarters of 2018 were profitable. Great shouted everyone. They have turned the corner. Q1 2019. Huge loss and 2019 continued to be loss making until you guessed it, the last two quarters of 2019. So what are the company themselves guiding for Q1 2020? Yep another loss. And probably the same with Q2. As for 2020 profitability, I will take a bet now that the company will not be profitable this year but I don't know.

Quarterly profits don't make a company profitable. There are plenty of ways to manipulate annual accounts coming up to year end to paint a prettier picture. There are endless ways with quarterly accounts. Quarterly profit means squat. They are only useful for trends.

Just last year, Musk was warning that the company could run out of cash in 6 months. Now suddenly it is a $100 billion company without the sales or profits match. 

Reading some of the posts above and if we take them as a fair reflection of how Telsa investors feel about the company, then people are going to get very burnt......


----------



## James Kirk

Yes I am a Musk fan.  I am a Tesla Share holder with well over 100% profit from a buy and hold investment. Not a big fan of shorting either



Colm Fagan said:


> The market has turned on Tesla many times, even since I started following it in 2018. I opened my first short position in January 2018 at $362 a share and closed it later that year at an average $307 a share. I opened my second short position at $310 a share and closed it at $281 a share. I also made profits on my third and fourth short positions. As everyone knows, things haven't gone so well recently (what an understatement!), but the race isn't over. You can rest assured that the market will turn on Tesla many times in future.


 
There is a huge difference between the market turning on a company and normal stock market fluctuations. In 2018 TSLA traded between $260 and $360. It peaked 5 times and toughed 4 times. You could have made easily as much cash buying low and selling high as shorting.  



Colm Fagan said:


> What has Tesla been doing? It took $18 billion from shareholders and another $13 billion from bondholders, it's losing money hand over fist, yet shareholders think it will pay them back over five times what they paid in. My money is on the boy who said the emperor had no clothes.



What growing company doesn't borrow money? That's just business.   Bond holders will be paid as agreed. As for share holders, I have a feeling most of them are X 5 already and I'd be willing to bet a very small % would sell their share today even if they were.  Tesla will make a loss for FY19 but in the millions not the billions. However in 2020 the profits will be in the billions not the millions



Colm Fagan said:


> S**t has already happened - many times



Of course it does. To every company. Eg... diesel gate.  Eg.. US  Auto industry government bale out  Eg..  Carlos Ghosn.  you are shorting the wrong auto company. Any of the others would have made you a very tidy profit shorting them over the last few years.  My point there wasn't that thigs don't happen. It was that if you are waiting for s**t to happen to make money that's not investing. It's just gambling.  You might as well short Ryanair and hope for a plane to crash.   



Colm Fagan said:


> They don't. You saw what happened with the Cybertruck 'launch'



Obviously all you saw that night was a window smash.  Did you notice the Cybertruck the window was in?  Did you notice the media coverage all over the world the next day?   Do you know the Model Y will start deliveries shortly and has been specifically designed to allow for efficient manufacture. Even leaving aside self drive developments, solar roofs, battery advancements ect ect that all comes from R&D.  If the spend is low and the results are there to be seen how can that be a negative especially since you consider borrowing money to drive growth a negative as well? 



Colm Fagan said:


> Tesla is nowhere.



Start 2 mins in.




__





						video of herbery diess in davos - Yahoo Video Search Results
					

The search engine that helps you find exactly what you're looking for. Find the most relevant information, video, images, and answers from all across the Web.




					video.search.yahoo.com


----------



## elacsaplau

Colm,

You're a gas man.

Earlier - Tesla is making "losses hand over fist". With a little probing this has now become....



Colm Fagan said:


> As regards whether Tesla will make a profit in 2020, I simply don't know.



If you don't know something, why make it up??!! Seriously.

Anyway, I made my point - I'll leave it at that - don't have Fella's patience of saying the same thing 19 times!

My beautiful door colour analogy really isn't that hard to follow!


----------



## Sunny

elacsaplau said:


> Colm,
> 
> You're a gas man.
> 
> Earlier - Tesla is making "losses hand over fist". With a little probing this has now become....
> 
> 
> 
> If you don't know something, why make it up??!! Seriously.
> 
> Anyway, I made my point - I'll leave it at that - don't have Fella's patience of saying the same thing 19 times!
> 
> My beautiful door colour analogy really isn't that hard too follow!



The more I follow this thread and the more I read about Tesla, the weirder it sounds. I don't remember ever seeing such an emotional stock.


----------



## Brendan Burgess

The results will be webcast at 23.30 Irish time tonight. 

You can follow them here: 



			https://edge.media-server.com/mmc/p/6ng4gj6b
		


I think you might have to register first. 

Brendan


----------



## Colm Fagan

@James Kirk   Interesting video.  Thanks for posting.  We shouldn't take everything he says as gospel, though.  He is the CEO of Volkswagen and has his own agenda, which is not necessarily the truth, the whole truth, so help me God.  I was particularly sceptical of his dismissal of Google's self-driving technology.  That's completely at odds with an article I read last year (see post #100 on this thread) which said that Waymo (the Google subsidiary) was able to do 11,018 miles without manual intervention.  Next was GM with 5,205.  Some of the big players were nowhere.  For example, Apple had 1.15 miles.  Tesla didn't appear on the chart.   In the comment section of the article, someone said that Tesla's number was 0 - presumably because of its inability to stop at stop signs and traffic lights.  That's what I had in my mind when I wrote that Tesla was nowhere.


----------



## jhegarty

You don't need to register in advance. 

Have my big bag of popcorn at the ready.  I expect either a $700 or $400 open tomorrow.


----------



## James Kirk

Colm, while you wait for the results tonight have a look at this up to date video on Waymo v Tesla.  You can decide then on who is where. https://www.youtube.com/watch?v=6SCj3S3ZoOU

As for Volkswagen, their ID.3 will be the biggest competitor to Tesla cars eventually I think. Unfortunately for them they screwed up a bit at the point of manufacture. Reports say they have thousands of the actual car ready to go but without the software package installed. When it's ready every car will have to have the software manually inputted from a laptop because over the air is not installed yet either.  2021 is now the expected release date. 
There is one other thing (probably more than one). No auto company has the battery availability of Tesla, so they for now are numbers restricted.


----------



## James Kirk

jhegarty said:


> Have my big bag of popcorn at the ready.  I expect either a $700 or $400 open tomorrow.



I think Tesla will post excellent numbers but at $580 that's in the price. Unless the beat is way beyond expectations there may well be a sell the news drop. We know the delivery numbers so it will come down to gross margin (analyst expectation -1% from Q3) and future guidance ( Is Y ready to deliver). If spending was controlled over the quarter, the end of year cash position could hit $6 billion. Not bad for a company about to go bust.


----------



## Thargor

Earnings out, $620 after hours...


----------



## elacsaplau

Well, not saying I told you so or anything but...…….



elacsaplau said:


> The last two quarters (yes - confirmed here first!!)……...have been profitable. The full-year 2020 is very probably going to be profitable also.


----------



## yosim00

Earnings out, $620 after hours...
[/QUOTE]

oof.....nice start to 2020 for Tesla bulls


----------



## Daddy Ireland

$675  by close tomorrow ?  This is not stopping it's more likely only getting going.


----------



## James Kirk

Despite analysts upping their estimates in December Tesla still easily beat them. profit of $359 and and $1.1billion of free cash flow.  Y in production which is hugely important to Q1 20 results.  We'll see what the call brings but I think it's fair to say the days of a $200 or $300 hare price are well gone. 
Sorry Colm, no good news for you.


----------



## jhegarty

Past $650 now.


----------



## James Kirk

I know it's after hours trading but as of now SP is up $100 in 3 days.  It will hardly hold that gain but this is short squeeze territory. Definitely short squeal


----------



## Brendan Burgess

James Kirk said:


> We'll see what the call brings but I think it's fair to say the days of a $200 or $300 share price are well gone.



Hi James 

It's way too early to say that.   A few good quarters does not mean that it  justifies the current share price. 

So it's not "fair to say" that. 

Brendan


----------



## elacsaplau

Brendan Burgess said:


> It's way too early to say that.....



I didn't watch any presentations or study the paperwork in detail but I think Brendan's point is completely reasonable. It really is too early to say where Tesla goes from here and I suspect that it will continue to divide the jury. Expect much confirmation bias to appear in these here parts and elsewhere in the coming days! For what it's worth, if I bought Tesla at $200 a few months ago, I'd be very tempted to cash-in at the $650 or so, currently being quoted in after hours. Investments can often be governed by emotion - those who shorted may now regret their greed in not taking the previously available profit and may now be experiencing its twin emotion, fear.

What I think is "fair to say" is that betting on individual stocks - as I have mentioned many times previously - is a high risk sport. It can work out very well for long periods but, sooner or later, such punts may turn sour.

In fairness to Brendan, allocating 1% or so to such high risk punts is justifiable. My concern is for those who may be tempted to over expose themselves. As Buffett reminds us........"you only know who's been swimming naked when the tide goes out!" I trust that people will be able to understand this analogy. Feedback is that yesterday's analogy caused some people difficulty!


----------



## yosim00

It doesn't make sense to short this stock when you could have been long from around $200 - $250 ..... the question is do you want to make money or do you want to be right? But the market is a great teacher as they say :-/


----------



## Fella

Can't we all just agree that nobody has a clue and move on .
Colm writes about stocks and he's losing money hand over fist , I'm clueless and making money every where on stocks .


----------



## elacsaplau

I criticised Colm yesterday for his inaccuracy and feel bound to do likewise now.

It is simply not true to say that Colm is losing money "hand over fist". This particular punt has gone wrong but my understanding is that the losses in Tesla are less than the gains in the remainder of Colm's portfolio so that he continues to enjoy superior returns than more orthodox approaches. Whether his risk adjusted returns are superior is a different question.

It may very well be true to say that trying to pick individual stocks is generally a loser's game.

My concerns regarding Colm's writings are not for Colm personally - I think that there is a substantial chance that less financial savvy people will try replicate his approach and get mushed.  I believe that he doesn't make the risks of his approach sufficiently clear. At a general level, in my opinion, his writings are disproportionately reward focused. That has always been my concern and in that I remain steadfast.


----------



## Fella

elacsaplau said:


> My concerns regarding Colm's writings are not for Colm personally - I think that there is a substantial chance that less financial savvy people will try replicate his approach and get mushed.  I believe that he doesn't make the risks of his approach sufficiently clear. At a general level, in my opinion, his writings are disproportionately reward focused. That has always been my concern and in that I remain steadfast.



The truth is not gong to sell many papers .


----------



## elacsaplau

It's certainly true that the Racing Post doesn't overly concern itself with the fact that most readers would be better off not going to war!!

Edit:

Sunny has correctly pointed out that this is unfair and I agree with him!


----------



## Sunny

Guys, that is grossly unfair. Look at the title of the thread. look at the first post and show me how that is reward focused. Neither Colm or Brendan have advocated anyone following them at any stage. You can disagree with them without making disparaging remarks about their intentions.

Anyway, the shorts put on by Colm and Brendan are not really why this thread is interesting. The interesting thing is why this stock drives such an emotional response in people (almost like bitcoin). This stock is bonkers and the reaction to it is hysterical. 

What I am reading this morning and is also bonkers is the compensation package for Musk and other executives......


----------



## elacsaplau

Sunny,

I agree that it might be somewhat unfair. I have put an edit in the original.

Just to note, when referring to Colm's articles, I specifically mentioned "AT A GENERAL LEVEL"...……I also qualified my statement saying that it was "in my opinion". I think it is valid to have a different opinion to Colm? (Note: The background here is that for a long-time, I have struggled to understand the purpose of Colm's articles and he has refused to explain! I am also deeply concerned by the messaging.)


----------



## Brendan Burgess

elacsaplau said:


> I have struggled to understand the purpose of Colm's articles and he has refused to explain!



What purpose do you need? 

They are highly informative and entertaining. 

This thread shows the perils of shorting and we can all learn from the thread. 

Brendan


----------



## James Kirk

James Kirk said:


> We'll see what the call brings but I think it's fair to say the days of a $200 or $300 hare price are well gone.





Brendan Burgess said:


> So it's not "fair to say" that.



The earnings call was very interesting and you could hear the excitement in Elon's voice as regards the future especially as he talked about batteries and the Cybertruck.   The truck has a 3 year order back log to clear when production starts so no issue with demand there.  Adam Jonas ask a strange question about integrating a satellite dish into the roof of a car to connect with Starlink. 

There was one negative issue. The closing of Giga Shanghai for 10 days because of the flu virus. If it is for only 10 days it wouldn't be so bad but there is no guarantee of that.  A Q120  profit  was always touch and go. Tesla have almost zero inventory so China would need to produce a minimum of 1000 cars a week to reach the numbers needed for a profit. The 2020 target is "above 500,000". Even without China for a few weeks that target is not under threat.  I still think it's fair to say the days of a $200 or $300 share price are well gone.  Others are free to think differently.


----------



## James Kirk

Sunny said:


> What I am reading this morning and is also bonkers is the compensation package for Musk



Musk gets paid ONLY if he reaches certain goals. He was considered bonkers when he did the deal in 2018 because most believed he would never earn a $. 






						Zerohedge
					

ZeroHedge - On a long enough timeline, the survival rate for everyone drops to zero




					www.zerohedge.com


----------



## joe sod

James Kirk said:


> The earnings call was very interesting and you could hear the excitement in Elon's voice as regards the future



So the messiah appeared last night, did any women faint in the front seats overcome by the sight of him?

Fair play though you called it correctly so you are obviously a happy man today. Even though we completely disagree on the future of Tesla and electric cars I think you should not get carried away, if I was you I would be taking some money off the table and invest in something dull and boring.


----------



## elacsaplau

Hi Brendan,

This will probably be a bit rushed - bloody day job!!!!

I am talking about Colm's posts generally. I grant you that many of them are entertaining. He is clearly an intelligent man with a way with words. Their attractive, nay almost seductive, nature will entice the unwitting.

The concern that I have is that AAM should be about promoting good financial behaviour. Chasing needles in haystacks really isn't a good way to invest for the great majority. His admission that passive was the way to go was welcome and a long time coming!. Professional active fund managers do not_ en masse _beat the index. As Gordon, Fella and others have said, it's really not smart for Joe Soap to think that he can outsmart the market - from the bedroom, kitchen, toilet, wherever! The fear that I have is that people will try replicate Colm's unusual style and will get mushed in doing so! 

Accordingly, in my view, the articles do not inform how to invest properly. Entertain yes - inform, honestly don't think so!

Anyway, I'm speculating (but not accumulating). I asked Colm a few times previously to explain their purpose. Let's see will he explain his reasons now!


----------



## Brendan Burgess

So you think that a thread clearly marked "The Perils of Shorting" where he outlines his considerable losses might encourage bad behaviour? 

Brendan


----------



## Colm Fagan

I'll keep my peace on Tesla for now, other than to say I found myself in a casino when I thought I was in the stock market.  It's been a tough few months, but it could have been worse.  I kept my exposure to what I could reasonably afford.  That meant closing portions of my short position as the price rose.  That pained me, but it limited my losses.  As you can see from below, I haven't gone bust!

The main purpose of this post is correct a few mis-statements by others:


elacsaplau said:


> At a general level, in my opinion, his (Colm's) writings are disproportionately reward focused. That has always been my concern and in that I remain steadfast.


On the contrary, unlike most who write about their investments, I have always been  very open about my losses.  In addition to Tesla, I have also written about losses on Ryanair, WPP, Samsonite, AMP, and Carclo, where I lost over 75% of my investment.   Carclo was the subject of my first diary entry back in September 2015.  If you don't believe me, you can find past diary entries on my website here.


Fella said:


> Colm writes about stocks and he's losing money hand over fist


Again, completely untrue.  I have just looked at my ARF statement for 2019.  It's my largest account by far.  The administrator (execution only)  tells me that the return for the year was 46.5%.  For my overall portfolio, including non-ARF investments, spread bet accounts (including Tesla) and cash on deposit, the total return for 2019 was 27.1%.

In the current month (January 2020), up to close of business last night, I earned a positive return on my total portfolio, despite the losses on Tesla in the month.

On a longer term basis, it was easy to calculate the average return on my AMRF for the 8 years 10 months between when I started it in December 2010 and when I folded it into the ARF in 2019 (I had to fold it because of increases in the state pension).  There were no cash flows (in or out) in the period, so the return was simply the closing value compared with the amount invested back in 2010.   The average return over the entire 8 years 10 months was 13.7% a year.

So much for losing money hand over fist.  It also answers @elacsaplau 's point that my writings are disproportionately reward focused.  That's because my returns are disproportionately rewards focused.   The good returns are because I take a disciplined approach to investment.  Implied in my approach is a belief that other investors will act rationally.  I've discovered recently however that sometimes they act quite irrationally.   That knocks me off balance.  It has been a painful discovery, but it's been a learning experience, which I hope to use to my advantage in future.


----------



## Brendan Burgess

Colm Fagan said:


> It has been a painful discovery, but it's been a learning experience, which I hope to use to my advantage in future.



Hi Colm 

And it's been a great lesson for anyone else reading it. 

I hope the questioning of your motives won't discourage you from continuing to contribute to Askaboutmoney.

Brendan


----------



## Colm Fagan

Brendan Burgess said:


> What purpose do you need?
> 
> They are highly informative and entertaining.


Thank you, Brendan.  I need lots of love today!!!

I have explained many times why I started the diary.  It stemmed from my experience with Carclo (mentioned above) back in 2015, where I lost over three-quarters of my investment.  I realised that I had bought into a story stock and that the substance didn't match the story.  I concluded that I wouldn't have made such a stupid investment if I had tried to explain, say to my wife, who knows nothing about finance, why I decided to invest in it, other than some stranger saying it was a great buy.  I vowed never again.  I resolved that, in future, I would only invest in something if the numbers stacked up.  Of course I've made mistakes but the overall results have justified my approach, as demonstrated in the returns quoted in my post of a few minutes ago.


----------



## elacsaplau

elacsaplau said:


> I am talking about Colm's posts generally.


gets


Brendan Burgess said:


> So you think that *a thread* clearly marked "The Perils of Shorting" where he outlines his considerable losses might encourage bad behaviour?



Come on now! You're better than that!


----------



## RichInSpirit

elacsaplau said:


> My concerns regarding Colm's writings are not for Colm personally - *I think that there is a substantial chance that less financial savvy people will try replicate his approach and get mushed*.  I believe that he doesn't make the risks of his approach sufficiently clear.



Very good point.


----------



## elacsaplau

Thank you - RichinSpirit 

I still have no idea why Colm writes his articles. #406 explains why Colm favours the DIY approach and not why he writes about his DIY approach!


----------



## Brendan Burgess

elacs

Colm's posts are in a thread with that title. "The Perils of Shorting - a real life example" 

Anyone reading them knows the context. 

No one could possibly read them thinking that Colm or anyone else is suggesting that the ordinary punter should be shorting Tesla or any other shares.

Brendan


----------



## Fella

My hand over fist reference was a joke based on Tesla comment losing money hand over fist , I guess some things get lost on the internet .
Anyway I wish colm and Brendan all the best this thread has run it's course for me , nothing has swayed me from the idea that shorting is any different to mug punting in the bookies .
Brendan and Colm and me disagree but that's what makes the world great , you learn more from disagreements , I have learned lots from this thread and @Colm Fagan I thank you for your knowledgable posts ,but I don't want to get personal to make a point and Colm and Brendan seem like nice folk so will bow out now at the risk of offending them . It's not nice to lose money and it's admirable colms postings in the face of such losses .


----------



## Itchy

RichInSpirit said:


> Very good point.



Its a terrible point! So we are not allowed publish certain things on the internet now? Nothing must be published on this forum in case somebody does something that results in someone getting mushed? Come on! Colm is genuine, I learn alot from other people on this site and it would be a shame lose his contributions. This site is better with this thread than it would be without it.

Its 100% without a doubt a high-risk activity shorting equity.  There is nothing in this thread to suggest that this is not the case. If someone gets mushed thats their own fault. Besides, Brendan has his heart broken trying to get people to switch their mortgages and the inertia is mind blowing! I cant see the less-financially savvy going spreadbetting as a result of this!

A discussion of high-risk activity should not be forbidden from this website because it is inherently high risk.


----------



## Sarenco

CNBC reporting that Tesla short sellers collectively lost over $1 billion in one day as stock skyrockets on earnings.


----------



## Sunny

Sarenco said:


> CNBC reporting that Tesla short sellers collectively lost over $1 billion in one day as stock skyrockets on earnings.



And Colm and Brendan probably account for about $600m of that......


----------



## joe sod

Even the mighty Microsoft which announced blockbuster earnings of 36 billion and profits of 11.6 billion last night only rose 2.5%, its market cap is now not that far ahead of Tesla. Microsoft is still dominant in the tech space all those years later, it does not have the massive expenditure that Tesla has in manufacturing and R and D, yet it can well afford it if needs be.


----------



## RedOnion

joe sod said:


> its market cap is now not that far ahead of Tesla.


1.3 trillion...? That's a good bit ahead by any measure.


----------



## WhiteCoat

Very interesting thread. I had promised myself to keep an eye on it to see how it develops. I must admit feeling a bit conflicted.

I am very concerned about climate change and urban air pollution and think that EVs can help in this area. I like to see companies in this field grow and prosper. I think that when you short a company, there is a part of you which doesn't fully wish for the company to truly prosper. For example, imagine if the very respected leader of the Free World had some form of Damascene conversion and tweeted that our oil guzzling ways need to dramatically reduce asap. This would be a good thing for humanity, right? Presumably, however, this would just cause an extension to the nightmare for those who short Tesla. Is this reasonable?

The reason for being conflicted is that, at a personal level, I feel for those like Brendan and Colm who have lost money and applaud the fact that they have continued to post.


----------



## Brendan Burgess

WhiteCoat said:


> I feel for those like Brendan and Colm who have lost money



Hi White Coat

I am up on Tesla?  I made money on the first short I did which I had to close out of in November.  I am down on the current short but not by as much as I made on the first one.

While Colm is down overall on Tesla, it's part of a portfolio which is doing well.

I am not losing any sleep over it so no one else should lose sleep over me.

By the way, I would love to see Tesla survive. I just want to see the price fall to its fair value.  A manic bubble in the share price is not good for the company in the long-term. 

Brendan


----------



## joe sod

Peter Brown was discussing Tesla on newstalk business yesterday , in my opinion he is one of the best analysts in ireland. He described Tesla as a cult even if the stock goes to zero some people will not sell it because they want to identify with the story behind Tesla. He also said that alot of the financial guys have been shorting Tesla because the financials and stock price are completely out of whack but so far they have been losing alot of money. I think the whole "greta thurnberg" phenomena and the ratcheting up of this story in the media is obviously benefiting Tesla alot


----------



## WhiteCoat

Apologies Brendan,

The consequences of trying to speed read!

I am convinced what I said about shorting is true. Your point may be independently valid - personally, I am not so sure.


----------



## Itchy

WhiteCoat said:


> I am very concerned about climate change and urban air pollution and think that EVs can help in this area. I like to see companies in this field grow and prosper. I think that when you short a company, there is a part of you which doesn't fully wish for the company to truly prosper. For example, imagine if the very respected leader of the Free World had some form of Damascene conversion and tweeted that our oil guzzling ways need to dramatically reduce asap. This would be a good thing for humanity, right? Presumably, however, this would just cause an extension to the nightmare for those who short Tesla. Is this reasonable?



I think it is a stretch to associate your values with the market or to a stock or to associate someone elses values with their market purchases. It would be too far IMO to say you "dont want the company to prosper". All shorting is, is a statement to say that this company is overvalued at this point in time. I dont feel like you can extrapolate that to say that the company dosent reflect your values or that you dont want it to succeed. For example, I would share your view on climate change but should I short the oil majors because I dont want them to prosper? The market is a popularity contest. If you share a company's values you could buy their product or not, as the case may be. That would make more of a statement than buying the stock.


----------



## elacsaplau

Well this thread certainly is dividing opinions.

Each share has a price based on the consensus market expectation. In reality, the company will perform better than, in line with or worse than this consensus view. I would have thought that most people when they buy a share hope that things go well for that company and when you short sell a company, you are quite relaxed if the company encounters the odd hiccup or worse. It seems to me that this is what WhiteCoat is saying and seems perfectly reasonable to me.

The idea that it's a bit of a stretch that some people would seek to have their investments aligned (within reason) to their values now also presents. This is news to me and presumably also to the many companies that market socially responsible investments.


----------



## joe sod

elacsaplau said:


> The idea that it's a bit of a stretch that some people would seek to have their investments aligned (within reason) to their values now also presents. This is news to me and presumably also to the many companies that market socially responsible investments.



Its definitely happening that people are buying stocks based on their values, colm fagan referred to this himself. When you have a large number of stocks that people and funds wont invest in today, then they have obviously reduced the number of stocks that they can invest in, Tesla is at the top of this pile. It is a very easy strategy to follow now that we are in a bull market driven by tech stocks, so you are making money aswell. But all trends end especially if there is a blow up in the tech space like in 2001


----------



## Sunny

Cam across this quote from Musk from the earnings last week when asked about the negativity of analysts...

"I do think that a lot of retail investors actually have a deeper and more accurate insights than many of the big institutional investors and certainly a better insight than many of the analysts,” he said. “It seems like if people really looked at...what some of the smart — smaller retail investors predicted about the future of Tesla...you’d probably get the highest accuracy and remarkable insight from some of those predictions.”

So the CEO is saying that retail investors have a better understanding of his company than professional institutional investors......There are going to be people very burnt on this stock.....


----------



## Brendan Burgess

Sunny said:


> So the CEO is saying that retail investors have a better understanding of his company than professional institutional investors..



In general,  institutional investors are pretty useless at identifying overpriced or underpriced shares.  So I don't think that they have either a better or worse understanding. 

However, when a share is subject to mania, do the institutional investors evaluate it better?  Maybe they do. I don't know.

Brendan


----------



## elacsaplau

Sunny said:


> There are going to be people very burnt on this stock.....



Interesting post, Sunny

One of the points that I have consistently tried to make is that concentrated portfolios can create additional, unrewarded risks.

For a happier investment life, it's best to avoid the potential of getting "very burnt" - one's call might be flat wrong or just at the wrong time. Again, as I have said, Brendan's limited exposure and stop-loss is completely reasonable. The majority of people taking large bets will sooner or later encounter challenging market conditions!


----------



## Sunny

Brendan Burgess said:


> In general,  institutional investors are pretty useless at identifying overpriced or underpriced shares.  So I don't think that they have either a better or worse understanding.
> 
> However, when a share is subject to mania, do the institutional investors evaluate it better?  Maybe they do. I don't know.
> 
> Brendan



Has nothing to do with the share price per se Brendan. He is saying that the man on the street has a much better understanding of his company than professional investors. I am sorry but that it is rubbish. The retail investor is not buying the stock because he has some deeper understanding of the company that the professionals don't get. He is buying the stock because he believes or wants to believe in the story that Musk is telling. Nothing wrong with that either. But if Musk can't get those professional institutional investors to believe the same story, then there is a problem. At the moment, there are plenty of those investors giving them the benefit of the doubt but that won't last.

Even looking at their Q4 figures and it looks like they are still losing money from selling cars. They are still losing money from solar power. They are still losing money from servicing. The only reason they got to announce a 'profit' was from selling emission credits. 8 months ago, the company was laying off 7% of it's workforce. It was facing a cash flow crisis. It claimed it would sell 500,000 cars in both 2018 and 2019. Now they are saying it will be 2020. They are saying they will be profitable each quarter apart from those quarters when they are launching a new product. And yet the share price goes up double digits and people talk about it being game changing. By all accounts, there isn't much evidence of short sellers closing positions despite the huge losses they would be seeing which means that the there are increasing number of people believing in the story...

There will be tons of academic research on this company in years to come one way or another.


----------



## Thargor

There goes 700.


----------



## jhegarty

Just passed $715.  Even I admit this is getting silly now. I had expected levels like this ,  but not until the Y , Semi and Cybertruck are in full production.


----------



## yosim00

Sunny said:


> Cam across this quote from Musk from the earnings last week when asked about the negativity of analysts...
> 
> "I do think that a lot of retail investors actually have a deeper and more accurate insights than many of the big institutional investors and certainly a better insight than many of the analysts,” he said. “It seems like if people really looked at...what some of the smart — smaller retail investors predicted about the future of Tesla...you’d probably get the highest accuracy and remarkable insight from some of those predictions.”
> 
> So the CEO is saying that retail investors have a better understanding of his company than professional institutional investors......There are going to be people very burnt on this stock.....


Just a little troll from Musk  he knows the big shorters are getting ruined


----------



## Fella

It's crazy , one or my smallest holdings in my portfolio, how I wish I put more in now .

This must be costing the shorters some amount of money , wonder how long Colm will stay in , it's interesting psychologically getting out now for someone like Colm who firmly believes it's overvalued like if it was a good short at 300 it's an amazing short at 700 how do you bring yourself to pay 700 for something you think is worth 200 or so.

I think this thread will be famous in a few years when Tesla is at 3000+ we will look back and say remember it was shorted at 200 as a good bet . I could be wrong but I think the same with Bitcoin I don't think it's done yet could also hit 30k+ over next 5-10 years , the exact path of these I don't know but I don't see either going anywhere soon.


----------



## James Kirk

Is no price too high???  SP has more acceleration than a Falcon 9.


----------



## Fella

In fairness to @Colm Fagan its hard to disagree with him that the price is moving for any particular reason , unless the shorts have been holding it back and there is a massive squeeze now .


----------



## jhegarty

I have to think those were short squeezes at $700 and $750.  It might be insane if it hits  $800 today.


----------



## Sunny

This share has now lost all sense of reality. 16% up in a day because some little known research house raised its price target on the back of Q4 results that simply beat wall street expectations. 

I can hear the bells in the SEC going off from here.........


----------



## James Kirk

I won't be selling for a couple of years yet so I would much prefer if the sp was at $500 now and grow from there with the company. Mad jumps of $50 and $100 in a day is crazy for any stock. Bullish as I am on Tesla this has the potential to end very badly for new bulls and old bears.


----------



## Gordon Gekko

Brendan Burgess said:


> In general,  institutional investors are pretty useless at identifying overpriced or underpriced shares.  So I don't think that they have either a better or worse understanding.
> 
> However, when a share is subject to mania, do the institutional investors evaluate it better?  Maybe they do. I don't know.
> 
> Brendan



Ah Brendan, come on...that is an outrageous comment


----------



## elacsaplau

Would appreciate some technical guidance please!
At current prices, should Tesla issue new stock to rid itself of its high-interest debt?! (I am aware that Mr. Musk has discounted the idea but he could change his mind!)

Also, are today's price movements primarily due to shorters giving up the ghost?


----------



## SPC100

Surely now is the time to start shorting. Market cap now 140B.


----------



## yosim00

Sunny said:


> This share has now lost all sense of reality. 16% up in a day because some little known research house raised its price target on the back of Q4 results that simply beat wall street expectations.
> 
> I can hear the bells in the SEC going off from here.........


that's the fomo kicking in!


----------



## jhegarty

elacsaplau said:


> Would appreciate some technical guidance please!
> At current prices, should Tesla issue new stock to rid itself of its high-interest debt?! (I am aware that Mr. Musk has discounted the idea but he could change his mind!)
> 
> Also, are today's price movements primarily due to shorters giving up the ghost?



There was a few things today.

Macro started to recover from China. Tesla fought a drop in all indexs on Friday for a mild gain. This was possibility delaying some of gain from q4 results. S&P 500 inclusion has to be on everyone minds after those results as well.



Panasonic’s joint venture with Tesla turns first profit








						Tesla up 20% after Panasonic posts first quarterly profit at battery business
					

Tesla Inc's stock surged 20% on Monday in its largest one-day gain since 2013, fueled by a quarterly profit at Panasonic's battery business with the U.S. car maker and an investor report predicting its shares would rise more than ten-fold by 2024.




					www.reuters.com
				




There was a last two analyst upgrades on price target today.  Here is the crazy 7000 , there was another with a more reasonable target I don't have a link for to hand.








						Tesla’s biggest bull stampedes to a $7,000 price target
					

An investor famed for her call that Tesla shares could be worth as much as $4,000 in the next five years has just upped that target, significantly.




					www.marketwatch.com
				




New batter signed deal in China








						China's CATL signs battery supply agreement with Tesla
					

China's top electric vehicle battery maker CATL  said on Monday it has signed a battery supply agreement with Tesla .  Tesla will determine the battery purchase volume between July 2020 and June 2022, according to its own needs, CATL said in a stock exchange filing, adding the agreement does not




					finance.yahoo.com
				




And of course everyone likes Elon twittering about AI and showing his head is on the FSD and not on caves in Thailand.


----------



## RedOnion

Fundamentals went out the window a long time ago. I starting to think @Fella might be right that in this instance at least a short position is a gamble.

I find the trading fascinating. The % of short interest. The volume of options traded just before the results were announced. The actual number of share transactions (most of them done by robots).

Total float shares: 141.95 m
Share volume traded yesterday: 47.2 m

When you exclude lust the top 10 large long holdings, every other share is trading hands more than once every 2nd day. There must be traders who sold the stock early in the session and bought it back later at a higher price.


----------



## joe sod

Its like year 2000 all over again, everything tech is going up and Tesla is at the top of this pile. Its 20 years ago now so all the guys that got burnt by that bubble are not the ones driving up the Tesla and tech share prices now. For now it looks like Tesla has created its own price dynamic so its going to suck in alot more money based on the last few days. People will believe that Tesla is different to every other stock the most dangerous delusion in stock markets.


----------



## elacsaplau

RedOnion said:


> Fundamentals went out the window a long time ago.



I'd be interested to know when exactly fundamentals went out the window.

Specific related question: if Tesla does manage to successfully execute the majority of its strategy, what price range should it be in 5 to 7 years time? [I have asked this question multiple times in various guises to others].


----------



## Gordon Gekko

I’m not sure that this is as complex as some people make out. The bullish case is that Tesla is the automotive equivalent of the iPhone. The bearish case is that Musk is nuts and Tesla is Blackberry or Nokia.


----------



## NoRegretsCoyote

Gordon Gekko said:


> I’m not sure that this is as complex as some people make out. The bullish case is that Tesla is the automotive equivalent of the iPhone. The bearish case is that Musk is nuts and Tesla is Blackberry or Nokia.



I bought my daughter a Nokia 'dumb' phone yesterday and the technology is identical to 20 years ago. Still, I paid money for it. My work smartphone is a Nokia 7.2 and I quite like it.

I haven't seen a BlackBerry in many years though.


----------



## EmmDee

NoRegretsCoyote said:


> I bought my daughter a Nokia 'dumb' phone yesterday and the technology is identical to 20 years ago. Still, I paid money for it. My work smartphone is a Nokia 7.2 and I quite like it.
> 
> I haven't seen a BlackBerry in many years though.



I can show you a Blackberry - just had a replacement work device and it's a Blackberry. But they run on Android now. The BB operating system has become a specialised automotive operating system at this stage. But you're not missing much !!!

BTW - that Nokia 7.2 is also an android phone. And the other Nokia dumb phone isn't the same tech as 20 years ago either. It's made under license by a Chinese company to look like the old phones but other than the name and outer casing, nothing is the same


----------



## jhegarty

Heading for a $900 in frankfurt.   Looks like we are going full bitcoin.


----------



## James Kirk

Gordon Gekko said:


> I’m not sure that this is as complex as some people make out. The bullish case is that Tesla is the automotive equivalent of the iPhone. The bearish case is that Musk is nuts and Tesla is Blackberry or Nokia.



 Of course Musk is nuts. You would have to be to take on the Space industry, the oil industry and the auto industry all at the same time. Nokia and BB fell flat because they completely missed and ignored the switch to touch screen. A bit like the legacy automakers have ignored the rise of the EV.


----------



## James Kirk

James Kirk said:


> My target is $1000/share and I'll be happy if it hits that in 4 years even thought i think it's possible in 2 but the market (and events) may have other ideas. Time will tell.



Looks like my target time line might have been a bit off.  2 weeks rather that 2 years.


----------



## elacsaplau

Musk is nuts, Musk is unreasonable but hey...…

_The reasonable man adapts himself to the world; the unreasonable man adapts the world to himself, therefore all progress is made by unreasonable men!_



What lessons can be drawn from this thread?

To me it's very simple:
Concentrated bets and trying to time the market are both risky. Coupled together are highly risky. Even if your call is ultimately proven right, you can get mushed in the process because of the trajectory of share price movements. In addition, the uncertainty of the journey is precisely why sequence of return risk is real and why consideration needs to be given to it in determining one's asset allocation in retirement. This thread should serve as a cautionary tale to all.


----------



## Daddy Ireland

$900 being pushed pre market.


----------



## joe sod

elacsaplau said:


> Musk is nuts, Musk is unreasonable but hey...…
> 
> _The reasonable man adapts himself to the world; the unreasonable man adapts the world to himself, therefore all progress is made by unreasonable men!_



But what about Tesla shareholders are they also unreasonable? , will they be patient enough to sit out the obvious topsy turvy Tesla share price ride? unreasonableness is not a good personality trait to have as a long term shareholder. The investors that make the most money in the stock markets are dull personality types unlike Elon Musk.


----------



## Fella

elacsaplau said:


> Musk is nuts, Musk is unreasonable but hey...…
> 
> _The reasonable man adapts himself to the world; the unreasonable man adapts the world to himself, therefore all progress is made by unreasonable men!_
> 
> 
> 
> What lessons can be drawn from this thread?
> 
> To me it's very simple:
> Concentrated bets and trying to time the market are both risky. Coupled together are highly risky. Even if your call is ultimately proven right, you can get mushed in the process because of the trajectory of share price movements. In addition, the uncertainty of the journey is precisely why sequence of return risk is real and why consideration needs to be given to it in determining one's asset allocation in retirement. This thread should serve as a cautionary tale to all.



exactly if there was no risk and the stock market returned a certain % guaranteed , then it would be pointless investing as the return would be close to 0%


----------



## SPC100

elacsaplau said:


> I'd be interested to know when exactly fundamentals went out the window.
> 
> Specific related question: if Tesla does manage to successfully execute the majority of its strategy, what price range should it be in 5 to 7 years time? [I have asked this question multiple times in various guises to others].




If you check out my previous posts you can back of the envelope that. You have to just make predictions on what percent of ev market Tesla will own, and what percent of total market will be ev.

If you make it that Tesla has 33% share and 45% of the global market, and can turn 4k profit per car, it's got more room to grow in price.


----------



## Gordon Gekko

$950...


----------



## James Kirk

Brendan Burgess said:


> OK, so I have shorted Tesla at $536.
> 
> I have set myself a stop at $1000. In other words, if it doubles in price, I will close my position at a loss. My exposure is in the order of 1% of my portfolio



I know that in your wildest dreams you couldn't have imagined Tsla at $1000 3 week after opening your short.   700  800  900 are all round numbers and the sp just blasted through them. Breaking  $1000 seems like a watershed  though.  It's "possible" the sp might just break it and then hit a wall. Is it worth adding $100 to the gamble or is that like  putting another coin in the slot machine because you just have that feeling in your head of one more and it will pay out for sure.


----------



## James Kirk

Gordon Gekko said:


> $950...



960.  up 180.  After yesterday I thought I'd seen it all.  It's gunning for 1000


----------



## rob oyle

James Kirk said:


> 960.  up 180.  After yesterday I thought I'd seen it all.  It's gunning for 1000


I can see the parallel/temptation between the current price and the effort to be the first to trade oil at >$100 a barrel a few years ago (I think trades were manipulated at the time). Who knows where it'll stop?!?


----------



## rob oyle

$875. Just like that, billions come off the market capitalisation just as the market closes. What happened 5 minutes before the end of the trading day?!?

More importantly, where is the popcorn? Must be material here for a second Wall Street sequel!


----------



## Brendan Burgess

Hi James 

I set my stop at $1,100 in my head.

I set it at $900 in practice with a view to increasing it if necessary. 

Unfortunately, I was distracted by other issues today and it went through that without me noticing and I was closed out automatically.

It's clearly a mad bubble at the moment. 

But I have lost my allotted amount or near enough to it, so I have to think about whether I want to allocate more.

Brendan


----------



## SPC100

https://en.m.wikipedia.org/wiki/Short_squeeze is this what's happening? 

Unwinding shorts causing way more demand than is available? Someone mentioned a very significant volume of stock was traded.


----------



## jhegarty

SPC100 said:


> https://en.m.wikipedia.org/wiki/Short_squeeze is this what's happening?
> 
> Unwinding shorts causing way more demand than is available? Someone mentioned a very significant volume of stock was traded.



No , with the volume traded I don't think this is a short squeeze.   Tesla traded 58 million shares yesterday, room for each short to leave 3 times. 

A real short squeeze is where there is no room to leave.


----------



## joe sod

rob oyle said:


> $875. Just like that, billions come off the market capitalisation just as the market closes. What happened 5 minutes before the end of the trading day?!?



Watch out this stock is going to get clobbered , no stock goes parabolic and stays there it always ends in tears. You can see the market is getting nervous , obviously some big shareholders have taken their profits. I think alot of the Tesla shareholder are too young to have experienced the dot com crash or even the financial crash. In fairness I doubt anyone on this thread has big money riding on Tesla


----------



## RedOnion

jhegarty said:


> No , with the volume traded I don't think this is a short squeeze.   Tesla traded 58 million shares yesterday, room for each short to leave 3 times.
> 
> A real short squeeze is where there is no room to leave.


Really? And it's not the shorts buying the shares that are in any way driving the volume?


----------



## jhegarty

RedOnion said:


> Really? And it's not the shorts buying the shares that are in any way driving the volume?



There is definatly short coverting going on. I can only imagine how many margin calls and stop losses triggered over the last week.

But a short squeeze only happens when there is more shorts looking to buy then sellers looking to sell. 

I think there may have been small squeezes at $700 and $750 on Monday.  But since I haven't seen one.


----------



## shipship

I'm curious what the option prices are for TSLA. Is there a site that shows up to date bid and asks? Or do I need a trading account somewhere?


----------



## EmmDee

shipship said:


> I'm curious what the option prices are for TSLA. Is there a site that shows up to date bid and asks? Or do I need a trading account somewhere?


----------



## Itchy

shipship said:


> I'm curious what the option prices are for TSLA. Is there a site that shows up to date bid and asks? Or do I need a trading account somewhere?



The options trading has been wild on this stock!


----------



## Duke of Marmalade

SPC100 said:


> https://en.m.wikipedia.org/wiki/Short_squeeze is this what's happening?
> 
> Unwinding shorts causing way more demand than is available? Someone mentioned a very significant volume of stock was traded.


It looks very like it.  The example given is Volkswagen which went from 210 to 1000 in two days, making it the most valuable company in the world.  It is now at 172. 
67% of IG punters in Tesla are short, way higher than in other more normal stocks that I looked at.  Surely there can be no doubt that this surge in price is not driven by a reassessment by the market of the fundamentals but by the technical requirement of shorts to cover as well as reduce their positions, just as described in the wiki link.  Tesla has to be a screaming short at these levels, if only I had the nerve.


----------



## jhegarty

I have put in a stop loss at $800 in the hope that I can retain some of my sanity.

My breakeven is at $320 , so will still be a good profit.


----------



## elacsaplau

I've decided to follow closely the stock so took out a short position yesterday evening at $926.

Of course, this is betting, not investing - let's see what happens.


----------



## Fella

This thread has 21k views not sure how many are unique views but I would imagine that there are a lot of people who have followed the lead and shorted Tesla , I think it shows that askaboutmoney is right not to allow specualtion on individual share prices as a general rule. 
It also shows the bais we carry around with us , your mind looks at the price and thinks it has to stop now , but it doesn't have to do anything it could hover at 900 for a few years now until Tesla are huge and then go to 4000 or it could go to zero tomorrow . It's a coin flip where it goes from here.


----------



## jhegarty

jhegarty said:


> I have put in a stop loss at $800 in the hope that I can retain some of my sanity.
> 
> My breakeven is at $320 , so will still be a good profit.



My stop triggered and I got out at $798.

I am all out for a while.


----------



## Sarenco

Tesla stock price is down almost 15% so far today!

You really couldn't make it up.


----------



## elacsaplau

Fella said:


> …….It's a coin flip where it goes from here.



Absolutely. This is betting. So far so good. Tempted to cash-in at $160 a share profit. My hunch is to let this current gyration run for awhile. This is mad stuff.


----------



## James Kirk

Brendan Burgess said:


> Hi James
> 
> I set my stop at $1,100 in my head.
> 
> I set it at $900 in practice with a view to increasing it if necessary.
> 
> Unfortunately, I was distracted by other issues today and it went through that without me noticing and I was closed out automatically.
> 
> It's clearly a mad bubble at the moment.
> 
> But I have lost my allotted amount or near enough to it, so I have to think about whether I want to allocate more.
> 
> Brendan



Brendan yours is a tale of "the perils of shorting "  if ever there was one.  

 Find a stock you believe is ridiculously over valued. Short it with  a stop that's even more ridiculously high.  Watch your cash evaporate as over 3 weeks the stock rises just beyond your ridiculously high stop for a couple of hours before falling back to earth (maybe).   Thankfully your position was small and not so painful.   Of course there is someone on the other end of this that just bought at $900 where the "pearls of buying" stock could make a good tale now as well.


----------



## James Kirk

Sarenco said:


> Tesla stock price is down almost 15% so far today!
> 
> You really couldn't make it up.



Its about where it was this time yesterday despite a 20% or so fall from the high point.


----------



## EmmDee

Sarenco said:


> Tesla stock price is down almost 15% so far today!
> 
> You really couldn't make it up.



Now's the time to sell the volatility and be price neutral.....

(Going to set up a thread - "The perils of shorting Vol")


----------



## Colm Fagan

Brendan Burgess said:


> I set my stop at $1,100 in my head.
> 
> I set it at $900 in practice with a view to increasing it if necessary.
> 
> Unfortunately, I was distracted by other issues today and it went through that without me noticing and I was closed out automatically.


Hi Brendan
At least I thought you would hold out until the tide turned, but it wasn't to be.  I also threw in the towel.  Over the last few months, my efforts at risk management required me to keep trimming my exposure as the price increased.  The crazy price increases meant that I had to close part of my position almost every day, each time at a higher price.  It got quite dispiriting and eventually started coming between me and my night's sleep.  That's an absolute no-no in my book - my ideal is to buy a stock and go to sleep, waking up every 6 months or so to check if the investment thesis is still intact -  so I decided to close the last of my shorts earlier this week.  Luckily, I got out before yesterday's complete madness, when the price briefly rose above $900 a share.   
It has been a chastening experience.  Never has Keynes' maxim, which I quoted at the start, about markets staying irrational for longer than you can stay solvent, been more apt.   I've also learned the truth of another market maxim:  "Don't short a story stock in a bull market."  Tesla is the ultimate story stock and it was a bull market, so why did I persist?  I don't know.  For what it's worth, I believe that my analysis in the article that launched this thread will be proved accurate, but I won't be trying to profit from it.


----------



## joe sod

But why did the stock rise so much in the first place apart from the short covering. I read another good analysis on another site, basically "ethical investing" has alot to do with it. The fact that massive funds like blackrock are divesting from fossil fuel investments and are buying stocks like Tesla not because of fundamentals but because of optics they need to show their "green credentials" therefore they need to have Tesla in their funds.
For what its worth oil stocks which were hammered over the last month are up 4% today and are paying big dividends. 
The same thing happened during the dot com bubble alot of the big funds like blackrock were caught with their trousers down after buying alot of expensive dot com crud.


----------



## yosim00

Now is the time to short for some decent gains


----------



## jhegarty

yosim00 said:


> Now is the time to short for some decent gains



There was good resistance today at $715 ~ $720.

Could be a floor , could be a big drop tomorrow.


----------



## Duke of Marmalade

Colm Fagan said:


> Hi Brendan
> At least I thought you would hold out until the tide turned, but it wasn't to be.  I also threw in the towel.  Over the last few months, my efforts at risk management required me to keep trimming my exposure as the price increased.  The crazy price movements meant that I had to close part of my position almost every day, each time at a higher price.  It got quite dispiriting and eventually started coming between me and my night's sleep.  That's an absolute no-no in my book - my ideal is to buy a stock and go to sleep, waking up every 6 months or so to check if the investment thesis is still intact -  so I decided to close the last of my shorts earlier this week.  Luckily, I got out before yesterday's complete madness, when the price briefly rose above $900 a share.
> It has been a chastening experience.  Never has Keynes' maxim, which I quoted at the start, about markets staying irrational for longer than you can stay solvent, been more apt.   I've also learned the truth of another market maxim:  "Don't short a story stock in a bull market."  Tesla is the ultimate story stock and it was a bull market, so why did I persist?  I don't know.  For what it's worth, I believe that my analysis in the article that launched this thread will be proved accurate, but I won't be trying to profit from it.


And yet Colm, we have the paradox that you as I must think that Tesla is hugely overpriced now much more than you did back at 300 but you won’t short now while you did at 300.  In the technical jargon your decisions are not Markov, they are influenced by your history.

If Tesla goes the way of VW this thread or at least a précis of it will be a textbook example of the “perils of shorting” as the title promised.  Anyway judging by your replies to _Fella_ it has been more than compensated for by your long positions,  albeit it has sent out a wealth warning to any putative long term shorters.


----------



## Brendan Burgess

Hi Duke

A very good point. 

I shorted Bitcoin at $ 14.300 . If I had known how to do it, I would have done so at € 1,000 and lost my investment. 

I was very comfortable to short Tesla at $375 because I knew the talk of it being bought out at $420 was nonsense.  Luckily I was forced to close my position due to needing cash to pay my taxes.

I shorted again at $530 - and was automatically closed at $900 although in my mind my closing position was $1,100 

But at $375 it was ridiculously overvalued in relation to the fundamentals. 

But at $900 , it has lost its mooring completely. 

I am sure that it will drop to the $200 or $300 range, but I don't know if it will got to $5,000 on its way there. 

The past is irrelevant and so it makes more sense to short it now. But I have lost the stomach for it. 

I suspect that Colm is the same.  

Maybe a professional investor would see it differently.

Brendan


----------



## Fella

Brendan Burgess said:


> Hi Duke
> 
> A very good point.
> 
> I shorted Bitcoin at $ 14.300 . If I had known how to do it, I would have done so at € 1,000 and lost my investment.
> 
> I was very comfortable to short Tesla at $375 because I knew the talk of it being bought out at $420 was nonsense.  Luckily I was forced to close my position due to needing cash to pay my taxes.
> 
> I shorted again at $530 - and was automatically closed at $900 although in my mind my closing position was $1,100
> 
> But at $375 it was ridiculously overvalued in relation to the fundamentals.
> 
> But at $900 , it has lost its mooring completely.
> 
> I am sure that it will drop to the $200 or $300 range, but I don't know if it will got to $5,000 on its way there.
> 
> The past is irrelevant and so it makes more sense to short it now. But I have lost the stomach for it.
> 
> I suspect that Colm is the same.
> 
> Maybe a professional investor would see it differently.
> 
> Brendan



Well I think you need more of a plan . I know professionals that used Kelly criterion to decide how much to stake . I had a staking calculator myself which wasn't as agressive as Kelly calculator . But if you set out to make money shorting then I would pre-decide my stake based on the your believed percentage value edge. 
Lets say your willing to risk 10,000 on Tesla short 
You might only risk 10% of that when you see it at 10% over-valued 
If your right and the price returns to your price you get out take your profit and go back again or concentrate on another stock.
But if the price rises again you have another 9000 to get in again , its now 20% over valued stick in another 10-20% .
Most people lose money because they wait for the extreme at each end , as some trader told me "theres enough people wanting to get rich quick , that he was happy to get rich slowly " basically scalping the market , getting in and out constantly for small percentages here and there can be much less risk and higher profit .

With all due respect Brendan , I don't see you making money shorting stocks with the attitude of "i'm going to buy Bitcoin and I'm sure its going to go to zero but i'll get out at 2000" or whatever.  You might be right but the nature of the market probably means a lot of time your upper limit gets hit as it fluctuates wildy before your lower limit gets hit.  If you go back into Tesla again I'd make you odds against winning , every time you take a short position you are taking a negative expected return bet - You will disagree with me on this but you are 100% wrong if you think you have even a par value bet . It is a negative expected return , keep doing it over your lifetime and your going to be down , same with Colm.


----------



## Brendan Burgess

Hi Fella 

My understanding of Kelly is that it only relevant when there is a risk of losing your entire bankroll. 

I limited my exposure to 1% of my portfolio.  

If I decided that I could frequently identify shares which were overvalued and undervalued, then Kelly might be applicable. 

I lost about 0.8% on this particular short.  So if the return on my portfolio would otherwise have been -10% this year, I will lose -10.8% instead. 

Kelly might be more relevant to Colm. 

Brendan


----------



## galway_blow_in

yosim00 said:


> Now is the time to short for some decent gains



Not or never have been in the stock but wouldn't be surprised to see it go back up again today


----------



## Fella

Brendan Burgess said:


> Hi Fella
> 
> My understanding of Kelly is that it only relevant when there is a risk of losing your entire bankroll.
> 
> I limited my exposure to 1% of my portfolio.
> 
> If I decided that I could frequently identify shares which were overvalued and undervalued, then Kelly might be applicable.
> 
> I lost about 0.8% on this particular short.  So if the return on my portfolio would otherwise have been -10% this year, I will lose -10.8% instead.
> 
> Kelly might be more relevant to Colm.
> 
> Brendan



Well you could use Kelly on the 1% of your porfolio you allocate to shorting . So you don't risk all that 1% in one go or you could take 10% of your portfolio and allocate it to more risky stuff but using a staking calculator.


----------



## Colm Fagan

Duke of Marmalade said:


> And yet Colm, we have the paradox that you as I must think that Tesla is hugely overpriced now much more than you did back at 300 but you won’t short now while you did at 300. In the technical jargon your decisions are not Markov, they are influenced by your history.


Ah, Duke, how long do you have? 
First of all, at a visceral level, I never again want to hear the word Tesla.  Not ever.  You could say that Pavlov, not Markov, rules OK 
I've also recognised that we're dealing with a cult.  Cults frighten me:  Waco and all that.  The fact that it's a cult is clear even from this thread.   Cults are unpredictable. The price could get to $2,000 before it gets back to the more rational (IMO) $200. 
That brings me to the technical reason why I'm out.  I don't have an adequate conceptual framework for handling shorts.  For long positions, it's straightforward.  If you're ahead, you can hold forever.   As readers know by now, that's my default for long holdings.   If you're losing on a long position, it matters less and less as the price falls whether you hold or sell.   There's no similarly satisfactory conceptual framework for short positions.   You could do a "Brendan" on it and fix specific upper and lower bounds, but then you're faced with the problem that you have to exit when your position is at its most valuable.  That's crazy, but I don't have a good answer.  Maybe @Fella's suggestion of "Kelly", whatever it is, provides the required conceptual framework.  I never heard of it.
The cash implications are another important consideration.   I've had to keep finding cash to fund the increased margin calls, which meant selling other shares.  If I ever do another short, I'll make sure to have the cash readily available to meet increased margin calls if the price rises.  That will mean committing a lot of cash for a relatively small expected return.  It could prove difficult to get the numbers to stack up. 
Finally, I don't want anyone to think that it hasn't been a painful experience for me.  It has.  Yes, even after Tesla, my portfolio is worth more now than it was 6 months ago, and quite a bit more than at end 2018, despite all the withdrawals in the meantime, but it's worth a heck of a lot less than it would have been if I had never gone near Tesla.


----------



## RichInSpirit

Hi Colm. Glad you got out with your sanity intact, even if your pocket is a litte lighter. 
I think this thread has indeed illustrated the "Perils of Shorting".


----------



## Brendan Burgess

Hi Colm

A problem for poker players is that they keep going bust after a bad run.

My understanding of Kelly is that it determines the maximum stakes they should be playing with to maximise their long term wealth and avoid going bust.

And the maximum is surprisingly low. 









						Kelly criterion - Wikipedia
					






					en.wikipedia.org


----------



## Colm Fagan

There's a funny postscript to my Tesla story.  I went to the garage yesterday for a car wash.  I bought my token in the shop and drove to where the drive-in car wash is located.   There was another car in the line ahead of me, but no-one in it.  I was naturally fuming.  Then a guy strolls over, having gone to the shop after me, and gets his car washed ahead of me.  It was a Tesla!!!


----------



## Duke of Marmalade

Ok, I won't mention the T word    Personally, I am not looking forward to the day I have to drive an EV.

I don't think Kelly helps.
_Boss_, Kelly is the opposite of risking all your stake, you only ever risk a proportion of your stake, so you are never actually out, and in the long run you maximise your wealth.  But the unrealistic assumption of Kelly is that you can continually have a piece of the same gimme opportunity.  Thus say you had endless repeated access to 6/4 against Heads in a fair toss, you should bet 1/6th of your pile every time to max your wealth long run, and this you will achieve with certainty as you will never run out of stakes.
But shorts aren't like that,  they may be only a fleeting opportunity.
(Ahh!  this crossed with your last post, _Boss_)


----------



## Duke of Marmalade

Colm Fagan said:


> There's a funny postscript to my Tesla story.  I went to the garage yesterday for a car wash.  I bought my token in the shop and drove to where the drive-in car wash is located.   There was another car in the line ahead of me, but no-one in it.  I was naturally fuming.  Then a guy strolls over, having gone to the shop after me, and gets his car washed ahead of me.  It was a Tesla!!!


I thought for a moment you were going to say it was driverless


----------



## elacsaplau

Hi Fella,

You have made many interesting contributions to this thread. I think we both agree that shorting, in isolation, is more akin to gambling than investing and certainly, neither of us can be accused of after-timing here!

Do you have time to expand on various shorting strategies? Based on my sense/gut that Tesla is likely to continue to be extremely volatile for the foreseeable future, what shorting strategies are available? [Let's park Kelly for now].

For example, I shorted at $926. Right now, in pre-market, its $723. It could plausibly fall or jump $100 today. If not today, tomorrow - and almost certainly someday soon! If I put a stop-loss in at, at for example, $760 - it means that if Tesla is on a going day, my leakage is curtailed. If it drops like a stone, I'm further in the money. I get it that luck will be a major factor and that, for example, I'm banjaxed if it initially jumps by x and subsequently falls by 2x in the one session, etc.

Sorry - a bit rushed. Is my question clear? Am interested in your thoughts / options available. [I get it that this is a very simple example - by all means up the complexity dial if you think appropriate.]


----------



## Fella

elacsaplau said:


> Hi Fella,
> 
> You have made many interesting contributions to this thread. I think we both agree that shorting, in isolation, is more akin to gambling than investing and certainly, neither of us can be accused of after-timing here!
> 
> Do you have time to expand on various shorting strategies? Based on my sense/gut that Tesla is likely to continue to be extremely volatile for the foreseeable future, what shorting strategies are available? [Let's park Kelly for now].
> 
> For example, I shorted at $926. Right now, in pre-market, its $723. It could plausibly fall or jump $100 today. If not today, tomorrow - and almost certainly someday soon! If I put a stop-loss in at, at for example, $760 - it means that if Tesla is on a going day, my leakage is curtailed. If it drops like a stone, I'm further in the money. I get it that luck will be a major factor and that, for example, I'm banjaxed if it initially jumps by x and subsequently falls by 2x in the one session, etc.
> 
> Sorry - a bit rushed. Is my question clear? Am interested in your thoughts / options available. [I get it that this is a very simple example - by all means up the complexity dial if you think appropriate.]



A good friend of mine was a currency trader , I went to visit him when I was in london before and watched him trade currencies and make money. He tried to explain it to me how watching the charts you could predict the price movements. I wasn't clever enough for it. I am not clever enough to make money shorting but I have a firm belief that there is no edge here.

I only get involved when I can see a definite edge , I used to make money trading Betfair but I knew generally which way the market was going to move , I had an advantage here in that I was getting information through various means and only competing with other traders but it involved spending the day sitting on the laptop.

I don't know anything about Tesla that is not in the public domain , I have no clue what way that share price will move , I could go long now or short and it would be down to luck , If I put 10,000 into IG index and start trading I suspect I would lose it . I would also advise people to NEVER use a demo account at any IG index or anywhere else as the results you will get are not true to life. The reasons for this is you are not actually in the queue your money is "matched " as soon as a price is hit but in reality its totally different , I see people open demo accounts and they are well up and then put real money in and lose which is fairly obvious to see why .


----------



## elacsaplau

Thanks Fella for taking the time to respond. Points well made. Upon reflection, I am going to cease publicly talking about shorting strategies. It has the potential (especially if lady luck goes with me!) to obfuscate what should be the clear message emanating from this thread.


----------



## EmmDee

elacsaplau said:


> Hi Fella,
> 
> You have made many interesting contributions to this thread. I think we both agree that shorting, in isolation, is more akin to gambling than investing and certainly, neither of us can be accused of after-timing here!
> 
> Do you have time to expand on various shorting strategies? Based on my sense/gut that Tesla is likely to continue to be extremely volatile for the foreseeable future, what shorting strategies are available? [Let's park Kelly for now].
> 
> For example, I shorted at $926. Right now, in pre-market, its $723. It could plausibly fall or jump $100 today. If not today, tomorrow - and almost certainly someday soon! If I put a stop-loss in at, at for example, $760 - it means that if Tesla is on a going day, my leakage is curtailed. If it drops like a stone, I'm further in the money. I get it that luck will be a major factor and that, for example, I'm banjaxed if it initially jumps by x and subsequently falls by 2x in the one session, etc.
> 
> Sorry - a bit rushed. Is my question clear? Am interested in your thoughts / options available. [I get it that this is a very simple example - by all means up the complexity dial if you think appropriate.]



I was a little sarcastic in the thread earlier when I mentioned selling volatility. But in effect, if you don't have a clear view on what direction a stock could move AND there is a period of significant price action, it is possible to take a position which is effectively selling the volatility "premium".

One way is to use option spreads - selling and buying optiosn wit a difference o date and/or strike price. The voaltility element of the pricing on longer dated options is more significant and likewise on out-of-the-money options.

If you already hold shares in Tesla, selling short dated call options (covered call selling) at way out-of-the-money strike prices captures the same volatility premium.


----------



## Monksfield

"I don't have an adequate conceptual framework for handling shorts" (Colm).

This is the most profound statement on the whole thread. In my opinion and experience very, very few people do. Including people who know quite a lot about investment markets and who have a high risk tolerance and capacity.


----------



## elacsaplau

Thanks EmmDee,

Your usual high-grade food-for-thought post. You're talking senior hurling now! In my excitement earlier/yesterday, this was the type of stuff I wanted to explore on AAM (when I realised that I needed a quick crash course in this area and your tantalising post of yesterday really did get me thinking.) Upon reflection, I now consider it best if I don't post further in relation to this type of "money placement" (read: certainly not investing in my case!!) - for the reasons set out in post #561.

[There is so much potential learning in this thread about investing, I hope this learning can be appropriately captured and summarised. Otherwise, the learning of the 500+ posts is likely to get lost. I am not the man for the job. Neither, I think, is Fella. We tried, in vain, many times to point out the risks. By risks, I don't just mean simply losses as has been incorrectly inferred. I mean proper risk assessment and management. Monksfield's observations just now in this regard are completely apt. Related to this, there is also much rich material on the whole psychology of investment. If the guy who wrote Thinking Fast and Slow got his hands on this thread, he'd surely be salivating!!]


----------



## Sunny

elacsaplau said:


> Thanks EmmDee,
> 
> Your usual high-grade food-for-thought post. You're talking senior hurling now! In my excitement earlier/yesterday, this was the type of stuff I wanted to explore on AAM (when I realised that I needed a quick crash course in this area and your tantalising post of yesterday really did get me thinking.) Upon reflection, I now consider it best if I don't post further in relation to this type of "money placement" (read: certainly not investing in my case!!) - for the reasons set out in post #561.
> 
> [There is so much potential learning in this thread about investing, I hope this learning can be appropriately captured and summarised. Otherwise, the learning of the 500+ posts is likely to get lost. I am not the man for the job. Neither, I think, is Fella. We tried, in vain, many times to point out the risks. By risks, I don't just mean simply losses as has been incorrectly inferred. I mean proper risk assessment and management. Monksfield's observations just now in this regard are completely apt. Related to this, there is also much rich material on the whole psychology of investment. If the guy who wrote Thinking Fast and Slow got his hands on this thread, he'd surely be salivating!!]



You are missing the point of this thread. Colm and Brendan knew the risks. Nobody was saying that taking a short position was not risky. You yourself decided to short at $900. Why? That was as logical as the decision as Brendan and Colm's decision to short at a lower level. Just because you accept it is gambling, you still still put on the bet when you had no idea what the share would do. So you did exactly what Brendan and Colm did but you think by telling yourself that you know it is gambling, it is very different. It's not. You even started asking about shorting strategies so you already accepted that it wasn't just a plain bet. But was something you could have a strategy with so you acted like it was an investment which went against your argument. Your bet will pay off but don't kid yourself into thinking what you did was anything different to Brendan and Colm.

To be honest, the shorting angle on this thread isn't what is interesting at this stage. Everyone here agree that shorts are risky and can end up badly. The really interesting thing and the reason I hope that the thread isn't closed, is Tesla itself. As Colm said, this is the ultimate story stock with a cult like following. There is going to be realms of academic research written about this company one way or another and it is going to be fascinating to follow.


----------



## galway_blow_in

Nice technical bounce today


----------



## Sunny

By the way Colm, sorry to hear you had to get out. I agree with your analysis but I just can't bring myself to short a stock. I still remember my days working with credit default swaps.....

Thanks for posting it though. It was a great ride!!!


----------



## elacsaplau

Sunny said:


> That was as logical as the decision as Brendan and Colm's decision to short at a lower level.



Sunny,

As our _current _Taoiseach doth say: "Not sure about that"! 

Personally, I genuinely believe that there is *much *skill in gambling. If you don't - that's ok!! (It's ok to have different opinions, right?) It's for this reason that I initially sought in these here parts for a crash course on effective strategies! (The old adage about entering a poker game and being able or not to identify the _weak player_ is, in my opinion, completely on the money!!).

If you think, as you have stated, that Colm thought all along that he was gambling - that's news to me and more importantly, perhaps to Colm also - as in, "I didn't realise that I was entering a casino" (or words to that effect!!). Please explain which is it - I'd love to know!

I also believe in "being greedy when others are fearful" with my "satellite" allowance (I'm uncertain but imagine that you are familiar with the core/satellite concept?). Personally, I think Buffett rocks - others may disagree!! (Not, incidentally, just about investment but about life in general).

Regarding gambling - a lot about effective gambling is understanding the interaction between the odds and the probability. 'Twas always thus and always thus will be! (see Hamlet Act V). Your highlighted statement suggests that my potential upside relative to my potential undisclosed (stop)loss is similar to Colm and Brendan's. This is false. Not an opinion. mathematically so!!!!

_you've got to know when to hold'em, know when to fold'em
know when to walk away, know when to run...…_


----------



## joe sod

elacsaplau said:


> For example, I shorted at $926. Right now, in pre-market, its $723.



Really, it seems a bit unbelievable that you got a short on at that level, because the share price spent very little time above that level  only about an hour I think . Did you put the short on when it was rocketing upwards? I very much doubt you got it on the way down as the share price was collapsed by big traders , it free falled down past $900 in less than a minute I think

Why did you only reveal today that you put on that short ? you have been an active participant on this thread but you only revealed today that you put on the short after you saw yesterdays price action where it continued to free fall.


----------



## elacsaplau

Hi Joe,

Yes, it went up initially. Merde se passe. Actually, I expected that it wouldn't remain for a long time at $926. I thought that there was a significant chance that the share price would increase or reduce! I wasn't especially perturbed that it went the wrong way initially. Not delighted just not phased! I didn't expect to magically short right at the summit. My tactic was a combination of a stoploss and to  "double up" if it went significantly higher and I set my initial bet/foray accordingly. The "unbelievable" and quoting from today makes me smile. The morning after I did the trade, i.e. yesterday morning, I posted up my trade - couldn't have done so much earlier, agreed??!!  And a day, is a long time in Tesla!

****

Edit: Just saw your edit of *Why did you only reveal today that you put on that short? *- at least it makes clear the insinuation of the original post. My CBT therapist tells me not to be reading into things that are not there (JOKE!!). Please refer to the relevant thread of *YESTERDAY MORNING. *Actually, in fairness, I admire the candour of your edit! Are we good? Please say yes!


----------



## joe sod

Yes  *elacsaplau, *I believe you now, I thought you were bluffing. I just thought it a bit unbelievable that you managed to get a short on successfully at that price especially as this stock has been terrible for shorters up until tuesday evening. It just seemed too good to be true thats all


----------



## elacsaplau

Joe,

See link for the classic image of financial bubbles.








						Here's How You'll Spot the Tech Bubble Top
					

"When I see a bubble, I invest." - George Soros I don't think there is a single human being with a Wordpress password who hasn't weighed in on whether or not there is a tech bubble underway.  The answer is obviously yes, but being in a bubble doesn't mean [...]




					www.forbes.com
				




If Tesla is indeed in bubble territory, it just seems to me that the longer the mania persists, the better the odds for the shorter becomes (less wrong side potential and massively increased good side possibility).

Remember much of what has been said about fundamentals is plausible. In this regard, Tesla needs to be disassociated with Bitcoin and other cryptos as the fundamentals will win in the end for stocks. Some of the theses that I have seen as to how to value Bitcoin make Comical Ali look measured. In the short term the stock market is a voting machine, in the long term it's a weighing machine, etc.

So where oh where are we on this graph? - now, _that is the question _(see Hamlet Act III). The crazy thing is that this graph gets wheeled out time and again. If you short too early, you will get mushed by the propulsion - if you go long too late, gravity will kill you.


----------



## Sunny

elacsaplau said:


> If Tesla is indeed in bubble territory, it just seems to me that the longer the mania persists, the better the odds for the shorter becomes (less wrong side potential and massively increased good side possibility).



I don't care about shorts or Tesla's share price. The most interesting thing is seeing how people think. For someone who has been criticising Colm and Brendan for the past couple of weeks for not understanding what they were doing to come out on page 29 with this statement is fascinating. The longer a share is in a bubble, the better the odds for a short become with less downside and increased upside..


----------



## elacsaplau

elacsaplau said:


> If you think, as you have stated, that Colm thought all along that he was gambling - that's news to me and more importantly, perhaps to Colm also - as in, "I didn't realise that I was entering a casino" (or words to that effect!!). Please explain which is it - I'd love to know!



Hi Sunny,

I really should know better than engaging with you further. My final comments for now. I actually have devoted too much time to this thread already for the time-being. If I don't go to the trouble of answering your next observation(s), I seek your understanding in advance. I need to devote whatever available time I have to studying the card!

1. Yesterday, IMVHO you made a dodgy (read: flat wrong) statement as per the quote above. I asked for clarification - but, hey, it didn't arrive. Am I particularly surprised? It's what happens inconvenient statements sometimes....

[For yonks, I've been highlighting the risks that those that follow Colm's approach could get mushed - ring any bells??!! My warnings, like those of Fella and others, were ignored, dismissed, etc. Now that the chickens have come home to roost - sure we all always knew the risks! I think you're having a laugh, maybe even a right laugh!]

2. Yesterday,


Sunny said:


> To be honest, the shorting angle on this thread isn't what is interesting at this stage. Everyone here agree that shorts are risky and can end up badly. *The really interesting thing *and the reason I hope that the thread isn't closed, *is Tesla itself.*



becomes today



Sunny said:


> The most interesting thing is seeing how people think.



Which is it??!! Are you having another laugh?

********

I get it that Duke of Marmalade, yourself and others are in the Fagan camp, so to speak. But as I said yesterday and am repeating now (note the consistency here! )……..



elacsaplau said:


> It's ok to have different opinions, right?


----------



## Sunny

elacsaplau said:


> Hi Sunny,
> 
> I really should know better than engaging with you further. My final comments for now. I actually have devoted too much time to this thread already for the time-being. If I don't go to the trouble of answering your next observation(s), I seek your understanding in advance. I need to devote whatever available time I have to studying the card!
> 
> 1. Yesterday, IMVHO you made a dodgy (read: flat wrong) statement as per the quote above. I asked for clarification - but, hey, it didn't arrive. Am I particularly surprised? It's what happens inconvenient statements sometimes....
> 
> [For yonks, I've been highlighting the risks that those that follow Colm's approach could get mushed - ring any bells??!! My warnings, like those of Fella and others, were ignored, dismissed, etc. Now that the chickens have come home to roost - sure we all always knew the risks! I think you're having a laugh, maybe even a right laugh!]
> 
> 2. Yesterday,
> 
> 
> becomes today
> 
> 
> 
> Which is it??!! Are you having another laugh?
> 
> ********
> 
> I get it that Duke of Marmalade, yourself and others are in the Fagan camp, so to speak. But as I said yesterday and am repeating now (note the consistency here! )……..



I have no idea why you are getting so defensive and to be honest I don't care. If you think that the odds of your short trade being successful improved because you thought it was in a bubble for longer, then what you were doing was not just a gamble but a completely misunderstood gamble and would advise you to stop now.

Colm and Brendan put on a short trade because they thought the fundamentals didn't match the share price. They lost out because as Colm has already stated, they were betting against a share in a bull market and the market can stay irrational a lot longer than you can stay solvent. They could have kept the short on or indeed doubled up as you suggested when the trade got to $700 - $900 as they still believe in the trade but they quiet rightly realised that it wasn't worth the hassle. That in this climate, the share could of as easily gone to $1200 as $400. You looked at the same situation and decided to short Tesla because the 'odds were better' with a more limited downside and a higher upside. It might have paid out for you but your logic is completely flawed and as dangerous for anyone to follow as anything Colm and Brendan have said on this thread and you among others called them out for.

I have stated from the very beginning that I agreed with Colm's analysis of Tesla. It is a cult company. I also stated that I wouldn't short it because shorts are completely different trades to understand and to manage and I can't face margin calls. I don't agree that is the same as gambling but it is much riskier and more complicated than long investing. Brendan and Colm were very clear that were not going to lose their houses with the trades they put on and the thread is a very useful example of the perils of shorting. At no point, did Colm or Brendan suggest anyone should follow them or suggest that what they were doing wasn't risky. They always pointed out that they might have to close out the position and lose. You coming on and saying that you were right and they were wrong is simply just ridiculous. Coming on and telling people that the odds for the same trade have improved shows a fascinating insight into the way people think and is a better example why nobody should use short trades than the logic and the trades that Brendan and Colm used.

As I said, the psychology of the way people think in this thread is what is really interesting. Whether that is the way they look at Tesla and decide the fundamentals don't apply to them or the way people look at short trades and how the longer the bubble lasts, the better the odds are for a short trade.

As you say, we don't have to agree and that is the whole point of this.


----------



## Gordon Gekko

Baillie Gifford don’t think it’s a cult; they’re sitting pretty with their Tesla position. The same guys who backed Amazon early on. I’m amazed at the way people dismiss Tesla so readily as if it was WorldOfFruit.Com and this was 1999. It’s a real company that’s shifting hundreds of thousands of electric cars every year in a world that’s on the cusp of pivoting towards electric cars. The P&L and the Balance Sheet don’t always tell the full story; what did the financials of Facebook or Amazon look like previously? I am disappointed that Colm lost money on this trade but the idea that he ever had a bull’s notion about Tesla’s prospects is preposterous. Equally, I find the charge that “it’s a cult” almost akin to an excuse. The reality for all of us is that we’re out of our depth trying to call the prospects for this type of growth company. Hubris is very dangerous in the world of investments.


----------



## Sunny

Gordon Gekko said:


> Baillie Gifford don’t think it’s a cult; they’re sitting pretty with their Tesla position. The same guys who backed Amazon early on. I’m amazed at the way people dismiss Tesla so readily as if it was WorldOfFruit.Com and this was 1999. It’s a real company that’s shifting hundreds of thousands of electric cars every year in a world that’s on the cusp of pivoting towards electric cars. The P&L and the Balance Sheet don’t always tell the full story; what did the financials of Facebook or Amazon look like previously? I am disappointed that Colm lost money on this trade but the idea that he ever had a bull’s notion about Tesla’s prospects is preposterous. Equally, I find the charge that “it’s a cult” almost akin to an excuse. The reality for all of us is that we’re out of our depth trying to call the prospects for this type of growth company. Hubris is very dangerous in the world of investments.



That's exactly it. It is shifting 360000 cars a year. Already they are saying this will fall in Q1 and Q2. They said they would sell 500000 cars in 2018 and 2019. Now its 2020 that this is going to happen. Q4 figures were probably inflated as people took advantage before tax credits in both the US and the Netherlands ended at the end of the year. The 'profit' they announced at the end of Q4 was based on the trading of credits, not from selling cars. They still haven't shown an ability to sell a large number of cars and make a profit. Six months ago they were laying off 7% of their workforce and wearing that they are running out of cash. 

The company could end up successful but this 'nobody understands how to value the company' and 'this company is different' is just daft. A $150 billion company it is not. It is not even a successful profitable carmaker at the moment. It might well turn out that way but if you are investing in the company now, you are investing on the back of what might be and huge valuation of intangible assets. Nothing wrong with that but the constant telling people who point out the weaknesses that they are dinosaurs is cult like. We even had someone say that they are a profitable company because they announced a quarterly profit....

Anyway let's see at the end of the year...


----------



## Gordon Gekko

I think you’re missing the point. I am not claiming to know whether Tesla will do well or badly. My point is that an Irish person sitting in his or her kitchen and trawling through Tesla’s financial statements hasn’t a notion. And that profit is not the be all and end all for certain types of companies. They’re shifting 397,000 of all of the electric cars sold in the world and electric cars represent a tiny part of the total number of cars sold. What happens to Tesla’s sales when all of the cars sold are electric?


----------



## joe sod

@Gordon Gekko producing cars is not like producing smartphones or software, they need big factories, lots of materials and suppliers, the established car companies are in a lot better position to produce those electric cars than tesla because they have the experience in producing and selling big complicated machines like cars at volume. Because Tesla have sold so few cars yet and they are new, nobody knows of potential glitches, like braking, maybe charging problems, fire hazards etc. In other words all the dull boring but very important safety stuff that the big car makers have already mastered. You only master that stuff by producing lots of cars.
Producing cars cannot be increased rapidly like producing smartphones


----------



## James Kirk

joe sod said:


> @Gordon Gekko producing cars is not like producing smartphones or software, they need big factories, lots of materials and suppliers, the established car companies are in a lot better position to produce those electric cars than tesla because they have the experience in producing and selling big complicated machines like cars at volume. Because Tesla have sold so few cars yet and they are new, nobody knows of potential glitches, like braking, maybe charging problems, fire hazards etc. In other words all the dull boring but very important safety stuff that the big car makers have already mastered. You only master that stuff by producing lots of cars.
> Producing cars cannot be increased rapidly like producing smartphones


Joe. You just proved Gordon's point. You have either zero knowledge of Tesla or you choose to misrepresented them(again).

It is debatable what value Tsla should be today. If you are valuing the company on profit from cars sold in the past or potential 2020 sales then you will get a wildly different price than someone taking a more futuristic look at Tesla. 

Take Waymo, worth (supposedly) $100 billion purely based on its self driving software. No cars, no batteries, no energy, no credits, just technology. Tesla will have so much more to offer...in the future...and that's the value that the markets are struggling to access. Calling people who believe Tesla will achieve their goals in the future "a cult" is misunderstandings what's going on. It's also blinding investment decisions. If enough people believe Tesla will succeed then the share price will have a forward looking slant, and as it happens thousands do. Also this rubbish put out by vested interests that Musk is a conman is also blinding investment decisions.  He's definitely unconventional and a bit mad but in a very productive and visionary way. If you believe in his ideas then naturally you have to put a value on them, if not then you discount them. Hence the disparity in analysts and investors predictions.


----------



## Gordon Gekko

James Tiberius Kirk is spot on. Buying or shorting a company like Tesla is analagous to gambling when you don’t have the resources, knowledge, or understanding of such companies. People saying “but look at the P&L...it’s a cult” need to be saved from themselves. It’s almost arrogance or hubris.


----------



## joe sod

James Kirk said:


> Joe. You just proved Gordon's point. You have either zero knowledge of Tesla or you choose to misrepresented them(again).



how have I zero knowledge? i have the same knowledge as most people commenting on this thread. I have an opinion based on what I have read about Tesla, it just happens to differ from your opinion. Yes you have more riding on Tesla as you have your money invested in it, I have none and would not short it either or any stock for that matter. 
As for Tesla being a cult , I noticed that you never posted anything on askaboutmoney except on this thread to discuss Tesla. Im just wondering do you not have money invested in anything else ?


----------



## elacsaplau

Jeepers Joe,

Imagine someone making an _unfounded _accusation! Not something that you'd ever do, right?!


----------



## Sunny

This thread has now reached a natural end and deserves to die in peace. I am sure someone will resurrect it in 12-24 months. Thanks Colm for the original post and being brave enough to post it. It has been intriguing.


----------



## James Kirk

joe sod said:


> producing cars is not like producing smartphones or software, they need big factories, lots of materials and suppliers, the established car companies are in a lot better position to produce those electric cars than tesla because they have the experience in producing and selling big complicated machines like cars at volume


Ok. Tesla have 3 huge (Not big) factories in the US.  Giga Nevada has 10million sq foot floor space now and is about a third done. Fremont  has about 5.5 million sq feet (plus the tent) and Giga Buffalo 1.5 million sq foot.  Giga Shanghai built in 10 months and Giga Berlin just starting. Texas next.
Materials and suppies. Deals done on Battery raw materials into the future and battery supply chain way beyond any competitor as they sleep at the wheel.  Super charger network all over the world growing at 40% year over year. Tesla software miles ahead of the competition and EV brand also way ahead.



joe sod said:


> Because Tesla have sold so few cars yet and they are new, nobody knows of potential glitches, like braking, maybe charging problems, fire hazards etc. In other words all the dull boring but very important safety stuff that the big car makers have already mastered.



Tesla cars have aced all safety tests and once human error is eliminated that advantage will only increase.  Like every other car if there is a glitch it will be fixed possible over the air in Tesla's case.



joe sod said:


> Producing cars cannot be increased rapidly like producing smartphones



Compound growth of 60% a year.  Any other auto maker



joe sod said:


> As for Tesla being a cult , I noticed that you never posted anything on askaboutmoney except on this thread to discuss Tesla. Im just wondering do you not have money invested in anything else ?



I have other shares, mostly Irish.  I buy and hold. In the last few years I have stopped (Tesla excluded) buying and concentrated on the pension contributions. More tax efficient for me at this stage. I also own a small long term forestry investment.   I post on other forums but came across this thread and could see how deficient in facts it was.  I am no expert on Tesla, just interested and it bug's me the amount of b s people believe about the company and Musk.  Any man the can come up with the crazy idea of reusing rockets and then actually making it happy on a small drone ship in the middle of the ocean should not be taken lightly.


----------



## joe sod

James Kirk said:


> Ok. Tesla have 3 huge (Not big) factories in the US. Giga Nevada has 10million sq foot floor space now and is about a third done. Fremont has about 5.5 million sq feet (plus the tent) and Giga Buffalo 1.5 million sq foot.



just from a quick google Volkswagon wolfsburg is 70 million squarefoot, or in Tesla jargon *Giga Wolfsburg* is 70 million square foot, yes its one of the biggest plants in the world but is just one car maker with one factory still dwarfs Tesla total production capacity. Thats the point I have been making the sheer scale of what Tesla and its shareholders are up against.
The word Giga has nothing to do with EVs by the way its just a scientific unit for 1000000000 or a billion.


----------



## WhiteCoat

Last week, I had to apologise to Brendan for being wrong about his investment losses! Upon mature reflection, I need to withdraw this apology. I was actually only being prescient and should not have been apologetic for my visionary flare!

Being serious, what extraordinary stock price movements this week - almost impossible for the casual observer to figure out what's going on.

Regarding this thread, I really like it and hope that it continues but it does seem to me that there are quite a few posters now giving more weight to "who is saying what" rather than "what is being said". That's a pity.

One thing I don't understand is why Tesla is not in the S&P. Can someone explain the background here please?


----------



## James Kirk

WhiteCoat said:


> One thing I don't understand is why Tesla is not in the S&P. Can someone explain the background here please?



To be added to the S&P 500, the following criteria must be met:


It must be a U.S. company.
The market cap must be $5.3 billion or more.
The public float must consist of at least 50% of outstanding shares.
It must have positive reported earnings in the most recent quarter, as well as over the four most recent quarters.
The stock must have an active market and must trade for a reasonable share price.
Meeting these criteria isn't a _guarantee_ that a stock will join the S&P 500 -- these are just the minimum



There are a number of criteria set out above before a company can enter the S&P.  Tesla meets all but 1.  They need 4 consecutive  profitable quartets and the last Q profitable as well.   At the moment they have only Q3 and Q42019.  Q120 was questionable to start with but the coronavirus has made that next to impossible.  They really needed that to fire out and sell a lot of cars this Q.


----------



## WhiteCoat

Thanks James,

When do you expect Tesla to meet the profit criteria?

Also, any idea of how many companies satisfy the above criteria who are not in the S&P?


----------



## James Kirk

WhiteCoat said:


> When do you expect Tesla to meet the profit criteria?



For those who still have short interest in TSLA there is a good chance of a drop in the SP around Q120 results.  The China Giga factory had to close for 10 days because of the virus. After it started back again a good % of the workers (non locals) had to be quarantined for 2 weeks before they could go back on the factory floor.  They also face supplier issues and probably delivery problems in China as there is no immediate end to the virus in sight. 
Model Y production in the US has just started but first deliveries are not due until near the end of Q1. What the people I trust are saying is a Q1 loss of $200 million and a car sales number of 96,000.  Production will be higher but as with every Q1 cars produced in the first 4 to 6 weeks head out of the US and may not reach the customer in this Q.   

Prediction for Q2 are looking better even with investment in the MY ramp and Giga Berlin.  As things stand car sales should be in the region of 135,000 and a profit of $200 million.  Every Q will be profitable after that.

So on that basis they will meet the criteria after Q121.


----------



## joe sod

John DeLorean Reinvented The Dream Car. Then He Totaled It.
					

At the time, GM was the biggest company in the world and the place to be, but Pontiac struggled with its brand identity and wasn’t connecting with America’s youth—suddenly a huge new consumer driving the country’s emerging car culture.




					www.forbes.com
				




an interesting article about John Delorean and Delorean cars. There are many similarities between Delorean and Tesla, the DMC brand strikingly similar to Tesla branding and the shape and colour of the cars metallic grey also the same. Im not having a go at Tesla as in fairness Tesla is alot bigger now than Delorean ever was.  But Delorean was very charismatic but probably alot more suave than Elon Musk


----------



## James Kirk

joe sod said:


> the shape and colour of the cars metallic grey also the same





			https://www.tesla.com/cybertruck
		


There are zero similarities, between the car or the men and.... the truck is stainless steel not metallic grey.


----------



## Thargor

Just out of curiosity, what kind of gains would you have been looking at now if you'd held on? Tesla currently @ 459.


----------



## JSnowWinterfell

This is would have been an example of making a profit without being right. A market sell off rather than a fundamental issue with Tesla. I wonder how the story will be told.....


----------



## Brendan Burgess

JSnowWinterfell said:


> This is would have been an example of making a profit without being right.



Correct.  But I would have much preferred to have made a profit without being right than the actual out-turn which is that I made a loss, without being wrong.  

Brendan


----------



## James Kirk

Brendan Burgess said:


> " I made a loss, without being wrong. "
> Brendan



in that case, can the rest of us use the same sentiment for the shares we were long.  Might help ease the pain... but I doubt it


----------



## Brendan Burgess

Hi James

Not really. 

I closed out of my short so I realised the loss.

My portfolio of shares is a  long-term portfolio built up over the years.  So my losses so far are lost gains.

Brendan


----------



## joe sod

James Kirk said:


> in that case, can the rest of us use the same sentiment for the shares we were long. Might help ease the pain... but I doubt it



Well if its any consolation, the oil stocks were decimated along with the airlines, it turns out that in this sell off nobody was right. The stock market is the great humiliator.


----------



## Connard

joe sod said:


> Well if its any consolation, the oil stocks were decimated along with the airlines, it turns out that in this sell off nobody was right. The stock market is the great humiliator.



I don't know about that. There are plenty of people on r/wallstreetbets that have made an absolute fortune shorting the S&P500 right now.


----------



## joe sod

Connard said:


> I don't know about that. There are plenty of people on r/wallstreetbets that have made an absolute fortune shorting the S&P500 right now.



*plenty of people!!* i doubt it, Id say its like a few people have made huge sums shorting the markets ,professional traders in NY and London, hardly anybody in Dublin. Even on this thread how many people actually benefitted from shorting Tesla, Id say very few, I know a few people were bragging about getting a short on at the momentary peak of Tesla, even though they were actually Tesla bulls and saying it would goto $4,000 a share at the same time.


----------



## Fella

Connard said:


> I don't know about that. There are plenty of people on r/wallstreetbets that have made an absolute fortune shorting the S&P500 right now.



I'm sure loads of people made loads of money and equally these people lost loads of money at other times and you don't hear from them.

I've posted on reddit before , its important to remember about forums that there is so many people posting stuff they have no clue about as fact. I try to remind myself of this often . People just post stuff like its gospel , I was a moderator on one large gambling forum and we had constant problems with people "after-timing" , there was endless people turning up with stories of how they are making a fortune . There was a winning screenshots section that was littered with huge wins and you only had to look at what these people where doing to realise that they where in fact clueless and wouldn't be long losing it again. Whenever we ran competitions and people had to post their bets before the off you would see that over the course of a month there was almost nobody probably less than 1% making profits. 
There was always the guys that "didn't want to give away their edge " that would be offered to post up a screenshot of net deposits v withdrawals and they would quickly disappear.

And fair play to Colm and Brendan posting Bitcoin and Tesla bets , I've more respect for anyone who posts prior than people that pop up afterwards with the fortunes they made.


----------



## RedOnion

Fella said:


> its important to remember about forums that there is so many people posting stuff they have no clue about as fact


Sorry about that...


----------



## elacsaplau

The rise and rise of Tesla's share price continues - in spite of Musk's best efforts to dampen things down.

Where goes it from here? One thing for sure - it is not accurate to say that Tesla is losing money hand over fist as has been claimed.


----------



## Brendan Burgess

Hi elacs

I stopped following Tesla when my short position was closed. 

Even for a comparatively small stake, the roller coaster ride is very dizzying. 

Having said that, I had always planned to short Bitcoin again when it got to $10,000 and it's there now. 

Brendan


----------



## elacsaplau

I luv it...…another headline for the Journal.ie

Leading financial commentator is taking a break from the puzzling gyrations of individual stocks and intends turning his speculative focus to the tried & tested relative and comforting calm of cryptos!

[Fair enuff - a wee bit long for a headline!]


----------



## Brendan Burgess

Now Tesla has hit $1,000!






It's so tempting to short it again. 

But I am lucky (again) that I was kicked out before I had reached my limit.

Brendan


----------



## elacsaplau

Hi Brendan,

I'd really love to know what you believe is a fair value range for Tesla and how you arrived at this valuation range.


----------



## Brendan Burgess

I don't know.

Musk thought it was overvalued at $780 a few weeks ago. 









						Tesla shares fall as Musk says company's stock is overvalued – DW – 05/02/2020
					

The share price of the US electric-car maker nosedived by around 10% at the end of the trading day after Tesla's CEO tweeted that the company's price was "too high." Elon Musk is also critical of the COVID-19 lockdown.




					www.dw.com
				




Brendan


----------



## elacsaplau

Ah Brendan!

Is that it?...….I had the impression that you were shorting at $300 or maybe $400 coz it was too high and that it was a clear case of where the market had got it wrong?! Is this fair?!


----------



## ClubMan

Brendan Burgess said:


> I don't know.
> 
> Musk thought it was overvalued at $780 a few weeks ago.
> 
> 
> 
> 
> 
> 
> 
> 
> 
> Tesla shares fall as Musk says company's stock is overvalued – DW – 05/02/2020
> 
> 
> The share price of the US electric-car maker nosedived by around 10% at the end of the trading day after Tesla's CEO tweeted that the company's price was "too high." Elon Musk is also critical of the COVID-19 lockdown.
> 
> 
> 
> 
> www.dw.com
> 
> 
> 
> 
> 
> Brendan


Do you really put any stock (pun intended) in what Musk says at this stage?


----------



## Brendan Burgess

elacsaplau said:


> I had the impression that you were shorting at $300 or maybe $400 coz it was too high and that it was a clear case of where the market had got it wrong?! Is this fair?!



That is roughly right. 

I was clear that it was overvalued.  And I have not been shown to be right, yet. 

I might prove to be right in the long-run, or it might be worth $1,000 a share. 

Brendan


----------



## elacsaplau

Understood - but the question was about your current valuation range and how you arrived at it. [Clearly, it's not a BOHA - we're talking, for the most part about non-BOHA tech!]


----------



## Brendan Burgess

Hi elacs 

I have kept only a half eye on the price since I closed out my short.  I haven't really been following developments. 

Have there been extraordinary developments in the last few weeks to justify a doubling of the price? 

Brendan


----------



## elacsaplau

My dear Brendan,

Word to the wise! I'm the one asking the questions here! As in, I am not the one who claimed that the market had got it majorly wrong in pricing it at 3 or 4 hundred bucks!

The real question is therefor whether there has been any extraordinary developments which changes your view that the price was madly overly valued back then? Because if no such extraordinary developments have occurred and you're partial to the odd short, then its current price must be one helluvan opportunity!


----------



## Brendan Burgess

Hi elacs

I think you are right. It probably is a helluvan opportunity. 

The problem, as I have learnt to my cost, with Tesla is that it could be overvalued for a very long time. 

It's not like Bitcoin. Bitcoin is worth nothing. That is very easy to see.  Shorting is still risky, but the reward is greater in that it will fall to zero at some stage. 

Tesla is worth something.   Not sure if that is $200 or $1,000. 

Brendan


----------



## elacsaplau

Fair enuff - I'm just kicking the tyres a bit. I accept that cryptos are a strange animal (albeit having been extraordinarily kind to me).


----------



## James Kirk

As Brendan never actually gave a reason for his valuation of Tesla of $100 to $400 a few months ago it's difficult to update on what has improved to rise that valuation. You could throw in the huge success of Gigga 3 in China, the speed of G4 in Berlin construction, the 3Qs of consecutive profit, the 8billion cash  in the bank as most other auto companies debt goes through the roof, the 50% sales growth YoY, SpaceX success, the ever widening gap to the competition, the MY, the 20% MY margin, battery developments, the pipeline ect ect.


----------



## Colm Fagan

I gave up ages ago on trying to understand what drives Tesla's share price.  The mystery of the Blessed Trinity is in the penny-halfpenny place compared to it.  One of the reasons it is impossible to fathom is the blind faith of believers.  Facts don't matter.   A classic example is


James Kirk said:


> the 8billion cash in the bank as most other auto companies debt goes through the roof,


The reality, as per Tesla's own accounts, is that it is Tesla's debt burden that is going through the roof.  It is now $13.8 billion, more than double total 2019 revenues.  Volkwagen's debt, by comparison, is less than one year's revenues.    Bondholders are wary about lending more, but shareholders aren't so discriminating.   They contributed twice as much in 2019 as in 2018.  Tesla crowned that achievement in the first quarter of 2020 by taking in another $2.6 billion from suckers -investors, more in one quarter than it got in all of 2019.  Every injection of shareholder funds means more mouths to feed when (if?) the company eventually turns the corner.  Even then, shareholders will have to wait in line until bond-holders have got their pound of flesh.  Good luck to them!


----------



## James Kirk

Colm Fagan said:


> The reality, as per Tesla's own accounts, is that it is Tesla's debt burden that is going through the roof. It is now $13.8 billion, more than double total 2019 revenues.


Colm you might want to check your facts.  Tesla FY19 revenue was $24.6 billion.  I think you are mixing Q419 revenue of $7.4 billion with FY.  That reverses your comparison with VW but not you opinion I'm sure.  As for VW they have grown their debt form ZERO in 2008 to $217billion before covid struck. For what????   As For Tesla, they have used the 13.5 billion to build a unique auto company from ZERO to one of the fastest growing in the world.   Tesla has only 2.5billion debt due up to the end of 2023 so not in the least bit a strain on cash flow.



Colm Fagan said:


> Tesla crowned that achievement in the first quarter of 2020 by taking in another $2.6 billion from suckers -investors,


That 2.6 billion was well timed and will be well spent.  As for suckers...the loosers are not the INVESTORS in Tesla Colm.


----------



## Colm Fagan

I stand corrected on the detail, which doesn't change the fact that Tesla's debt is higher than VW's as a percentage of revenues.   Far more importantly, unlike VW, it is failing dismally to generate the profits needed to service its debt.   Bankers would consider it a basket case.  That's why it keeps presenting the begging bowl to shareholders.  It has squeezed additional funds out of them every single year for the last nine years at least, probably for much longer.  I thought the purpose of a business was to generate profits for shareholders, not to keep soaking them for additional cash.   For how long does a 16-year old company want to be treated as a start-up, and not be expected to be generating positive returns for shareholders by now?


----------



## elacsaplau

Colm Fagan said:


> I stand corrected on the detail.....



I can never understand why people make things up to support a thesis. Surely, what should matter is what's right and not trying to win the argument?


----------



## James Kirk

Colm Fagan said:


> Tesla's debt is higher than VW's as a percentage of revenues



VW's debt to equity is higher that Tesla's. 



Colm Fagan said:


> I thought the purpose of a business was to generate profits for shareholders



I'm a share holder.  I'm very happy with my profit.   Where are all the unhappy shareholders that are not making a profit?




Colm Fagan said:


> For how long does a 16-year old company want to be treated as a start-up, and not be expected to be generating positive returns for shareholders by now?



Tesla has generated a positive return for shareholders.  The company has also been profitable for the last 3 Q's.  Who is treating Tesla as a Start-up?
Tesla is a growth company. growing at 50%yoy.  Not many current shareholders (if any) are unhappy with Tesla's business plan.

Colm,  you are determined to only see the downside here.  Nothing I can say will make the slightest difference and that's fine. I had this same discussion with Brendan months ago and he still hasn't seen the light and is unlikly to. The cards continue to be stacked in Tesla's favor so we'll see how it goes.


----------



## James Kirk

elacsaplau said:


> I can never understand why people make things up to support a thesis. Surely, what should matter is what's right and not trying to win the argument?



Lately I see TSLAQ giving up on figure all together because they were so easily corrected. All of what they predicted for the last few years has now become the present and proven to be 100% wrong and even fabricated.  Not saying Colm or Brendan are in that camp but it's easy to be sucked into their web and decisions are made based on half the information and a hunch that they can't actually explain when asked to.


----------



## Colm Fagan

James Kirk said:


> I'm very happy with my profit.


I'm sure people who invest in pyramid schemes are happy with their profit as long as they can find bigger fools prepared to buy at ever higher prices.  The reality is that Tesla hasn't turned a profit in any of its 16 years.  It keeps promising profits "soon" and keeps sucking in additional capital from gullible investors who think the pyramid scheme will last forever.   


James Kirk said:


> VW's debt to equity is higher that Tesla's.


Doh!  Of course VW's debt to equity ratio is higher than Tesla's.  That's because it doesn't keep tapping shareholders for money, so the denominator in the debt to equity calculation stays broadly constant rather than increasing as more people are sucked in.


----------



## Gordon Gekko

Colm, with respect, you’re applying analogue methods of analyis in what is now a digital world. It’s akin to value investors bemoaning the failure of value stocks versus growth stocks or old-school investors who crave dividends and pure profits. What investors should want is great companies like Amazon etc that take their cashflows and reinvest them to make even more money.

The discussion around Tesla could be analagous to previous debates around Amazon, Facebook, Apple, Netflix, etc.

As Baillie Gifford point out, it’s as much a software company as a car company. They were early stage investors in Amazon and in Tesla. They reasserted their conviction re Tesla only recently. Isn’t there a chance that you’re wrong to be so focussed on their P&L?


----------



## Gordon Gekko

The point that you’re missing is that the greatest and most valuable company in the world could, in theory, make zero profits.

It is really naive to simply bang the proberbial profit drum.

Take a company like Revolut. They make no money. Some people lampoon them for it. They have a great product. Everyone uses it. Everyone loves it. They have all our data. It’s just silly not to make the leap that there are significant future cashflows to be made from all of that and to be discounted to arrive at a valuation.

Applying your logic, if I spent €10bn this year successfully discovering the cure for cancer and the market valued my company at €100bn, Baillie Gifford might be hanging on as early stage investors whereas you’d be lampooning me for losing €10bn in 2020 and not paying any dividends!


----------



## elacsaplau

Colm Fagan said:


> The reality is that Tesla hasn't turned a profit in any of its 16 years.



One shouldn't singularly focus on where the puck was. Isn't Tesla expected to satisfy all the criteria - including the profitability requirement - for inclusion in the S&P this year? So, the stand-alone historic reference to profitability is disappointing and misleading but not altogether surprising...….a few months ago, you said that "it's losing money hand over fist" no less!


----------



## Colm Fagan

I can see that this discussion is leading nowhere, but I'll have one last try at explaining where I'm coming from. 

First of all, forget about the current share price and its past trajectory.  That's a red herring in the context of valuing the business.  If someone made a fortune by buying at one price and selling to someone else at a higher price, lucky for them, but it's just shuffling the cards and is irrelevant as far as placing a value on the business is concerned.  I think we can all agree on that.   To avoid going down this cul de sac, let's assume that you were the sole owner of the company for the last 16 years or whatever. 

In that time, you ploughed $15.4 billion into the company.  You borrowed another $13.9 billion, on which interest has to be paid and which will have to be repaid sometime.  What do you have to show for your money?  The manager doesn't see it paying a dividend for years to come, if ever.  On the contrary, it's likely that you (and bondholders) will be asked to invest even more before it turns the corner.   At best, it will make a marginal profit this year; there's a strong possibility it will lose money again. 

Its assets consist mainly of factories, which are subject to depreciation, and unsold cars.  Unlike companies like Amazon, Facebook and Apple, there's not a massive moat protecting you from competitors, which will allow you to earn windfall profits in future, although I can see this as a possible area of disagreement.   (If you think it does have a protective moat, tell me what it is and what you think it's worth in terms of yearly profits.)

Now someone comes along and tells you that they will buy the business off you for $180 billion.   (I think my sums are right.  If they're wrong, I'm sure someone will correct me).  They also promise to take on all the debt.  If you accept their $180 billion, you can expect to earn in the region of $9 billion a year (5%) with a relatively small amount of risk by investing the money elsewhere.

My thesis is that I cannot see how Tesla can earn that sort of profit within the next 5 to 10 years, maybe never.  In the meantime, you'll have to put up with forgoing the $9 billion a year that you could be earning, at much lower risk, from another business.    Therefore, you must envisage it earning considerably more than $9 billion a year in the long-term.  I just can't see that, or anything like it, happening.


----------



## Gordon Gekko

Baillie Gifford’s conviction remains. So I remain a happy holder of the stock indirectly. I think that knowing what you don’t know is a gift in itself. I don’t know what the future holds for Tesla. So I delegate to Tom Slater and his team who have a better idea based on their track record (e.g. they were early stage backers of Amazon and Jeff Bezos actually meets them).

*“How big could Tesla become?*

It’s no exaggeration to say that Anderson and Slater think the sky could be the limit for Tesla and that its probable prospects are not reflected even in today’s lofty share price.

Flood, a client service director at Edinburgh-based Baillie Gifford who speaks to investors on behalf of the Scottish Mortgage duo, explained the broad terms of the fund managers’ thinking.

It was clear from what she said that the pair were not taking profits on Tesla out of misplaced loyalty to Musk or from a disregard of investment common sense.

Acknowledging the ‘temptation after strong performance to take profits’, Flood quoted the investment saying ''don’t trim your flowers to water your weeds'' to describe how the fund managers wanted to run a portfolio of ‘committed positions’ which meant they were loath to interrupt the growth that Tesla shares could compound if left alone.

‘This is a deliberate choice,’ said Flood.

She said Anderson and Slater don’t believe it is possible to set a single target share price for companies like Tesla or any of their other key holdings such as Amazon, Alibaba, its Chinese equivalent, and gene sequencer Illumina.

Instead they forecast a range of scenarios, which while they include the risk of failure, in Tesla’s case have become increasingly optimistic.

Just looking at Tesla’s car manufacturing business, Flood said over five years it was possible to see a ‘low multiple’ expansion in the share price – eg, a doubling – based on the current progress in its X, 3 and Y models.

Tesla impressed investors by reaching a production run rate of 400,000 cars at the end of last year, which was no mean engineering feat, said Flood. Given the company’s growing experience in scaling-up car production, executing difficult projects and making manufacturing more efficient, it was possible to see it making 2m cars a year by 2025. This would still be less than either BMW or Mercedes Benz, she pointed out.

Growth forecasts could be raised further by adding in sales of Tesla’s new roadster, semi and cyber trucks, said Flood.

Other positive scenarios take in more aspects of the business, such as the potential to supply autonomous, self-driving cars for all its models.

Or Tesla’s growing business in solar energy storage where it makes the Megapack, Powerwall and Powerpack batteries for manufacturers and households.”


----------



## Brendan Burgess

Gordon Gekko said:


> The point that you’re missing is that the greatest and most valuable company in the world could, in theory, make zero profits.
> 
> It is really naive to simply bang the proberbial profit drum.



Gordon. When I read that , I assumed you were being sarcastic. 

Brendan


----------



## Gordon Gekko

Brendan Burgess said:


> Gordon. When I read that , I assumed you were being sarcastic.
> 
> Brendan



Hi Brendan,

I’m not being sarcastic.









						Jeff Bezos Explains Why Amazon Makes No Profit
					

In this 9 minutes video, Jeff Bezos is brilliant in his response to the question “Why Amazon Makes No Profit ?” In the video JBezos explains his business(es), shares great insights, and…




					www.google.ie
				




In the video, Jeff Bezos talks about the danger of focussing solely on profitability.

His letter to investors back in 1997 is also well worth reading:



			http://media.corporate-ir.net/media_files/irol/97/97664/reports/Shareholderletter97.pdf
		


People spent years hurling mud at companies like Amazon and Facebook on the basis that they made no money. The same charge is levelled at companies like Revolut, Uber, and Tesla. The last couple of decades have taught us that it’s not that simple.

If nothing else, while some people are screaming about Tesla’s lack of profitability, specialists like Tom Slater at Baillie Gifford continue to back the company. Specialists with significant research resources and a successful track-record of buying such companies. It’s enough to make me think that focussing on profitability might be misguided.

Gordon


----------



## Brendan Burgess

Hi Gordon 

The focus has to be on profitability.  But not necessarily short term profitability. 

So focusing on short-term profitability is misguided. 

It's very hard to see how Revolut or Uber will ever be profitable - even in the long-term. 

Tesla might be profitable but I doubt it will be profitable enough to justify its current price.  But I don't know what price would be justified. I have already lost through shorting it. 

There is a conflict of opinion between the specialists who have made money by buying such stocks and the specialists who have made money by shorting such stocks. 

Brendan


----------



## James Kirk

I'm not sure how to get it into peoples heads that Tesla is going to be one of the biggest companies in the world and not a pyramid scheme.  It will never pay a dividend (I hope) because that is not the plan. Musk has said a moat means nothing in a digital age it's all about innovation. Tesla will never stand still.

I think if Tesla does make a profit some still won't be satisfied. I think that theory may soon be put to the test. Without a doubt they would have posted a Q2 profit if it wasn't for covid. Surprisingly they could still do it. With a big contribution from Gigga Shanghai Tesla could deliver 85,000 cars. If they do then a small profit is possible. That's the Q2 prediction from people who do crunch the numbers. Tight but still doable.

Everything these days comes with a covid warning but if the year continues with some kind of normality  then 2020 will be profitable. Tesla will deliver the 500,000 vehicles as guided. That will lead to a profit of over $2billion.


----------



## Gordon Gekko

Brendan Burgess said:


> Hi Gordon
> 
> The focus has to be on profitability.  But not necessarily short term profitability.
> 
> So focusing on short-term profitability is misguided.
> 
> It's very hard to see how Revolut or Uber will ever be profitable - even in the long-term.
> 
> Tesla might be profitable but I doubt it will be profitable enough to justify its current price.  But I don't know what price would be justified. I have already lost through shorting it.
> 
> There is a conflict of opinion between the specialists who have made money by buying such stocks and the specialists who have made money by shorting such stocks.
> 
> Brendan



Hi Brendan,

Revolut have over 1m users in Ireland. I’m a customer and so are you. I love their product. My friends and family all love their product. They have all the data in the world about me and possibly about you. Why is it such a leap of faith that a company with lots of users, lots of data, and a great product might pivot to making a few bob? Who has more chance of making a few quid, some start-up with a dodgy product or the company that owns the space? Facebook hoovered up all the users and then worked out how to monetise it.

Gordon


----------



## Brendan Burgess

Gordon Gekko said:


> Why is it such a leap of faith that a company with lots of users, lots of data, and a great product might pivot to making a few bob?



Hi Gordon

I think that when they start charging for their services, they will lose their distinctive characteristics. 

It's possible that they might become profitable. Though I don't see any reason for them to become megaprofitable. 

Brendan


----------



## trython

Gordon Gekko said:


> Hi Brendan,
> 
> I’m not being sarcastic.
> 
> 
> 
> 
> 
> 
> 
> 
> 
> Jeff Bezos Explains Why Amazon Makes No Profit
> 
> 
> In this 9 minutes video, Jeff Bezos is brilliant in his response to the question “Why Amazon Makes No Profit ?” In the video JBezos explains his business(es), shares great insights, and…
> 
> 
> 
> 
> www.google.ie
> 
> 
> 
> 
> 
> In the video, Jeff Bezos talks about the danger of focussing solely on profitability.
> 
> His letter to investors back in 1997 is also well worth reading:
> 
> 
> 
> http://media.corporate-ir.net/media_files/irol/97/97664/reports/Shareholderletter97.pdf
> 
> 
> 
> People spent years hurling mud at companies like Amazon and Facebook on the basis that they made no money. The same charge is levelled at companies like Revolut, Uber, and Tesla. The last couple of decades have taught us that it’s not that simple.
> 
> If nothing else, while some people are screaming about Tesla’s lack of profitability, specialists like Tom Slater at Baillie Gifford continue to back the company. Specialists with significant research resources and a successful track-record of buying such companies. It’s enough to make me think that focussing on profitability might be misguided.
> 
> Gordon



The key difference here is Amazon was directing its income into growth, while Tesla is barely making a profit and has been slashing its R&D.


----------



## Colm Fagan

As @trython says, Amazon and Tesla are like chalk and cheese.  Amazon has a number of highly profitable businesses.  It uses the cash flow from those businesses to finance its ventures into new areas.  This is a terrific business model, provided of course that it can keep finding profitable new ventures.  That is very different from incurring losses year after year and presenting the begging bowl to shareholders, at least once a year for the last eight years, looking for a bail-out.  That is not a viable long-term business model. 

I also agree with @trython that Tesla is skimping on R&D.  That is never a good sign in a business. 

PS:  I've just looked at Amazon's investor relations page.  It had net income of $3 billion in 2017, rising to $10 billion in 2018 and $11.6 billion in 2019.  That's far from 'making no money'!!


----------



## Gordon Gekko

Nobody is saying that Amazon 2020 is similar to Tesla 2020.

Analogue analysis in a digital world again unfortunately.


----------



## elacsaplau

Colm Fagan said:


> …..I'll have one last try at explaining where I'm coming from.



So Colm, your subsequent post was one for the road or what?



trython said:


> The key difference here is Amazon was directing its income into growth



trython, 

The implication here is that Tesla was not directing its income into (future) growth - is that your position?


----------



## Gordon Gekko

Henry Ford bought raw materials, assembled cars, and sold them to Joe Public. He had a profit and loss account.

Tesla also manufacture cars. It has a profit and loss account.

People seem restricted to looking at the latter through the prism of the former.

The issue is that the relatively near-term future is likely to be massively different to anything we’re used to. Vehicles will be electric and autonomous. The vehicles may be worth less than their software. At some point, none of us may own vehicles at all; we may simply order up a Tesla via Uber for the 2% of the time that we actually use our cars. It’s estimated that NOT owning a car might deliver a bonus to each household of circa $5k a year. And what about the insurance industry if there are no crashes? What about the drinks and entertainment industries if we can consume alcohol and watch movies while we drive? What about property prices if we can sleep/shave/work/watch tv as we commute and therefore care less about proximity to work?

The world is on the cusp of massive change and the role of companies like Tesla or Uber is unclear, but could be more significant than “do I buy a Tesla or a BMW?”. It’s why sitting at one’s kitchen table, pouring through Tesla’s accounts, and sticking on short trades is crazy in my view. There is more bubbling under the surface here than I can understand. I recognise that. Note that I am not saying that the share price will remain at current levels or multiply. I’m simply saying that there are paths to a world where I whistle up a Tesla that I don’t own via Uber, have Heineken delivered to my Tesla while I drive somewhere and listen to Spotify or watch Netflix all via my Tesla, all generating recurring income streams for Tesla outside of the initial cost of the vehicle. Good investing also involves being careful about what you don’t know.


----------



## James Kirk

James Kirk said:


> I think if Tesla does make a profit some still won't be satisfied. I think that theory may soon be put to the test. Without a doubt they would have posted a Q2 profit if it wasn't for covid. Surprisingly they could still do it. With a big contribution from Gigga Shanghai Tesla could deliver 85,000 cars. If they do then a small profit is possible. That's the Q2 prediction from people who do crunch the numbers. Tight but still doable.



Well I guess that's the profit argument put to bed.  Tesla will be one of the top 20 companies on the S&P shortly.  Funds that track it will have to buy TSLA shares equal to it's weighting on the index.  That will be a lot of shares.  Tesla may need to issue extra shares just to meet demand.


----------



## elacsaplau

James Kirk said:


> Well I guess that's the profit argument put to bed.....



Well, the commentary of a number of months ago that Tesla was "losing money hand over fist" was nonsense even then - as I pointed out at the time.


----------



## joe sod

@elacsaplau you successfully got a short on at the last big run up in Tesla shares at $950 in January I remember, it fell to $360 or something during the corona virus panic in March and now its at $1500, wow that is some rollercoaster, not a stock for the widows and orphans. Are you tempted to get another short on now with the recent price action?
So far you have proved all the skeptics wrong including myself, especially in how the share price recovered from March , if you bought then you would be up 4 fold. It is true that this stock has cost shorters alot of money but it must have also cost people that are long the stock and might have bought in january but panic sold in march, there had to be alot of sellers to crash the market so much in march. Tesla fell much more than the rest of the market and decoupled from the tech sector so in March it was not viewed as a tech stock like Apple or Microsoft


----------



## Brendan Burgess

Excellent article about shorting generally in The FT 

Search for We are in the Golden Age of Fraud 

It's an interview with Jim Chanos who shorted Enron and Wirecard.

The main message is that it's very difficult to short in a bull market.  

He has two funds
One is a mixed long and short fund which has gained 22% a year over the last 35 years - double the return on the S&P

Over the same period, his short only fund has lost 2% a year.

It's a pity that the interviewer didn't pursue that a bit more.

The guy's reputation is from the dramatic shorts. But did he make his money going long? 

Brendan


----------



## Colm Fagan

Brendan.
I agree it's a good article.   I also agree that it's a pity the article didn't explore the reasons for the difference between the positive return of 22% a year over the last 35 years on his long-short fund (double the return on the S&P 500 over the same period) and the average loss of 2% a year on his short-only fund (also over the same period).  The clear conclusion is that he made most of his money by going long.
I suspect that one of the main reasons for the poor return on his short only fund is my best friend, Tesla!!!  He started shorting it 5 years ago.  Since then, its price has increased six-fold (I would have thought the increase is even more!).  God knows how much Tesla has cost him - even more than I've lost, I suspect!!!
His reasons for being short on Tesla?
"It burnishes its results through aggressive accounting".  Agree!
"It is a culture of deception because it is selling self-driving to consumers, which as yet doesn't exist".  Agree again!
I could add lots of other reasons for shorting it.
It is constantly cutting back on R&D in order to boost short-term profits, an almost certain recipe for disaster, especially in the tech business where you innovate or you die.  R&D spend was down 14% in Q2 on the same period last year, it was down 20% in 2019 on the corresponding figure in 2018.  In contrast, Apple, a mature tech player, spends over 10 times as much on R&D - and is ploughing more into it every year - yet its valuation as a multiple of profits is only a fraction of Tesla's.
Another good reason for shorting Tesla is Musk's dysfunctional  bonus package, which includes nothing for the quality of the product or for innovation, but does reward him for diluting the interests of existing shareholders by selling additional shares in the company at inflated prices.   I spent a lifetime in business and have never seen a crazier remuneration package.  That's saying something, as I have seen some crazy packages over the years!


----------



## Brendan Burgess

Colm Fagan said:


> I suspect that one of the main reasons for the poor return on his short only fund is my best friend, Tesla!!!



Hi Colm

It would be very interesting to see the return on his fund up to 5 years ago when he first started shorting Tesla. 

I don't know how a short fund works.   Presumably they can only allocate a maximum of [10%] to any particular stock? 

It's very easy to compile a portfolio of 100 stocks to go long in.

It would be very hard to compile a list of 10 stocks to short.  So they probably end up shorting stocks which are only a bit overvalued and not the massive frauds like Enron and Wirecard.

Brendan


----------



## Colm Fagan

Brendan Burgess said:


> they probably end up shorting stocks which are only a bit overvalued and not the massive frauds like Enron and Wirecard.


I recall giving some thought to this question a while back (prompted, I think, by a question on AAM from @declan11).  I concluded that shorting is only worthwhile if you think the share is grossly overvalued at its current price.  Given the general long-term upward trend in share prices, it doesn't work if the share is only a small bit overvalued.    That does reduce the pool of possible targets considerably, although Chanos, at the end of the article, claims that this market is setting up to be one of the great short opportunities of all time!


----------



## mtk

yes FT weekend article was v interesting. I underlined a fair bit for future reference /reflection!


----------



## joe sod

@Brendan Burgess yes very true, Tesla is the text book example of why you should never short . I think the quick stock market recovery in March must have cost shorters a lot of money as well. It looked like a carbon copy of 2008 . Maybe the heightened tensions between the US and China could be the catylist to puncture Tesla, they seemed to have placed a lot of their chips on Chinese expansion and manufacturing, cars are the big pawns in the global trade wars.


----------



## Colm Fagan

joe sod said:


> Tesla is the text book example of why you should never short .


I obviously agree, based on my own experience as recounted on these pages.  It's nevertheless very tempting, when all the fundamentals (low and falling R&D spend, low core profitability, excessive focus on short term profit, high turnover of senior executives, etc.) indicate that the stock will be worth only a fraction of its current price at some future date.  The problem is we don't know the price trajectory between now and that unknown future date.  
My latest iteration is to insert stop losses, so that portions of my short position are automatically cashed out at varying higher prices.  At least I know I won't lose my shirt (again!) if the price goes even further into the stratosphere.  I think a 'fair' price for the stock is around $200 to $300, so at the current price I'm running a limited risk for a large potential profit.


----------



## Gordon Gekko

Colm,

You’ve heard the one about the ‘definition of insanity’ presumably?

Gordon


----------



## galway_blow_in

Took some stones to short tesla

The only car company stock which isn't hated by Wall st ,nevermind the fact that the cars are amazing, have an unrivalled brand in terms of cool and are eating the other luxury cars lunch each year in terms of driver performance

Not saying that the stock isn't over valued, that's different


----------



## Colm Fagan

It's interesting that no-one has challenged any of my assertions on the hard realities of Tesla's business (e.g. R&D spend low and falling, Musk rewarded for diluting shareholders' interests, not being penalised for poor quality cars, pretending it has FSD when it's way behind the pack).  Instead, I get _ad hominem_ personal remarks, questioning my sanity.   Enough said.


----------



## demoivre

Colm Fagan said:


> It's interesting that no-one has challenged any of my assertions on the hard realities of Tesla's business (e.g. R&D spend low and falling, Musk rewarded for diluting shareholders' interests, not being penalised for poor quality cars, pretending it has FSD when it's way behind the pack).  Instead, I get _ad hominem_ personal remarks, questioning my sanity.   Enough said.



Your're the one who lost the money.



Colm Fagan said:


> I concluded that shorting is only worthwhile if you think the share is grossly overvalued at its current price.



That is no guarantee of success. What's to stop the share becoming even more overvalued?

Dermot Desmond couldn't understand Baltimore Technologies valuation at £50 back in 1999 and sold out. Didn't stop it from going to £130, and beyond IIRC.


----------



## PGF2016

Colm Fagan said:


> It's nevertheless very tempting, when all the fundamentals (low and falling R&D spend, low core profitability, excessive focus on short term profit, high turnover of senior executives, etc.) indicate that the stock will be worth only a fraction of its current price at some future date.


 I dislike when only one side of a story is provided to make a point. There must be a reason for the share price. Different analysts and even competitors concede that Tesla have a multi year technology advantage on the competition.


----------



## declan11

I think discussions on Telsa produce more smoke than light. Most people have an opinion and wont change their mind. It reminds me of the Roy Keane/ Mick McCarthy saga! Colm is entitled to his view and has the courage to back it up with his money. You haven't updated your investment blog recently Colm, and I would be interested in your latest ventures.
I have just come across Howard Marks of Oaktree Capital. He has been writing regular memos expressing his views on markets etc for many years and they are all available online. On reading his views of the dot com bubble written at the time, it strikes me as very similar both to the recent Tesla share price rise and of how a small number of stocks now make up a large percentage of the SP500. We know how that worked out!


----------



## Colm Fagan

PGF2016 said:


> I dislike when only one side of a story is provided to make a point.


I am doing my best to flush out the other side of the story, so far without success, as you can see from the exchanges above.  There has been a complete lack of substantive engagement from bulls of the stock on Tesla's merits.    All I got was invective.  


PGF2016 said:


> Different analysts and even competitors concede that Tesla have a multi year technology advantage on the competition


I too have read online comments to that effect but have never seen it confirmed.  What I do know is that, around this time last year, Tesla said its FSD (full self-drive) technology was making progress on stopping at stop signs and traffic lights.  We were never told if it had succeeded in this modest goal.  In the latest results update, Musk promised to have full self-driving by this year.  The chances of that are slim to none, IMO, in the light of the cut-backs in R&D spend.  Waymo is streets ahead of everyone else in FSD.  


declan11 said:


> You haven't updated your investment blog recently Colm, and I would be interested in your latest ventures.


I haven't updated it, Declan, because I'm completely lost in the current market.  Stocks that I think should fall in value have increased (Tesla being the classic example).  There are also stocks that I thought would increase in price following Covid-19, but haven't.   In the meantime, I'm hunkering down.   I'll wait to provide an update until I can make sense of what's going on.


----------



## DazedInPontoon

This is at least some of the other side of the story: https://www.youtube.com/watch?v=hX6Cp4vNexc


----------



## PGF2016

Colm Fagan said:


> I am doing my best to flush out the other side of the story, so far without success, as you can see from the exchanges above.  There has been a complete lack of substantive engagement from bulls of the stock on Tesla's merits.    All I got was invective.
> 
> I too have read online comments to that effect but have never seen it confirmed.  What I do know is that, around this time last year, Tesla said its FSD (full self-drive) technology was making progress on stopping at stop signs and traffic lights.  We were never told if it had succeeded in this modest goal.  In the latest results update, Musk promised to have full self-driving by this year.  The chances of that are slim to none, IMO, in the light of the cut-backs in R&D spend.  Waymo is streets ahead of everyone else in FSD.


Appreciate the response. Always good to hear contrary views. 

Musk is strange. Very impressive but hard to trust his pronouncements or find him likeable. 

The loss of executive talent would trouble me most if I was invested in Tesla.


----------



## Colm Fagan

DazedInPontoon said:


> This is at least some of the other side of the story: https://www.youtube.com/watch?v=hX6Cp4vNexc


Thanks for that - from a fellow unfortunate Mayo person, I presume! (Pontoon?).
That's exactly the type of online comment I was thinking of.  If you go through the video, there is nothing of substance in it.  My main take from it was that we should forget about cars, that investors should back Tesla because it allows anyone to become a distributed utility.  What on earth does that mean?  How valuable is it to Tesla if we all become distributed utilities?   If allowing us to become "distributed utilities" is such a wonderful business, are there any other players in this business?  The capitalist system being what it is, there will be plenty of competitors in no time,  who will pour money into R&D.  Meanwhile, Tesla will fall behind, because it is skimping on R&D, in order to show a quarterly profit.  In the tech business, you innovate or you die.  Tesla is no longer innovating, ergo .....


----------



## Dublin Blow Out

Colm Fagan said:


> I am doing my best to flush out the other side of the story, so far without success, as you can see from the exchanges above.  There has been a complete lack of substantive engagement from bulls of the stock on Tesla's merits.    All I got was invective.
> 
> I too have read online comments to that effect but have never seen it confirmed.  What I do know is that, around this time last year, Tesla said its FSD (full self-drive) technology was making progress on stopping at stop signs and traffic lights.  We were never told if it had succeeded in this modest goal.  In the latest results update, Musk promised to have full self-driving by this year.  The chances of that are slim to none, IMO, in the light of the cut-backs in R&D spend.  Waymo is streets ahead of everyone else in FSD.
> 
> I haven't updated it, Declan, because I'm completely lost in the current market.  Stocks that I think should fall in value have increased (Tesla being the classic example).  There are also stocks that I thought would increase in price following Covid-19, but haven't.   In the meantime, I'm hunkering down.   I'll wait to provide an update until I can make sense of what's going on.


Hi Lads
Sorry for jumping in the middle of your conversation. I came across this thread while randomly googling "Trading stocks in Ireland".
This search led me to this particular thread from November 2019, when Tesla was trading in the 200 dollar range!
I couldn't help but laughing at the conversation (I'm down 20% on my short, but not worried about it!!!).
To preface; I've never traded stocks in/from Ireland. I don't know the first thing about doing it, beyond a brief search. I am interested in Tesla long term (yes, possibly crazy).
I have traded for many years while living in the States, especially bond Options and Putts on the CBOE. I was also buying Apple at 25 dollars a share, 4 or 5 splits ago.
Like most traders, I had some big wins and losses. Am now interested in trading again.....
Anyway; I can't entirely explain the price of Tesla. In many ways, it's long divorced from logic, as is most of the stock market!
I'm amazed at how little consideration is given on here, to the technologies Tesla is developing. They are fundamentally changing a number of industries.
20 years ago, I was developing night vision and thermal technologies. Then, we were limited by electronics, optics, manufacturing techniques and materials, but the battery was the most limiting factor. Teslas combination of batteries, AI, modern electronics, and motors, go far beyond cars. Each component has the possibility to change multiple industries, especially the electrical grid and energy storage.
It's obvious to see in the car market, he's years ahead of everyone else.
Not just in the technology itself, but in strategizing and sourcing for raw materials. The vision system problems, from self driving, led to an innovative robot vision, helping build the cars quicker.
Don't expect self driving cars any time soon. While they solved most of the major problems, the real hurdle is going to be governments/regulators and insurance companies. That said, Tesla is going to win on this front too. My guess is that Tesla eventually will incorporate lidar into it's system.
Anyway, enough of a rant!
My final point is, in a world with buckets of money! 
In terms of good investments, there are a severe lack of choices. 
In such a world, Tesla is a good investment!


----------



## elacsaplau

Hey Dublin Blow Out - and welcome!

I'm not sure if _Blow Out_ is the best moniker for someone intending to buy Tesla?!

Anyway, it looks like Morgan Stanley can also see potential for Tesla as per their commentary earlier today....relevant highlighted excerpts below

_Morgan Stanley on Wednesday boosted its "bull case scenario" on Tesla to $2,500, implying a more than 65% surge from where shares currently trade.....

The bump in Morgan Stanley's Tesla price targets was driven by analysts increasing the forecast for units to 3 million by 2030, from 2.3 million previously. Morgan Stanley's bull case is possible if Tesla adds even more volume to its auto business, and over $100 billion in value to Tesla mobility, connected services, and battery supply.....

"It's becoming increasingly obvious that Tesla is going to become a very large company, approaching (if not exceeding) Toyota or VW revenues in the next decade and leaving the world's largest luxury OEMs behind," Jonas wrote. "For the first time in our 10 years of coverage we're starting to model this company as a very, very large auto maker."_


----------



## Colm Fagan

Thanks, @Dublin Blow Out, for putting some flesh on the bull case for Tesla.
My main difficulty with your thesis is that, while Tesla may have once enjoyed a technical lead,  you can never sit on your laurels in the tech business.  Given your background,  you know that as well as anyone.  Tesla's focus has now shifted to delivering short-term profits.  That might please some people (just read some of the posts on this thread celebrating their latest profit numbers) but most of us know that focusing on short-term profits damages the long-term health of a business.
To illustrate what REAL tech companies do to stay ahead, look at Apple.  It is a mature tech player and is valued on a multiple of earnings much lower than Tesla's, so it should be spending a much lower percentage of revenues on R&D.  The opposite is true.  Its R&D spend is over *15 TIMES* Tesla's.  In fiscal Q2 2020 it spent 7.8% of revenues on R&D compared to just 4.6% for Tesla.  R&D spend grew in both absolute terms (+15.6% versus Tesla's -14%, yes, Tesla's R&D spend was *DOWN 14%*) and as a percentage of revenues, from 5.5% to 6.0%, compared with Tesla's decline from 5.1% to 4.6%.    Tesla's numbers are unforgivable for a company that aspires to be a top tech player.   No wonder its much-vaunted self-driving ambitions haven't yet mastered stopping at stop signs and traffic lights.


----------



## joe sod

Dublin Blow Out said:


> It's obvious to see in the car market, he's years ahead of everyone else.
> Not just in the technology itself, but in strategizing and sourcing for raw materials.


you mean the rare earth metals, has Musk got a "me too" deal with the Chinese to get access to the rare metals he needs out of places like the Congo. What about geopolitical risk and the looming trade wars, could Tesla be hobbled especially as technology is the area where the trade wars will be most intense, even if Trump does not win.


----------



## Brendan Burgess

Guys - forget about your conspiracy theories

If people use bad language in posts they are deleted. 

If you respond to posts with bad language in them, they will be deleted as well.

Brendan


----------



## Colm Fagan

Brendan.  Noted!   But  @Dublin Blow Out 's post was v good.  Could you send it back to him, get him to remove any bad (or perceived) bad language so that he can re-post it?  Also send me back my reply so that I can re-post it.


----------



## Brendan Burgess

Hi Colm

The Posting Guidelines are very clear.  He  has created enough work for me already. 

Brendan


----------



## Sarenco

Don’t the Posting Guidelines also preclude speculation about individual stocks?


----------



## Brendan Burgess

Hi Sarenco

They do.  There was a need to make an exception to accommodate Colm's great story about shorting. 

There is no need to make an exception for bad language.

Brendan


----------



## Colm Fagan

@Sarenco has a point.  The diary entry and the discussion serve as a warning of the dangers of shorting.    It was reasonable for me to outline, at the start, my reasons for shorting the stock.  In retrospect, I should have left it at that.  There was plenty of opportunity for others to discuss the advantages and disadvantages of shorting without us entering into a detailed discussion of Tesla's pluses and minuses.


----------



## joe sod

Brendan Burgess said:


> Guys - forget about your conspiracy theories
> 
> If people use bad language in posts they are deleted.
> 
> If you respond to posts with bad language in them, they will be deleted as well.
> 
> Brendan


Tesla seems to ignite emotions like few other investments, similar to the property thread on this site before the crash everyone was dead set in their view points, it's almost like a belief system.


----------



## Dublin Blow Out

Brendan Burgess said:


> Guys - forget about your conspiracy theories
> 
> If people use bad language in posts they are deleted.
> 
> If you respond to posts with bad language in them, they will be deleted as well.
> 
> Brendan


Sorry Brendan
No offense.
I'll step out. Happy to read the thread, and what you guys are surmising.


----------



## elacsaplau

A case of Dublin Bow Out?

That's a pity......it seems to me that here was an individual with many interesting things to say.


----------



## Risk Reversal

Hi,

Thanks all for a fascinating thread which has proved to be an excellent read.

@Colm Fagan and @Brendan Burgess, whilst I didn’t agree with your thesis for shorting Telsa I do admire your conviction on the trade and for having the courage to put a short position on. It is quite easy for those to sit on the side lines and poke holes whilst not having any real money in the game. It is unfortunate for you both that it ended in a negative outcome on your trades.

Whist the majority of the comments have been the pros/cons of the Telsa story I have a query on the mechanics of your trade which in effect ties into the title of ”the perils of shorting”.

Given your bearish view on Tesla, would you not have considered buying put options rather than shorting outright? Naturally the biggest limitation would have been on the expiry of this option and the date of which you would have needed to have been correct by but given your views at the time would a 6mth or 1yr expiry been within your comfort zone?
Put options do entail upfront premiums with a contract size of a 100 shares with I assume would be small in respect to Colm’s portfolio. As this would create a known cost upfront it would have eliminated gap risk on any non guaranteed S/L positions he would have had in place and also remove need for tied up capital due to margin requirements. If the trade was not working out as expected the option could be sold for its intrinsic value before expiry and some of the premium recouped. Without getting technical this could be managed via the time decay (theta aspect) via the greeks.

Not that the above would have worked in the Tesla example of this thread but at least the stress of liquidating positions to add to shorts in order to maintain the exposure could have been eliminated. I’m just curious to the approach on the trade which would dampen the perils of shorting.

Thanks


----------



## Brendan Burgess

Hi RR 

Good question.

I kept my exposure to Tesla at a level I could afford so I don't think a put option had any advantage for me.

When I shorted Bitcoin, I looked for a put option, but none was available.

Brendan


----------



## Colm Fagan

Hi @Risk Reversal
The quick answer is that I didn't really look at options.   I have never used them to manage my portfolio.   I would have to go back to stuff I learned in theory decades ago, but which I never put into practice.    My main reason for not going near options is the point you mentioned about them having an expiry date.   I believe that the Tesla share price will come back to earth, but I don't know when.   It could be another year or more.  (As @Sarenco pointed out, we should not debate why I believe it will fall and whether I'm right or wrong to hold that belief, just  accept that I hold it).  I don't want to be tied to a date by which the price will have come back to earth, which is what options would force me to do.   

After the recent disaster, as recounted in these pages, I laid low on Tesla for a while, licking my wounds.   I'm now back, but in a chastened and disciplined manner.    I am using stop losses to limit my exposure.   I funded the account in advance to be able to lose a certain amount, but no more.  In other words, if I do nothing and the price keeps rising, I will be closed out automatically at a certain point, and still have some money in the account.  (There is one caveat, which I will outline later).

I could do this in two ways.  One was to put €X into the account and to set a stop loss price of $Y such that, if the share price increases to $Y, my entire position will be liquidated in one fell swoop, at a loss less than €X.  In other words, I'm completely in the market until the price hits $Y, then I'm completely out.  The problem with this approach is that the short position is at its most valuable when the price increases to Y, so I would be cashing out at the worst possible time.

I decided on a different approach.  I inserted a carefully structured series of stop loss points (over 10 in total) at varying prices.  A portion of my position is closed out at each stop loss point.    Thus, if the price keeps increasing, I'm still in the market, but for a dwindling number of shares.  My upper limit before I'm closed out completely is considerably higher than it would be under the first approach.

I could get caught out if the price jumps past a stop loss point, so that a portion of my short position is closed at a price higher than I had budgeted for.  The decision to insert a number of stop loss points reduces this risk.  While the price could jump past one stop loss price point, it's unlikely to jump past more than one on the same date.

There is also a dynamic element to my strategy which involves increasing my exposure when the price falls significantly (while remaining considerably above what I think is its 'fair' price - in my opinion, of course), but I haven't had much chance to put that dynamic element into practice -  not yet anyway!


----------



## NoRegretsCoyote

Colm Fagan said:


> (As @Sarenco pointed out, we should not debate why *I believe it will fall* and whether I'm right or wrong to hold that belief, *just accept that I hold it)*. I don't want to be tied to a date by which the price will have come back to earth, which is what options would force me to do..................I laid low on Tesla for a while, licking my wounds. *I'm now back, but in a chastened and disciplined manner. I am using stop losses to limit my exposure.*



Colm,

You believe there is an inevitable day of reckoning for Tesla. If this is the case, shouldn't you be getting more aggressive with your shorting rather than less? The day of reckoning is surely getting closer!

This is like getting agitated while you wait for a bus to arrive. The more time passes, the more likely the bus is to show up in the next minute, so you should probably calm down rather than hailing a taxi.


----------



## Brendan Burgess

NoRegretsCoyote said:


> You believe there is an inevitable day of reckoning for Tesla. If this is the case, shouldn't you be getting more aggressive with your shorting rather than less?



Hi Coyote

It's the paradox of shorting.

If you short something at $100, and it rises to $150, then it's an even better short if nothing has happened in the meantime to justify the increase.

But from a portfolio point of view, your losses are probably too great and you can't risk any more.

Brendan


----------



## Colm Fagan

NoRegretsCoyote said:


> You believe there is an inevitable day of reckoning for Tesla. If this is the case, shouldn't you be getting more aggressive with your shorting rather than less?


Brendan is right.  A completely different strategy is required for shorting.  That's the main message from this thread.  I have adopted the strategy you suggest, with considerable success, for long position.  It's a recipe for disaster when shorting.

Firstly, years of investing have taught me that I'm' not infallible.  I could be wrong in my belief.  If I am, when do I accept the error of my ways?  

Secondly, even if I'm right, the price could go to $10,000 before it falls back.  In proportionate terms it has already done more than this from when I first opened a short position in the share.  It could do it again.  If I didn't have a plan to reduce my exposure as the price increased, I could put my entire wealth - and more - at risk before the turnaround came.  I cannot take that risk.


----------



## Duke of Marmalade

Risk Reversal said:


> Hi,
> 
> Thanks all for a fascinating thread which has proved to be an excellent read.
> 
> @Colm Fagan and @Brendan Burgess, whilst I didn’t agree with your thesis for shorting Telsa I do admire your conviction on the trade and for having the courage to put a short position on. It is quite easy for those to sit on the side lines and poke holes whilst not having any real money in the game. It is unfortunate for you both that it ended in a negative outcome on your trades.
> 
> Whist the majority of the comments have been the pros/cons of the Telsa story I have a query on the mechanics of your trade which in effect ties into the title of ”the perils of shorting”.
> 
> Given your bearish view on Tesla, would you not have considered buying put options rather than shorting outright? Naturally the biggest limitation would have been on the expiry of this option and the date of which you would have needed to have been correct by but given your views at the time would a 6mth or 1yr expiry been within your comfort zone?
> Put options do entail upfront premiums with a contract size of a 100 shares with I assume would be small in respect to Colm’s portfolio. As this would create a known cost upfront it would have eliminated gap risk on any non guaranteed S/L positions he would have had in place and also remove need for tied up capital due to margin requirements. If the trade was not working out as expected the option could be sold for its intrinsic value before expiry and some of the premium recouped. Without getting technical this could be managed via the time decay (theta aspect) via the greeks.
> 
> Not that the above would have worked in the Tesla example of this thread but at least the stress of liquidating positions to add to shorts in order to maintain the exposure could have been eliminated. I’m just curious to the approach on the trade which would dampen the perils of shorting.
> 
> Thanks


A PUT Option is in effect insurance.  With huge volatility something like Tesla is likely to carry a very high insurance premium.  That of itself is okay if you could be sure that the premium was "fair".  In a direct Long/Short position there is complete transparency on the bid/offer spread.  Unless the Option is being traded in a two way market there would be no transparency on the spread.  My guess is that if there are writers of Options on Tesla they will have a whopping mark-up or spread.


----------



## EmmDee

Duke of Marmalade said:


> A PUT Option is in effect insurance.  With huge volatility something like Tesla is likely to carry a very high insurance premium.  That of itself is okay if you could be sure that the premium was "fair".  In a direct Long/Short position there is complete transparency on the bid/offer spread.  Unless the Option is being traded in a two way market there would be no transparency on the spread.  My guess is that if there are writers of Options on Tesla they will have a whopping mark-up or spread.



Listed options - you get the bid/offer and price action. Can also use LEAPS (long dated exchange traded options) if you want to extend out the timeframe


----------



## Duke of Marmalade

EmmDee said:


> Listed options - you get the bid/offer and price action. Can also use LEAPS (long dated exchange traded options) if you want to extend out the timeframe


If listed on a two way market, I agree that there would be transparency on the bid offer spread.  I am not sure if Tesla options are so listed.


----------



## EmmDee

Duke of Marmalade said:


> If listed on a two way market, I agree that there would be transparency on the bid offer spread.  I am not sure if Tesla options are so listed.



https://www.nasdaq.com/market-activity/stocks/tsla/option-chain


----------



## Duke of Marmalade

EmmDee said:


> https://www.nasdaq.com/market-activity/stocks/tsla/option-chain


Wow!!


----------



## Risk Reversal

Thanks @EmmDee you beat me to it

@Duke of Marmalade, it’s a very large offering with a multitude of strikes and expiries particularly in the short end. Naturally they begin to space out at the back end of the maturity period.

I agree the implied volatility is huge with Tesla which factors dramatically into the option prices but spreads on the bid/offer are relatively tight.

It’s fair to say that put options need not be viewed as only an insurance contract but also as a way of taking an active short position in a synthetic manner.I’ve seen some pretty creative amalgamations of various option structures else where that create a nice bit of exposure without a huge outlay.

Perhaps the retail option market is not as advanced in Ireland.


----------



## Risk Reversal

@Brendan Burgess and @Colm Fagan 

Thanks for the responses, it’s always interesting to hear people’s approaches to their trades rather than just the trade itself.


----------



## EmmDee

Risk Reversal said:


> I agree the implied volatility is huge with Tesla which factors dramatically into the option prices but spreads on the bid/offer are relatively tight.



If volatility premium is a large chunk of the option pricing, it is possible to somewhat alleviate that element using spreads... For example buying 1,200 puts and selling 800 puts (or similar with expiry date spreads). While you pay a higher premium for the long put, you also receive a higher premium on the short leg.

Worth playing around with if you're looking for a more affordable short position


----------



## Duke of Marmalade

EmmDee said:


> If volatility premium is a large chunk of the option pricing, it is possible to somewhat alleviate that element using spreads... For example buying 1,200 puts and selling 800 puts (or similar with expiry date spreads). While you pay a higher premium for the long put, you also receive a higher premium on the short leg.
> 
> Worth playing around with if you're looking for a more affordable short position


_EmmDee_ can you explain that example a bit better for a poor Duke.  I can see that with such a vast array of possibilities tailoring the best combination to suit one’s situation is possible.


----------



## Colm Fagan

I've decided that all this is well past my pay grade!


----------



## EmmDee

Duke of Marmalade said:


> _EmmDee_ can you explain that example a bit better for a poor Duke.  I can see that with such a vast array of po - ssibilities tailoring the best combination to suit one’s situation is possible.



Sure - had a look at closing prices last night. I've picked strike prices which had active trading yesterday and therefore an active bid / offer. So a bit arbitrary but hopefully it's clear.

Looking at September 17th 2021 expiry - a year out. Assuming you wanted a short position which will move into the money if the price moves down between now and then - but not needing the price to get to the strike price by September.

Sep21 $1,015 put yesterday was $179.50 / $186.70. So essentially you would be paying $186.70 per share for the put option at $1,015 (these traded options are for 10 shares but the price is per share - so one option would cost $1,867 for 10 shares exposure). So even though the option is out of the money it's not cheap - because as mentioned there is a lot of volatility pushing up the price.

Sep21 $570 put was $45.70 / $49. You could sell these options (at the same time as buying the above) receiving $457 in premium. So the net cost on this spread would be $1,410. So reducing total cost to open a position.

The offset for the reduced cost is that you are capping your potential return - it is absolutely capped at $$445 per share. The gain on the position will also be a % of the absolute change in underlying stock price - true of all out of the money options.


----------



## Duke of Marmalade

EmmDee said:


> Sure - had a look at closing prices last night. I've picked strike prices which had active trading yesterday and therefore an active bid / offer. So a bit arbitrary but hopefully it's clear.
> 
> Looking at September 17th 2021 expiry - a year out. Assuming you wanted a short position which will move into the money if the price moves down between now and then - but not needing the price to get to the strike price by September.
> 
> Sep21 $1,015 put yesterday was $179.50 / $186.70. So essentially you would be paying $186.70 per share for the put option at $1,015 (these traded options are for 10 shares but the price is per share - so one option would cost $1,867 for 10 shares exposure). So even though the option is out of the money it's not cheap - because as mentioned there is a lot of volatility pushing up the price.
> 
> Sep21 $570 put was $45.70 / $49. You could sell these options (at the same time as buying the above) receiving $457 in premium. So the net cost on this spread would be $1,410. So reducing total cost to open a position.
> 
> The offset for the reduced cost is that you are capping your potential return - it is absolutely capped at $$445 per share. The gain on the position will also be a % of the absolute change in underlying stock price - true of all out of the money options.


Understand.  It was the double use of the word "higher" in the original post that perplexed me.  I think it meant "higher because of the implied volatility".  I won't be dabbling myself but I can see that with such a vast array of Options it should be possible to tailor a combination which better reflects one's personal risk/reward profile and judgement of the possible outcomes than the crude direct short.

Summarizing your example.  The package costs $141 per share.  If in Sept 2021 the price is above $1,015 you get nothing and therefore lose the full $141.  If it is below $570 you receive $445 and therefore gain $304 and between these figures interpolate with break-even at $874.  It doesn't look a great proposition to me but then again I could sell the package (subject to bid offer spread)


----------



## Duke of Marmalade

Brendan Burgess said:


> Hi Coyote
> 
> It's the paradox of shorting.
> 
> If you short something at $100, and it rises to $150, then it's an even better short if nothing has happened in the meantime to justify the increase.
> 
> But from a portfolio point of view, your losses are probably too great and you can't risk any more.
> 
> Brendan


Brendan,  I think PUT options resolve this paradox.  The problem with a short is that if it starts going wrong you get more and more exposed.  Thus in your example you start off risking $1 for a 1% rise in price but that becomes a risk of $1.50%.  Long positions do not suffer from this syndrome.
But neither do PUT options.  As PUT options move out of the money they come less and less risky.  Basically that is because they have a limited risk in the first place.


----------



## Risk Reversal

Duke of Marmalade said:


> Understand.  It was the double use of the word "higher" in the original post that perplexed me.  I think it meant "higher because of the implied volatility".  I won't be dabbling myself but I can see that with such a vast array of Options it should be possible to tailor a combination which better reflects one's personal risk/reward profile and judgement of the possible outcomes than the crude direct short.
> 
> Summarizing your example.  The package costs $141 per share.  If in Sept 2021 the price is above $1,015 you get nothing and therefore lose the full $141.  If it is below $570 you receive $445 and therefore gain $304 and between these figures interpolate with break-even at $874.  It doesn't look a great proposition to me but then again I could sell the package (subject to bid offer spread)



Great example @EmmDee. I understand though that an option contracts are based off 100 shares rather 10 shares as you outlined.

With Tesla therefore, even significantly out of the money options such as the $1,015 strike contract need a considerable outlay before you recoup some of this premium via the $570 strike

I always find that pay off graphs are super for visualising your potential returns at various points but totally appreciate these are hard to display here.

Tesla single options or combinations do require deep pockets but it is worth considering these strategies for other modest price shares. In these cases the above example can work well where slightly out of the money options trade for circa €2-3 and a short can be achieved for a relatively modest outlay such as €150 for a position in a 100 shares.


----------



## EmmDee

Risk Reversal said:


> Great example @EmmDee. I understand though that an option contracts are based off 100 shares rather 10 shares as you outlined.



Yeah - you're right. Even as I was writing that I had a niggling feeling I had something wrong. Assumed I had used the wrong side of the bid / offers

Thanks


----------



## Duke of Marmalade

EmmDee said:


> https://www.nasdaq.com/market-activity/stocks/tsla/option-chain


This is a truly fascinating site.  I see that the Implied Volatility for At The Money Sept 21 Tesla options is c. 70% whilst that for Apple is 35%.  In layman's terms that means the market thinks the chances of Tesla being less than 50% of its current value in Sept 21 is 1 in 3 whilst for Apple it is 1 in 20.  Obviously this means options on Tesla are extremely expensive.


----------



## jpd

That reminds of the saying "never saw a poor bookie"


----------



## jhegarty

Looks like Telsa will be down to $300 before the end of the month.  But on a 5 for 1 share split , so not a good month for shorts.


----------



## Brendan Burgess

jhegarty said:


> not a good month for shorts.



Hi J

Agree fully.

However, if a paper transaction can result in a 13% price increase, it shows you the mentality of the people who are buying Tesla at these prices.

So not a good month for people who have already shorted, but a great time for anyone who is thinking of shorting it.

Brendan


----------



## jhegarty

The price is complete insanity , but I don't see anything ahead that will end the insanity.  

Once the S&P inclusion comes in there will be another big jump.

I got back in after the announcement and am already up another 11% in just over 24 hours. It's madness , but it's madness what can you do.


----------



## Colm Fagan

jhegarty said:


> I got back in after the announcement and am already up another 11% in just over 24 hours. It's madness , but it's madness what can you do.


I am reminded of a saying attributed to Warren Buffett:
"In the short-run, the market is a voting machine; in the long-run it's a weighing machine"
Even Tesla's biggest fans must agree that it's perverse that a decision to offer investors five times as many shares at one-fifth their previous value (five times one-fifth = 1) adds $50 billion to the company's value.  That is what I estimate has been the increase in the company's market value between close of business on Wednesday, when the split was announced, and today.  Nothing else of note happened in the meantime that might affect Tesla's share price. 
The voting machine is working overtime just now.  The number of Tesla accounts on the Robinhood investing website jumped from 180,000 to 550,000 since March this year.  Fair dues to @jhegarty for taking advantage of it.  
My money is on the weighing machine coming out on top in the long-run.  I'm prepared to wait (while limiting my risks this time, as noted in a recent post).


----------



## EmmDee

Colm Fagan said:


> Even Tesla's biggest fans must agree that it's perverse that a decision to offer investors five times as many shares at one-fifth their previous value (five times one-fifth = 1) adds $50 billion to the company's value.  That is what I estimate has been the increase in the company's market value between close of business on Wednesday, when the split was announced, and today.  Nothing else of note happened in the meantime that might



TSLA was at higher market cap a month ago briefly - so historically splits in the US have been positive for share price (as mad as that may be) but don't think it is the only factor


----------



## Duke of Marmalade

elacsaplau said:


> I've decided to follow closely the stock so took out a short position yesterday evening at $926.
> 
> Of course, this is betting, not investing - let's see what happens.


$2,200 yesterday


----------



## jhegarty

Monday should be fun after the stock split.


----------



## Duke of Marmalade

jhegarty said:


> Monday should be fun after the stock split.


Down 5%
Actually that was Friday's performance, seems to be up over 1% today


----------



## Brendan Burgess

Hi Duke

Where are you seeing that?

It seems to me to be up in pre-trading which is what you would expect in this topsy-turvy world.


----------



## Duke of Marmalade

Brendan Burgess said:


> Hi Duke
> 
> Where are you seeing that?
> 
> It seems to me to be up in pre-trading which is what you would expect in this topsy-turvy world.
> 
> View attachment 4923


Yes, I was looking at Friday's figures restated.  25.35 down is 5.7% of 442.68
I have corrected my post.
Actually I am confused.  Was it down 25.35 on the old price or the new price?


----------



## jhegarty

Duke of Marmalade said:


> Yes, I was looking at Friday's figures restated.  25.35 down is 5.7% of 442.68
> I have corrected my post.
> Actually I am confused.  Was it down 25.35 on the old price or the new price?



Everyone is confused this morning.

I got an email from degio to warn my investment dropped 80%.

I logged in and was showing as having a massive profit today.


----------



## Brendan Burgess

jhegarty said:


> I got an email from degio to warn my investment dropped 80%.
> 
> I logged in and was showing as having a massive profit today.



You should have cashed out.


----------



## jhegarty

Brendan Burgess said:


> You should have cashed out.



And miss today's 10% bump ?


----------



## Colm Fagan

I see that Tesla is raising another $5 billion from shareholders to fund its ongoing development.  That's less than seven months after it raised $2.3 billion to fund its ambitious growth plans.  It reminds me of the story from my home village of a brainy young fellow with an indulgent father.  The guy got a scholarship to study in America.   After a while he wrote to the father saying he was doing very well and had been invited to do another course.  It was a feather in his cap, but the course was expensive and he needed money.  The dad duly obliged.  A short time later, he wrote to the dad again and said he'd been invited on to another, even more prestigious, course.   Another feather in his cap, but he needed more money.  Once again, the dad obliged.  The same happened a couple more times, each time the young fellow getting another feather in his cap but needing more money.  Eventually, the son admitted that things were going badly and he wanted to come home, but hadn't the money.  Would the dad send him the air fare?  The dad wrote back, telling him to take the feathers from his cap, stick them up his rear end and fly home. 
It's starting to feel a bit like that with Tesla.  For how long will the indulgent shareholders keep shelling out money?


----------



## Brendan Burgess

A good analysis of how good Tesla has been at delivering its promises to date. 









						A look at Elon Musk’s track record ahead of Tesla’s ‘battery day’
					

Tendency to overpromise has contributed to the billionaire having become so divisive




					www.irishtimes.com
				




Brendan


----------



## joe sod

well like alot of silicon valley executives he loves his jargon and produces mountains of it like "autonomy day" 
Next we will hear Simon Harris or Leo Varadker using jargon like "autonomy day" to describe the end of coronavirus restrictions.


----------



## Sunny

Well I for one am very surprised that another ground breaking day announced on Twitter turns out to be nothing more than hot air.. we promise that one day in the future, all the things we have promised for the past few years and more will come true...


----------



## Brendan Burgess

Sunny said:


> we promise that one day in the future, all the things we have promised for the past few years and more will come true...



A good summary.  

The problem is that he overpromises and that disappoints and takes away from his huge achievements.

Brendan


----------



## joe sod

VW now have a serious electric car now as well so the competition is only going to increase. I don't believe musk will win against the big auto companies now that they are serious about producing electric cars. Up to this they would produce an electric car but it would only be a token gesture to the green movement and done more for pr reasons rather than serious production cars.


----------



## Zenith63

joe sod said:


> VW now have a serious electric car now as well so the competition is only going to increase. I don't believe musk will win against the big auto companies now that they are serious about producing electric cars. Up to this they would produce an electric car but it would only be a token gesture to the green movement and done more for pr reasons rather than serious production cars.


To be honest I don't think Elon Musk wants Tesla to win necessarily.  He's an ideologue and his sole purpose with Tesla is to "accelerate the transition to sustainable transport" and the safety of self-driving cars, as he's said over and over.

If you look at all this through that lens (as opposed to trying to understandhim as a typical CEO/founder who is simply trying to build a successful business) a lot of this makes more sense.  He bluffs about a Tesla pick-up truck to worry Ford/GM into going off and creating their own, which they have.  He bluffs about a semi/articulated truck to worry Mercedes etc. into going and creating one themselves, which they're all now in the process of doing.  Bit of bluff about self-driving and suddenly governments want to have their country at the forefront of self driving and even regular cars now come with some aspects of self driving.  Same with the $25k car he promised yesterday, now if you're VW/BMW etc. you have to be worried you're going to see pressure in that segment and will have to continue to push EV development and not settle with where they've gotten to today.

I'm fairly confident if the other manufacturers stopped selling petrol/diesel pickups/semi/CUVs in favour of electrics, Elon would step away from Tesla and focus on his other ambitions and just let it run as a regular company fairly uninterested in its future short of wanting to use the value in it to support other projects.


----------



## Brendan Burgess

I had always assumed that Tesla cars were way ahead of their competition and the only issue for me was the price of the shares. But my attention was drawn to this series of articles suggesting that they are not very good cars. 









						Tesla Owners Shouldn't Be OK With Their Cars' Quality Issues
					

It’s never pleasant when your car’s suffering quality problems, especially if it’s a high-end model. And Tesla, despite its recent improvements, still




					www.motorbiscuit.com
				




I appreciate that people's opinions differ and that all cars have problems, but does Tesla have more quality problems than other car manufacturers? 

Brendan


----------



## Zenith63

Brendan Burgess said:


> I had always assumed that Tesla cars were way ahead of their competition and the only issue for me was the price of the shares. But my attention was drawn to this series of articles suggesting that they are not very good cars.
> 
> 
> 
> 
> 
> 
> 
> 
> 
> Tesla Owners Shouldn't Be OK With Their Cars' Quality Issues
> 
> 
> It’s never pleasant when your car’s suffering quality problems, especially if it’s a high-end model. And Tesla, despite its recent improvements, still
> 
> 
> 
> 
> www.motorbiscuit.com
> 
> 
> 
> 
> 
> I appreciate that people's opinions differ and that all cars have problems, but does Tesla have more quality problems than other car manufacturers?


As the subtitle of that link says "they're fine with it".  Teslas are better than other cars in a bunch of ways (range, speed of charging, charging network, self-driving tech, interface, acceleration, bang-for-your-buck (0-60 speed versus cost) etc) and people are willing to overlook the quality issues for now as they mostly get fixed after delivery if required.

They're way ahead of their competition in lots of ways, but not all ways.


----------



## Zebedee

https://www.theverge.com/2020/6/25/21302804/tesla-ranks-last-on-influential-jd-power-quality-survey

There have been concerns about Tesla quality. See article above.


----------



## jhegarty

Brendan Burgess said:


> I appreciate that people's opinions differ and that all cars have problems, but does Tesla have more quality problems than other car manufacturers?



Yes , that have terrible quality issues.  

They basically don't have the traditional step of the local dealer fixing any issue before delivery.  You need to QA your own car.

They would have no sales if they were not years ahead on the tech.   But you can get the paint fixed on a model 3 , but can't get the tech added to a bmw.


I put a deposit down on a new model 3 yesterday , my first non-bmw in 15 years.


----------



## Brendan Burgess

jhegarty said:


> They would have no sales if they were not years ahead on the tech. But you can get the paint fixed on a model 3 , but can't get the tech added to a bmw.



That is a good way of looking at it. 

The above survey is interesting but paint issues wouldn't really be a big problem. I would be more concerned about safety or reliability issues.  

Brendan


----------



## jhegarty

Brendan Burgess said:


> That is a good way of looking at it.
> 
> The above survey is interesting but paint issues wouldn't really be a big problem. I would be more concerned about safety or reliability issues.
> 
> Brendan



The issues are mainly paint , panel gaps , bits of trim missing. Reliability after the initial stage is good , with less to go wrong than an ICE. 

For safety they have one of the best records with 5* euroncap across the range.  

There may have been a Model Y loose it's roof last week. But that can happen to any car


----------



## joe sod

Up to this point the strategy of shorting shares like Tesla have been terrible and a salutary lesson of why shorting is so dangerous. However long term the jury is still out on whether Tesla will ultimately win out especially now that they are in direct competition with the big auto companies who have decades of experience in producing quality cars at volume and have already made the costly production mistakes decades ago. Experience still counts when producing complicated big machines like cars, even if they are electric powered, they are still cars



			Bloomberg - Are you a robot?
		


VW is now the top selling electric car in Europe only months after launching the new id3, Tesla sales seem to be all over the place and not rising consistently like Nissan, Hyundai and Renault .


----------



## Zebedee

https://www.cnbc.com/amp/2020/11/19/tesla-model-s-no-longer-recommended-by-consumer-reports.html

And Tesla are plagued by quality problems.


----------



## Itchy

joe sod said:


> Up to this point the strategy of shorting shares like Tesla have been terrible and a salutary lesson of why shorting is so dangerous. However long term the jury is still out on whether Tesla will ultimately win out especially now that they are in direct competition with the big auto companies who have decades of experience in producing quality cars at volume and have already made the costly production mistakes decades ago. Experience still counts when producing complicated big machines like cars, even if they are electric powered, they are still cars
> 
> 
> 
> Bloomberg - Are you a robot?
> 
> 
> 
> VW is now the top selling electric car in Europe only months after launching the new id3, Tesla sales seem to be all over the place and not rising consistently like Nissan, Hyundai and Renault .





Zebedee said:


> https://www.cnbc.com/amp/2020/11/19/tesla-model-s-no-longer-recommended-by-consumer-reports.html
> 
> And Tesla are plagued by quality problems.



What's this got to do with the share price?!


----------



## Itchy

Congratulations to the Passive Index Investors in the S&P500 who are now 1% long TSLA. Announcement of inclusion in the index was on Nov 30th when the price was ~$580. Your index fund purchased @$695 on Friday at a PE of 1326, handing $100 a share to the hedge funds. You cant time the markets though...

Ironically enough the passive index holders will make it harder for the bears to short as the free float is de facto reduced.


----------



## SGWidow

Hi Itchy,

Can you explain what "handing $100 a share to the hedge funds" means please?

Strikes me also that it would be interesting to get an update from the OP. I just read the very first post......what's really mad is that it's only just over a year ago.


----------



## Itchy

SGWidow said:


> Can you explain what "handing $100 a share to the hedge funds" means please?



Inclusion in the index was announced on Nov 30th. $100 is the difference in the price of the share from Nov 30th, when everyone knew the index managers had to buy the share and the 18th Dec, when the index mangers were able to actually buy the share. Bloomberg



SGWidow said:


> Strikes me also that it would be interesting to get an update from the OP.



He's broke now!


----------



## Colm Fagan

Itchy said:


> He's broke now!


Not quite, but a heck of a lot poorer than if I'd never heard of Tesla!  It has been a salutary lesson in the madness of markets and brought home once again the truth of Keynes' maxim, which I quoted in my original piece, about markets staying irrational for longer than you can stay solvent.
Amazingly, I still think my original analysis wasn't far out and that the share price will eventually tank.  Even if if falls to less than $100, equivalent to $500 in 'old money',  I will still consider it expensive.  That's less than a sixth of its current market price.  
After taking the drubbing towards the end of last year and early this year, which has been well documented on these pages, I closed all my short positions in the stock and took some time to lick my wounds.
I eventually went back in, but more cautiously, adding stop losses at a number of price points for different tranches, so that, no matter what happened to the price, I wouldn't lose more than I had budgeted.  Of course, the almost continuous increases in the share price through 2020 have meant that I incurred further losses, but nothing I wasn't prepared for.   I've also had to start new 'budgets' a number of times, but all in a controlled fashion.
I am still short on Tesla.  There is enough money in the account to cover losses up to the stepped stop loss points, so I won't have to put my hand in my pocket again, even if the price keeps rising forever.  On the other hand, if the price falls, the plan is to move the stop loss points lower, and add to my short position, while staying within my budget at all times.


----------



## declan11

Good to see you back Colm! Do you plan to submit any more reports on your other holdings? I have always found them interesting and informative and many have done well.


----------



## Colm Fagan

Thanks @declan11.  No plans for an update on my investments.  Nearly all my spare time at present is being taken up by a major project, which will see the light of day early in the New Year.


----------



## joe sod

As for the S&p500 its not exactly a permanent residency, I saw an article a few years ago showing that only 270 stocks that were in the index in 1999 were still in it then probably a good bit less now. Its also weighted heavily towards the stocks that are going up in price at a particular time. So in 2000 it was heavy on technology, and even had Enron as a constituent. By 2008 it was heavy on financials and property and the technology component had halved , 2012 oil and miners, and now we are back to technology again although the tech boom is a much bigger thing now , the new normal and all that stuff. Its also much less diversified than before (even if it has 500 stocks ) so many industrials that used to be in it are now out. Technology is not reducing our demand for industrials in fact the contrary. Market capitalization and share price are the only things that count, therefore a highly popular stock like Tesla with a rocketing share price gets admitted predominately for that reason. Tesla replaced "Apartment letting and management company" an reit


----------



## RedOnion

joe sod said:


> residency


Absolutely. If Tesla either loses 99% of its value, or gets bought out, it could be removed...


----------



## SGWidow

Thanks Colm,

I see "the gentleman is not for turning"!

Can you explain the risks of shorting, especially in the context of below, please?

Say, Tesla falls like a stone overnight/very quickly to $100. How do you know there is money there to meet what you would expect to win in this bet? Put another way, if I was the counter-party to your short, how much do I have to deposit to meet my downside risks?

If you get the time, sometime over the Christmas break, the ideal would be to do a simple numeric example of this.


----------



## azerogo

Excellent thread on why telsa is a bubble



			https://twitter.com/ChrisBloomstran/status/1340414130658820096?s=20


----------



## Colm Fagan

SGWidow said:


> Say, Tesla falls like a stone overnight/very quickly to $100. How do you know there is money there to meet what you would expect to win in this bet? Put another way, if I was the counter-party to your short, how much do I have to deposit to meet my downside risks?


The quick answer is that I'm depending on the spread bet provider remaining solvent, which is down to the quality of its risk management systems.   I assume they're OK.  
If the price falls from (say) $650 to $100, and I have shorted 100 shares, the spread bet provider owes me 550*100= $55,000.  They will have got that $55,000 from the people who have taken the opposite position, i.e., who gambled that the price will rise.  I understand that, in reality, there are far more people betting that the price will rise.  This forces spread bet providers (or the people they hedge with) to buy shares, which in turn causes the price to rise further.  I understand that this a major contributor to the inexorable rise in the share price.  It's not driven by fundamentals, but by the 'gamification' of Tesla, primarily by a company called Robinhood.


----------



## SGWidow

Thanks Colm,

I have many other questions but I will defer these for now. I imagine talking/writing about Tesla is not exactly your preferred way to spend the eve of Christmas!


----------



## Duke of Marmalade

@Colm Fagan I remember over coffee with you in early 2018 you passionately argued the case for shorting Tesla.  I argued back that bitcoin was an even surer short.  I feel  sorry for anybody listening to us as we might have sounded as if we knew what we were talking about.


----------



## Colm Fagan

Duke, if we had infinite investment horizons and infinite financial resources, we could both be proven right eventually.  Unfortunately, neither is true!


----------



## RichInSpirit

Colm Fagan said:


> if we had infinite investment horizons


That's a very interesting comment re investing/gambling/business and life in general. 
I've been thinking about it too lately and in my opinion the only difference between good and bad investments, gambles, business opportunities and life in general is time and the passage of time.


----------



## trython

Tesla now the fifth largest company on US exchanges by market cap, just ahead of Facebook. With another 50% rise it will pass Google and with a 3x rise it will pass Apple to become the most highly valued company in the world. 

For a company just scraping a few hundred million in profit I would regard that as limited upside. Time to buy some puts I think.


----------



## SGWidow

trython,

How over-valued do you believe Tesla is? What is your valuation range?


----------



## Allpartied

Interesting episode regarding Gamestop.  

Apparently, the ageing high street based retailer was targeted by hedge funds as a dead cert for shorting. 

But a group of day traders got wind of the plan, and started buying up the shares.  This drove up the price significantly. 

The traders knew that the shorting hedge fund would have to buy back the shares, even if the price kept increasing. 









						White House ‘monitoring’ GameStop share surge as US hedge fund pulls out
					

Melvin Capital Management had bet on failure of store before small investors sent shares soaring




					www.theguardian.com


----------



## 24601

Allpartied said:


> Interesting episode regarding Gamestop.
> 
> Apparently, the ageing high street based retailer was targeted by hedge funds as a dead cert for shorting.
> 
> But a group of day traders got wind of the plan, and started buying up the shares.  This drove up the price significantly.
> 
> The traders knew that the shorting hedge fund would have to buy back the shares, even if the price kept increasing.
> 
> 
> 
> 
> 
> 
> 
> 
> 
> White House ‘monitoring’ GameStop share surge as US hedge fund pulls out
> 
> 
> Melvin Capital Management had bet on failure of store before small investors sent shares soaring
> 
> 
> 
> 
> www.theguardian.com



This story is absolutely wild and is the best example one could ever have of the "perils of shorting". The legality of the transactions is obviously something that will be rigorously examined but it really gives the madness of crowds a whole new meaning. Interesting too to see Elon Musk egging on the Redditors given Tesla's storied history with shorters.


----------



## Buddyboy

I don't know much about it, but the hedge fund managers are crying foul, and demands for regulations, and everybody is saying tough, you sow what you reap.

It's also a good example of the power of internet communications.  The fact that Reddit, as a community forum, was able to (not organise but) facilitate this to happen is wild.


----------



## jpd

Also, the fact that the "small players" were willing to take a loss


----------



## joe sod

But what was it about Gamestop that was so precious to them  many stocks get shorted, why did they want to protect this particular stoxk?


----------



## ivannomonet

Here's another good article on the subject:
https://www.vice.com/en/article/pkd...o-wants-to-know-wtf-is-up-with-gamestop-stock


----------



## joe sod

Thanks great explanation,  it's a completely different situation to Tesla though, because Tesla had the big guys on both sides whereas gamestop had the little guys buying and the big guys shorting. Also gamestop is not big tech but the opposite and the reddit community are trying to protect,  it so far very successfully, from big tech and big finance. They beat  them at their own game.


----------



## jpd

Only by throwing their money away - either they have bought shares in Gamestop for a couple of hundred $ when they are worth $ 20, $ 30 at best or they bought options to buy them which they will never exercise thus forfeiting the cost of the options


----------



## Steven Barrett

joe sod said:


> But what was it about Gamestop that was so precious to them  many stocks get shorted, why did they want to protect this particular stoxk?



Just wrote a blog post about it, so I'll just stick it here









						Investors are gaming the market - Bluewater Financial Planning
					

There is a war going on between retail investors and Wall Street at the moment and it involves an unlikely company, Gamestop. The computer game retailer has been struggling for years as it tried to compete with online sales and the move to digital downloads for the Playstation and Xbox. Last...




					www.bluewaterfp.ie
				






jpd said:


> Also, the fact that the "small players" were willing to take a loss



That's the crazy thing. It's like trump's supporters, they have been stirred up into a frenzy. A lot of these investors put in small enough money and they are willing to lose it all just to stick it to Wall Street. The thing is, the profit they made can make a huge difference to their lives. Melvin Cap lost over $3 billion on this trade. Their investors put another $2.75 billion into their fund, they'll be alright. No one will do that for the retail investor. 

The market is efficient in the long term and GameStop's share price will go back to $3 or close to it. Those left holding shares will lose all of their investment.


 Steven
www.bluewaterfp.ie


----------



## Steven Barrett

joe sod said:


> Thanks great explanation,  it's a completely different situation to Tesla though, because Tesla had the big guys on both sides whereas gamestop had the little guys buying and the big guys shorting. Also gamestop is not big tech but the opposite and the reddit community are trying to protect,  it so far very successfully, from big tech and big finance. They beat  them at their own game.



Tesla is future looking. GameStop is the past. There are two versions of the PS5, one of them is for downloads only and has no disk drive. How can Gamestop survive in a world that doesn't use discs for their games?


----------



## Younginvestor93

Does this have the potential to bring about a larger scale market crash?


----------



## Buddyboy

Reading a lot about it on Reddit.  A lot of the stories are not about the money, it's personal as they want to stick it to Wall street. They lived through the effects of the crash of '08, where their parents lost their jobs, savings and sometimes houses. Stories of living on rice and beans for a year,  and sleeping on their relatives floors. I don't think this is hyperbole.  Stories of working minimum wage for years, waiting on tables etc. after college as the downturn took hold.
Meanwhile they saw the wealthy/fund managers get off scott free.
I applaud them, it looks like they might get some of that lost money back.

Just edited to add,  good clear article Stephen, and good advice for anybody to not get caught up in the frenzy.  For the guys and girls over in Wallstreetbets, it looks like it ain't about the money. In fact, some of them said they're willing to lose it.


----------



## jpd

Not really. They stuck it to a few of the Wall Street big boys, but in the meantime a lot of others will have profited from the Gamestop share rise and will no doubt have taken their profits. Those left holding the parcel, sorry, shares at the end of the day will be left looking at a pile of mostly worthless paper or at least nothing worth the $300 they paid


----------



## RedOnion

SBarrett said:


> Melvin Cap lost over $3 billion on this trade.


This is an aspect that's hard to get my head around, and really shows the dangers of shorting. The entire market cap of GameStop was around $300m a year ago.  Many of the shorts have lost multiples of the amount they could have made if Gamestop had collapsed (ok, they probably picked in with additional shorts after the price started to rise).  The extent of the original short positions is also difficult to comprehend (short positions were about 1.2 times free float at one point I looked at), and shows how easily a short squeeze can be brought about in a small cap stock with massive short positions.


----------



## jpd

That was fun. Gamestop - business worth a few hundred million $

I am waiting to see the fun and games move on to Tesla


----------



## Steven Barrett

Buddyboy said:


> Reading a lot about it on Reddit.  A lot of the stories are not about the money, it's personal as they want to stick it to Wall street. They lived through the effects of the crash of '08, where their parents lost their jobs, savings and sometimes houses. Stories of living on rice and beans for a year,  and sleeping on their relatives floors. I don't think this is hyperbole.  Stories of working minimum wage for years, waiting on tables etc. after college as the downturn took hold.
> Meanwhile they saw the wealthy/fund managers get off scott free.
> I applaud them, it looks like they might get some of that lost money back.



Read that too and it's nuts. Hedge funds come and go all the time but Wall street remains and always will. GameStop is down 60% today after robinhood and trading 121 stopped trading of the stock on their apps. Lots of people who had a significant amount of profit will have lost a lot of money today. Meanwhile, Wall Street keeps on making money. Losing all your money just so you can say you stuck it to the man is a phyrric victory.



Steven
www.bluewaterfp.ie


----------



## MrEarl

Friday is going to be very interesting, once the US markets open...

The reddit group have a recommend strategy, posted on their section of the community site. Suffice to say, they are expecting to come under serious pressure, from Hedge Funds and other interested parties, trying to force the price down.

Two further things of interest, are that :

* Some retail brokerages are understood to be restricting, or banning trades on Gamestop, so you've now got a lot of the small retail investors crying foul, logging formal complaints and proposing widespread boycotts against these brokerages.

* The US politicans are also starting to get involved, in their individual capacities, rather than formally taking a political party position, with what appears to be growing support for the WallStreetBets gang.

So, now we've got :

- a couple of million people, betting what may often be their modest and limited resources, despite many not having any knowledge or experience with stock market investing, not alone dealing in more sophisticated financial instruments, permitting them to take even larger positions through cfds etc.

- Hedge Funds, crying foul, and apparently lobbying brokers, regulators, and anyone else who will listen, to try and get retail investors banned, from these herd type tactics.

- a fading and struggling company, with a market cap. that has absolutely no logical correlation, to its underlying value

- a massive international audience watching in amazement, some probably now temped to get involved, with dreams of making quick cash, or to support the couple of million small investors already involved in this battle.

- Regulators and politicans facing a massive problem, because they are essentially seeing blatent market manipulation taking place, but will struggle to stop people making contact over the Internet, while they also risk a massive backlash, if they are seen to act in any manner, that appears to be "picking on the little guy".


----------



## tecate

SBarrett said:


> Wall street remains and always will. . . Losing all your money just so you can say you stuck it to the man is a phyrric victory.


I believe that WSB'ers are finding that out according to these tweets from 'WSB Chairman':
"I got it wrong - it's not about occupying Wall Street - it's about leaving it."
"They can only control us because we use their currency."

It's nice to see that evolution of thought.  On his second tweet, none of this would have been facilitated in the first place if they weren't giving out helicopter money!  The revolution will not be televised centralised.


----------



## Steven Barrett

MrEarl said:


> - Regulators and politicans facing a massive problem, because they are essentially seeing *blatent market manipulation *taking place, but will struggle to stop people making contact over the Internet, while they also risk a massive backlash, if they are seen to act in any manner, that appears to be "picking on the little guy".



I've been told that unless there are regulated entities behind the reddit posts, it is fine for unconnected retail investors to do what they did.

It is wrong for the likes to Robinhood to close trading on certain stock to protect Wall Street. 


Steven 
www.bluewaterfp.ie


----------



## RichInSpirit

If the hedge funds were shorting more that 100% of the amount of shares in gamestop, is that legal to be able to short more than 100% of a company?


----------



## Brendan Burgess

RichInSpirit said:


> is that legal to be able to short more than 100% of a company?



How could the shorters prevent it? 

If I choose to short 10% and you choose to short 20% and Steven chooses to short 80% that would be 110%. Presumably we are not allowed to cooperate? 

Brendan


----------



## DazedInPontoon

Brendan that would only happen if you all shorted it to that extent at the same time, But I doubt that's what happened with Gamestop, and the short interest is publicly available information. Would it not be easy enough to cap short interest at a max of 50% for example, if there was a will to, by monitoring the current short interest. At the very least it should be possible to keep it under 100% by preventing any shares from being shorted twice.


----------



## Sunny

This is a really fascinating story. It is also a story that makes me think very carefully about how I look at stock market performance especially in the US. I hadn't realised that retail activity in equities and especially options was reaching the level it is.

I am all for the small man and I have zero sympathy for hedge funds being squeezed considering that is exactly what these guys did to Sean Quinn when he built a large leveraged position in Anglo. (NOT FEELING SORRY FOR QUINN). However, some of those guys on Reddit are not stupid. They played the game and got out. Unfortunately you will have people now looking for a quick buck on the back of all the media stories. They will jump on and will get burnt. 

I thought Central Bank money was the biggest risk to stock market bubble but I think I will need to look into it a bit more. The Shoeshine boy might be back in the market and giving advice.....


----------



## DazedInPontoon

I would not assume this is over yet


----------



## RedOnion

DazedInPontoon said:


> At the very least it should be possible to keep it under 100% by preventing any shares from being shorted twice.


I had a look at this, because I couldn't understand how the short interest was so high. There's already regulations to prevent naked short positions, so there must be actual shares being sold.

Found this very simple explanation of it: https://www.fool.com/investing/2021/01/28/yes-a-stock-can-have-short-interest-over-100-heres/


----------



## galway_blow_in

joe sod said:


> Thanks great explanation,  it's a completely different situation to Tesla though, because Tesla had the big guys on both sides whereas gamestop had the little guys buying and the big guys shorting. Also gamestop is not big tech but the opposite and the reddit community are trying to protect,  it so far very successfully, from big tech and big finance. They beat  them at their own game.



they were beating them until the big dogs called in a favour and a few brokerages ( with links to the Citadel hedge fund ) restricted purchase of shares , thus driving down the price and allowing the big dogs to cover their shorts

a blatant form of market manipulation and in plain sight , class action law suits lodged in several places yesterday , i made a modest grand trading Gamestop this past week , got out two days ago , was never in with much to begin with and only heard of all of this last monday

i also bought two option calls in bed bath and beyond yesterday  which was also heavily shorted , il loose about $100 by close of trading today if those dont rally hard today


----------



## galway_blow_in

SBarrett said:


> Read that too and it's nuts. Hedge funds come and go all the time but Wall street remains and always will. GameStop is down 60% today after robinhood and trading 121 stopped trading of the stock on their apps. Lots of people who had a significant amount of profit will have lost a lot of money today. Meanwhile, Wall Street keeps on making money. Losing all your money just so you can say you stuck it to the man is a phyrric victory.
> 
> 
> 
> Steven
> www.bluewaterfp.ie



the market is stacked against the small guy in terms of the short term , long term buy and hold is the only way to win but of course thats "dull and boring "


----------



## DazedInPontoon

RedOnion said:


> I had a look at this, because I couldn't understand how the short interest was so high. There's already regulations to prevent naked short positions, so there must be actual shares being sold.
> 
> Found this very simple explanation of it....



Right, but at this part:

 > Chris has no way of knowing that those shares have been borrowed from Annie. 

Would it be that difficult for them to track when shares are borrowed so that Chris would know, I mean it's not everyday people who are lending stock out, it's institutions, so they could report it.


----------



## Buddyboy

It reminds me of a very good 2-part novel that I once read.  Daemon and Freedom by Daniel Saurez.
The premise that the internet is allowing people to organise and have large scale power through distributed cooperation and knowledge. That is one of the themes.  
It also uses a type of cultural currency or standing based on others upvoting or downvoting you based on your actions, knowledge, and deeds.  This can be viewed using VR as it is displayed over your head. (think Google Glasses)
China's social credit system springs to mind - but not in a good way.

I'd recommend the book.


----------



## vandriver

I'm in for a bit of interest in a dull month.For full disclosure,I bought $1k @$289.
I should probably jettison them today!


----------



## joe sod

Probably result in more regulation of shorting, as another post above suggested limit it to a certain proportion of a company stock especially with very small stocks. Sure didn't the irish government stop shorting of bank shares for a few years after the financial crash. So obviously they saw it as a dangerous activity for vulnerable banks then


----------



## EmmDee

vandriver said:


> I'm in for a bit of interest in a dull month.For full disclosure,I bought $1k @$289.
> I should probably jettison them today!



Looks like it is going to open up (a lot) today. You might be able to come out of it $100 up if you do. I'd imagine it will be incredibly volatile and fundamentally isn't worth that much


----------



## EmmDee

RichInSpirit said:


> If the hedge funds were shorting more that 100% of the amount of shares in gamestop, is that legal to be able to short more than 100% of a company?



Not all the shorts are "physical shorts". A large portion is not on the traded stock but in the optiosn and swaps markets. So I can short the security by buying puts, selling calls or return swaps with the share price as the index. 

It's a similar situation to the CDO's during the '09 crash. The value of debt traded on the US mortgage market was 100's times more than the actual mortgage market because of the "side bets" using derivatives.

It's explained well in "The big Short" - say you and a friend are betting €1 on the toss of a coin, i could have a €100 side-bet with Brendan that you would win. In this case the market cap is €1 but the open interest in the derivatives is €100


----------



## RichInSpirit

@EmmDee. Thanks for that explanation.
Googling CDO's though.


----------



## EmmDee

RichInSpirit said:


> @EmmDee. Thanks for that explanation.
> Googling CDO's though.



The film The Big Short is worth watching - it's on Netflix. It does dramatise what went on - but it's reasonably accurate. It's based on a book of the same name. Same guy who wrote "Liars Poker" which outlines the intiial growth of CDO's and various other debt structures - also worth a read


----------



## RedOnion

EmmDee said:


> Not all the shorts are "physical shorts".


Are what's publicly reported as "shorts" physical shorts though? Or does that figure include options and derivatives?


----------



## Sunny

With the fun and games in Crypto, thought it would be fun to start this up again....

If Colm is still checking in, appears he has some respected company with regard to Tesla....


----------



## Colm Fagan

Hi @Sunny   Only saw your post now.  As some of you know, I have been focusing recently on trying to persuade government to buy into my proposals for a smoothed equity approach to auto-enrolment (so far without success) and I only make the occasional visit to AAM (sorry, Brendan!). 
Anyway, my views on Tesla have not changed.   It even it got a brief mention on page 37 (Section 8.4) of my January paper on auto-enrolment ('Higher Pensions for Half the Cost'):
"_While there is undoubtedly an asset bubble at present in certain stocks and sectors (I make no secret of my conviction that Tesla’s current share price, at more than $700 as I write, is over seven times its true worth), any possible overvaluation at the level of the total market is nowhere near that of the Japanese stock and property markets at the end of 1989"_.
By the time I delivered the paper on 20 January, the price had risen to over $800.  It has now fallen to just under $581 (close of business today).  As you will have gathered from the above quote, I think a fair price is under $100.
I have backed my belief with hard cash, but have not repeated my previous mistake of leaving myself exposed if the madness resumes.  I have a graduated series of stop losses in place, so that portions of my position are closed out at various (higher) prices.   I have set a budget for what I'm prepared to put at risk.  This means that, the more the price falls, the more I can put at risk.  It's counterintuitive, but it means that my grandchildren's inheritance is not at risk if things go pear-shaped.  The more the price falls, the greater my short exposure.  As you can gather, that means that I now have a significant short position in the share.  The $64,000 question is:  at what price do I start cashing in if it keeps falling?!


----------



## joe sod

EmmDee said:


> The film The Big Short is worth watching - it's on Netflix. It does dramatise what went on - but it's reasonably accurate. It's based on a book of the same name. Same guy who wrote "Liars Poker" which outlines the intiial growth of CDO's and various other debt structures - also worth a read


The author of "The Big Short" michael burry now has a big position in Tesla in Put options basically betting on the price of Tesla continuing to fall. He also has leveraged positions in US treasuries basically betting on inflation and that the fed will be forced to raise interest rates to combat it also very bad for Tesla. Of course he could be wrong and these are positions he can easily exit


----------



## EmmDee

joe sod said:


> The author of "The Big Short" michael burry now has a big position in Tesla in Put options basically betting on the price of Tesla continuing to fall. He also has leveraged positions in US treasuries basically betting on inflation and that the fed will be forced to raise interest rates to combat it also very bad for Tesla. Of course he could be wrong and these are positions he can easily exit


Michael Lewis wrote The Big Short... Michael Burry was the manager at Scion Capital... One of the hedge funds which started betting against the mortgage market. He is in the book and film.

Scion holds the Tesla put options


----------



## joe sod

EmmDee said:


> Michael Lewis wrote The Big Short... Michael Burry was the manager at Scion Capital... One of the hedge funds which started betting against the mortgage market. He is in the book and film.
> 
> Scion holds the Tesla put options


thanks for that clarification, i actually never saw the film just that Michael burry , _the inspiration _behind the "The Big Short" movies has these positions to profit from Tesla price falls  and inverse positions on US treasury ETFs. Have you changed your opinion on Tesla yourself, do you think its over valued?


----------



## EmmDee

joe sod said:


> thanks for that clarification, i actually never saw the film just that Michael burry , _the inspiration _behind the "The Big Short" movies has these positions to profit from Tesla price falls  and inverse positions on US treasury ETFs. Have you changed your opinion on Tesla yourself, do you think its over valued?



Burry was one of the shorts in the film but it also follows two other funds that had come to the same conclusion independently. It's worth a watch.

I don't think I had an opinion on Tesla. I can't say I have a strong one now... At least not an informed one. My feeling is that they broke a new market essentially but will struggle to stay ahead of the mainstream car manufacturers now that the penny has dropped with them. For example, I'm a potential buyer of a higher end Tesla but I'll probably wait a little bit for the German cars that are about to come out... better build quality. So I suspect Tesla has had its moment . But it's not really a strong opinion.


----------



## Gordon Gekko

EmmDee said:


> Burry was one of the shorts in the film but it also follows two other funds that had come to the same conclusion independently. It's worth a watch.
> 
> I don't think I had an opinion on Tesla. I can't say I have a strong one now... At least not an informed one. My feeling is that they broke a new market essentially but will struggle to stay ahead of the mainstream car manufacturers now that the penny has dropped with them. For example, I'm a potential buyer of a higher end Tesla but I'll probably wait a little bit for the German cars that are about to come out... better build quality. So I suspect Tesla has had its moment . But it's not really a strong opinion.


Hi EmmDee, that’s interesting. I’m in the market for something new and did consider a Tesla but I’m not convinced by full electric yet. But then I saw the ad for the new Audi RS e-tron GT (with Tom Hardy). Oh…my…God, I think I’m in love (with the car rather than Tom Hardy, hot and all as he is).

Gordon


----------



## joe sod

@Gordon Gekko  I remember you saying that Scottish Mortgage trust had a big investment in Tesla and you were indirectly an investor through that a year ago. Now they are saying they have reduced their holding in Tesla by 80% , obviously they have shown incredible skill in riding the wave . However were they really believers in Tesla or did they just seek to capitalize on the populatity of Tesla and benefit financially from the sentiment rather than from the stock?


----------



## Brendan Burgess

joe sod said:


> obviously they have shown incredible skill in riding the wave .



Why would you say skill? I would say that they just got lucky?  They took a huge risk which has paid off.

Brendan


----------



## Gordon Gekko

joe sod said:


> @Gordon Gekko  I remember you saying that Scottish Mortgage trust had a big investment in Tesla and you were indirectly an investor through that a year ago. Now they are saying they have reduced their holding in Tesla by 80% , obviously they have shown incredible skill in riding the wave . However were they really believers in Tesla or did they just seek to capitalize on the populatity of Tesla and benefit financially from the sentiment rather than from the stock?


I think that based on their constant messaging, they were believers in it.


----------



## Gordon Gekko

joe sod said:


> @Gordon Gekko  I remember you saying that Scottish Mortgage trust had a big investment in Tesla and you were indirectly an investor through that a year ago. Now they are saying they have reduced their holding in Tesla by 80% , obviously they have shown incredible skill in riding the wave . However were they really believers in Tesla or did they just seek to capitalize on the populatity of Tesla and benefit financially from the sentiment rather than from the stock?


I dug out my notes from a piece by the Baillie Gifford guys (who run Scottish Mortgage Trust):

- Arm-chair experts underestimate the scale of the opportunity

- Outside of technology, 90% of the world’s biggest companies are in the Auto or Energy sectors

- So there are multi-trillion dollar industries on both sides of Tesla’s opportunity space

- There are two main questions for investors in Tesla: Will electric vehicles become mainstream over the long-term? And will Tesla be a major force or player in that?

- The company has demonstrated that it can produce at scale and globally

- Investors must “tune out the noise” when it comes to Tesla

- ‘Battery Day’ - Tesla has a meaningful lead in this space and can now ‘double-down’ on it. The energy storage side of the business could end-up bigger than the auto business

- Let’s not forget that the ‘Model S’, which is old at this stage, is still ahead of most of the competition in terms of technology


----------



## joe sod

Gordon Gekko said:


> Investors must “tune out the noise” when it comes to Tesla


Is elon musk not responsible for most of the noise himself what with his messing around in the bitcoin market. How is this guy getting away with all this. He got away with tell ing lies about the Saudi wealth fund looking to take tesla private in 2018, thereby falsely inflating the share price


----------



## Sarenco

I see Tesla passed the $1 trillion mark in market value earlier this week.









						Tesla surpasses $1tn in market value after landing Hertz order
					

Firm’s shares surge up to 14.9% to $1,045.02 making it world’s most valuable automaker




					www.irishtimes.com


----------



## jasdpace@gmail.

I heard on the news this morning that Tesla sold piles of cars in Q1.

I think that it would be very interesting to get the thoughts of the OP at this stage. My sense is that here we have a very experienced businessman get the valuation completely wrong and it would be interesting to understand where the flaw in analysis occurred to capture any learning here.


----------



## Brendan Burgess

Colm Fagan said:


> I got it badly wrong. The share price jumped more than $40 on Thursday and another $30 on Friday, the start of the Halloween bank holiday weekend in Ireland. There was no need for ghosts or ghoulies to make it a scary Halloween for me: losing $70 a share in just two days was more than enough to send shivers down my spine.



Hi JAS 

I think Colm has recognised that he got it badly wrong.

As I did. I made money shorting Tesla and cashed out. Then I got in and lost more than I made before I closed out. I am glad I did as I would have lost even more.

I stopped following it when I no longer had an interest in it. But lots of things are overvalued and it's just astonishing at how long the overvaluation lasts and how  high it goes. 

Brendan


----------



## PGF2016

jasdpace@gmail. said:


> I heard on the news this morning that Tesla sold piles of cars in Q1.
> 
> I think that it would be very interesting to get the thoughts of the OP at this stage. My sense is that here we have a very experienced businessman get the valuation completely wrong and it would be interesting to understand where the flaw in analysis occurred to capture any learning here.


He spells it out here:


Colm Fagan said:


> Tesla’s current valuation, based on today’s $350 share price, is $63 billion. That’s a lot of mouths to feed. In addition, there is the $13 billion owed to bondholders and the expensive share options to CEO Elon Musk and his top managers if the business succeeds. In order to justify that valuation, a mature Tesla would need to be churning out profits of €2.5 billion a year, after deducting interest payments on its massive borrowings. That’s a tall order for a company that lost almost $1 billion in the first nine months of 2019, much the same as it lost in all of 2018, and whose grand ambitions are not being backed by the necessary investment in research and development.


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## Duke of Marmalade

Tesla Net Asset Value was $28.5bn at end 2021.  Its market cap is currently $1,100bn
Bitcoin Net Asset Value is zero.  Its market cap is $970bn
For comparison, Ireland's GNP per annum is $313bn
Go figure


----------



## jasdpace@gmail.

Hi Brendan,



Brendan Burgess said:


> I think Colm has recognised that he got it badly wrong.



I can't confess to reading all 640 pages of this thread so that may well be true. If the specific question has already been addressed, perhaps some kind soul would oblige me with the relevant post.



Brendan Burgess said:


> But lots of things are overvalued and it's just astonishing at how long the overvaluation lasts and how  high it goes.



I guess this gets to what I'd like to understand. At the outset, Colm figured that Tesla was significantly overvalued at $63b - since then its valuation has increased by a factor of c. 18 - presumably meaning that its current price is probably of the order of 25 times what Colm originally valued it at.

So the questions that arise include - what value does Colm put on Tesla now and how does he reconcile the current and former valuations?


----------



## Colm Fagan

jasdpace@gmail. said:


> My sense is that here we have a very experienced business man get the valuation completely wrong and it would be interesting to understand where the flaw in analysis occurred.


You're right! I still don't know how I got it so wrong, but I'll try in this post to get to the bottom of the flaws in my analysis.
First of all, while I am an experienced businessman, my background is in finance. I know nothing about engineering or car-making. I gather that Musk is an engineering genius. I didn't realise how much this would contribute to his success.
The fact that so many believed in him - there is almost a Musk cult - helped enormously. It's hard to disentangle the cult from his objective genius as an engineer. I've just read the following in the FT this morning:
_*"In its darkest hour, the company went through what its Chief Executive Elon Musk called 'production hell': supplies were late or missed, cars came off the production line requiring extensive additional work. At one point, the company was turning out vehicles without seats and asking dealers to bolt them on in the showrooms. Tesla has emerged on the other side of the saga as a trillion-dollar business." *_
What other company could have retained the trust of investors - never mind that of prospective car-buyers - while all this was going on? Musk, through the force of his personality, his belief that he could get through, boosted by the unquestioning faith of his legions of groupies, managed to achieve the impossible. We never learned in actuarial school that charisma was so powerful! (Which reminds me of a joke: what does an actuary use for contraceptive? His/her personality.)
During my working years, I was involved with one company that achieved breakneck growth for a period, but it caused all sorts of long-term problems. I thought the same would happen with Tesla, but it hasn't – apparently not to date, anyway. That's a tribute to Musk and his management team.
The cult of Musk has helped in other ways.
I presume that, for most car companies, distribution costs account for a high proportion of the total sale price (as they do in the retail saving market). Musk seems to have eliminated a high proportion of that cost, allowing the company to reap a high proportion of the total margin. That does a lot to improve margins. I think that Musk has claimed that Tesla has the highest operating margins of all volume OEMs. That is due in large part to his ability to cut out the middle man, or at least reduce their drag on profits.
The Musk aura manifests itself in many other ways. Tesla's cost of capital is a fraction of the cost for other car manufacturers.  That is very important, as car companies have massive amounts of capital tied up in factories, stock, etc. Tesla can issue shares to investors on the promise of megabucks decades into the future, but nothing until then. No-one else could get away with that trick. They’ve done something similar with bondholders, promising to repay them partly in shares, which everyone believes will keep increasing in value well into the future, simply because Elon Musk says they will.   It can become a self-fulfilling prophesy. That cuts the interest they must pay.
The belief that the gravy train will last forever also helps Musk to attract top executives at a fraction of what other OEMs would have to pay for talent. All he has to do is promise hefty stock options down the line. He can throw them round like confetti. It all helps to reduce the cost base.

Having said all that, I still think Tesla is way overvalued, but my past performance is definitely not a guide to the future, so you would be best advised not to listen to my prognostications.
Nonetheless, here are a few thoughts to ponder.
The current share price is $1,085, while earnings in 2021 (diluted, of course, to allow for all the stock options) were $4.90 a share, up from $0.64 in 2020.
We must assume that the business will ultimately plateau. Musk won’t live forever and not everyone in the world will own a high-priced Tesla. When the business does eventually plateau, the share price will end up at around (say) eight times earnings. That means that earnings have to rise to around $135 a share to justify the current share price. That’s 27 times current earnings. Even Elon Musk will struggle to achieve that sort of growth in diluted earnings (remembering of course that he and his management team will be licking up much of the extra value by issuing shares to themselves for next to nothing and diluting the interests of ordinary investors). And by the time earnings get to that level, investors will want a much higher share price, to compensate for the lack of any sort of dividend on their investment. This makes the target even harder to achieve.
There are a number of other headwinds. There are low barriers to entry in the EV market and a host of new entrants joined in the last few years. The Musk aura will insulate Tesla to a large extent, but not completely. Its margins must eventually fall. Subsidies are also being cut. I see that China (a major market for Tesla) is cutting subsidies by 30% in 2022 and ending them completely on 31 December. The same is happening or will happen in other markets. Nevertheless, I've learned my lesson.  I’ll be wary of betting against Elon Musk in future.


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## Colm Fagan

jasdpace@gmail. said:


> I guess this gets to what I'd like to understand. At the outset, Colm figured that Tesla was significantly overvalued at $63b - since then its valuation has increased by a factor of c. 18 - presumably meaning that its current price is probably of the order of 25 times what Colm originally valued it at.


Your analysis is faulty.  A significant proportion of the additional valuation is because Tesla issued additional shares in the intervening period, in order to raise more capital.  That's one of the "Musk aura" effects mentioned above.  Of course, I'm in total agreement with your core point that I got it very wrong!


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## Duke of Marmalade

What do the experts say?
Let us first accept that experts differ.  For example their target for the share price of Coca Cola ranges from 59 to 76, nearly a 30% difference.
Their range for Tesla is from 67 to 1,500,  a range of +2,100%


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## Steven Barrett

Colm Fagan said:


> I presume that, for most car companies, distribution costs account for a high proportion of the total sale price (as they do in the retail saving market). Musk seems to have eliminated a high proportion of that cost, allowing the company to reap a high proportion of the total margin. That does a lot to improve margins. I think that Musk has claimed that Tesla has the highest operating margins of all volume OEMs. That is almost entirely down to his ability to cut out the middle man, or at least reduce their drag on profits.


Tesla's showroom is on Bracken Road in Sandyford, opposite the Audi centre. Look at the two of them on Google maps


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## PGF2016

Colm Fagan said:


> There are low barriers to entry in the EV market and a host of new entrants joined in the last few years.


While I agree with most of what you said can you tell how you come to this conclusion? Dyson spent half a billion dollars working on an EV before pulling the plug. Most traditional car manufacturers have to move away from their areas of expertise into more software and tech.


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## Colm Fagan

PGF2016 said:


> While I agree with most of what you said can you tell how you come to this conclusion?


I took the word of people who know far more about the subject than I do.  The same article as the one quoted earlier (about dealers being asked to bolt on seats) reads: "*the barriers to entry are so much lower on battery vehicles than on their engine-powered forebears*".   It goes on to say that at least 18 automakers have listed in the past two years through SPACs (Special Purpose Acquisition Vehicles), in addition to a major IPO (Initial Public Offering) by Rivian.  That tells me it's a crowded market.  And that's not counting established ICE (internal combustion engine) manufacturers going into EVs.


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## Colm Fagan

Steven Barrett said:


> Tesla's showroom is on Bracken Road in Sandyford, opposite the Audi centre.


Thanks Steven.  I've seen the showroom myself when I've been up around there.  I don't know if it's owned by Tesla or if it's an independent distributor.  Also, if it is an independent distributor, my thesis is that it's getting a much lower margin than would a more traditional dealer, for the simple reason that the Musk brand does nearly all the selling, and there's no need to give someone else a big slice of the action.   It would be interesting if someone could clarify the actual position, to confirm if I'm talking sense or talking through my David Drumm.


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## jasdpace@gmail.

Colm Fagan said:


> Your analysis is faulty.  A significant proportion of the additional valuation is because Tesla issued additional shares in the intervening period, in order to raise more capital.  That's one of the "Musk aura" effects mentioned above.  Of course, I'm in total agreement with your core point that I got it very wrong!



I don't get this, Colm

Let's take it that the original price was $350 and the current price is $1,150
That price would be 5 times higher if it were not for the spilt, i.e. $5,750
So $5,750 divided by $350 is c. 16 times
Fair enuff, there may have been more shares issued to bring the enterprise value to over 18 times its then value but I'm struggling to see where the "significant proportion" comes in?


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## Brendan Burgess

Hi JAS 

If a company has 100 shares worth €1 , it's market capitalisation or value is €100.

In a rational market, if they announce a share split, and if they give everyone an additional share, the formula should be 
200 shares @ 50 cents = €100.

I remember back in the dot.com bubble trying to explain this to people and they did not get it. They seemed to think that splitting shares without introducing any new cash increased the value of the company.  And because of this, the market value did actually increase. 

I remember one guy saying to me "One more share split and I will be a millionaire".  

It was mad stuff. I imagine this contributes something to the share price of Tesla. 

Brendan


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## jasdpace@gmail.

Hi Brendan,

I was simply commenting on Colm's comment to me which I found a little strange - it is simply not true that a significant proportion of the additional valuation is as a result of new stock being issued - and I merely took the trouble to demonstrate the relative proportions. I was not commenting on investor behaviour in relation to share splits!! [It would be interesting to see what the research shows in this regard.....I might have a gander later]


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## Steven Barrett

Colm Fagan said:


> Thanks Steven.  I've seen the showroom myself when I've been up around there.  I don't know if it's owned by Tesla or if it's an independent distributor.  Also, if it is an independent distributor, my thesis is that it's getting a much lower margin than would a more traditional dealer, for the simple reason that the Musk brand does nearly all the selling, and there's no need to give someone else a big slice of the action.   It would be interesting if someone could clarify the actual position, to confirm if I'm talking sense or talking through my David Drumm.


That is the registered address for Tesla Motors Ireland Ltd, which is wholly owned by Tesla International. None of the 3 listed directors are living in Ireland. One in the UK, Germany and Texas respectively. But your point is 100% valid. They can run their Irish business out of a non descript warehouse, while their competitor across the road spent millions on their showroom.


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## Firefly

I'm not necessarily a believer in Tesla as some are and think it is over valued. I think software will eventually be a big driver (sorry about the pun).

One thing though, moving to EVs will require a lot less labour and the VWs of this world are going to have big, expensive fights with unions & workers on their hands regarding layoffs & redundancy payments. Tesla (and other newer EV manufacturers) won't have this problem..


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## DublinHead54

Electric Vehicles are definitely the future of driving, government wants it and industry is going that way. Tesla definitely hasn't been valued as a manufacturing company and more like a tech / research company. Maybe this is because it was based in Silicon Valley and was a first mover in EVs on a large scale, plus the Musk effect. They've proved there is a market for EVs and you can't deny that they changed the industry and were a leader in making incumbent car brands switch to eclectic vehicles. Here in lies the challenge to Tesla in my opinion. 

Now that incumbents have switched resources to EVs, I don't see a reason why Toyota etc can't overtake Tesla in terms of technology and development. They also have the scale to deliver vehicles and cheaper costs with less issues. If you look at cars available in Ireland, we now have multiple EV options across household brand names. 

Observationally on Irish roads I am seeing more and more EVs, but they seem to be VWs, Hyundais, KIAs etc. Tesla is definitely a luxury brand, and maybe its valuation will revert to that of a luxury car manufacturer, or maybe it is just a status symbol.


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## Brendan Burgess

I don't understand this. 

Elon Musk pays $44 billion for Twitter.

And as a result, the market value of Tesla falls by $126 billion. 









						Tesla loses $126bn in value amid Musk Twitter deal funding concern
					

Investors fear Musk may need to sell shares in carmaker




					www.irishtimes.com
				




OK, I could understand that Tesla should fall a bit because a big shareholder will be selling some shares.  But not by three times the value of the bid.

Brendan


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## galway_blow_in

Brendan Burgess said:


> I don't understand this.
> 
> Elon Musk pays $44 billion for Twitter.
> 
> And as a result, the market value of Tesla falls by $126 billion.
> 
> 
> 
> 
> 
> 
> 
> 
> 
> Tesla loses $126bn in value amid Musk Twitter deal funding concern
> 
> 
> Investors fear Musk may need to sell shares in carmaker
> 
> 
> 
> 
> www.irishtimes.com
> 
> 
> 
> 
> 
> OK, I could understand that Tesla should fall a bit because a big shareholder will be selling some shares.  But not by three times the value of the bid.
> 
> Brendan



Mood dictates price more than any rigorous rational analysis in the short term, market mood is currently sour re_ growth stocks


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## Colm Fagan

Brendan Burgess said:


> I don't understand this.
> 
> Elon Musk pays $44 billion for Twitter.
> 
> And as a result, the market value of Tesla falls by $126 billion.


Brendan
I think the main reason for the fall is concern in the market that Musk will have to sell a portion of his holding to fund the purchase price, with the ancillary risk that he has borrowed on the security of his Tesla shares to pay another slug of the purchase price.  If the Tesla share price falls sufficiently, the banks will start looking for extra margin, or cash, to cover the shortfall.  That in turn could force him to sell even more shares.  That prospect can cause a lot of fear.  Hence the sharp price fall.


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## Brendan Burgess

Colm Fagan said:


> that Musk will have to sell a portion of his holding to fund the purchase price,



Agreed. But the extent seems disproportionate.   He does not have to sell $126 billion worth of shares. 
I don't know what percentage of Tesla he owns, but he should probably have sold them off first before bidding for Twitter. 

Brendan


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## Peanuts20

when you buy shares in Tesla, by default you are buying shares in Elon Musk's vision. If I was a shareholder and I saw the founder and driver behind the company selling a large chunk of his shareholding to divest his portfolio, I'd be concerned and it is that concern that may have driven the share-price. His time will be less focused on Tesla, his vision turned elsewhere


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## Sunny

Tesla is Elon Musk. It is almost cult like. A bit like Apple was Steve Jobs for a period. I think investors are worried that Musk is split between Tesla, SpaceX and now twitter. I don't think there is any financial argument to pay $44 billion for Twitter hence no bids coming to Twitters rescue. Remind me of those ad's in the 1980's for Remington Shavers where Kiam says 'I liked the razor so much, I bought the company'. In this case I think Twitter annoyed Musk so much, he just bought the company. 

There is also $12.5 billion margin loan backed by Tesla stock as part of the financing for this so the companies are linked. However, it is not going to ruin Musk as he has shown this crazy ability to raise finance if needed. 

I just don't know what he plans to do with Twitter..... But then I am not a billionaire 'visionary'...!


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## Brendan Burgess

Sunny said:


> Remington Shavers where Kiam says 'I liked the razor so much, I bought the company'. In this case I think Twitter annoyed Musk so much, he just bought the company.


that is brilliant.


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## Colm Fagan

Brendan Burgess said:


> He does not have to sell $126 billion worth of shares.


Brendan
 My comment related to the views of other market participants.  It's their worries about whether Musk will have to sell shares to fund the purchase price, or to meet margin calls, that drove the price down.  Nothing to do with the value of either Tesla or Twitter, or the value of his shareholding in either.


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## Daithi7

Peanuts20 said:


> when you buy shares in Tesla, by default you are buying shares in Elon Musk's vision. If I was a shareholder and I saw the founder and driver behind the company selling a large chunk of his shareholding to divest his portfolio, I'd be concerned and it is that concern that may have driven the share-price. His time will be less focused on Tesla, his vision turned elsewhere


Absolutely.  Also Tesla now face a number of huge challenges,  that shareholders would really like to see it's founder,  driver & visionary fully focus on e.g.
- competition from awesome car companies like Porsche,  Mercedes, Lexus  etc in high end electric car production, roll out & marketing. 

-Roll out of charging & other support infrastructures

- supply chain issues

- dealer network & consolidating it's place in the market place

As a group of shareholders you don't really want to see your brilliant but attention loving founder buying into an expensive distraction like Twitter, that's just going to get that founder into more spats like trouble with the SEC , etc. 

If Tesla &/or Musk had announced a takeover of a car company such as say Jaguar or Aston Martin, or a battery company,  or even a wind , solar,  or something more complementary shareholders could maybe see a fit. 

But twitter,  yes it may offer some free advertising, profile building  of its founder,  and targeting of potential customers but other than that it's still a new media,  loss making,  cash guzzling,  virtual distraction.....

And Musk's businesses are in automotive engineering, innovation and other related areas. A curious & distracting move for founder & shareholders imho.


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## Brendan Burgess

Daithi7 said:


> As a group of shareholders you don't really want to see your brilliant but attention loving founder buying into an expensive distraction like Twitter, that's just going to get that founder into more spats like trouble with the SEC , etc.



A very good article in the FT Weekend about it and how he can manage all his diverse interests. 

They do raise the issue that the Chinese authorities will put pressure on him to control criticism of China on Twitter. 

Brendan


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## joe sod

I see Scottish mortgage investment trust is really getting hammered now in this sell off. They were big investors in tesla and the whole technology space . For years they could do no wrong and trounced most other investments due to their concentration on US tech,

ditto for Cathy Wood and ark investment fund.

The intriguing thing that for all the developments in the high tech space there has been little real progress on energy,  tesla may have developed a car that consumes electricity but they haven't done anything with regards to large scale production of cheap clean energy


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## Spud50

One of the perils of shorting the stock market is it is long biased , also it cant be done using fundamental analysis , it is dangerous enough using Technical analysis and even then you need an edge and a specific rule set around price action.


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## joe sod

Gordon Gekko said:


> Hi Colm,
> 
> These guys, Baillie Gifford, have delivered 500% return over the last 10 years. The Scottish Mortgage Trust is one of their flagship investment vehicles. Tesla is one of their biggest holdings.
> 
> 
> 
> 
> 
> 
> Scottish Mortgage Investment Trust | Global Investment Trust | Low-cost Actively Managed Equity Fund | Baillie Gifford | Individual Investor
> 
> 
> Find out more about Scottish Mortgage Investment Trust.
> 
> 
> 
> www.bailliegifford.com
> 
> 
> 
> 
> 
> Yet you’re “in your attic” picking holes in Tesla’s business model and shorting the stock on the basis that you have some edge.
> 
> This is crazy stuff.
> 
> I am genuinely worried for you.
> 
> Gordon


I wonder ,Gordon do you still agree with your viewpoint in this post now given what's happened to the Tesla and Scottish Mortgage trust share price. Im not picking on you or anything as you were right on this short term back then in 2020 as the tech sector exploded upwards in 2020 but I doubt you still have this investment now?

@Colm Fagan just wondering how did you get on with this position in Tesla, you were right but just way too early, I think Covid disrupted the normal functioning of markets as the very expensive tech sector (in early 2020) got another big leg upwards from covid lockdowns


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## Gordon Gekko

joe sod said:


> I wonder ,Gordon do you still agree with your viewpoint in this post now given what's happened to the Tesla and Scottish Mortgage trust share price. Im not picking on you or anything as you were right on this short term back then in 2020 as the tech sector exploded upwards in 2020 but I doubt you still have this investment now?
> 
> @Colm Fagan just wondering how did you get on with this position in Tesla, you were right but just way too early, I think Covid disrupted the normal functioning of markets as the very expensive tech sector (in early 2020) got another big leg upwards from covid lockdowns


That was over three years ago to be fair.

Lots has happened since, to put it mildly.


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## Colm Fagan

joe sod said:


> Just wondering how did you get on with this position in Tesla, you were right but just way too early, I think Covid disrupted the normal functioning of markets as the very expensive tech sector (in early 2020) got another big leg upwards from covid lockdowns


Hi Joe.  The quick answer is that I didn't make a killing from the fall in the share price.  I made a few bob OK but nothing like what I lost on the way up.  I just don't have the mentality for shorting, which requires a trading rather than an investing perspective.  I closed my final short position in Tesla months ago. 
I have a long-term investment perspective.  Many of my investments have been there for well over a decade, some for more than 20 years.

It amazes me how some proclaim the importance of a long-term perspective, but don't live by what they preach.  The latest post from @Gordon Gekko proves my point: 


Gordon Gekko said:


> That was over three years ago to be fair.
> 
> Lots has happened since, to put it mildly.


If we can't be held to account for what we wrote three years ago about investing, God help us!


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## Gordon Gekko

Colm Fagan said:


> Hi Joe.  The quick answer is that I didn't make a killing from the fall in the share price.  I made a few bob OK but nothing like what I lost on the way up.  I just don't have the mentality for shorting, which requires a trading rather than an investing perspective.  I closed my final short position in Tesla months ago.
> I have a long-term investment perspective.  Many of my investments have been there for well over a decade, some for more than 20 years.
> 
> It amazes me how some proclaim the importance of a long-term perspective, but don't live by what they preach.  The latest post from @Gordon Gekko proves my point:
> 
> If we can't be held to account for what we wrote three years ago about investing, God help us!


To be fair, Colm, the poster was asking whether I still have the same view.

The facts change, I change my mind. We’re now in a different interest rate environment.

My core view about shorting though is that it’s a mugs’ game. You can run out of money before you’re proven right.


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## Bluefin

Colm Fagan said:


> Hi Joe.  The quick answer is that I didn't make a killing from the fall in the share price.  I made a few bob OK but nothing like what I lost on the way up.  I just don't have the mentality for shorting, which requires a trading rather than an investing perspective.  I closed my final short position in Tesla months ago.
> I have a long-term investment perspective.  Many of my investments have been there for well over a decade, some for more than 20 years.
> 
> It amazes me how some proclaim the importance of a long-term perspective, but don't live by what they preach.  The latest post from @Gordon Gekko proves my point:
> 
> If we can't be held to account for what we wrote three years ago about investing, God help us!


Good to see you back Colm... I appreciate your insights on investing. 

As we approach the end of the trading year how did your investments survive volatile period we all have experience over the last 12 months?


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## joe sod

Colm Fagan said:


> Hi Joe. The quick answer is that I didn't make a killing from the fall in the share price. I made a few bob OK but nothing like what I lost on the way up. I just don't have the mentality for shorting, which requires a trading rather than an investing perspective. I closed my final short position in Tesla months ago.


Fair play for your honesty Colm, it was a great lesson alright in the dangers of shorting, I have never shorted or never will but I lost money back in 2016 doubling down on a few mining stocks as they fell heavily back then, they have recovered greatly since but I harvested the capital losses and didn't have the heart to reinvest in them again later. 

I wasn't having a go at @Gordon Gekko either he changed his view on Tesla now as he said above


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## Gordon Gekko

The ‘Musk brand’ is significantly devalued given recent events also.

My overriding view is that it’s best not to have strident views and concentrated bets on the direction of single stocks, especially relatively complex ones.

Yes, there was a point where shorting Tesla probably made sense, but then it’d keep going up and you’d lose your money!


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## Colm Fagan

Bluefin said:


> As we approach the end of the trading year how did your investments survive volatile period we all have experience over the last 12 months?


Hi @Bluefin

As you may know, much of my recent effort has been concentrated elsewhere - trying to do my bit for the financial welfare of ordinary savers - and I haven't given much time to my investments.  For instance, I only had six buy or sell transactions in 2022 (excluding the odd foray into shorting Tesla, as outlined above) , so the main stocks in my portfolio are the same as last year and haven't escaped the general sell-off. 
The one big exception to the downward trend was Novo Nordisk.   Here's what I wrote about it back in 2019 :

_"Novo Nordisk is a Danish pharmaceutical company, which specialises in treatments for diabetes. It ticks a good number of boxes in relation to what I’m looking for in a share. It improves the geographic and industry distribution of the portfolio: I don’t own any other pharmaceutical or healthcare stocks. The potential market for its products is huge: over 415 million people or one-tenth of the world’s adult population suffer from diabetes. Approximately 90% of them have Type 2 diabetes, which is becoming more prevalent as obesity levels increase. I like the company’s financials. It has a strong balance sheet, virtually no debt and billions in the bank. It generates lots of cash, some of which it uses to buy back shares, which it then extinguishes. Continuing shareholders get a bigger share of the pie every time the company extinguishes shares. The earnings yield of 4.8% at the DKr335 share price ruling at 30 June is attractive, given my positive views on the company’s prospects."_

The full essay can be found at https://colmfagan.ie/documents/24_Document.pdf?d=July 04 2019 23:45:04. 

It is now my fourth largest holding, accounting for over 10% of my total portfolio.  At end 2020, the share price was 426Kr.  It had increased to 735Kr by end 2021 and at close of play today it's 940Kr, more than double its price just two years ago.    Thankfully, I kept my entire holding for the full two years (and longer).

In January I hope to get round to reviewing overall performance for the last couple of years.   It won't be pretty - particularly for this year.


----------

