TSLA - Tesla Motors

[NBL0303]

 

But it is possible that Chanos and Einhorn and other shorts will take a bath on a $420 buyout AND that their fundamental valuation reasoning about the company was correct - and the financial difficulty they foresee will happen in a private company context.

 

In regards to the bold, this could occur, but that is irrelevant. As an investment manager, your job is to get it right, not to "be right". There is a big difference and it's not something I'm sure guys like Einhorn and Ackman understand.

 

With shorts, getting clipped with a take-out is clearly always a possibility. For that and many other reasons, I believe these short-sellers know that they will not make money on each investment. That makes this a tough game and one I do not really play for that reason and others, but they know there is always a possibility their reasoning could be sound, but they will not profit from it for a variety of reasons.

 

While a profit on a given investment is clearly very important. But whether the investment logic is sound actually matters quite a lot in the long run, apart from the profits or losses from one particular investment. If an investor makes one sound judgment after another, they will do well as an investor over the long-run. Each particular investment may not yield a profit, but it is actually extremely important whether one's reasoning was sound. That is a strong indication of how they will do in the future. This is not my own insight or anything, I'm not that smart to articulate it like this, this reasoning is straight from Charlie Munger at a Berkshire meeting about 10 years ago.

[Gregmal]

 

But it is possible that Chanos and Einhorn and other shorts will take a bath on a $420 buyout AND that their fundamental valuation reasoning about the company was correct - and the financial difficulty they foresee will happen in a private company context.

 

In regards to the bold, this could occur, but that is irrelevant. As an investment manager, your job is to get it right, not to "be right". There is a big difference and it's not something I'm sure guys like Einhorn and Ackman understand.

 

With shorts, getting clipped with a take-out is clearly always a possibility. For that and many other reasons, I believe these short-sellers know that they will not make money on each investment. That makes this a tough game and one I do not really play for that reason and others, but they know there is always a possibility their reasoning could be sound, but they will not profit from it for a variety of reasons.

 

While a profit on a given investment is clearly very important. But whether the investment logic is sound actually matters quite a lot in the long run, apart from the profits or losses from one particular investment. If an investor makes one sound judgment after another, they will do well as an investor over the long-run. Each particular investment may not yield a profit, but it is actually extremely important whether one's reasoning was sound. That is a strong indication of how they will do in the future. This is not my own insight or anything, I'm not that smart to articulate it like this, this reasoning is straight from Charlie Munger at a Berkshire meeting about 10 years ago.

 

I hear you. And agree. And would admit I'm also not communicating what I mean as clearly as I'd like to. Best example I can give is this:

 

Say you do your work. You are 100% convinced penny stock turned hot stock is a fraud. You call in a borrow and it's -85%. Not crazy if you're familiar with such trades, but definitely high risk. You plan on pitching your thesis on an investing website and think this may be a catalyst for the trade to work. Prior to the pitch going public the stock runs another 50% higher. Before you pitch it, the stock gets halted by the SEC and doesn't resume trading for over a year while they investigate the fraud. Well, you were right. But you're shit out of luck and paying 8% a month on an amount 50% higher than your basis for a period of time totally out of your control.

 

Was your logic sound? You could say it was. You were right about the outcome. But you could also make the case that any experienced short seller would know you were blind to some very obvious risks which IMO doesn't make what you are doing logically sound. Being right about the investment fundamentals but wrong about tangential matters that have just as much if not more influence on the investment results is I guess what I'm talking about. And it seems to be something these guys I mentioned just can't figure. Because they make the same mistake over, and over, and over again.

 

From my experience, nailing a short feels 10x better than nailing a long. It's a rush, and it's true, you need to be way smarter and better informed to short than to go long. It feeds one's ego. But over the long run I equate it much more to gambling than investing because the odds are so stacked against you. Many things, including but not limited to the market naturally moving higher over time, borrow rates, regulatory incompetence, and market euphoria all work against you and when the greatest short seller in recent memory(Chanos), has posted negative returns over the long haul, I mean, I don't think a rational person would argue against shorting being a bad idea.

[rb]

His idea basically seems to be that most shareholders will remain in, so the capital needed to buy out the others won't be more than what he can raise from a few deep pockets...

What's the source for this? Can't a private company only have 500 shareholders?

Yes a private company is limited to 500 shareholders. But there are ways around it like master/sub structures and so on. Musk even mentioned something in a tweet  ::) about setting a fund to own shares and shareholders could own units of the fund.

[rb]

It actually matters a lot whether you're right or your wrong. Sometimes you're wrong and things work out for various reasons. At that point you weren't some slick operator or anything like that. You just got lucky. I've been in that position a few times, once big time and of course it's great when it happens. I'm not gonna look a gift horse in the mouth. Conversely, sometimes you're right and it doesn't work out. At that point you just got unlucky.

 

The reason why it matters whether you're right or wrong is that you can't just count on luck because luck runs out. So ideally you wanna be right as many times as possible and hope for a little bit of luck some of the time.

[alpha]

 

CNBC interviewed a former SEC chair, he said if Musk dosen't have proof of secured financing,  his  tweets/statements constitute fraud.

 

CNBC also reported no wall street banks are involved in the deal.

 

The only 2 organizations I could picture paying that much for a firm burning so much cash are the Saudis or Chinese. I doubt a Chinese deal would get approved in the current political climate, and the Saudi Sovereign Fund already announced a small position in the company. Why initiate a small position if they are in negotiations for full buyout?

 

[John Hjorth]

CNBC: Interview with Harvey Pitt: Musk's tweet could be securities fraud if he was trying to manipulate the market.

[Investmentacct]

It actually matters a lot whether you're right or your wrong. Sometimes you're wrong and things work out for various reasons. At that point you weren't some slick operator or anything like that. You just got lucky. I've been in that position a few times, once big time and of course it's great when it happens. I'm not gonna look a gift horse in the mouth. Conversely, sometimes you're right and it doesn't work out. At that point you just got unlucky.

 

The reason why it matters whether you're right or wrong is that you can't just count on luck because luck runs out. So ideally you wanna be right as many times as possible and hope for a little bit of luck some of the time.

 

Paraphrasing Soros on the topic : “It's not whether you're right or wrong, but how much money you make when you're right and how much you lose when you're wrong.”

 

Tesla story has reminiscence of  Fairfax short squeeze story circa 2003-2005. With similar characters, probably on outcome, scale and timeframe. Wildcard is technology which is 10x better on performance and cost.

 

https://teslamotorsclub.com/tmc/threads/elon-musk-vs-short-sellers.118431/

 

 

[rb]

It actually matters a lot whether you're right or your wrong. Sometimes you're wrong and things work out for various reasons. At that point you weren't some slick operator or anything like that. You just got lucky. I've been in that position a few times, once big time and of course it's great when it happens. I'm not gonna look a gift horse in the mouth. Conversely, sometimes you're right and it doesn't work out. At that point you just got unlucky.

 

The reason why it matters whether you're right or wrong is that you can't just count on luck because luck runs out. So ideally you wanna be right as many times as possible and hope for a little bit of luck some of the time.

 

Paraphrasing Soros on the topic : “It's not whether you're right or wrong, but how much money you make when you're right and how much you lose when you're wrong.”

 

Tesla story has reminiscence of Fairfax story circa 2003. With similar characters, probably on outcome, scale and timeframe. Wildcard is technology which is 10x better on performance and cost.

 

https://teslamotorsclub.com/tmc/threads/elon-musk-vs-short-sellers.118431/

Yes, very similar, Fairfax circa 2003 has never posted a profit, was burning through billions of cash and had an unstable CEO at the helm.

[rb]

CNBC: Interview with Harvey Pitt: Musk's tweet could be securities fraud if he was trying to manipulate the market.

I think it's a TV over reaction. I'm not a lawyer, but I'm guessing for fraud they'd have to prove intent and Musk's lawyers would argue that he didn't have any and he's just and idiot. They'd win on the merits.

[rb]

 

CNBC interviewed a former SEC chair, he said if Musk dosen't have proof of secured financing,  his  tweets/statements constitute fraud.

 

CNBC also reported no wall street banks are involved in the deal.

 

The only 2 organizations I could picture paying that much for a firm burning so much cash are the Saudis or Chinese. I doubt a Chinese deal would get approved in the current political climate, and the Saudi Sovereign Fund already announced a small position in the company. Why initiate a small position if they are in negotiations for full buyout?

It's not the Saudis. Taking out TESLA would be something like a 10% position for them. Those guys are pretty conservative so there's no way they're doing that. Even as part of a syndicate I don't see them playing a big part.

[benhacker]

It actually matters a lot whether you're right or your wrong. Sometimes you're wrong and things work out for various reasons. At that point you weren't some slick operator or anything like that. You just got lucky. I've been in that position a few times, once big time and of course it's great when it happens. I'm not gonna look a gift horse in the mouth. Conversely, sometimes you're right and it doesn't work out. At that point you just got unlucky.

 

The reason why it matters whether you're right or wrong is that you can't just count on luck because luck runs out. So ideally you wanna be right as many times as possible and hope for a little bit of luck some of the time.

 

Paraphrasing Soros on the topic : “It's not whether you're right or wrong, but how much money you make when you're right and how much you lose when you're wrong.”

 

Tesla story has reminiscence of Fairfax story circa 2003. With similar characters, probably on outcome, scale and timeframe. Wildcard is technology which is 10x better on performance and cost.

 

https://teslamotorsclub.com/tmc/threads/elon-musk-vs-short-sellers.118431/

Yes, very similar, Fairfax circa 2003 has never posted a profit, was burning through billions of cash and had an unstable CEO at the helm.

 

Probably too subtle RB....

 

All the comparisons to FFH and TSLA are absolutely hilarious to me.

 

I owned FFH during the storm and for 10 years after (only a token position through an investment club today) and I am short TSLA now.

 

If any bulls think there are parallels between Fairfax then and Tesla now .... ummm... I have nothing really nice to say.

 

Night and day difference. Comical in fact but I’ve seen the comparison dozens of times.

 

Fairfax sued the shorts and didn’t talk. All musk does is talk. And it stopped making sense months ago. (BTW, why does someone heavily financed by converts piss on the short interest in his stock?  What a joke)

 

Kind of bummed he has revealed himself as such a charlatan - I never really saw it until recently. Hopefully BYD will pull us through....

[rb]

Ben, sometimes I'm subtle, other times I'm over the top. It's just part of my charm. In all fairness I forgot to add the rolling eyes emoji to my post.

 

I completely agree with what you've wrote btw. Also have no worries about pulling through. Collectively as a race we're actually a pretty smart and resourceful bunch.  :). Don't think it's gonna be BYD though.

[walt373]

and the Saudi Sovereign Fund already announced a small position in the company. Why initiate a small position if they are in negotiations for full buyout?

 

This is a great point. And Musk bought stock as recently as June. Are we to believe it takes less than 2 months to organize the largest buyout in history? There are so many things wrong with this picture.

[Voodooking]

What sort of timescale do you guys think it reasonable to expect for the buy-out? Obviously they need to arrange a shareholder vote etc. Is this likely something that will take weeks or several months to complete?

 

There is the question of an arbitrage between the current share price of $380 and the buy-out offer price of $420. Is it wise to buy more stock now in order to take advantage of this, whether I sell in a month for $400, or hold out for the eventual $420... either sound good, but obviously need to be tempered by the risk that if the deal doesn't go through, the price could sink back down toward $300 or less.

 

I have a large long TSLA position and have spent a lot of time today considering whether I should buy more to take advantage of this situation. I will hold my original stake no matter what, but really don't know whether I should add a short term / arb position also. What does everyone else think?

[benhacker]

What sort of timescale do you guys think it reasonable to expect for the buy-out? Obviously they need to arrange a shareholder vote etc. Is this likely something that will take weeks or several months to complete?

 

There is the question of an arbitrage between the current share price of $380 and the buy-out offer price of $420. Is it wise to buy more stock now in order to take advantage of this, whether I sell in a month for $400, or hold out for the eventual $420... either sound good, but obviously need to be tempered by the risk that if the deal doesn't go through, the price could sink back down toward $300 or less.

 

I have a large long TSLA position and have spent a lot of time today considering whether I should buy more to take advantage of this situation. I will hold my original stake no matter what, but really don't know whether I should add a short term / arb position also. What does everyone else think?

 

I would wait until the company puts out some sort of... uhh... official "SEC Filing" stating something is happening.  Right now, you have a tweet, with an internal email (which walked back everything in the tweet) and no official statement from the company or BoD.

 

If you don't get a formal filing from the company today that people are signing off on (besides Musk) I think the likelihood of a buyout on any terms similar to those described is very unlikely (heck, I think the fact that the company didn't have a filing yesterday is a tell).

 

My 2 cents.

[rkbabang]

What sort of timescale do you guys think it reasonable to expect for the buy-out? Obviously they need to arrange a shareholder vote etc. Is this likely something that will take weeks or several months to complete?

 

There is the question of an arbitrage between the current share price of $380 and the buy-out offer price of $420. Is it wise to buy more stock now in order to take advantage of this, whether I sell in a month for $400, or hold out for the eventual $420... either sound good, but obviously need to be tempered by the risk that if the deal doesn't go through, the price could sink back down toward $300 or less.

 

I have a large long TSLA position and have spent a lot of time today considering whether I should buy more to take advantage of this situation. I will hold my original stake no matter what, but really don't know whether I should add a short term / arb position also. What does everyone else think?

 

I would wait until the company puts out some sort of... uhh... official "SEC Filing" stating something is happening.  Right now, you have a tweet, with an internal email (which walked back everything in the tweet) and no official statement from the company or BoD.

 

If you don't get a formal filing from the company today that people are signing off on (besides Musk) I think the likelihood of a buyout on any terms similar to those described is very unlikely (heck, I think the fact that the company didn't have a filing yesterday is a tell).

 

My 2 cents.

 

Of course, but when there is something official and not just a tweet and an email, you won't be able to buy it at $380. 

[NBL0303]

What sort of timescale do you guys think it reasonable to expect for the buy-out? Obviously they need to arrange a shareholder vote etc. Is this likely something that will take weeks or several months to complete?

 

 

It is a question of months, for certain. The question is whether probably more like is it three months or nine months or even more?

[benhacker]

What sort of timescale do you guys think it reasonable to expect for the buy-out? Obviously they need to arrange a shareholder vote etc. Is this likely something that will take weeks or several months to complete?

 

There is the question of an arbitrage between the current share price of $380 and the buy-out offer price of $420. Is it wise to buy more stock now in order to take advantage of this, whether I sell in a month for $400, or hold out for the eventual $420... either sound good, but obviously need to be tempered by the risk that if the deal doesn't go through, the price could sink back down toward $300 or less.

 

I have a large long TSLA position and have spent a lot of time today considering whether I should buy more to take advantage of this situation. I will hold my original stake no matter what, but really don't know whether I should add a short term / arb position also. What does everyone else think?

 

I would wait until the company puts out some sort of... uhh... official "SEC Filing" stating something is happening.  Right now, you have a tweet, with an internal email (which walked back everything in the tweet) and no official statement from the company or BoD.

 

If you don't get a formal filing from the company today that people are signing off on (besides Musk) I think the likelihood of a buyout on any terms similar to those described is very unlikely (heck, I think the fact that the company didn't have a filing yesterday is a tell).

 

My 2 cents.

 

Of course, but when there is something official and not just a tweet and an email, you won't be able to buy it at $380.

 

I actually don't agree.  If you think about the time / complexity to close the largest deal in history.  Not to mention the capital stack needed to fund $20-50B in equity/debt/mezz to get this done, I would guess the deal spread would remain very wide.

 

Layering in management credibility on top of the above, I would say if you have an announced deal, with legal filings, and a financial backer of sorts, you would see the shares at about $380-390 right now.

 

All my opinion.

[thepupil]

What sort of timescale do you guys think it reasonable to expect for the buy-out? Obviously they need to arrange a shareholder vote etc. Is this likely something that will take weeks or several months to complete?

 

There is the question of an arbitrage between the current share price of $380 and the buy-out offer price of $420. Is it wise to buy more stock now in order to take advantage of this, whether I sell in a month for $400, or hold out for the eventual $420... either sound good, but obviously need to be tempered by the risk that if the deal doesn't go through, the price could sink back down toward $300 or less.

 

I have a large long TSLA position and have spent a lot of time today considering whether I should buy more to take advantage of this situation. I will hold my original stake no matter what, but really don't know whether I should add a short term / arb position also. What does everyone else think?

 

I would wait until the company puts out some sort of... uhh... official "SEC Filing" stating something is happening.  Right now, you have a tweet, with an internal email (which walked back everything in the tweet) and no official statement from the company or BoD.

 

If you don't get a formal filing from the company today that people are signing off on (besides Musk) I think the likelihood of a buyout on any terms similar to those described is very unlikely (heck, I think the fact that the company didn't have a filing yesterday is a tell).

 

My 2 cents.

 

Of course, but when there is something official and not just a tweet and an email, you won't be able to buy it at $380.

 

I actually don't agree.  If you think about the time / complexity to close the largest deal in history.  Not to mention the capital stack needed to fund $20-50B in equity/debt/mezz to get this done, I would guess the deal spread would remain very wide.

 

Layering in management credibility on top of the above, I would say if you have an announced deal, with legal filings, and a financial backer of sorts, you would see the shares at about $380-390 right now.

 

All my opinion.

 

100% agree. I've vowed to never touch this thing again after it shaved a couple hundred bps from my net worth a few years back, but have never been more tempted to short than now. If there's a deal, I think the stock would go down. Merger arbs would hate this thing at the current spread (defining spread loosely as this is not a real deal by yet by any means). 11% gross for a truly massive LBO that isn't profitable and is run by Elon. Hell no.

 

EDIT: well it couldn't be an LBO because no one would lend, so the above premise may be wrong, but I nevertheless think that a deal at $420, the stock would possible trade down, or up something like 5% at most, anything that big would most likely be foreign (unless a big US tech co) and trigger CFIUS; even if it was AAPL or GOOG regulators would probably add a little duration to the deal.

[frommi]

Just bought some putspreads Mar2019 200/180 for 1.5$ with a max payoff of 13x, because i think that Elon will go to jail for market manipulation/securities fraud. I can`t really believe that he found someone with 50 billion $ that is stupid enough to do such a deal. Even if the chance is just 10% for that this bet is +EV.

[Cardboard]

I think that RB is correct regarding the "intentions" of making a deal so that Musk probably can get away from it.

 

However, expect a ton of class action lawsuits if the stock ever goes down from around here ($375 currently). Probably an SEC investigation no matter what.

 

Definitely not the smart thing to do when you are burning cash like crazy, trying to ramp up production, etc.

 

Cardboard

[Sharad]

 

CNBC interviewed a former SEC chair, he said if Musk dosen't have proof of secured financing,  his  tweets/statements constitute fraud.

 

CNBC also reported no wall street banks are involved in the deal.

 

The only 2 organizations I could picture paying that much for a firm burning so much cash are the Saudis or Chinese. I doubt a Chinese deal would get approved in the current political climate, and the Saudi Sovereign Fund already announced a small position in the company. Why initiate a small position if they are in negotiations for full buyout?

 

There is the Norwegian sovereign wealth fund. $1T in assets, and a population that loves Tesla automobiles.

[frommi]

I think that RB is correct regarding the "intentions" of making a deal so that Musk probably can get away from it.

 

However, expect a ton of class action lawsuits if the stock ever goes down from around here ($375 currently). Probably an SEC investigation no matter what.

 

Definitely not the smart thing to do when you are burning cash like crazy, trying to ramp up production, etc.

 

Cardboard

 

He has to prove that the financing he mentioned really exists and i don`t think the SEC will accept some mumbo-jumbo about a private fund that exchanges public shares into shares with a fund that has a private holding in TSLA.

Pretty good article on the situation: https://www.bloomberg.com/view/articles/2018-08-08/elon-musk-has-some-fun-with-tesla

 

 

[Guest longinvestor]

So, the end to this love-fest comes down to the greatest fool theory, a sovereign wealth fund! Go for the really deep pocket. Indeed.

[frommi]

There is the Norwegian sovereign wealth fund. $1T in assets, and a population that loves Tesla automobiles.

 

That fund is pretty conservative, i doubt that they will ever put 5% of their assets into a loss making venture.