Tesla Motors: Long Now, Short Later [View article]
Glenn - if I understand your model correctly, you outline several scenarios at various valuations and probabilities, and use those valuations and probabilities to calculate a risk/reward ratio. I believe this is a valid model. I think you should reconsider the importance of the underlying assumptions of probabilities and valuations that you are plugging in to those models. I would argue that the end result is largely dependent upon those initial assumptions.
Also, have you considered that there may be possibilities you have not outlined? For example, have you considered a possibility where Tesla dominates the automobile market, but still suffers a huge collapse in stock price prior to this eventual outcome? In such a case, Tesla might end up at a very high share price in, say, 2020, but a very low one in, say, 2016? Are there not other examples like this case that may not be accounted for in the scenarios you have outlined?
The reason I take an approach based on logical argument is that the structure of the argument can be changed over time. The conclusion is based on several premises; if a premise does not hold, the conclusion must be revised. Thus it is a process of constantly testing and refining the investment thesis - you test by investing according to the theory. If it is working, then the theory is provisionally valid; if it stops working, then something in the thesis is wrong, and the trade must be altered.
If, for example, no risks mentioned in the article materialize, then I would never switch to a short position - I would not have reason to do so. If new components of the boom emerge, I would be compelled to strengthen my argument for a bull run in the stock, if new risks emerge, this strengthens my argument for an eventual bust.
Perhaps the difference between our approaches is this: the scenario based approach is concerned with determining the eventual outcome for the company, whereas my approach is more concerned with how it gets there, how this process happens. To me, being able to go long, short, and, perhaps, long again is the essence of "seeking alpha" in the market.
Tesla Motors: Long Now, Short Later [View article]
I apologize for the error - you are right that the company has already announced its profitability.
Excellent counter argument. However, I believe the current customer base is not indicative of the customer base that Tesla is attempting to cater to.
The early adopters of a new technology typically have a lot of disposable income. Right now, the customers that are buying Tesla's are those that can spend $70K without breaking a sweat, but eventually, the goal is to attract customers who are shopping in a lower price range. The financing option was introduced to attract customers who are wealthy enough to lease but not to purchase.
I believe it is the combination of this financing option with the step down of the credits that could eventually spell trouble for the company. After the credits begin to step down, the lower-end customers may be dissuaded by the change of the financing option from a zero-down loan to a loan with a down payment.
Also, while it is certainly disputable that the step-down of the credits would lead to a turning point, I believe it is indisputable that the presence of the credits will contribute to the boom phase.
Tesla Motors: Long Now, Short Later [View article]
True, it is a step-down of the credits, not an end to the credits. The fueleconomy.gov website linked in the article more fully explains the step-down procedure. You may be correct that the company will be established enough at that point to survive - but to make any judgments about that, we will have to see how cash flows shape up.
Tesla Motors: Long Now, Short Later [View article]
True, significant global-warming-associated events could add to the less-tangible reasons for the boom. To make any conclusions about how the Model X changes the thesis, we would need additional information, namely whether the company is still dependent on financing cash flow for growth at that point, or whether it can grow its operating cash flow enough to cover capital expenditures, etc.
Tesla Motors: Long Now, Short Later [View article]
I thought I had covered these points, but perhaps I was not clear. I mentioned the Motor Trend award and the attractiveness of EVs in the "less tangible" section. I also believe that it will continue to outsell gas-powered rivals in the same price bracket as long as it continues to be placed in a lower price bracket, because of the credits. Whether this continues in the absence of the credits remains to be seen, but it is a risk that investors should bear in mind.
Investing In Undervalued Banks: BNCCorp And Bank Of Birmingham [View instapost]
Thank you for the reply. You have pointed out a significant error in my analysis.
In fact, 87% of BBBI's loan portfolio is made up of commercial loans, related to the commercial development you discussed. I generally regard commercial loans as a higher risk category than mortgage loans. In the current environment, coming off of a huge bust in commercial lending, these assets may be safer than they have been in the past, but still, this warrants consideration.
The population growth and suburban migration will not directly help the commercial district of Birmingham unless those new citizens are willing to spend. The health of Birmingham's commercial district is difficult for me to assess from Texas, so I am left with a less bullish stance on BBBI.
As for the de-listing, I am generally in favor of the move. It saves the bank money and keeps it off the radar while it is padding its books.
The Twilight Zone Is Over For 3D Systems Corporation (DDD) [View instapost]
I was a little too eager to call an end to the twilight phase with this post. However, at the risk of sounding like the boy who cried wolf, I do think it has ended now. Here is an update on the trade: http://bit.ly/14WWU18
3D Systems Corporation: Implications Of Stock Price Reflexivity [View article]
Ha, true, there are striking similarities. However I believe Elliot intended his theory as a more universal descriptor of stock behavior, whereas reflexive boom-bust cycles are rare in stock markets. In addition, Soros makes it clear that there is nothing determinate about the course of events in a cycle - not all booms are followed by busts. Soros places emphasis on the uncertainty of events and the fallibility of the market participant interpreting them. The model itself just provides a framework for understanding events as they unfold.
3D Systems Corporation: Implications Of Stock Price Reflexivity [View article]
The positive bias has a way of increasing the growth rate - the higher the stock price is, the faster it can acquire businesses. Thus the process can go on for a long time. I believe we are still in the self-reinforcing phase of growth, though a correction will eventually come.
3D Systems Corporation: Implications Of Stock Price Reflexivity [View article]
If I understand you correctly, you are saying that DDD can grow its customer base large enough through this reflexive process that later sales of plastic ink will be able to fill in the free cash flow gap currently being filled by stock sales. This is possible - the Print Materials segment carries a much higher profit margin than printer sales (68.3% vs 45.2%), and it is growing, albeit at a much slower pace than printer sales. Print Materials revenues are worth keeping a watch on. However earnings on the whole would have to increase another 250% to completely remove the reflexive relationship.
Apple: Where Is The Inflection Point? [View article]
Sorry to bring up an old article, but I think this has relevance in light of the pullbacks we saw from September to November. jbfiacco had a very intelligent comment - have share prices risen faster than earnings? And the answer is no, they have not. As Soros describes in Alchemy of Finance, reflexive stocks usually are dependent on cash flow from stock sales or debt issuance for growth to finance a large negative cash flow figure. In Apple's case, the company has a positive free cash flow, an order of magnitude larger than stock sales. However, I do believe there is a reflexive connection between perception and fundamentals at play here. The "cool factor" of Apple's products is a big part of its financial success. And I believe this cool factor is being eroded with the emergence of new products that also qualify as "cool". My question is this: do you still hold to the thesis? Do you believe that the pullback from September from November was the beginning of a larger fall in the stock?
3D Systems Corporation: The Boom Isn't Over [View article]
Also, perhaps read chapter 2 of Alchemy of Finance, "Reflexivity in the Stock Market".
I apologize if I did not fully explain the process - I did not want to restate much of the previous article.
Tesla Motors: Long Now, Short Later [View article]
Also, have you considered that there may be possibilities you have not outlined? For example, have you considered a possibility where Tesla dominates the automobile market, but still suffers a huge collapse in stock price prior to this eventual outcome? In such a case, Tesla might end up at a very high share price in, say, 2020, but a very low one in, say, 2016? Are there not other examples like this case that may not be accounted for in the scenarios you have outlined?
The reason I take an approach based on logical argument is that the structure of the argument can be changed over time. The conclusion is based on several premises; if a premise does not hold, the conclusion must be revised. Thus it is a process of constantly testing and refining the investment thesis - you test by investing according to the theory. If it is working, then the theory is provisionally valid; if it stops working, then something in the thesis is wrong, and the trade must be altered.
If, for example, no risks mentioned in the article materialize, then I would never switch to a short position - I would not have reason to do so. If new components of the boom emerge, I would be compelled to strengthen my argument for a bull run in the stock, if new risks emerge, this strengthens my argument for an eventual bust.
Perhaps the difference between our approaches is this: the scenario based approach is concerned with determining the eventual outcome for the company, whereas my approach is more concerned with how it gets there, how this process happens. To me, being able to go long, short, and, perhaps, long again is the essence of "seeking alpha" in the market.
Tesla Motors: Long Now, Short Later [View article]
Tesla Motors: Long Now, Short Later [View article]
Excellent counter argument. However, I believe the current customer base is not indicative of the customer base that Tesla is attempting to cater to.
The early adopters of a new technology typically have a lot of disposable income. Right now, the customers that are buying Tesla's are those that can spend $70K without breaking a sweat, but eventually, the goal is to attract customers who are shopping in a lower price range. The financing option was introduced to attract customers who are wealthy enough to lease but not to purchase.
I believe it is the combination of this financing option with the step down of the credits that could eventually spell trouble for the company. After the credits begin to step down, the lower-end customers may be dissuaded by the change of the financing option from a zero-down loan to a loan with a down payment.
Also, while it is certainly disputable that the step-down of the credits would lead to a turning point, I believe it is indisputable that the presence of the credits will contribute to the boom phase.
Tesla Motors: Long Now, Short Later [View article]
Tesla Motors: Long Now, Short Later [View article]
Tesla Motors: Long Now, Short Later [View article]
Tesla Motors: Long Now, Short Later [View article]
Tesla Motors: Long Now, Short Later [View article]
Investing In Undervalued Banks: BNCCorp And Bank Of Birmingham [View instapost]
In fact, 87% of BBBI's loan portfolio is made up of commercial loans, related to the commercial development you discussed. I generally regard commercial loans as a higher risk category than mortgage loans. In the current environment, coming off of a huge bust in commercial lending, these assets may be safer than they have been in the past, but still, this warrants consideration.
The population growth and suburban migration will not directly help the commercial district of Birmingham unless those new citizens are willing to spend. The health of Birmingham's commercial district is difficult for me to assess from Texas, so I am left with a less bullish stance on BBBI.
As for the de-listing, I am generally in favor of the move. It saves the bank money and keeps it off the radar while it is padding its books.
The Twilight Zone Is Over For 3D Systems Corporation (DDD) [View instapost]
3D Systems Corporation: Implications Of Stock Price Reflexivity [View article]
3D Systems Corporation: Implications Of Stock Price Reflexivity [View article]
3D Systems Corporation: Implications Of Stock Price Reflexivity [View article]
This is possible - the Print Materials segment carries a much higher profit margin than printer sales (68.3% vs 45.2%), and it is growing, albeit at a much slower pace than printer sales. Print Materials revenues are worth keeping a watch on. However earnings on the whole would have to increase another 250% to completely remove the reflexive relationship.
Apple: Where Is The Inflection Point? [View article]
jbfiacco had a very intelligent comment - have share prices risen faster than earnings? And the answer is no, they have not.
As Soros describes in Alchemy of Finance, reflexive stocks usually are dependent on cash flow from stock sales or debt issuance for growth to finance a large negative cash flow figure. In Apple's case, the company has a positive free cash flow, an order of magnitude larger than stock sales.
However, I do believe there is a reflexive connection between perception and fundamentals at play here. The "cool factor" of Apple's products is a big part of its financial success. And I believe this cool factor is being eroded with the emergence of new products that also qualify as "cool".
My question is this: do you still hold to the thesis? Do you believe that the pullback from September from November was the beginning of a larger fall in the stock?