Daniel Weidelich

Long/short equity, contrarian, value, special situations
Daniel Weidelich
Long/short equity, contrarian, value, special situations
Contributor since: 2012
Of course Glenn, well deserved. I really enjoy reading your commentary.
That is true, I did have an allotment for a "black swan" type situation, but it complicated the article too much for SA -- so I opted just to say "weighted-average downside scenario", assuming readers have parameters for portfolio diversification (I'm recognizing now, I should have emphasized that more). If I wrote this over, I'd call it an "expected" floor. Even if not 100% bullet proof, it's very substantial on average (with a small variance imo), and so it justifies a pretty fat portfolio position.
I didn't mention this -- but something tells me Tesla is "too 'green' to fail"... If the private capital markets won't support an emergency capital raise - the American government will. Not to mention guys like Larry Page: "I would rather give my billions to Elon Musk than to charity"
@robiniv "why was it again you're bullish about this overpriced stock that's been on a down trend for over 6 months now?"
Downtrend is your friend :) Price and value are not the same thing... Reread this article, my bio, former articles -- all of which share a similar theme if you actually wanna grok me, as well as the topic at hand.
Doesn't really matter -- in fact, I'm glad to get it out prior. Expectations have already been lowered (hence the decline in stock price). Tesla hate is here now. Doubtful it remains much longer.
If you'll note, 'Deciding When To Short Tesla' was my only non-bullish article published on a day of extraordinary exuberance (the first of its double peak last year, ~$265). As you can see in the disclosure, I was taking my money off the table at that time :)
Do you think I regret that line? What was your probability weighting of sub-50 dollar oil 13 months ago?
Another one of those guys with entrenched personal-identity and expertise in the old auto industry. Was not surprised to see that he's not letting go of historical precedent -- a major pitfall of the whole market over the last several years.
I think you're right here. Lots of hate. Lots of optionality. Really great risk/reward. Thanks.
Thanks for your insight Brian! I like TripAdvisor's leverage at the right end of the value chain.
dancing diva, you completely misunderstand my use of the word 'fickle'. The fact that you bring up "metrics" (I assume you mean price to earnings/sales/book multiples)...invalidates your rejection of the KORS/COH comparison -- because I address that in an emphatic way. To reiterate:
KORS looked extremely expensive next to COH last year. It's about sustainability of intangible brand cache -- later represented in margins, followed by sales, and then profitability for these types of brands that take over the mind-share of the global consumer for a time.... Until the taste makers get sick of the old trend, they started, enough to start a new one....
I don't read articles written about Tesla anymore -- the comments/criticism by Randy, Glenn, and aron is the most honest, succinct, often entertaining, and insightful information about this obscenely important company, on the world wide web.
DW
Great insight as always, Randy. Thanks.
Nigel,
Isn't it a tad embarrassing to consistently rehash the same arguments at every new Tesla price point? You still don't recognize that the word "fundamental" does incorporate intangible value... and that it is actually a necessity to quantify intangibles -- no matter how imprecise methods to do so must be... (investors are in the business of predicting the future after all...)
Check back to the debate we had on my open letter to Prof. Damodaran from December: http://seekingalpha.co...
If you still think I'm wrong, you should be getting more and more comfortable re: shorting Tesla. When will you open your position?
Dan
Tales, I agree it's highly questionable. I don't take it as fair value -- I take it as a reasonable mark of over-valuation. Where short-selling a revolutionary company becomes worthwhile.
Glenn, so glad you're back!
Dampflok,
Sorry this is very late. How would you incorporate enormous diversity of possible outcome into a stock price? (especially for a potentially paradigm shifting technology). Very interested to know your thoughts.
Daniel
Your mind is too narrow. Good luck to you. And make sure you short Tesla if you believe everything you've said.
" "I see qualitative factors as far more than just colour and commentary (they're integral for arriving at accurate future numbers)" - This type of statement drives me crazy. You're saying a qualitative factor is critical to determining a quantitative value. I then ask to outline your steps of quantifying the qualitative and you reply by stating that it's a form of "art." "
...It drives you crazy, because Tesla's future is naturally less precise and quantifiable than many other businesses. But this does not at all make it reasonable to value the company from a narrow point of view... Hence the creative valuation method... and the extreme diversity of scenarios. Why were quants so wrong a year ago? (even $67 forces a huge concession of error)
Not sure why you build a strawman/red herring by describing the market 8 years before I did. Clearly, the electric market will not have any sort of maturity in 7 years.
If you don't follow my assumptions about long-run market cap, and long-run profitability... then I recommend you spend some time on that.
Market cap incorporates market share AND profitability -- allowing us to take a broader perspective -- to see things as they really are. It's a bit of a cheat, but the assumption is not faulty, especially when we have already admitted a lack of precision. (if you can't admit this, you're just lying to yourself)
I incorporate both -- but I see qualitative factors as far more than just colour and commentary (they're integral for arriving at accurate future numbers). I believe there is significantly more alpha hidden in the qualitatives...especially for disruptive businesses and industries being disrupted. So I've chosen my slant with far more reason than you give credit. Markets are too efficient where there is clarity of numbers.
So one last challenge, if you think all of my assumptions are bogus in the charts of this article -- I'd love to hear what you think is more realistic for each scenario. Come back to me with your expected % size of the electric market and expectation of Tesla's profits as a % of that market in 2028 (or later if you like). You may also want to consider the buyout floor argument I emphasized in my 3rd Tesla article. Change the dilution numbers if you need to also.
If you get $67, I'll be shocked, but at least we'll have seen eye to eye.
I'm not a quant that's for sure. I'll gladly take a new title if analysts aren't allowed to use qualitative analysis... or creativity in a creative world.
Beating the market is an art :)
I did. And I stand by it. I also bought BlackBerry shares and calls 2 weeks ago. If you think you can just ignore 2028... I don't know what more to say. Not sure you grasp the breadth of the word 'fundamental'. Also, please show me where Tesla's brand value is highlighted on its balance sheet.
To be frank with you...anything that is "testable, verifiable and proven" is entirely priced in. Spend some time on the efficient market hypothesis debate. The only reason EMH doesn't hold is because competitive landscapes evolve so rapidly that straight numbers can't come close to keeping up with them. Qualitative perception, cultural insight, knowledge of "irrational" human behavior, etc... are as important to investing well as economics and finance are... and I'm not just referring to understanding the way people act in financial markets... but ALL markets.
The reason half of Tesla's share float was sold short one year ago at $30, was because a herd of conventional thinking investors decided it was OK to ignore the qualitative story...assigning virtually no value to it.
Tesla is a special beast. I'd personally try and raise the $8 Billion to buy it at $67...never mind what the major automakers would do...
Nigel,
You speak of asymmetry, but you don't reference the asymmetry I've pointed out in this article -- that I emphasize more strongly in a followup article written a week later:
http://bit.ly/JPNOyp
You also failed to notice and address the major flaw in Aswath's valuation that I based this article on.
I would love to hear you speak about quantifying intangibles -- which is something that takes keen perception as much or more than it takes mathematics.
Thanks. If you agree with my premise though, neither of those words need be spoken -- they simply aren't true if there is a sizable buyout floor. Until buy side analysts look down, and incorporate a buyout assumption into their models, we will continue to have a special situation here with Tesla :)
More simply stated: there is more status to be gained from driving a Tesla, than any other vehicle on the planet. Disagree?
...Whether real or perceived (my intention was not to make a claim either way), that -- imagery -- represents the trajectory of the subconscious thought of society... just ask around. Opinions are vastly different now, than they were even just one year ago.
themodfather360, be fair, you didn't give his reason -- he said it's because they aren't "competitive" enough.....
I was speaking to the power of the Tesla brand to, in society's subconscious thought, dominate over the brands of the past -- since their purposes (whether in reality, or perception) have so much less depth and meaning than Tesla offers.
Other EVs aren't completely excluded - but the following statement, I included in the piece, does have profound implications:
"No automaker that chooses to concurrently produce internal combustion engine vehicles, can ever be authenticated as having a 'mission' that is as purposeful and meaningful as Tesla's is."
Larry,
Tesla (or perhaps Musk) makes the kool-aid. Hope you took the time to watch the Sinek TED Talk. It's valuable insight for all areas of life.
Buttplug, execution will certainly be important for capturing upside, but the main thrust of the article was that investment risk is not nearly as great as we'd tend to think (or the market currently thinks) - looking at the chart. What are your thoughts on where a buyout floor might sit?
Ryan, thanks, but it's ok; Reel Ken isn't interested in accurately interpreting intended meaning.
That's a market moving argument right there Buttplug. It's shocking to me that 'experienced investors' do not recognize the necessity of looking forward when making investment decisions... this is where probabilities come into play. It's not speculation when you use multiple potential scenarios and assign odds conservatively -- creating a margin of safety for your assumptions. There is no hard data for the future and the present is already priced in!
Earnings security is as important for stocks with low multiples (BBRY, DELL, HP, now MSFT, COH, F, AAPL, etc.) as earnings growth is for stocks with very high, or non-existent multiples (KORS, AAPL, WEN, now TSLA, LNKD, SIRI, etc.). The precarious nature of the growth and security of any company's earnings -- within a highly competitive and evolving business landscape -- is what makes this game so much fun. Precise numbers are actually a very small part of investing well -- in my experience : )
Just reign in your emotions, and be as honest as you can with yourself. And be curious, critical thinking, truth seeking...(and diversified -- but not overly).
"I calculated a 10x expected return on investment -- ascribing just a 10% probability of a historic short squeeze occurring. The actual outcome of the strategy continued would have been somewhere between 20x and 80x total investment, depending on my timing of the last batch of calls (and given that put buying on the way up, would have quenched my desire to sell)"
I'm sorry but this is objectively and exceptionally impressive -- and backed up with my previous article and broker statements.
Furthermore, the reason it happened is because waayy too many people (notably professionals) were bearish (short) on the stock at the time.
And I feel the need to gloat a little, because I'm a pool serviceman and honest critic of the wealth management industry -- with little respect within it.
I do think you underestimate the globalization of 'thought' - with the present day social web.
But nevertheless, for the customers who matter at the moment -- it's simply the best, most prestigious car you can buy. I'm writing a third article on this now.