“Ill mannered attack on Tinker is completely unjustified”
That’s for sure.
Frank
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This is an eight-year bull market conversation. ‘Sometimes you just know’ forsooth! Really!
‘Discipline overrides conviction’ as they say, correctly. Investing to beat the index over a realistic investment period of 25 years is, and will always be, very hard work indeed. And you never ‘just know’, a comment as lazy as it is vain and complacent; valid only with hindsight.
The promise of easy investing has a dangerous attraction to novices, most of whom have read nothing and don’t know even the 30 or 40 terms necessary to make an informed start and think it’s always like this. They probably think they can emulate Saul and are mistaken in that belief.
For them, I take the trouble to post this.
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My portfolio since december has been 70% TSLA and 30% NVDA.
Robert
My portfolio since december has been 70% TSLA and 30% NVDA.
That is some serious fortitude right there. Far beyond that which I could ever even imagine to muster.
Take care,
A.J.
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I think I could tolerate the capital gains he has made with that portfolio
If you are young and have a steady job , one based on a profession where you can’t get fired, it makes sense. One big winner, ride it for years then sell , your retirement is set, you can practice your profession for fun as well as for profit.
My portfolio is y concentrate in 3 stocks- TSLA ,NVDA ,SHOP
And I am not young. But I do have several other stocks too, and a lot of cash for safety. Because cash is the only thing that will not go down in a Bear. If you are depending on diversity based on multiple Saul type stocks you will be disappointed, they will all go down. And down a lot. IOW holding lots of Saul type stocks will protect you from individual stock risk risk but not sector or general market risks
It’s so cool to have a whole strategy named after you , so hat’s off to Saul.
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- Retired. Own house free and clear. Utah is a red state with little tax. $800/month ss. All my money in those two companies. When Elon landed that rocket on a barge in the ocean I knew he was the real deal. The danger for me is that my politics is driving me to invest in him and if he fails I can make it anyway. I could join the Mormon church in a pinch.
Robert
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68. Retired. Own house free and clear.
There’s something to be said for what John Goodman so eloquently expresses about mid-way through the movie “The Gambler.” It’s profanity-laced, so if you’re OK with that, search for “goodman’s speech in the gambler” to find the YouTube clip. There’s also an investing blog remake (also profane) at the bottom of this page: http://jlcollinsnh.com/2016/03/19/f-you-money-john-goodman-v…
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When Elon landed that rocket on a barge in the ocean I knew he was the real deal.
Hi Robert. I’ve been amazed by Musk like a lot of people have. But I’ve never owned Tesla shares. Hope you don’t mind if I push back a bit on Tesla as an investment.
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The stock hit $280 in September of 2014. From that point until this month (June 2017) – almost 3 years later – the stock lagged the S&P, sometimes by as much as 40%.
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Nothing really changed this month except market sentiment. What’s to say June 2017 isn’t the new high point – the new September 2014, so to speak? Nothing fundamentally is supporting the share price, so all you have to count on are the whims of the market.
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Not only has growth been extremely choppy, but it doesn’t look sustainable without continuing to burn billions in cash. Every time they build more cars, they lose more money.
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The shares have also been diluted roughly 30% (!) since Sep 2014, and considering the cash burn, it’s likely that will continue. So if share price holds steady, your already $62B company will get bigger without you making a dime. Remember that it’s already bigger than Ford and GM, though it produces a tiny fraction of the revenue they do, and an even smaller fraction of the output (product).
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There are companies that are showing real improvement: steady sales increases, improved profitability measures, etc. Their growth is relatively predictable and their path to profits is plausible. Some have doubled and tripled while Tesla was flat or down, or even now as it is up ~35% since Sep 2014.
Tesla stock’s history of languishing and even retreating for years until it recaptures the eye of market sentiment makes it a risky stock to own at all. To largely tether your fortunes to it seems perilous at best.
Bear
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Bear, I have to respectfully disagree with your TSLA analysis, point by point:
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Stock has lagged the S&P since Sept 2014
Really? You pick a local high that occurred after a huge run the prior 21 months as a valid starting point? Try this: The S&P is up only 76% (with DRIP) since Jan 1, 2013 compared to TSLA’s 1035% (not a typo) in that same time. Sweet! -
Nothing fundamentally is supporting the share price.
Like everything in the market, the stock price reflects Mr. Market’s expectations for the future. Things like earnings and book value can help make investors feel more confident, but typically they are as much limitations of the future potential as they are promises. I’d argue that 400K paid Model 3 pre-orders indicate great demand for Tesla’s future products, and that’s more fundamental than what happened yesterday with some other company. -
Choppy growth, huge cash burn, & “Every time they build more cars, they lose more money.”
The last point is completely false. Tesla makes money on each and every car they make, and with some of the highest profit margins of any automotive OEM. Tesla is investing the profits so it can have an even bigger future. This is the automotive world, so such investments need big capital. But, that’s justified by the demand and by the future potential. Almost 400K people put down $1K each on a car they hadn’t even seen in person (a small number of them did see it at the unveiling event), and none have driven. Heck, the interior of the car is still mostly a secret. That’s a singular event in the history of automobiles. Add future potential from subsequent models, electric trucks, self driving vehicles, electricity storage, electricity generation, personal Uber/Lyft income from your self driving vehicle, etc.
BTW, growth hasn’t been choppy - only the stock price has been choppy. It’s not reasonable to expect a high growth stock to have a smooth steady increase in stock price.
- Dilution has happened and probably will happen.
Yup, TSLA stock holders are getting smaller pieces of a bigger and more secure pie for a net gain in value. That’s why TSLA’s stock price typically increased after the capital raises.
- There are companies that are showing real improvement: steady sales increases, improved profitability measures, etc. Their growth is relatively predictable and their path to profits is plausible. Some have doubled and tripled while Tesla was flat or down, or even now as it is up ~35% since Sep 2014.
Again, cherry picking a local high on a stock price as a starting point is not a valid way to compare investments. Pick Google in Aug 2015 or Apple in Sept 2012 as your starting points and they don’t look so good either, even with their “predictable” growth and profits.
Tesla stock’s history of languishing and even retreating for years until it recaptures the eye of market sentiment makes it a risky stock to own at all.
Yeah, kind of like Amazon around the turn of the century in some way, eh? Pick Amazon in April 1999 as your starting point.
As an old cigarette commercial said: “We’ve come a long way, baby”
As Tesla was showing off the pre-production Roadster, many would point to the history of no automotive OEM going public and being successful in several decades. Throw in that electric vehicles themselves were doomed due to expensive batteries, short range and long recharging times and Mr. Market’s view was that TSLA was doomed. Heck there was even a “Tesla Death Watch” web site (http://www.thetruthaboutcars.com/2008/12/tesla-death-watch-4…). In 2008 the Huffington post wrote about Tesla’s death as having already occurred (http://www.huffingtonpost.com/matthew-debord/the-dream-of-th…). Oopsie.
In 2011 and 2012, people were publicly making fun of those, like me, who had invested in TSLA. Then Model S came out. Then innovative Free SuperChargering. Then class leading autonomous features, the PowerWall, the Gigafactory, the Model 3, etc., etc. I’ve been laughing all the way to the bank on those.
For me, it’s really hard to predict the short term outcome for TSLA shares. I thought resistance at $300 would kick in. Then $350 seemed a blowout, but here we are today higher than that. What I do know is that unless something happens to Mr. Musk’s health, Tesla is going be an extremely successful enterprise in the future. Will they have competition? Sure. Will they make mis-steps? Probably. But in the long term, the company is going to be a powerhouse (pun intended) that is successful in how energy is created, stored, and used. It’s the kind of company in which I want to be heavily invested.
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4. The shares have also been diluted roughly 30% (!) since Sep 2014, and considering the cash burn, it’s likely that will continue. So if share price holds steady, your already $62B company will get bigger without you making a dime. Remember that it’s already bigger than Ford and GM, though it produces a tiny fraction of the revenue they do, and an even smaller fraction of the output (product).
5. There are companies that are showing real improvement: steady sales increases, improved profitability measures, etc. Their growth is relatively predictable and their path to profits is plausible. Some have doubled and tripled while Tesla was flat or down, or even now as it is up about 35% since Sep 2014.
Tesla stock’s history of languishing and even retreating for years until it recaptures the eye of market sentiment makes it a risky stock to own at all. To largely tether your fortunes to it seems perilous at best.
Hi Robert,
I’m afraid I have to agree with Bear. I too think Elon is great! I think electric cars will become take over. Elon has changed the world. But that doesn’t make Tesla a safe investment. It’s very, very capital intensive, and … well, you know the story. There seem to be better places too take a big risk.
Saul
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Bear, I have to respectfully disagree with your TSLA analysis, point by point:
That’s a great way to disagree - thanks, Smorg.
1. Stock has lagged the S&P since Sept 2014
Really? You pick a local high that occurred after a huge run the prior 21 months as a valid starting point?
Try this, then: The average price TSLA traded at in 2015 was about the same as in 2014. In 2016 it was lower than either. This year it’s up…where will it be in 2018 and 2019 and 2020? You actually make my point for me when you point out the 1000%+ growth since 2013, because my point is simply that it went up fast and hit some incredible highs, but it has not been going up significantly in years! (largely because it was already so expensive)
2. Nothing fundamentally is supporting the share price.
Like everything in the market, the stock price reflects Mr. Market’s expectations for the future.
My point is just that we don’t have a good model for what to expect. You mention 400,000 presales of a 35,000 car. Let’s go crazy and say they’ll net 10,000 in gross profit on each car. That’s 4B in gross profit. But over what period? They haven’t delivered any yet…have they even started making them? How many years will it take to do so? Then you can start asking questions about bottom line profitability, and if they will ever get there – will that 4B over however many years even cover SG&A? R&D? The point is that everything about the business is a question mark.
3. Choppy growth, huge cash burn, & “Every time they build more cars, they lose more money.”
The last point is completely false. Tesla makes money on each and every car they make…BTW, growth hasn’t been choppy - only the stock price has been choppy. It’s not reasonable to expect a high growth stock to have a smooth steady increase in stock price.
Ok, I’m happy to be corrected on the points, but can I ask what happened in the Sep 2016 quarter? It was a huge increase sequentially, which is a good kind of choppy, but choppy nonetheless. My point being that we wouldn’t expect that every year. When they deliver 400,000 model 3’s, will that be it, or will demand be sustainable? What’s the TAM? Will prices come down? More question marks.
Pick Google in Aug 2015 or Apple in Sept 2012 as your starting points and they don’t look so good either…like Amazon around the turn of the century
I agree with you that these have all been overvalued at times, just like Tesla.
What I do know is that unless something happens to Mr. Musk’s health, Tesla is going be an extremely successful enterprise in the future.
I’m afraid that’s what everybody knows. And that’s why I think the stock is up. I just don’t know how everybody knows. Seems more like hope to me.
Bear
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Thanks for all the replies. Driving my ice truck and camper across the country now. Going home to the sun.
Robert
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Yes TSLA price being dependent on the health of one man is worrying . Because there is no way to forecast that.
I am gradually slightly reducing my TSLA position so that it is not so overweight. Because over the next 6 to 12 months I can not see any good news that has not been discounted. But I will keep enough TSLA to do well if they do wind up selling 10 times as many cars as last year. Which I think is doable.
I have high conviction in the Musk vision, less so in Tesla’s ability to fulfill it.
When they deliver 400,000 model 3’s, will that be it, or will demand be sustainable?
who knows but it will be a better car than ICE cars.
And after that comes the Y which I think will be the real breakthrough, incorporating what Tesla has learned over the previous decade. With hopefully break through manufacturing processes and super mass production batteries. Lowering cost means Tesla can charge less or make bigger margins or any combination of the two.
When factoring full capacity utilization and gross margin figures in-line with high-end automakers, Tesla’s valuation still seems stretched.
Even in the most optimistic scenario, the business cannot attach enough profit/revenue from its current/future lines of businesses to justify a more aggressive value premium.
Therefore, we’re fairly convinced that absent of meeting margin expectations north of 20%, the stock is overvalued.
We’verevised our price target lower from our prior $306 target to $201.
Maintaining sell-short designation on diminishedprospects of fundamental upside.
https://seekingalpha.com/article/4083991-tesla-overvalued-di…
Robert
Try this, then: The average price TSLA traded at in 2015 was about the same as in 2014. In 2016 it was lower than either. This year it’s up…where will it be in 2018 and 2019 and 2020?
That’s the same argument in new clothes, and the same date cherry picking. All you’re doing here is pointing out, again, that the Sept 2014 high might have been too much too soon.
My point is just that we don’t have a good model for what to expect. … The point is that everything about the business is a question mark.
That’s what it’s like to be a viable growth stock. If the growth was predictable, then everyone would be in on it. OTOH, try asking the same questions around NVDA. We know even less about NVDA’s future business than we do about TSLA’s future business. Tell me what NVDA’s business looks like when AI is its main revenue component. How many pre-orders does Nvidia have? In what quantities and on what timetable are what companies buying the chips? What will the chips sell for and what will the gross margins be? How strong is Nvidia’s competition? On all these questions, Tesla is a more known quantity than Nvidia (which I also own, btw).
You mention 400,000 presales of a 35,000 car. Let’s go crazy and say they’ll net 10,000 in gross profit on each car. That’s 4B in gross profit. But over what period? They haven’t delivered any yet…have they even started making them? How many years will it take to do so?
400K cars shipped within 15-18 months from today, based on Tesla saying today that new orders will be delivered in the second half of 2018. That’s $2.5Billion in the first year, give or take. Even better, with Tesla’s financial statements in hand I suspect you can estimate what the Model 3 program has cost and with Elon’s predictions of gross margin you should be able to figure out an approximate break-even point. I’m not so savvy, and I’d be interested in an objective analysis on the numbers.
Then you can start asking questions about bottom line profitability, and if they will ever get there – will that 4B over however many years even cover SG&A? R&D?
Here’s this history of Tesla’s SG&A costs per quarter: https://ycharts.com/companies/TSLA/sga_expense
And here’s R&D spending history: https://ycharts.com/companies/TSLA/r_and_d_expense
What might be hard is to split out what expenses are tied directly to Model 3 and what is going into Model Y or trucks or energy storage, etc.
Back to profitability, that’s obviously dependent on what they invest in new products. These are the same questions people used to ask about Amazon (from 2002: http://abcnews.go.com/Business/story?id=87393 and from 2016: https://www.cnet.com/news/amazon-says-first-quarter-sales-an…) - but that didn’t make AMZN a bad investment and doesn’t make TSLA a bad investment.
Seems more like hope to me.
Maybe you’d feel better about BMW. They have a long track record of making great cars and being profitable, and you can track decades of production increases, revenues, and expenses. My guess is, however, that you’re not interested in a predictable automotive OEM - no growth.
Heck, BMW itself is afraid of Tesla. BMW just did some company-wide presentations to scare their entire workforce about the disruption coming from EVs (https://www.bloomberg.com/news/articles/2017-04-26/bmw-invok…). All of that decades of predictability is now out the window. Can you figure out what the pivot to EVs will cost BMW and when they’ll turn a profit on these new EVs? Heck, you don’t even know what new models BMW will have, nor when they’ll be available, nor at what price. All you know is that as an ICE vehicle maker, BMW was/is having a very good run, but surely you don’t think that run will continue as is beyond the next few years, do you? Because BMW itself doesn’t think so! Welcome to The Innovator’s Dilemma.
OTOH, we know a lot more about Tesla’s Model 3. We know what the car looks like, what its range is, how it will be charged on the road, what it’ll cost, how many are reserved, and how many Tesla believes it’ll make a year.
To me the “hope” thing would be to invest in BMW and hope they design some attractive EVs and hope they can price them right and they figure out long distance charging and hope the costs to revamp production lines isn’t too great and hope that Tesla doesn’t come out with a cool Model Y by the time BMW is ready.
It may be non-intuitive at first, but the predictable thing here is that change is coming. The futures of BMW, GM, Toyota, VW are no longer predictable. Same for Exxon, oil drilling, coal mining, gas pipelines, etc. The sure thing is that the automobile and energy markets are starting to get disrupted now, and that Tesla looks to be well positioned to be on the forefront of both disruptions.
Long term, I’m more confident in my TSLA investment than my NVDA investment.
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The sure thing is that the automobile and energy markets are starting to get disrupted now, and that Tesla looks to be well positioned to be on the forefront of both disruptions.
I think I agree with pretty much everything you said, including that NVDA might be more risky than TSLA in the short term.
I guess the main difference is that you’re looking almost exclusively at the long term, and see these great mega trend opportunities. I am looking at the short term as well as the long term, and heck the mid-term as well. I think there are other companies (such as SHOP, SQ, MELI, TWLO, TTD, MULE) that have better prospects in the short term for sure, and should continue to grow rapidly for the mid-term (though I’ll be watching), while perhaps never becoming as big as Tesla could become in the long term.
That’s just how I see it.
Bear
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Smorgasbord1 very good point about Tesla.
Because with some driving time in a BEV and some effort we can find out a lot about his business, BEvs, and why it might succeed . Which is why I invested heavily, I understood his business plan.
It’s no mystery available only select few high tech people. Even Amazon has a few more puzzles for investors. Bezos is mostly mum about his plans, you can’t say that about Musk.
Bosch may be a big winner too but I would not invest in them.
I guess the main difference is that you’re looking almost exclusively at the long term, and see these great mega trend opportunities. I am looking at the short term as well as the long term, and heck the mid-term as well.
I use the long term as an indicator of safety. It enables me to sleep at night, despite some heavy allocations.
Just curious, what do you define as Short vs Medium vs Long terms? In the past 7 months, TSLA has had a great short-term run. Did anyone here get on board just before or just after that started (say from Oct 2016 to Feb 2017)? My last big chunk of TSLA was around the March Model 3 announcement and opening up of reservations, so I missed the opportunity to add more late last year.
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Just curious, what do you define as Short vs Medium vs Long terms? In the past 7 months, TSLA has had a great short-term run.
To clarify, I was talking only about company results and not at all about stock price. I would identify the short term as the next several months (a few quarters), the mid term as the next few years, and the long term (the most vague, because it is the least certain) as anything from several years to several decades.
“In the long run we are all dead” - Keynes
That’s pretty uncertain. I don’t really care if Tesla’s chances are better than others to become whatever it will some day become. I think predicting what SHOP or SQ or TLND does the next few quarters and years do is a lot more doable than predicting who will win the transportation/energy race.
Bear
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“In the long run we are all dead” - Keynes
In “The 100 year old man who climbed out of the window and disappeared” there was a quote I’ll paraphrase:
“I don’t know why all those people fought all those wars in the 1700’s and 1800’s. If they had just been patient, all their enemies would have been dead by now anyway!”
Saul
(Great book by the way, if you haven’t read it. I’ve read it three times, just for fun.)
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