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What I Learned From My Tesla Short Carnage

Apr. 01, 2021 8:49 PM ETTSLA, WRCDF, WCAGY, PLUG, PLTR, AMZN207 Comments
Mirsad Tulic profile picture
Mirsad Tulic


  • If you ever happen to short growth stocks, be very strict about your stop-loss limit.
  • Many factors came together in 2020 that moved Tesla's stock substantially.
  • I still remain bearish, but advise against initiating a short position in Tesla.

Tesla showroom in Amsterdam with a red Tesla Model S electric car on display inside
Photo by Sjo/iStock Unreleased via Getty Images

As an investor, you are permanently exposed to the danger of losing your invested money. Selling stocks short brings new challenges in the form of potentially losing more than you invested. Even if your short

This article was written by

Mirsad Tulic profile picture
I am a mathematician and statistician by education, working currently on my Ph.D. thesis using methods from statistics, econometrics and time-series analysis. In 2014 I started a full-time job at the Austrian Oil and Gas company, OMV AG where I worked as a risk officer in the gas and oil trading department. In 2019 I switched to the finance department where I contribute to various digitalization and automation initiatives. I have started investing in stocks in 2015 with my own money as well as advising friends and family on investments.

Analyst’s Disclosure: I am/we are short TSLA, NIO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (207)

A good article overall. Points to you for admitting the personal risks of short selling. I've only a small portfolio, rarely shorting directly, instead wagering (usually losing 🤓 ) with SQQQ or a similar inverse ETF.
You calling Financial Times "very reputable newspaper" gives me pause 🧐.
Having something of a wiseass tendancy, I refer to them "People Magazine for the Davos set doing business as ft.com"; doubtlessly I appropriated that epithet from elsewhere. I do check them every few days. I can't comment on their business coverage; perhaps it was better six years ago. But it's clear their political, social and ecoomic coverage is Woke-Liberal-Left. Of course, they're far from the only periodical that has shifted ideologically. I subscribed to The Economist for years but dropped it for that reason. Of couse, that is OK, freedom of speech and all that. It's almost inevitable that such groupthing will color their investment counsel (e.g. Green energy vs. fossil fuels, allegations of slave labor in China, etc.) By no means do I claim that ZeroHedge or Breitbart will do any better 🤣 . The point is take anything you read with a grain, sometimes a whole shaker, of salt.
Mirsad Tulic profile picture
@Bearer of Bad Tidings thanks for your original comment regarding ft and economist. Regarding ft: I cannot judge about their political and social articles lately. but I can tell you that in the case of Wirecard they were the first and only ones to break the story with proper research. a team went over to Asia back then and checked the paper companies Wirecard claimed to make business with etc.
The author got threatened (if I remember correctly, even by some state authorities). they repeated their claim in 2018 when stock was trading at all-time highs. so kudos to that indeed. They have proper journalists and are not copying ideas from others.
your point to take everything with a grain or shakes of salt, totally true indeed. Especially, considering we can never know someone's full motivation and intent for writing some article or some statements.
FlagFootballSaint profile picture
As others pointed out Musks quote was most likely related to his idea to split the stock, not a reference to the valuation

They split the stock and the rest goes down in history books
Excellent personal experience article. There is a place for shorting in the market-lots of irrational criticism here. Guess that is why markets aren’t entirely rational. Well done.
You sound like it is 2031 or 2035 and Tesla didn't even close to mentioned target. One thing we should learn from this writer is "Don't be too confident about anything". There is always something which you don't know. Writer should have complete this article in three words "Don't short stocks". Stocks always goes very high when goes up and vise versa. What about Netflix?. When stock goes below 40(200 before split), Was fanbase wasn't there?
"The silver lining is that I am much richer in life and investing experience, even though nothing I learned, was completely new to me." Lol, another way of saying "I am stubborn as hell and will never learn"?
Apple Dan profile picture
No, it sounds from the tone of his article that he came out the exact opposite of what you said. He acknowledged certain mistakes and seems to be seeking to avoid a repeat.
Actionable Conclusion profile picture
I see it in the middle. He learned half the lesson. I wonder if he will learn the other half. Maybe he did but did not want to admit it?

Anyway, the important thing is to exit shorts quickly if they are moving heavy against you. Especially if you're shorting extremely dynamic companies. And especially if you're shorting fast growing industries. And exit he did :-)
Its funny how everyone hate tesla and write about valuation. I know valuation of Tesla is high, but there are plenty other stocks more overvalued which are even recommended to buy from analysts. I wouldnt buy tesla at these levels, but why I should short it, there are plenty other stocks which are great to invest. Just avoid TSLA and dont uselessly risk...
Fortunate Islands profile picture
@Majky 100% right. Tesla is so much under scrutiny that it's very dangerous yet to play with its stock. There are indeed so many other promising companies and less volatile opportunities. Better keep away from Tesla, neither short nor long.
johnnygibber profile picture
Excellent timing for reading this. Started ETC short on Tesla 23rd Feb. breaking ~ even. I think mr burry is correct on TSLA. here in Germany EV market not in going in Tesla‘s favour. Maybe Berlin giga factory will make me cry in my pils.
@johnnygibber You can post this after seeing the Q1 sales results? Getauscht.
johnnygibber profile picture
@mlhutche yeah fair point. Short term voting machine, Long Term... who knows eh ?
FreedomOfTruth profile picture
If you think Tesla is merely an automotive company then your premise for investing in it (in any manner of investing) is incorrect.
Apple Dan profile picture
Whatever, that is crap and it shows you have never looked at a Tesla 10-K.
When Tesla finally reaches a reasonable price, we will know, like Elon said, that “at least the crater is in the right place.”
I take exception to your statement: "Tesla has done an outstanding job in moving companies into EV production and potentially bringing great environmental benefits to the world." It is government edicts that have moved companies into EV production and not Tesla. Without those government edicts and incentives the other car companies would not be forced into the unproven EV market. As far as great environmental benefits are concerned, time will tell but it is never as awesome as those that are profiting from the changes make it out to be.
@Dubious Brother 2 Certainly subsidies are the biggest push or we'd be decades slower, but no question Tesla accelerated it by several years by: developing compelling vehicles, the Supercharger system, and showing the path to dramatically lower costs and real profitability that can eliminate the need for subsidies in just a few more years even for the late-comers.
If you think a stock like Tesla is too expensive to buy in, then sell short dated otm puts. Enjoy the momo.
Fortunate Islands profile picture
Hello Mirsad,
What a pleasure to read an article from someone recognizing he is not a genius of investment, and not claiming he is the next market wizard, as many SA's articles authors tend to do! With your humble attitude, you look to me as a smart and intelligent person, and I strongly encourage you to continue learning and developing your financial knowledge. I really advocate you read the Alchemy of Finance from George Soros, as it explains irrational exuberance, and also you may study a few articles on behavioural finance.

Most senior investors with a long experience are saying that shorting stocks is much harder as just being long. Also, your gain on a long position is unlimited and can reach as much as 10 folds your purchase price while it is capped by the purchase price on any plain short trade strategy!

I would never short Tesla as their CEO did not hesitate to post a tweet with a strong upside immediate effect, even if the proposal did not come true (see the tweet in August 2018 about taking Tesla private at $420 a share).
Best regards
olsaki profile picture
Excellent article, great advice. Even if there are many points that should be well known to most investors, these are often forgotten after the focus on one's own narrative has become too narrow. Since I am a paper type, I have printed it out and put it in my first drawer in order to remind myself of the truths it contains from time to time.

Life is a journey. What are your accounts worth on the day you die if the rewarding experience of learning was missing on this journey.
r Negoro profile picture
Bro never short cult stock. You see people all over worshipping Elon as the tech prophet, wouldn’t be surprised if it goes up to $3000.
Shorting Tesla is just plain stupid, lots of folks like this one have been on that road and many are still in denial. Don't do it lads. Save your money.
jz10 profile picture
Shorting based on valuation alone is extremely dangerous, since you run massive liquidity risk.

You absolutely have to incorporate technical analysis for successful shorts. Momentum is an extremely powerful factor, because of its balance sheet effect on the investor population.

Think of it this way, as TSLA moves up, the TSLA longs have more and more equity. The most die hard Tesla bulls gain the most, and in a market place where your vote is weighted by how many $s you have, they are gaining vote share over everyone else. Conversely, Tesla bears get killed and their voting weight becomes miniscule.

In the short run you will get run over if you try to fight this dynamic. The important thing is to never try to short at tops, because you have no idea where the top is for a stock that is way overvalued. The time to go short is when momentum turns. At some point even the bulls think the stock is overvalued and start cashing out. The new buyers are dumb momentum chasers. Once enough bulls start cashing out, momentum stalls and the balance sheet effect starts reversing.

You should not increase shorts on the way up, but on the way down.
@jz10 good point bro. Looking at how tesla rebounding from $550,, momentum is still up.
Mirsad Tulic profile picture
@jz10 Thanks, mate for this comment. This is very much appreciated and I hope many will read this comment carefully.
I have learned that as well, but unfortunately, that lesson was learned during my carnage as well, so next time I will know better.
jz10 profile picture
@Mirsad Tulic yeah, I hear you. I too learned this lesson by losing money. It's a very hard learned lesson that is very hard to appreciate until you have actually shorted and lost. It is easy to think that you will be eventually proven right and ignore the balance sheet effect on your staying power and psychology until you have experienced it first hand.
Shorted tesla at 810 based on advanced TA. Bought a Tesla Model S with the profits. Be like me
I like the way you think. But I would instead have bought a well-used BMW 700-series and kept the difference for the upkeep. Same lousy depreciation as an EV, so let someone else pay it.
@Bearer of Bad Tidings Still short, bought both
Z-alpha Trading System profile picture
The mere fact that most people don't want to short TSLA is the exact reason why it's an outstanding candidate for shorting. The stock's price action structure is noticeably institutional, making price exhaustion and minor price reversal setups quite recognizable. The two mistakes investors & traders habitually make with short selling are position size error and the position-time metrics. TSLA has defined volatility by are standards, liquidity, all-important institutional participation, gap characteristics, market profile quant levels, and a host of other advantageous and essential qualities. The machines have puppy love with this stock for its retracements, as would we if we were in the shorting business.

We hope this adds value.
@Z-alpha Trading System

"The stock's price action structure is noticeably institutional"

Could you elaborate on this? What about TSLA's price action structure is noticeably institutional? Why is it better to short a stock with greater institutional participation?
Hmmmm.... Plug Power or Palantir, all the same? Ok, I'm not an expert, so let's see what expert say. Just a quick googling result.
Plug Power
"For the next two years, the company won't be profitable. There is no basis in logic why Plug Power should have a $14.7 billion valuation when net income will be -$63.4 million in 2022. Dec 31, 2020, Yahoo Finance
"Palantir's revenue rose 25% to $743 million for the full year in 2019. But in the first nine months of 2020, its revenue rose 50% year over year to $771 million. During that period, 55% of its revenue came from Gotham, its platform for government agencies. ... Palantir's revenue from Foundry rose 30% year over year" .Dec 2, 2020 Fool.com
It appears, those two companies are not that similar, aren't they?
BTW, Plug Power is largest holding of Vanguard Small-Cap Growth Index Fund ETF Shares.... This is major reason I didn't buy this ETF.
@Booba pltr can grow very well if it can streamline its products.
Joshua Lung profile picture
Of all the bearish articles I read on Tesla, the only reasons given for their bearishness is overvaluation and coming competition.
However, the bulls have very in depth analysis on why Tesla has achieved huge economic and competitive moats against the competition and the multiple new business segments that Tesla is building aggressively.
The bears understanding of Tsla pales in comparison to the bulls.
Buffet advocated never to invest in what you don't understand.
I think value investors keep making that mistake. Trying to value something they don't understand.
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