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Brendan O'Boyle  

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  • Before You Short Tesla Remember This: Tesla Is Selling A Brand, Not A Car [View article]
    You see the point of my title? Tesla isn't really selling cars: it is selling a brand. Tiffany sells an image, not diamonds. Louis Vuitton sells status, not handbags.

    If the power train frequently fails as you suggest then it begs the question, why are consumers paying more for it? From my understanding the waiting list to get a Tesla is still rather long.

    Furthermore, neither of us have any idea what Tesla's margins are at equilibrium. The current pretax margin is ~-7%, so I must confess to being a bit confused when margin compression is expounded as a catalyst for a short-sale. Equilibrium margins will not be known for some time because like AMZN, TSLA is reinvesting to grow the business defying traditional notions of GAAP earnings.

    From my perspective, it is dangerous to observe that a stock does not trade in-line with other companies in the industry and then sell based on no discernible catalyst. One may as well come to the conclusion that a baseball card is overpriced because it is made out of cardboard. Buyers are not pricing it like cardboard because that isn't what they see when they look at a Honus Wagner rookie card. Similarly, buyers of TSLA aren't seeing a car company. They are paying for a disruptive quasi-tech luxury brand. Unless there is a catalyst diminishing the value of the brand selling to them may be a losing bet, in my opinion.
    Jan 13, 2015. 10:33 AM | 23 Likes Like |Link to Comment
  • U.S. Stock Market Complacency On Verge Of Collapse [View article]
    I would imagine that anyone who followed your advice and sold at S&P 1120 last August might disagree with that statement, James.

    I don't mind your staying out of the market, just be careful when you recommend capitulation selling after the market has gone down. Anyone following your advice after the market crash last year would have lost substantial money.

    It's easy to say you are right after a 10% downturn and ignore when you miss a 30% rally. I would enjoy reading your column more if you were honest about your mistakes, no one can predict the market 100% of the time.

    And I should add, saying out of the market is logical if you believe based on evidence the market is not discounting that a major downturn is imminent. However, selling after a downturn has occurred is the best way to lose money in the market. Investors who agree with James should already be out. I happen to believe that growth concerns are overblown, that safe assets are overpriced and that a third year of seasonal weakness will pass, as will Euro fears...

    You do realize that Greece has been in some stage of debt restructuring for 52 of the past 100 years. And Spain for 25 of the past 100 years. None of these years led to a bear market in US equities (unless you count last year).
    Jul 6, 2012. 09:09 PM | 22 Likes Like |Link to Comment
  • Approaching The Fiscal Cliff As A Nash Equilibrium [View article]
    Just to quickly address this. I believe there is zero chance for any substantive change at this juncture which renders arguing over where to cut spending moot.

    One major reason I think the GOP has more to lose here is that they have lost control of the debate. Obama has succeeded in making the debate about: "tax cuts for the rich, or not," where the GOP could have taken control of the debate by making it about: "out of control spending, or not."

    In my view: he who loses the debate loses the game of chicken (esp because Obama just won an election). That party has more to lose from the cliff scenario, because that party will look guilty for going off the cliff. Thus logically, I think the GOP should yield. When you have more to lose in a game of chicken you must back down, it's really that simple.
    Dec 30, 2012. 09:29 AM | 18 Likes Like |Link to Comment
  • U.S. Stock Market Complacency On Verge Of Collapse [View article]
    Did I say you left the market at 1120? I said you advised people still in the market to sell at or around 1120 after the market had crashed.

    For example in October you penned, "Is this a bear market rally?" Then you decided that it was and stated that bear market rallies are to be sold.

    So I am emphasizing that many of your writings could be interpreted as very poor investment advice. I will also note that you should be aware of the opportunity cost of your strategy. You mentioned (among others) that investors should wait to purchase AAPL, MSFT, INTC, PEP, etc. last summer. The return on purchasing those 4 stocks would have been 30% by now. So the opportunity cost of your strategy is now approaching the level of your downside target. Just an observation...
    Jul 7, 2012. 08:58 AM | 16 Likes Like |Link to Comment
  • Does Another Cruel Summer Lie Ahead For Stocks? [View article]
    First an observation on your charts. Yes the S&P has retreated when stimulus stopped, but remember that other factors were in play. 2010 was about Greece and 2011 was set off by the debt ceiling show-down during an economy that was slowing anyway.

    I just wonder if using the fed as a timing mechanism is beginning to lose its usefulness. If everyone sells in anticipation of twist ending the market can only go up once it actually ends.

    Second point is the fed has succeeded in flooring bond yields. This will not change once twist is over. So if you sell, where will you go? I suppose you can hold cash, but we're already 5% into a correction that is probably less than 10%. Or maybe it will be like last summer down 7% before going back to even and then crashing. In which case you will get whipsawed like crazy.

    Personally I think there is only one way to time the market. If you think it's going down big (>30%) then get out sit in cash and bonds and wait. No one has ever consistently beaten the market trying to time corrections. I think this move will be small (<20%) therefore I am staying fully invested. The only reason to get out is if you believe Shilling and ECRI that a recession is imminent. I will note here that the ECRI's own weekly leading index has decisively crossed into positive territory for the first time in a year, the last time it made such a move was Dec 2010 and the S&P rallied another 5% beyond the top of the previous rally. I think 1500 is going to come into play by years end, and even if it doesn't you will see better prices than 1370 to sell, at least back to 1420.
    Apr 15, 2012. 08:18 AM | 16 Likes Like |Link to Comment
  • Before You Short Tesla Remember This: Tesla Is Selling A Brand, Not A Car [View article]
    We can use the expected year-over-year revenue growth rate at ~60% if you prefer. I still don't see how Tesla fits your description as "not really a high-growth company."

    The difference between naivety and dreaming big is often only known in hindsight. Musk has made a hugely risky and thus far successful bet on changing the way we approach transportation. And shareholders are willing to risk their capital to try and make that happen.

    We could call that "head-in-the-sand thinking" but most real innovation only comes with tremendous risk. I for one am happy someone is willing to try.
    Jan 13, 2015. 07:43 PM | 15 Likes Like |Link to Comment
  • Intel Could Be The Next Dow Dog [View article]
    I've seen the same pattern over and over. Revenue warning, EPS estimates come down then by the earning report the number isn't as bad as everyone feared and the stock rallies.

    I bought CMI for 93 and they had a revenue warning sending the stock to 80. Now it's closer to 105, did I panic at 80? No because the market was overreacting. I'm not worried about INTC either. I think it may be dead money until semis turn around, but if you own INTC don't second guess yourself, just keep holding.
    Sep 17, 2012. 07:24 AM | 15 Likes Like |Link to Comment
  • Analyst sees beginning of the end for oil [View news story]
    Yes oil falling below $70 means no one will want to buy it.

    I went out shopping today and saw a 30% off sign. Then I ran the other way...
    Nov 28, 2014. 02:54 PM | 14 Likes Like |Link to Comment
  • My Investment Advice: Do Nothing! [View article]
    I don't agree with this advice. Plenty of desirable stocks that the author describes have made mince-meat out of the S&P 500 over the past 10 years.

    Why is this the case? Because by going after strong companies at attractive prices the author's strategy would have avoided CSCO at 100x earnings and many other highly overpriced tech stocks that were spliced into the S&P 500 index and caused disastrous returns going forward.

    Today things aren't as bad, but there are many stocks on the S&P 500 that look very overpriced. Picking a diversified portfolio of dividend growth companies (preferably low beta) that aren't overpriced is a winning strategy.

    In the short term it is quite difficult to beat the market. In the long term if you follow the author's strategy it's actually fairly easy.

    I would add that to avoid trading too much think about the next buy you will make at the end of the month instead of shuffling money that is already in the market. After watching the market this month I think my buy will be NKE, but I'm not planning to sell anything else to get it. I'll wait until my paycheck comes in next week. MCD is also looking very tasty by the way.

    Doing this also gives you some time to think about the investment before you pull the trigger. It's probably good to mull over an idea at least for a week before you make a buy.
    Jul 15, 2012. 04:13 PM | 14 Likes Like |Link to Comment
  • Gross: 4% interest rates make no sense [View news story]
    I would like to hear a Wall Street analyst state the obvious:

    Short-term rates are never going up because the government is benefiting from them being low.

    Consider this: the Treasury paid ~$220B in interest last year on ~$18T of debt, nearly 1%. Why so low? Because the Treasury keeps everything at the short end of the curve. For rates to reach 4%, the blended average yield on Treasuries would need to reach nearly 5%.

    If that happened the government would pay ~$1.2T in interest instead of $220B. To continue running the SAME deficit the government would then have to cut $1T in spending - or approximately all defense and discretionary spending.

    Short term rates are not going past 2%, PERIOD...
    Oct 4, 2014. 09:06 PM | 13 Likes Like |Link to Comment
  • U.S. Stock Market Complacency On Verge Of Collapse [View article]
    How will earnings season be a major disappointment if 94 out of 500 companies have already priced in below expectation earnings?

    You realize only negative pre-announcements are made and it is likely the other 406 will have earnings in line with expectations.

    The bad news you refer to is already priced in. If you know the future do tell, but otherwise you are stating widely known information. Widely known information is priced in, you can go ahead and ignore it...
    Jul 6, 2012. 09:32 PM | 13 Likes Like |Link to Comment
  • A Few Financial Concerns About Philip Morris International [View article]
    PM can issue 10 year bonds at 3.25% while the stock is yielding nearly 5%.

    Add to that tobacco has litigation risk.

    Add to that the cost of debt lowers tax liabilities so the true cost of ten year debt is more like 2%. Basically bond investors and Uncle Sam are letting PM borrow for the rate of inflation.

    Why they wouldn't sell bonds to buy stock is a better question.
    Dec 12, 2014. 10:36 AM | 12 Likes Like |Link to Comment
  • U.S. Stock Market Complacency On Verge Of Collapse [View article]
    So the market rally had nothing to do with going from decimated to record corporate earnings? Earnings which for all the doom and gloom still hover at record highs?

    Bull markets begin with irrational pessimism and end with irrational exuberance. You can say what you want about the market, but I have yet to see irrational exuberance. High beta stocks massively trail low beta. Treasuries trade at record highs, cyclicals trade low, utilities have higher P/E than tech stocks. If 1420 was a bull market top, it was an extremely sad one...
    Jul 6, 2012. 10:17 PM | 12 Likes Like |Link to Comment
  • The next economic boom, writes Daniel Gross, will be created by the efficiencies unleashed by America's transition from an Ownership Society to a Rentership Society. It's not just housing - citizens are getting used to the flexibility of renting across a whole range of goods. "The U.S. economy needs the dynamism that renting enables as much as - if not more than - it needs the stability that ownership engenders."  [View news story]
    "It is better to be a owner than a renter. The renter is just pissing money...."

    So property taxes, insurance, interest, repairs, real estate agent fees, etc. aren't pissing away money?

    Renting vs. owning is like any other comparison. It is best to do the one that costs less. In most areas that is now owning, but neither is automatically better.

    The apartment I live in would cost ~2300/month to rent, but my mortgage interest plus taxes plus condo fees are ~1500 a month. I have 150k tied up in the place in equity thus I get ~6.5% return on equity and I save money by deducting the property taxes and interest, saving me another $4k a year. Overall ROE is about 8%, better than the money will do in the stock market or invested in bonds. And this is with the assumption the price of my place never goes up, which won't be true forever.

    For me, owning puts me ahead. For you it could be different, but it's rather simple math to figure out which is better. Renting is not pissing away money, putting a roof over your head will always cost something.
    May 5, 2012. 01:07 PM | 12 Likes Like |Link to Comment
  • Before You Short Tesla Remember This: Tesla Is Selling A Brand, Not A Car [View article]
    "This is not really a high-growth company"

    I'm not sure how a company with over 167.4% annualized five-year revenue growth is not a high growth company?

    "Late this year they may get a little growth from the Model X but I believe it will mostly cannibalize sales of the 'S.' "

    I think the strategy here is probably to get older users to upgrade, similar to how Apple releases a new iPhone periodically.

    I agree with you that the valuation is stretched and note I didn't say I was long or recommend buying. However, I do admire that the company is trying to revolutionize the auto industry. I also admire that TSLA shareholders are dreaming big, even if big dreams sometimes turn into poor investments.
    Jan 13, 2015. 05:09 PM | 11 Likes Like |Link to Comment