Blog Archive
Are you exploiting the power of negativity to its fullest?
As if a hundred short sellers screamed in agony* and suddenly fell silent
-"funding secured"
(*actually not, rather they celebrated, knowing the endgame had finally arrived; since knowing the facts rather than a wishful narrative, they understood the action was the last desperate act of a fraudster at the end of his rope)
Topic: why all the negativity?
Discussion: investors are on balance long biased and thus need an opposing view for balance
Conclusion: more pessimism (almost) always leads to a more balanced view
Bonus: a little tip regarding perspective, productivity and happiness (asking past friends for advice)
With a little help from my (previous) friends
You know the 150 people you actually know? They aren't the same as they were 10 years ago. If you're serious in your quest for a fresh perspective on things, write an e-mail and ask for your advice from your old network (I got the idea from the book about networking effectively, that Anna Svahn is writing as we speak).
Tip: start by expressing some appreciation and if possible provide something of value. Givers are more successful than matchers and takers. And appreciative people are happier.
The curious case of the lone genius giga fraudster
Let's forget for a while that Tesla is burning a billion dollars every three months (e.g., cash flow was -1.3 to -1.4bn in Q2), and that it's effectively running out of money by the turn of the year, unless it manages to raise new capital by then. Nota Bene, this isn't controversial; it's a financial fact.
Tesla has over 10 billion dollars in debt. Tesla holds a billion dollars in client deposits. Tesla has a negative net working capital of 3 billion dollars, giver or take. Tesla has 1 billion in convertible debt maturity effectively coming up by the turn of the year. Tesla has at least half a billion of its cash reserves where it can't be accessed. Anyway, let's forget about money running out in just a few months, since that's not really an issue of cash flow turns positive.
Let's forget that even though sales have increased at an impressive rate, so have losses and executive compensation. These are indisputable financial facts. If anything, the numbers are artificially positive due to creative accounting, not least by under reserving for service costs.
Let's also forget about the quality issues with hastily manufactured tent "lemons". Let's also forget about Tesla's failed attempt at disrupting the "stealership" model, consequently leaving clients to deal with maintenance, repair and spare parts themselves.
Let's forget about the super high death rate of Tesla drivers.
Let's also forget about all the weird and lofty claims Elon Musk spouts every opportunity he gets. I'm thinking about new car models, trucks, pick-ups, solar house roofs, solar car roofs, bricks, 1 USD/trip super-mach intercity hyperloops etc., without the necessary factory investments.
Let's also forget about the hundreds of former Tesla fans, witnessing about poor to non-existent service, about cars being paid for but not delivered, about deposits not being returned on demand, about suppliers not getting paid or are asked to pay money back (!)
Before: several years of a monopoly-like situation + subsidies = increasingly unprofitable
Now: serious competition (BMW, Porsche, Volvo, Jaguar, Audi...) + no subsidies => profits?
Build it and the profits will come
At this point let's just think about one single thing, since profits and cash flows are what ultimately decide the fate of a company:
Some of the bullish analysts and bag holders of Tesla stock are counting on Tesla and Musk finally turning profitable now that its subsidies are ending and a tsunami of competition (with subsidies) is entering their market.
Wait, what? Wut? Hqr sez wut?
Yup, that's right, that's what's coming now according to bulls. Elon Musk has never turned a profit in any of his companies. The last fifteen years, Tesla has only increasing losses to show for its efforts to exploit its supposed first mover advantage and massive subsidies. But, now, finally, with a deluge of formidable competitors, with as deep pockets as experience in building and testing cars, Tesla is supposed to somehow reap the benefits of... scale, competitive position, increased margins?
Not only that, just as the available market is about to fall by 90% in the coming years, Tesla's subsidies are going away. Tell me again how that is supposed to finally push margins into positive territory.
.@defcon. hqr sz wut.
— Elon Musk (@elonmusk) August 11, 2018
OK, back to the fraudster
The bigger the lie, the easier to get away with it, and Tesla is about as big as they get, just like Theranos, Enron and Madoff before that. Or Nick Leeson and Jérôme Kerviel.
Many fraudsters start out with good intentions, probably Elon Musk too. However, as reality catches up with dreams, losses and mistakes have to be swept under the rug. "It's just temporarily", they think, "for the greater good in the long term", they reason, and go on to make bigger and bolder bets to cover up their little mishaps.
An idea about luxury roadsters and other premium cars making profits, that finance investments in mass-market car manufacturing that's supposed to make even greater profits, instead turn into ever increasing losses and thus the necessity for side-shows of acquisitions and unrealistic innovations.
At some point the well-intentioned and benevolent disruptor realizes his predicament and steps over the fraud line. The genius has now become a fraudster; and with increasing vitriol and intensity he attacks everyone who expresses the least bit of skepticism, while coming up with ever more fantastic claims about breakthroughs that are on an "order of magnitude" above and beyond anything previously seen. At this point the smart money knows the game is up and starts pointing it out, but it takes years (Enron, CDOs, Allied Capital), sometimes decades (Madoff), for the Ponzi scheme to collapse into the surprised and devastated hands of the bag holders.
This is not about Tesla, but about balance and perspective
Why all the negativity? Because almost everybody else has a positive bias. It takes effort and guts to find and relay negative information to a herd of stampeding bulls. Very few bother, since everybody seems to hold nothing but contempt for short sellers, including SEC officials (who famously like to interrogate whistle-blowers and short sellers rather than investigate the actual perpetrators).
It's simply humans being humans when bullish investors turn a blind eye to all the obvious negative facts, and instead pat each others' backs, repeating their faith based narrative, "obviously corroborated by the stock price (bro)". It's not really their fault. The problem actually lies with bears being too silent, passively allowing gullible bulls to be had for a ride. Humans are gullible by nature; we like a good story and we tend to positivity. We want to believe in stories bout heroes. We want to believe in seeing ourselves becoming rich, in particular if it's by supporting a good cause at the same time. Fraudsters (whether by design or mistake) take advantage if that trait.
That's why bears armed with facts are so important. They perform an almost invaluable service in their quest of fact finding and creating balance in the otherwise one-sided bullish narrative. Humans are lazy and blind to other stories than their own. Nothing wrong with that, it's just our nature. But that's exactly why the bears are needed: to create perspective, to catalyze questioning and to provide facts and arguments that can be directly measured against whatever the bull story is.
It's currently the most important story there is
But why Tesla all the time? You keep ranting about Tesla; why the negativity?
It's because it's the biggest and simultaneously most obvious house of cards out there. It's the most unbalanced narrative there is in public markets right now, in terms of the bull story being the least factful and the bear story being the most tangible. There's almost a hundred billion dollars at stake, not to mention bag holders car owners that have or have not received their cars but stand to lose any kind of warranty, pre-payments or access to spare parts or super-chargers.
Quite often, bear stories are more qualitative than financial in nature, i.e., less numbers based and more speculative regarding troubles ahead. Not too rarely, very high valuations feature in bears' short stories, although most smart bears know that's nowhere near what's needed for a successful short.
Not this time though. This time the bulls are the dreamers, and the bears don't even need to start talking about the valuation, since Tesla's money is actually running out (and with no plan for raising new).
No matter how much bloggers, podcasters and successful investors try to dig out the true foundations of the bull story in Tesla, they come up empty handed. It's all narrative and hope that the lone genius, who so far has accomplished nothing, will soon magically wave his cave dildo, display his magic beans, and create actual profits.
Occam's razor would long ago just have labelled Musk a fraudster rather than a genius, and all his actions would be all that much easier to explain.
A genius wouldn't manufacture lemons and losses. A fraudster could. A genius wouldn't fantasize about products he could never afford to build. A fraudster might as a cover-up. A genius wouldn't put himself at the mercy of markets (no cash, negative flow). A fraudster would claim funding is secured (even if the claim might prove to be securities fraud). Would an environmentalist genius have five large Bel Air mansions and the biggest private jet there is (G650)? He could, but a fraudster fits the bill better. A genius maybe should have produced profits some time in his history. A fraudster wouldn't see why. Finally, a genius wouldn't pump up numbers in collaboration with his brother in an unrelated company and push his board into accepting a takeover at the very peak of that company's business. A fraudster? Hell yeah!
This last bit is admittedly speculative, but the perspective is still important. No matter, the bull-genius narrative has only dreams, hopes and fantasies in its corner; while the bear-fraudster story is based on facts about sales, costs, profits, production numbers, quality reports, traffic statistics and not least a much more likely and coherent overall picture.
Market perspective
By the way, how's this for perspective: imagine a private investor, an amateur with less than a decade under his market belt, doing all his research after his ordinary job hours, without any real insight in the inner workings of either the financial industry or that of the stocks he invest in. Imagine that same person thinking he understands more than, oh I don't know, e.g., Mark Spiegel, David Einhorn, Jim Chanos..., and me.
I know, I know, I know... why would decades of profitably navigating several bull and bear markets, including investing on both the long and short side in hundreds if not thousands of individual companies, no less with the help of a solid financial education, actually having investing as full-time profession, supported by many, many competent co-workers and with access to dozens of the top financial research firms, ever stand a chance against a lone amateur? Or, er, wait a minute...
That's not how herds operate
Maybe, just maybe, the unquestioning bulls need to be shaken out of their confirmation bias bubble and start listening to the fact-finding minority. Sure, we are guilty of CB too, but I'm sure all experienced bears make a true effort of mapping out the bull case in as much detail as humanly possible. The bulls? I'm not so sure, that's not how herds typically behave.
How about you? Are you long or short Tesla, and have you queried the other side for their best arguments and pitched your own against them yet?
Intuition - what it is and how to use it (the curious case of the Tesla buyout)
Topic: Intuition is real, not just a guess or an irrelevant feeling. A hunch is always just the starting point of a formal investigation
Length: Short
Shorting Tesla: My intuition told me to investigate a short position in Tesla, but I've of course made sure to go over my best practices check list for investments before actually going through with the trade
Logic or Feels
How do you make your best decisions? Gut feeling, hunch, intuition, guess, expert pattern recognition, or logical conclusion after carefully weighing pros and cons?
Are you in the Pure Logic or the Gut Feeling camp? Don't worry, you don't have to choose. In the real world, they both complement each other and is some ways are the same thing.
An intuition is the result of the sum total of your experiences as pitched against the current situation. If you're extremely experienced, that intuition might very well be the best possible basis for a decision. If you're not, it might very well be the worst (psychological biases can be a bitch).
Golfers, physicists and investors
Just as a golf player deliberately practices parts of his swing and other aspects of his game, but relinquishes control to his subconscious when actually playing, a decision maker, an investor, e.g., needs extensive practice and experience in the nitty gritty details before developing a reliable expert recognition ability.
It doesn't end there of course. The hunch, the gut feeling, the "blink" is emphatically not always right on the money. Just as often it can be completely off the mark. If your intuition tells you to buy this stock over that one, or go short rather than long, that can only be the beginning. Scientists, e.g., conjecture an idea about how the real world works. That conjecture, thoughtful guess based on extensive experience, then gets falsified or verified through experiment.
a super educated "guess",
based on thousands or millions of data points,
his subconscious had combined
in ways his conscious mind never could
An investor does something similar; his experience and prior knowledge about the economy, interest rates, currency movements, about historical performance for various stocks, news flow, hypes and fads and so on, point him to a few promising ideas. No matter how convincing that first intuition is however, a serious investor then proceeds to try to falsify his investment case.
More often than not, a good and experienced investor will find that his hunch was right, that there is an overwhelming amount of facts in favor of his original idea. It was his expert recognition ability, his intuition that pointed him in the right direction, a super educated "guess" based on thousands or millions of data points his subconscious had combined in ways his conscious mind never could. Please note, that this is not a case of confirmation bias; remember that our thoughtful investor was actively trying to find counterarguments, not the other way round.
Not a guess
Just because you don't have access to the computer making the decision doesn't mean it's not a logical conclusion. Just because your limited conscious mind can only handle variables in the tens or possibly hundreds, doesn't diminish the ability of the brain/mind to effectively deal with inputs numbering in the millions or billions. Long before formal logic, the mind took account of touch data, smell data, visual and auditory data to record the totality of a situation and its consequences.
You might not have known there was a prey or predator around the corner, but you "felt" it. You couldn't actively smell it, hear it, immediately realize the birds or monkeys behaved differently, that you stepped over a suspicious looking mark in the trail a bit back and so on. Your subconscious, however, did; and concluded you are being ambushed by a lioness. Our skilled hunter actually could stop to think about the alarms going off in his head and check certain variables against a check list: trail tracks, bird sounds, monkey business, maybe a faint smell of big cat, landscape form, ambush-friendly large stone or tree etc. and conclude it really is time to turn around.
That wouldn't be a guess anymore, nowhere close to just a guess of whether there is a God or not.
I might guess that Elon Musk doesn't have funding for a buyout of Tesla. I might guess that the stock provides a good shorting opportunity. My several decades long experience with similar situations on the stock market (although this one is as unique as they come) might scream this is as good a sell as there ever is. I would still, however, need to corroborate that guess with tangible information. And I have.
One thing is that Tesla is burning cash, has loads of debt, produces lemons at a higher rate than any other car manufacturer, that Tesla's are four times as likely to kill their drivers as similar cars, that Tesla bought SolarCity at it's very peak before sales collapsed (fake sales it turned out)...; simply that Tesla's business is nowhere near of being sustainable or profitable.
Another is the constant lies, exaggerations and other funny business round Tesla and Elon Musk. Musk keeps saying Tesla will soon turn a profit, will soon produce X amount of cars, will not need to raise capital ever again and so on. In reality, the losses and cash burn only rise, and Tesla has raised capital through issuing debt and equity numerous times after his claims. There is no reason to believe anything he says now either -- in particular given his obsession with "short sellers and their spreading negativity", not to mention Tesla is all but completely out of cash (by December 31, Tesla is officially in breach of some of its loan covenants), and Musk himself desperately needs a higher stock price lest he will be forced to sell shares to cover his private loans.
Who's guessing, longs or shorts
On the long side, the only arguments you ever hear are "Don't bet against Musk. Look at the stock price. Environment. Will soon make enormous profits"; never any explanations as to how those profits will be attained. My "guess" is that the Tesla longs in this case only play by ear, and their first uneducated guess, supported by an enormous amount of confirmation bias and desire for Musk to make magical progress and save the world.
The bears, including me, know we're as usual up against very strong opponents: money printing, wishful thinking, unthinking bulls, cheap leverage, comatose regulators, short squeezes etc. That's why we keep investigating, keep finding information supporting our case, while actively looking for bullish information that could derail the short case.
Yes, no matter how unlikely a sudden buyout, we bears actually give it some thought. Who could do it? Who would do it? How would it be done? What consortium, which banks, which law firms, how would it be communicated, what about the board of directors, how could Musk both make threats of a short burn, buy stocks privately and have information about an imminent buyout without committing securities fraud? We have to entertain the possibility. There is nothing in the short case but money to be made, so there's no use fighting all the forces of the market if the odds are not ever in our favor.
Is a buyout at all possible? Of course. Is it likely? My experience, intuition and check lists all point to a resounding NO, there isn't a 50% probability God exists just because somebody says he might:
Magical funding or mental breakdown
Tesla is a basket case, with inferior products sold at a loss, facing an acute liquidity crisis. You'd have to be incredibly ill-informed to take it over at prices anywhere near today's market price, let alone at a premium. Besides, all the weird things Elon has tweeted the last 6 months, including how he wants to make a buyout of Tesla but hope all investors stay investors (what?!) and go private with him, speak volumes of Musk's mental breakdown (much more likely than a 70bn funding materializing out of nowhere).
No matter how this ends, it seems the end is pretty close. And that end is one for the history books. My bet is that it will be very similar to the end of the Enron saga. What does your intuition tell you, and how does your best practices check list corroborate that view?
In any case, this blog post is not a recommendation to buy or sell financial instruments. Do your research elsewhere and trade carefully.
The first quadrillion dollar company won't be Amazon, Apple or Alphabet
It's not hip to be square
-popular commercial ca. 5000 BC
Do you remember when that round, friction-minimizing thingamajig was all the rage in the tech space? That was fun, albeit a bit slow moving in the beginning.
Of course, many were skeptical at first as always. But once Salpeter Steel invested in Squares With Supermany Corners, more and more Stoneage VCs showed interest. However, it wasn't until the name change to We Have Efficient Enormous Load Relievers the business really took off.
After Peter Steel's success in the WHEELR industry he turned his focus to the struggling start-up Hot As Hell But Still Good For Cooking And Scaring Wolves Away Inc.
"It doesn't quite roll off the tongue all that easily", he thought... not to mention the hassle carving it in stone entailed. He let his mind wander: "Four letter words are always popular. Maybe you should try something on F?", he suggested to the founders Fred, Isla, Rose and Ember.
And on and on it went, until the famous: "Plastics" comment in the 1967 movie "The Graduate". Little did they know plastics would soon be demonized by hippies and greens, while the real action would turn to semiconductors, computers, software, mobile phones and other information technology companies.
Topic: Hot technologies in the past, present and future; companies with names beginning on "A"
Discussion: The Singularity Is Near, but how should you invest on the way there?
Conclusion: One word: "Agents". We could move away from P&P companies that own our data, our portals and more or less force products down our throats; to owning digital autonomous copies of ourselves (the company making those could become the largest in the history of corporations by several orders of magnitude) that finally relieve us of the paradox of choice without relinquishing control to Big Data corporations.
Railways and radios
There was a time when steam engine powered water pumps for coal mining were the only game in tech town. Railways and cars then stole the limelight, not to mention radios (now, that was crazy at a whole new level) and airplanes.
That was, however, just "technology", not information technology. Once Turing set things in motion after deciphering nazi codes with his version of computers, and possibly indirectly contributed to solving equations underlying the first atom bomb, a whole new industry was born with IBM in pole position.
IBM's president Thomas Watson had a vision of the future:
"I think there is a world market for maybe five computers."
Thomas Watson, president of IBM, 1943
A companies
The IT industry has progressed through mainframes and minis to Personal Computers, separating and celebrating hardware vs. software, and a whole stack of layers of operating systems, databases, applications etc. The workload has shifted from central (mainframe) to local (PC) to central (minis) to local (PC, laptops) and central (mobiles vs. cloud) again. The stock market has shifted its focus (a.k.a. 'hype') from semiconductors to computers to operating systems to applications to databases to business intelligence to browsers to search engines to network equipment (from data to voice and back to data again), to phones and minimalistic small applications known as applets or apps, not least social media apps.
Where is it all headed? Let's just take a look at a few randomly selected companies in alphabetical order: Alibaba, Alphabet, Amazon and Apple. The first and most obvious conclusion is that names on 'A' are more successful than other companies. But we've known about that since Salpeter Steel's first service business back in 5000 B.C.: AAA Wheeler Tow and Sons.
Jokes aside, the secret sauce is knowing your customer and having access to his attention and wallet, as well as products to sell. The best companies have tons of intelligence on its customers for crafting the perfect pitch, and an addictive portal to control the flow of products and services:
It's all about the platform and the pitch
During the Mad Men era in the 1960s, a pitch consisted of convincing customers your bland and commoditized product was better than the competition's. Today deep learning algos instead tease your core preferences from your largely unintended data radiation and satisfy your every want and need perfectly.
Alphabet's search engine Google controls your attention and sells it to the highest bidder. Amazon knows about everything you buy, when and in what combinations -- it controls both the platform and the pitch. Apple does the same, albeit in the form of a handy little gadget that enables recording and sharing as well, and that is placed one step before Amazon and Google. In China, WeChat is even more dominant with a billion Chinese users spending 5 hours a day on the platform.
What's next? AR contacts, 3D printers, robotic companions?
The highest valued businesses harvest your data, sell it or reverse engineer your utility function to pitch increasingly addictive products. The actual manufacturers of most products and services have taken a back seat to the "portal" companies.
At the risk of predicting the equivalent of the Internet collapsing under its own weight within a year, or nuclear powered vacuum cleaners, here goes some of my thoughts about the remainder of the 21st century in tech.
Contact lenses and bionic limbs
Analyzing and hooking clients will only grow in importance, but the portals will morph into something quite different. Mobile phones will become increasingly mobile/wearable and gradually fuse with the body, perhaps in the form of contact lenses enabling seamless Augmented Reality and Virtual Reality experiences; perhaps through neuronal interfaces pioneered by the prosthetics industry. Nota Bene that there's already touch feedback bionic limbs available, not to mention rudimentary AR contacts. There are even eye implants that restore some sight to the blind.
Will Apple be able to hold its own when the "phone" hardware becomes so different from today's fragile glass bars? A robotics or biotech company could very well be better equipped to take the lead in that scenario -- or Apple could try to take them over.
The HMI era, the portal of the future
In any case, Human Machine Interface technology will be crucial whatever form it takes. Today's crude Finger And Voice input methods won't last long, except for particular situations that don't require precision.
Intention Readers, Emotion Detection Systems, Autocorrect Deduction Devices (that combine gestures, voice (words + tone), facial expressions, blood flow, heart beat, breathing etc. to guess and anticipate your desires) and so on will replace keyboards and touch screens. All these technologies already exist by the way.
What about existing search and retail platforms? Hard to say, it depends on what the H-M Interface companies decide. They could choose to connect directly to the end products, or they could uphold the status quo and go through Google and Amazon.
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There is a whole different set of solutions to the HMI problem: digital and real world agents, wholly owned by you, that gradually mimic your every trait (don't worry, you'll be able to edit out unwanted evolutionary mismatched psychological biases). Rather than letting Facebook, Cambridge Analytica, Alphabet, Netflix, Amazon, WeChat, Alibaba and others know everything about you and abuse that information, you can elect complete anonymity but let your own proprietary agent know exactly everything and in effect turn into an exact copy of you. Your agent could over time assume more and more responsibility, from booking tables at restaurants to shopping for groceries and clothes.
In the beginning your agent might merely suggest a few alternatives, and as its precision improves you allow it to only show the single best one, then make preliminary bookings and finally just hand you the goods, reservations and tickets: "Your Uber will arrive at 7:48 tomorrow morning. The alarm is set for 7:19. Your face and iris scan are valid as your flight ticket. You'll be staying at your usual hotel"
William Gibson wrote about such agents (eventually becoming self aware) in his epic book Neuromancer from 1984. I see the development of such artificial "helpers" as all but inevitable, leaving us ample time to explore both our inner and outer worlds and experience the human condition to its fullest.
Purely digital agents might be the end station. They would receive input from our every move and interaction with the world. The internet of things guarantee we are always recognized, our activities gauged, categorized and the corresponding data securely transmitted to our digital copies roaming the net hunting down optimally tailored experiences for us. A simple RFID implant could do some of the tracking, but otherwise every single item we face would be the eyes, ears, LIDAR, X-ray vision, Ultrasound etc. of your agent's.
Quadrillion dollar co.
What happens if you own your own data yourself, and your agent doesn't need the "help (prying eyes)" of search engines and entertainment suggestion algos to sift through billions of choices? Amazon gone? Apple gone? Alphabet gone? Would end product companies stage a comeback, based on highest quality and best price/performance rather than highest portal visibility and most nefarious data scraping abuse?
And, will the Agent company become the first quadrillion dollar company?
Runway to sublimation (a popular post Singularity state)
In David Simpson's most recent book, The Dawn Of the Singularity, Simpson envisions more or less every household buying or leasing humanoid robots; androids that are quite similar in function to Gibson's digital agents, albeit in physical form.
Four billion robots at a clip of 1000 USD/month for the basic version and upgrade subscription can turn into serious money over time, in particular valued at 5 times sales. Higher priced versions, upgrades, and using the robots themselves as portals for other goods and services easily increase the numbers by a factor four, and voilà!
I can definitely imagine such robots as both part of the input function for reverse-engineering their owners, and as platforms for showing off your wealth (complementing your car and boat). Once household androids become useful enough, just picture the "Joneses" pitching their robots against each other in terms of best finish, speed, balance, range of functions, intelligence, model and not least price.
"Mom, why is our android so slow and old?"
"I just got back from the Joneses, and they've just bought the HuBot2028 LAL. Maybe it's about time we upgraded ours too"
Summary - what to do?
Biotechnology, artificial biology, active nanotechnology (molecular replicators and molecular-sized computers and robots) in contrast to today's inert nano materials; strong general artificial intelligence (and its current predecessor, deep learning), robotics, quantum computing, bionic limbs, AR/VR and various forms of entertainment etc. are all promising tech areas today.
Add in the potential of immersive computer games, sex robots, designer drugs -- or a combination of all three and it's easy to imagine an interesting near future. The question still remains, however, which companies will emerge as winners in this race. On the one hand, IBM, Alphabet, Amazon, TenCent, Alibaba, Apple and Netflix all have interesting AI software and quantum computing embryos, but on the other, all that research money doesn't stop history from repeating with altogether new start-ups making the crucial inventions.
I would bet some money on each and every one of all the mentioned companies, but I would be even more ready to invest in new, truly innovative robot and AI companies, if I get a chance before they sell out to the FANGs.
Fortunately, you don't have to get rich betting on the right digital agent company. The future will be bright enough just having access to them as a consumer; just as standard shipping containers have made us all rich without any of us ever having owned the company that invented them.
Talking about investments, wouldn't it be cool if our agents could perform financial analysis? They could find out everything, and, if allowed, talk to other agents in as large groups as we grant authority. Thus we would actually know the sales and likely profits, thus enabling optimal investments. Brokers, gone! Portfolio managers, gone!
Interesting you say, but: bah, no robots, no agents, I just want to see what next year's iPhone looks like.
“Riktiga män tar inte back-up”
Så stod det på omslaget till kurslitteraturen i informationsteknologi på Handelshögskolan i Stockholm 1990. Den moderna varianten nästan 30 år senare verkar vara “Vinnare hedgar inte”. Det är i alla fall vad en av Teslas aktieägare sagt nyligen inför årets andra kvartalsrapport.
Det är ett sätt att hantera sina investeringar. Här kommer ett annat.
Istället för att satsa allt på ett enda kort och passivt vänta på att rapportsäsongen överfaller dig och din portfölj, förbered dig genom att bestämma dig för vilka företagsrapporter och rapportdata som ska kunna påverka dig, samt när och hur de ska göra det. Gör iordning ett schema för vad du har för potentiella portföljbeslut samt en lista på vilken information du väntar på och när och inte minst hur du har tänkt använda informationen. Tänk igenom före hur du ska lagra datapunkterna på ett systematiskt och konsekvent sätt så du verkligen kan använda den, istället för att uppfinna hjulet på nytt var tredje månad.
Åttastegsmodellen till en effektivare rapportperiod
För det första, skriv ut bolagens guidning från förra kvartalet så du har det till hands när rapporten och den nya guidningen publiceras. På så sätt kan du snabbt se om något väsentligt har ändrats.
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Resten av artikeln skrevs på externt uppdrag och kan tyvärr inte publiceras eller länkas här
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OK, då. Här får du en åttondel av mina funderingar:
För det femte, lita inte på företagsledarna. Deras jobb är att lura dig -- i alla fall lite lagom. De kommer alltid vända och vrida på formuleringarna så de låter mer positiva än de egentligen är. Läs deras kommentarer som Djävulen läser Bibeln, för det är så de är formulerade. “Bra” betyder inte nödvändigtvis att det är bra för dig. “Bäst någonsin” eller “all time high” kan betyda så lite ökning som bara en ynka procent, vilket är katastrof för ett företag som förväntas växa med 15 procent...
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Förbered dig så slipper du vara Baggy McBagface
Är du för häftig för att förbereda dig? Kör du hellre på känsla? Brukade inte du heller ta säkerhetskopior? Jag har kompisar som förlorade hela sitt arbete dagen innan det skulle lämnas in. De hade hellre sett ut som töntar innan än tvingas göra det efteråt.
Det är enkla men strategiska små grepp som de ovan som gör att du kan ligga steget före istället för att marknaden leker med dig som en påse i vinden.
Har du börjat förbereda dina listor på primärföretag, olika investeringsinstrument, nyckelvariabler, sekundärföretag, datum, guidningsuppföljning, övergripande syn och sammanställning av överraskningar ännu? Eller tänker du åka pendeltåg resten av livet?
Nå Baggy, har du köpt månadsbiljett eller är du redo inför rapportperioden?
Topic: Tesla the company, Tesla the stock, and Elon Musk
Conclusion: More of a debate, but maybe some short term upside risk for a short seller
Inspiration: This great debate on Quoth The Raven's podcast episode 50.
Elon Musk has pulled out all the stops on all fronts. He built a tent, he built a number of more or less crappy cars, but probably thousands that are more or less fine too. He's on twitter all the time calling all kinds of people names I don't care to repeat. Everybody can see Musk is panicking over something. The question is what.
Is he trying to get fired before a Chapter 11 or a SEC investigation? Is he just trying to burn a few shorts before the curtain falls? Is he really trying to save shorters before turning around his auto start-up? Well, if he's really trying to save the world, maybe he wants to save shorters too.
Looking in the rear view mirror, Tesla has burned an insane amount of capital as a trail blazer for electrical vehicles; and it doesn't seem nowhere near turning a profit anytime soon. Looking ahead Tesla might become and industry leader with several billion dollars in annual cash flow as it disrupts the legacy auto industry built around gas stations and combustion engines.
Recently (July 15, 2018), Quoth The Raven arranged an hour-long debate between pro-Tesla Galileo and Tesla skeptic Montana Skeptic. What follows is a truly sloppy transcript written in real time while listening to the debate. I only post it here as a kind of public notebook for the most relevant arguments on either side of the debate. It's a very good natured debate and there's lots to learn for bulls and bears alike.
I'm actually kind of blown away by Galileo's confidence and arguments. It was the first time I've heard a coherent bull side of the Tesla story. On the other hand it's no secret I think Galileo's view of capex, profits and not least the "software moat" have nothing on Montana Skeptic's "competition, loss-making, can't afford capex for future models, M3 is last chance and it's hugely loss making" argumentation.
Right after the transcript, I've added a little bit of short term speculation regarding the share price (Disclosure: I'm short Tesla. Disclaimer: nothing here is a recommendation; do your research elsewhere, I take no responsibility for any losses you may incur. More disclaimers.)
Loosely composed transcript
Feel free to point out mistakes, or why not improve on the document right here in this shared document: TESLA QTR DEBATE "TRANSCRIPT". Create sentences out of words, paragraphs and narrative out of sentences, add charts, perhaps add own arguments (clearly marked as such) etc.
Tesla debate on QTR
Pro - Galileo
First and foremost the CEO, I’m betting on the jockey not the horse
Smartest leader in the world, incredible leader
Track record of zip2, paypal
Disruptor
Both incredible engineer and business person
Running Tesla as a start-up, CTO, technical founder and business person
Massive opportunity for electrical transport system AND autonomous vehicles
Tesla is in start-up mode
Building for millions of cars not a few 100k
Reaching 20bn in revenue faster than Amazon did; Tesla is one of fastest growing companies ever, 50% per year compounded growth
Clear strategy: High end cars => cheaper and cheaper cars => 10x number of cars in future
Leading battery technology
Big utility projects like in Australia
Autopilot big story for future
Apple-like perfectionism, focus on customer
Several 100bn mcap auto maker in future
Con - Montana Sceptic
Competition coming now, has been in monopoly for lux EV last 6 years
Lavish subsidies, still lost lot of money
Real losses, not due to capex, the capex comes from cap raises. Tesla has no money to reinvest.
Lost 700m Q1, probably 700m more in Q2
iPace has arrived, superior reviews. Next Audi, Mercedes, Porsche, Volvo
Model S sales already falling off. Their high margin car being cannibalized by M3.
Competition will gut margins further
Has lost aspirational image in Europe. Next year in US
M3 supposed to be money maker, but after one year with M3 Tesla has lost more than ever. Maybe break even on 60k priced M3, but addressable market for 60k sedan is limited. Running out of demand. 35k doesn’t exist, Tesla will die if tries. No tax credit in future and many pre-ordered because of that
Supercharger network still superior but coming CCS system in Europe is better.
Valuation: GM P/E 6, ford 7. If Tesla warrants 15x, needs 3.5bn profit to defend current market cap.
“Betting on Elon Musk”… Irrational person, calling rescue diver pedo. Not an engineer at all. Not a leader (look at exodus of managers)
EV revolution can’t survive without subsidies due to expensive batteries. Just a niche product without subsidies. Will be better in future but not yet.
Australia project at best break even. Overwhelming nothing. Not profitable.
Pro
Competition: could have said about Chevy Volt, but Tesla still much higher sales. Will only believe competition is relevant when it actually is outselling Tesla.
Ironic that EV revolution not coming if at the same time says competition coming now
Tesla had super backlog even before existed - like Apple iPhone
GM, Ford are tied to combustion engine. That’s why low PE
TOPIC: is Tesla’s capex sufficient for 3, Y, semi, roadster 2, solar roof tiles and all else?
Pro
Believe 2018 capex not addressing anything but M3
Investing capex in one project, then moving to next
Can’t expand >100% per year. Irresponsible to try for mfg.
Will have to raise capital to fund Y, Semi, Roadster, solar roof to build out factories and robots. Will see profitability for M3 in 2018 but need and will raise cap for future
Compare Netflix: Tesla should say that “wont be profitable, we are building for the future coming 5 years.”
15bn incremental capex coming 5 year. Vs 50-60bn market cap not too bad 3-4% dilution/year to fund capex. I want them to do capex, growing future earnings power
Con
Model Y, said should start in 2019, said in Fremont, said that had capacity, but Strauble (?) said “no, we are jammed to the gills, need new factory”.
Probably takes 3-5 years to build a factory. No 8K filed for China MOU so just a big nothing.
No room for semi in Fremont
Thus: No new products coming for several years
Takes lot of capital and time to develop new products; and exist no plans yet
Supercharger upgrades? Thought that was the moat. No, moats are “lame” said Musk.
Where will Tesla get money to expand or upgrade SC net?
Tesla is slashing its capex; not only underinvested for future, also for present
Only applied for permit for tent, fire damage, and bare bones maintenance, and robotic feather duster system. So, no real capex for mfg expansion being done
Goldman says needs 10.5bn minimum over 2.5 years, which is 5x what ever done before.
Invested billions in capital and have record losses. How convince Wall Street that future capex will create profits?
Pro
Need capital but spending too little capex. Cherry picking stats. Catch 22, spending too little and too much at the same time.
Adding more revenue and production capacity than any other car maker. Data shows Tesla knows how to expand capacity.
Cash flow is positive on every product after 2 years.
TOPIC 2: Market share, EV sales, how doing in US
Con
+90% EV sales in US 2018/2017. So what, losing money on them. Of course can get market share. Not eo for a new car co. to take share; especially when doing it at a loss. In particular before subsidies expire and competitor products come online.
If Tesla were expanding share and making money would be impressive, but now losing money faster than growing revenue. Tesla is now cherry picking highest margin M3 models in Q3, Q4. Finding clients paying for highest priced models M3 while cannibalizing S,X.
The more they sell the more they lose. Not a promising business model
Pro
Making it so easy for me. The other automakers are screwed because Tesla has leading battery cost. If Tesla is losing money the others lose more. Selling dollar at 85c vs the others at 50c? Think the others lose much more than Tesla. Tesla reports positive margins.
M3 best selling car in US, S and X nr 2 and 3. Tesla keeps expanding market share right when others like Chevy Volt should have taken share. Bulls keep saying the next competitor will kill Tesla, but Tesla keeps pulling ahead.
Takes time to build a profitable large car maker. When Tesla reaches scale they will be profitable and Tesla is using social media engagement, millions of followers, no spending on marketing. The others are dinosaurs that totally missed the EV trend.
“So what?”: EVs were a joke, a niche, but all autos are now investing billions after seeing Tesla being successful. 20bn orders, lining up like for an iPhone… THAT’s not a “so what”, that’s disruption
Con
Yes, fans lined up for a 35-7.5k car
Zero evidence for leading battery cost
Gross margin, profit: is higher than other cos because they have to have a dealership model. Teslas costs show up in sales and service centers instead. Need net profits.
The other cos have profitable combustion engines, and can afford subsidizing EVs; Tesla can’t
TOPIC 3: EMs behavior on social media, good or bad?
Pro
Not good calling somebody names. Not good people reporting on tweets rather than on business. Pathetic by Musk to be affected by tweets
Tesla is leveraging social media in strategic way. Direct megaphone, marketing machine, => millions or billions in free press
Presence on Twitter is incredibly valuable if used in right way
Coordinating Oz project, OTA brake update etc. over Twitter
Culture and brand that nobody else has
Only car maker that has figured out how to use social media for marketing. Doesn’t spend a single dollar on marketing.
Elon should stay on Twitter, stay involved, but grow up and not call somebody a pedophile
Con
As marriage counselors say: What you love will drive you crazy eventually. The Musk cult is discovering how boldness, iconoclasticness, promiscuous tweeting has a backside: reckless, narcissistic.
Not smart to lash out at short sellers as if responsible for poor manufacturing, or lash out at journalists personally, accusing/suing Martin Tripp for sabotage, and Lopez for bribery, accusing diver for being a pedophile. Not just absurd: sick and despicable. Should cause outcry and calls for Musk stepping down. No other CEO would last 24h after such an accusation. Puts board in a bind. Defamation suit? Why did Musk have to be the centre of attention? Deep seated insecurity. Narcissistic. Needs to be the great saver av all of us. That trait is incurable. reated cult of personality, investors embraced it. Both are stuck with it. This is just an. Charming, lovely exciting can turn into perception of Ugly, problematic damaging
Pro
Conference call was smart, giving a voice to retail investors
Accusing short sellers put focus on them so they don’t make synch attacks
FINAL
Con
Lives from cap raise to cap raise. But for a cap raise always on brink of BK
Neg curr assets several Bn dollars; need more capital this year
Other automakers have portfolio of profitable products = advantage
Interior of M3 “tired”, “never was that remarkable”, losing aspirational status
If Tesla can’t eke out a profit in Q3, Q4 they will never be. In coming years, will have nothing else to sell.
Very hard to pencil out a profitability that warrants more than 20-30 dollars/share
Pro
Incredible once in a century disruption of transportation: Electrification + Autonomy
Tesla had this vision before anybody else
Legacy for others is huge achilles heel: dealers, not own stores, combustion engines…
Misses entire story since misses how fast
Software: sold computer game at 12yo, SW is fundamentally different skill than combustion engine and analog devices. OTA upgrade, touch screen control. Tesla teardown says circuitboard is like an F35 fighter jet. Tesla has software in its DNA, also good at hiring s/w engineers. The others can’t attract s/w engineers. Battery management software, e.g., that Tesla has perfected with several 100k cars on the road will take five years for other cars to learn. This is the major differentiator.
Multi 100bn dollar company. Oz project showed proof of concept at unprecedented scale.
Software is at core, massive moat. Everything ties back to SW vs dinosaurs trying to pivot to a model Tesla invented
Con
“Computers with wheels…” -- too bad Tesla can’t build wheels that don’t fall out
Crazy to think the other car manufacturers don’t have competent sw engineers, Over The Air updating capabilities ready or planned.
Speculation
As I said above, Musk is clearly coming off the hinges, and a cornered animal can do all kinds of crazy things. I'm guessing Musk could windowdress the company in a single quarter, showing a profit, positive cash flow, high sales numbers or high reported gross margins. I can't see how any of that would be sustainable; but short term I can definitely see how it could push the share substantially higher short term.
(I can also imagine the market not falling for that trick again, but so far Tesla's share price has had a tendency to rise on any little hint at potentially positive news)
Looking forward a year, I'm confident the Tesla growth story is over. Tesla doesn't have a credible path to profitability, and any cash it manages to raise for capex would go to covering losses and maybe, just maybe to projects 3, 4, 5 years into the future. By then Tesla will have lost any lead it once had in roadsters, trucks, chargers, batteries and luxury EVs.
To summarize, I think Q2 is a lost cause. Tesla's burst effort must have cost more than in Q1, and the cars it has sold are still loss making per unit despite under reserving for warranties. On the other hand, Tesla's reports are never about earnings. In Q2 Musk can talk about record sales, record production rates, reaching the 5k/week production goal (although they really didn't), maybe even record gross margins (since they are made up and irrelevant anyway). He can also make promises about profitability and positive cash flow in Q3 and Q4 and claim Tesla doesn't need to raise capital anytime soon. He can say they've reached new highs for a one day production rate. He can more or less say anything, and probably will, in a last ditch effort to push the stock price upward.
Technically, I think the stock looks weak. I also think the real results for Q2 will show vulnerability and low cash levels. I'm sticking to my shorts over earnings, but I can definitely understand if you don't. What if Musk is extremely upbeat and both promises and reaches profitability in Q3 (based on selling high-spec Model 3s at a positive margin to Tesla's most hard-core fans)? Then the Tesla bull story could really grow some legs for several months.
Yes, I readily admit I'm a bit wary of what Elon Musk and his fans can accomplish short term. On the other hand, the allure of being short when this thing blows is just to great to risk missing. The doomsday clock is five to midnight, Tesla is out of money, out of products, out of a "cool" leader and out of time. All it has is a crazy cult following that might turn on the company in short order on missteps like PAC contributions or absurd and sick accusations directed at analysts, cave divers and journalists.
P.S. Follow Quoth The Raven and check out his weekly rants on his 2-drinks minimum Friday evening podcast