TSLA - Tesla Motors

[rkbabang]

Seems to me like this only works if instead of shorting Tesla you would have shorted the market instead. But is that the case? --> No, that is not the point.

 

You can't eat relative performance, so being flat (plus borrow cost) vs the market might sound like a win on paper, but in reality, what does it get you? --> you can *absolutely* eat relative performance in a long/short portfolio

 

Is it just to redeploy the funds in more longs? --> Yes or it can be used to reduce portfolio volatility depending on your portfolio goals

 

Sounds like a risky source of leverage, --> it can be...

 

unless you keep it tiny in size, --> DING DING DING... short sizing is != to how you should think about long sizing.

 

in which case, even if it goes to zero, you just get what, a single digit higher return on the portfolio?. --> I think you've reasoned part way through it. I don't think it's so complicated.  Shorting isn't like "the big short" where you are getting rich on moon shots (maybe buying puts can be).  it's a tool to lower vol or enhance return via market correlated leverage (or it can do both).  It has attendant risks that comes with correlation, volatility, and of course being wrong.

 

I guess I just have different priorities and investing style. I don't like keeping drama in my portfolio for little reason. I'd rather spend the time and energy that you'd spend on monitoring this trying to find my next big investment that will make a noticeable difference to returns. I'm not saying the other approach isn't valid, my original comment was just that I don't think it's a good return on the energy that most shorts seem to spend on the company. If something is 1% of your portfolio but you give it 25% of your mindspace (or whatever.. for some shorts it seems even higher -- and it rarely pays to get as emotional as they do about an investment, rational decisions go out the window), that seems a bad deal to me. I'm not saying it applies to you, but I know it definitely applies to many that I see on Twitter.

 

In a way this makes perfect sense and it is why I have bought puts before, but I have never shorted a stock.  When you buy a put the most you can lose is what you paid for it.  If I had even a small position in my portfolio where the possible losses were open ended, I don't think I would be able to help spending all of my time thinking about that and getting emotional about it.

[Gregmal]

Everything you guys have said above is true. Shorting is just not a very practical way to make a return. It sounds great, and the truth is that most professionals who say they do it, do so because its a nice marketing sell. But the emotional investment required to do it, the time, and the deck stacking against you, just completely wipes out any benefit over the long haul. There is a reason Jim Chanos, who since inception has LOST MONEY ON A NET BASIS(IIRC he's around -5% annually) is still in business. Who keeps him in business? Other funds who want to be able to claim they are "long/short".... funny world.

[benhacker]

Everything you guys have said above is true. Shorting is just not a very practical way to make a return. It sounds great, and the truth is that most professionals who say they do it, do so because its a nice marketing sell. But the emotional investment required to do it, the time, and the deck stacking against you, just completely wipes out any benefit over the long haul. There is a reason Jim Chanos, who since inception has LOST MONEY ON A NET BASIS(IIRC he's around -5% annually) is still in business. Who keeps him in business? Other funds who want to be able to claim they are "long/short".... funny world.

 

FYI - this is just another continuation of the same confusion of all of you guys commenting on short selling but not actually doing it... so you don't understand why Chanos's fund is both so valuable, and also quite amazing.  I think I've been trying to explain this to Sanjeev for about 15 years and he still doesn't want to understand ;-)  It's obvious why with the results above he is still in business...

 

You know that Chanos's fund is sold as a short fund as part of an overall portfolio right?  Institutions are using it to decrease vol (lower net exposure) or add ability to take on more exposure....  -5% annually for a short only fund is god damn phenomenal... oh, and it's also highly profitable for the investor who uses the fund (whether to lower vol, or to enhance returns by using "gross" leverage).

 

Chanos's fund is used in their internal employee portfolios as part of a ~100% net (190 / 90 gross IIRC) exposed fund which has CRUSHED the market (by the way, it's long leg is just "the market" - so the value added is just from the short side).  Why?  Because if you have a variable rate for a stock loan which is 5-7% lower cost than the market rate of return for stocks, it gives you the ability to employee leverage that a fixed cost or margin loan would never allow you to have (without blowing up - of course short selling entails it's own risk, yes yes yes!).  I"m not saying 190/90 is good, or whatever, just noting the concept of what is behind this philosophy.  It is not a theoretical thing.

 

Short selling is a pretty fundamental part of markets, and learning about it (not necessarily *doing* it as Liberty makes great points) is really quite educational to understand market dynamics and mechanics. 

[Gregmal]

Theres always the sales spin...but at the end of the day -5% annually is -5%. Thats like saying the batter who hits .205 is an All Star because he does it standing on his head and swinging with one arm...

 

Many of the comments, while initially you contesting what was said, confirm it. Such as...

 

"Chanos's fund is sold as a short fund as part of an overall portfolio right?"

 

Yes, its sold as a product. Thats basically how everything on Wall Street works. Regardless of its efficiency or value. Some snake in a fancy suit with a nice watch searching for OPM to charge fees on; and always a story to tell about the product they sell so they can upgrade to a fancier corner office...As I said earlier, institutions and hedge funds line up, because now they can market themselves as diversified long/short strategy...a nice gimmick.

 

So to the parts earlier about smoothing out volatility. Who cares about volatility? Well, WS folks like to tell scary stories to their clients and if the volatility boogey man gives them an angle, they do it. But being scared of volatility while investing in the stock market is kind of dumb. Give me a zig zag chart that gets from left to right or a slow moving straight line that gets there but 5% annually less.... not sure how one views 5% less annually as more attractive.

 

Im not saying short selling is pointless. But generally speaking its a bad idea and a waste of time and ultimately money. Its like home insurance except when your house burns down only get like 20% of the value of your home back. Look at all the short guys like Einhorn and how they did in 2008...or even the guys like Chanos or Paulson who beat the odds and made a lot of money, but then spent the next decade sucking wind and paying for their bearish.

 

Idk but if you've ever shorted before as you indicate you have, you'd know this. Chanos's VRX bet for instance. He started shorting in the $60's...spent multiple years paying borrow rates that fluctuated between 10-50% annually. He likely had multiple instances of having to hedge or reposition his trade. And then years later, after nearly quadrupling! it goes to $20. How much money did he really make on an absolute basis? Probably not much. Certainly not enough to warrant all the research, trading, carry costs, etc. But good marketing material when it went down and now he could be labeled "the guy who called VRX"...very good marketing and good enough to bring in a new slug of fee earning OTM. Which is what its all about.

[thepupil]

Volatility absolutely matters to a pool of capital that has  net outflows, as in almost every of pool institutional capital. If your portfolio has more volatility you end up with less money over time. Volatility smoothing at the portfolio level (not necessarily at the manager or security level) absolutely matters. It doesn’t matter to Joe Schmo like you and me while you are a net saver, but I can assure you it matters to perpetual pools of capital that may be a beneficiary’s sole source of funds.

 

The magnitude of short alpha we are talking here increases absolute return and reduces volatility. If you can only lose 5% on your short book in this market, you’ll be far better off than just being long the market. You will end up with more money if you combine a highly alpha generative short book with a long portfolio (as long as you don’t take down your net exposure too much and if you run>100% gross like 95% of long short funds do.

 

The problem is there just aren’t that many great short sellers and short alpha is and has been in secular decline for some time. It is a tough business, but when done well it increases return and reduces volatility. When it works it is absolute not sales spin. Reducing vol and making more money isn’t a gimmick; it leads to better investment outcomes.

 

This is the second time that I remember I’ve participated in this debate on COBAF about Chanos and short selling specifically, so I guess it will never end and neither side will convince the other.

[Spekulatius]

I agree that reducing volatility and generating cash on a market downturn (which is what short are supposed to do) adds value, but it’s just so hard to do.

 

I have followed Hampton and Cohodes and one should note that Cododes’ fund blew up in 2018, even though he had goo shorts in the right sectors, because the short sell ban screwed him. He is still pretty bitter about this and Goldman Sachs (he claimed they screwed him). Many other short sellers also below up one way or another. Hampton does shorting, but he uses tiny positions with dozens of stock to reduce single exposure risk which I don’t think is very practical for an individual investor. He has stories about obvious frauds  Lernout and Hauspie going to 10x while it was clear to them that it was a fraud. You can listen to these war stories on the Jolly Swagman podcast.

[benhacker]

That Swagman podcast is great. (Actually, that pod is great in general)

 

Copper River blew up in 2008. That was a nutty month during the short selling ban and the squeezes that happened the.  Just a nightmare for some long short strategies.

 

Glad me, Pupil and Spek are aligned at least!

[Spekulatius]

That Swagman podcast is great. (Actually, that pod is great in general)

 

Copper River blew up in 2008. That was a nutty month during the short selling ban and the squeezes that happened the.  Just a nightmare for some long short strategies.

 

Glad me, Pupil and Spek are aligned at least!

 

Yes, that was in 2008. I remember that time well. I had just started a short in WFC when a few days later the short selling bann was announced and the stock gapped up like 20% although it closed at a smaller gain that day. There was a long list of stocks on the do not short list  that were considered financials and much confusion whether one needed to close these (one didn’t). I closed it at the end of the day, which cost me some. the whole thing just goes to show how shorting can go bad, even if the thesis is wrong - the whole outcome is extremely path dependent. I basically gave up on this at that point end just occasionally buy puts (mostly index puts) if I feel like hedging.

[Gregmal]

That Swagman podcast is great. (Actually, that pod is great in general)

 

Copper River blew up in 2008. That was a nutty month during the short selling ban and the squeezes that happened the.  Just a nightmare for some long short strategies.

 

Glad me, Pupil and Spek are aligned at least!

 

Yes, that was in 2008. I remember that time well. I had just started a short in WFC when a few days later the short selling bann was announced and the stock gapped up like 20% although it closed at a smaller gain that day. There was a long list of stocks on the do not short list  that were considered financials and much confusion whether one needed to close these (one didn’t). I closed it at the end of the day, which cost me some. the whole thing just goes to show how shorting can go bad, even if the thesis is wrong - the whole outcome is extremely path dependent. I basically gave up on this at that point end just occasionally buy puts (mostly index puts) if I feel like hedging.

 

That s basically it though. And just one of the many problems with shorting. Shorting isn't a fundamental trade. Fundamentals are like 25% of the equation. Theres a lot of other stuff that weigh more on the success or failure that many people dont realize. Look at Beyond Meat or Peloton and how many people mistake a crazy valuation for a no brainer short, short it, lose money, and then end up being right much further down the road.

 

In theory, its a great tool to have. I still do short, just with a much, much, more narrow scope and set of rules. But it's such a tough game to play and you can be 100% right about your thesis and still get killed. I dont doubt there are some that are great at it. I know a few guys who are very decent at it. I just find it interesting to highlight Chanos, because he's the best, and even he struggles. If the best short seller on Wall Street cant consistently make money that says all you need it to.

 

The guys Ive found have beat the odds are the Citron's, Muddy Waters, etc... who do their work and then go public/activist and then trade their own noise.

 

 

[Jurgis]

As we are coming up to 2020, it might be time to revisit my predictions for 2020 made in 2015:

 

>50% new cars with forward collision avoidance (FCA) (this is aggressive). >2% of new cars with driverless-but-human-in-loop-for-unexpected tech.

 

First prediction is pretty much spot on: https://www.nhtsa.gov/press-releases/10-automakers-equipped-most-their-2018-vehicles-automatic-emergency-braking

 

Second prediction is way behind. It only makes the cut if we count 5.X M autos sold and count ~200K Teslas with Autopilot as "driverless-but-human-in-loop-for-unexpected". This would be Elon-sized exaggeration, so I'll go with my prediction being wrong.

 

Let's get back again in 2025 for the 10-year predictions, which are way harder to get right.  ;D

[Liberty]

Tesla at new all-time high. Guessing this is due to the possible new EV tax credit revamp?

[benhacker]

Tesla at new all-time high. Guessing this is due to the possible new EV tax credit revamp?

 

yeah, that would be my guess.  Lots of optically good news to build the story now, but I think that's the most meaningful one which can really drive the share price.

[Jurgis]

Tesla at new all-time high. Guessing this is due to the possible new EV tax credit revamp?

 

One of the bearish analysts kept their bearish target, but was impressed with Giga Factory and said that Tesla is ahead of competition there.

[Spekulatius]

Printing $402 now, more than a double from the mid year lows. Shorting is hard. Puts are outrageously expensive. No way I am playing.

[Investmentacct]

Shorting is hard against "Best (vertical) technologies in the Market available for past 8 years in transportation." Thank you to ERICOPOLY for detailing his  options strategies at time of Bank of America rising curves. Strategy works with not much to lose and huge value creation with different set of shorted situations. Tesla example shows Technology contrast (day and night) and shorts morphing the picture. 

[Haasje]

I think the stock is up because it is a very peculiar stock.

 

A much larger percentage (compared to other stocks) of those trading it are zealously long or short.

 

The longs (as a group) are probably ethically sophisticated but unsavvy investing wise. Some are just hodlers but there's a broader group that support the supposed mission who view the price action as informative.

 

The shorts is a lot of smart money. They pile on as it gains momentum down (as your exposure decreases) but they have to cover as it rips faces off the other way.

 

Cheery market, promotional CEO interested in fanning a fiery momentum into a short squeeze, above dynamics make for a very swingy stock.

 

It trades about $400 above intrinsic value.

 

I have to admit there is a way that the share price actually influences the intrinsic value and that's because the company is so utterly dependent on financial markets (ie share issuance) and low employee compensation (covered by share issuance). But I think that's not a huge deal.

 

Long traders are having fun but I can't see minority investors making much of a gain here long term. Even in bright sky scenarios. Masoyoshi Son passed on this.

 

Ofc I'm short.

 

[CorpRaider]

Did they start selling produced in China cars in mandated EV market or a sub $60K SUV in North America yet?

[Liberty]

$420 secured

[benhacker]

$420 secured

 

LOL :)  Well done...

[gary17]

hopefully TSLA will see EPS of $30

[A Dhandho Investor]

$420 secured

 

Knowing Musk, he is now probably aiming for 690$ and next up is 8008$

[Gregmal]

One little side story I am enjoying here is seeing Cathie Wood continue to look like the genius; in the face of all the bitter asshats whom mock her.

[A Dhandho Investor]

One little side story I am enjoying here is seeing Cathie Wood continue to look like the genius; in the face of all the bitter asshats whom mock her.

 

With the emphasis on look. I guess a lot of Valeant investors also looked like geniuses until August 2015  :-*

 

edit: I find it interesting that their super de luxe TSLA valuation model^TM https://github.com/ARKInvest/ARK-Invest-Tesla-Valuation-Modelwas not updated anymore since last May. 

 

I'm still looking for the first long investor who has done as much research as the people on the short side of the trade. One recent example: https://www.plainsite.org/realitycheck/tsla.pdf

 

[Spekulatius]

There are either more idiots than shares or more shares than idiots. For now, it’s clear in which condition we are.

 

Elon should really issue shares and take advantage of the reflexivity.

[Gregmal]

Elon should use the shares to buy a real car company like FCAU or GM.