The Perils of Shorting: A Real Life Example

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.
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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
 
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
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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 ;)
 
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


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 .
 
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


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 .
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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.
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What's this got to do with the share price?!
 
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.
 
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.
 
SGWidow said:
Can you explain what "handing $100 a share to the hedge funds" means please?
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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.
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He's broke now!
 
Itchy said:
He's broke now!
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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.
 
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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.
 
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.
 
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
 
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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.
 
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?
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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.
 
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!
 
@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. :oops:
 
Duke, if we had infinite investment horizons and infinite financial resources, we could both be proven right eventually. Unfortunately, neither is true!
 
Colm Fagan said:
if we had infinite investment horizons
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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.
 
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