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
The Perils of Shorting: A Real Life Example
- Thread starter Colm Fagan
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Colm Fagan
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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
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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
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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
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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.
www.betfair.com
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
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.
Betfair Exchange | Best Odds Online, Back and Lay Betting
The Betfair Exchange allows you the opportunity to back and lay bets and Cash Out. We also offer Casino, Poker, Games and Bingo.
www.betfair.com
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
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
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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
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
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Colm Fagan
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Fella
I presume you don't have any objections to what I wrote earlier today:
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.
Brendan Burgess
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Hi Colm
I bet you challenged that at the time?
And, of course, you were proved right eventually.
Brendan
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.
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 .
Can I just ask what is your supporting material for it being overpriced?
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?
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
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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
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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
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.
Again Brendan, this is speculation, where is your evidence? The last statement suggest you have doubt in your prophecy.