Motley Fool's John Rosevear, my fave car guy, introduced this piece by Ross Hendricks to me on my Twitter feed:John Rosevear Flag of United States@john__rosevearRead this.$TSLA on fundamentals is worth roughly $20 (bear case) to maybe $70 (bull case). Every $ above that is gamma squeeze and wishful thinking.If you lived through 1999-2002 and still think otherwise, you should know better.Here is the article he references and it is replete with graphs, charts and infographics, and I will qhote from a section subtitled "The Age of Weaponized Gamma" as it pertains to :https://therossreport.substack.com/p/the-most-dangerous-stoc...When a speculator buys a call option to bet on higher stock prices, the market maker who sells the option becomes net short the underlying stock. That means the options dealer will often hedge their short position by purchasing the underlying stock.Importantly, because of the convexity inherent in options, this hedging is a dynamic process. The higher the share price goes, the larger the dealer’s short position becomes. The Greek term used to denote this relationship, between the stock price and option price sensitivity, is known as “gamma”. Without going too deep into the weeds, here’s the bottom line…As the stock price rises, call option gamma increases, forcing the dealer to buy more stock to hedge their growing short position. With enough options activity, you can imagine how this process becomes self-reinforcing. That is, the more call options speculators buy, the more stock the dealer must purchase as a hedge. The dealer’s buying pressure can send the share price higher, which in turn, creates an even greater need to hedge, etc. etc. This self-reinforcing cycle is known as a “gamma squeeze”. Gamestop (GME) provided a textbook gamma squeeze examples earlier this year. It all started with monster call option volumes, as The Wall Street Journal explains…Ross (the writer of this piece) then goes on to explain how the gamma squeeze forced a run up on $GME stock earlier this year. Again, here's the link to "The Most Dangerous Stock Market Ever". Take note $TSLA investors. The next subtitle in this article is "Tesla: the Greatest Gamma Squeeze of All Time?" With everything happening in the EV space you'll want to read this section and put on your thinking caps.
With everything happening in the EV space you'll want to read this section and put on your thinking caps. What makes you think we didn't?The problem with "fundamentals" is that they are backward looking and that works well enough with bonds and with "value" stocks that are essentially steady state. When you have growth stocks you should use DCF if you could figure it out, which you can't because no one knows the future accurately enough.What's a growth investor to do? You have to study how things grow. The sigmoid or "S" curve is universal, it applies to all sorts of things that grow including yeast. But companies do go broke and promising technologies fail. At the front end of the "S" curve there is a period called "The Chasm" and that's the most likely place for innovation to fail. The risk averse growth investor starts buying after the technology has crossed the chasm. In my estimation EVs did that somewhere around the beginning of 2020. I became aware of it in September 2020 after Tesla's Battery Day. That still leaves individual companies failing and plenty of EV startups have failed. This is probably the most difficult hurdle which a few people like Saul have figured out. He is using growth rates. I like to look at business models and executive talent. Lots of MBAs on board a RED FLAG. When I was touting my software to Ashton-Tate they said that they all had Ph.Ds., what was my Ph.D. dissertation about? I was a college dropout so they sent me packing. Ashton-Tate went bankrupt a couple of years later. As far as I know Bill Gates of Microsoft, Frederick W. Smith of FedEx, and Andrew Carnegie also were college dropout or never went to college at all. Spouting so much "GAMMA" is a red flag.BTW, the gamma thing is real and it's one of the reasons why selling covered calls works. I look at it without referring to Greeks. When investors are bullish on a stock they bid up the price of its calls. High premiums are an indication of bullish market sentiment. Selling at or near the market calls likely earns you the premium and a bit of capital gains. Yes, it is a bit of a self fulfilling prophecy. Short term market sentiment is more important than valuation. Long term valuation reigns. The problem with growth stocks is that they often drop sharply, a 50% drop is quite common which is one reason one should not sell covered calls on very fast growers, the other is opportunity loss because the calls get assigned too often. Moderate bullishness is the best for selling covered calls.About the sharp drops, one has to be cognisant of the phenomenon and instead of panic selling, use them as buying opportunities. This is hard! Our fight or flight instincts were not developed to hunt on Wall Street. Losses on the savannah tend to be rather permanent and are harder to hedge! 😇The Captainlong TSLA by a lot
I'm not a TSLA investor and have long been critical of the stock price even before the big runup. My thinking went something like this: Tesla took the risk of proving there is an EV market (beyond compliance vehicles) and enjoyed being essentially the sole player in the EV luxury sedan space. However--I believed--when the legacy companies decide to get serious about it, they will make comparable EVs and Tesla will have to fight for market share in a space they once solely occupied.However, the legacy manufacturers don't seem to be able to do that. At least not yet. In the meantime, Telsa is selling all the cars they can make. Tesla's main competition seems to be coming from other startups, like Rivian and Lucid. Battery prices are dropping like a stone. It is a rookie mistake to assume that trends will continue, but that trend doesn't have to continue very long before EVs are straight up cheaper than ICEs. When that happens the legacy manufacturers are going to have their lunch eaten. Maybe they'll get it together in time. They seem to understand the way things are headed, but they just might be too late.There is another part of this equation too. Solar PV plus storage has exploded, experiencing triple digit growth. I don't know what Tesla's market penetration is, but it has to be huge. It seems like every new project is using Tesla Megapacks. Again, I will not make a prediction how long triple digit growth will continue, but it doesn't have to continue very long before you come up with very large numbers of battery sales. And the storage price is dropping so fast that wind plus storage is starting to become viable with utilities starting to announce significant projects. Wind generates a lot more power than solar, so there is amazing upside there as well.I get it. I remember the dot com bust, where companies with amazing potential didn't live up to their stock price (waves at CSCO). I'm not sure this is that, though.
Ashton-Tate went bankrupt a couple of years later. Ashton-Tate's best products were the tote bags they used to advertise the brand. 35 years later I still have two of those bags having repaired and replaced the straps couple of times. I used to have three but a young lady at a conference liked it so much I gave it her.Had Ashton-Tate sold tote-bags instead of software, they might still be around.https://www.computerhistory.org/collections/catalog/10266746...The Captain
However--I believed--when the legacy companies decide to get serious about it, they will make comparable EVs and Tesla will have to fight for market share in a space they once solely occupied.However, the legacy manufacturers don't seem to be able to do that. At least not yet. In the meantime, Telsa is selling all the cars they can make. Exactly right! The issue is that legacy automakers are run by MBAs while Tesla and the startups are run by entrepreneurs. As I mentioned in my previous post, Tesla adopted LFP batteries in a blink of the eye. MBAs don't know how to do that. Early on Tesla went whole hog on robots but soon replaced 30% of the robots with the giga presses. MBAs don't do that. Ask Steve about Boeing! LOLThe Captain
However--I believed--when the legacy companies decide to get serious about it, they will make comparable EVs and Tesla will have to fight for market share in a space they once solely occupiedIn the Sandy Munro, Elon Musk interview, Elon explained why he moved away from partnering with Mercedes on building the Electric Van. The idea is that you must be able to adjust the organization to adjust the engineering to get the best product. I am not explaining it well, but once I listened to the conversation I realized that Tesla is not just building electric cars. They are building great cars that are electric. Moreover, they will build better cars next year than they are this year. Not just cooler. not just longer range, not just better self drive. Better fit and finish, Better reliability, How much better?I was thinking of buying a used model S. No longer, I will buy a new model 3 or model Y. They car will be built better. After watching the video, I have no confidence that any of the American car companies will survive. Very likely there will be only three major car companies left on the planet by 2040. CheersQazulight
Very likely there will be only three major car companies left on the planet by 2040. I'm guessing that two of them will be Honda and Toyota. They're known for making solid, reliable vehicles.I'm surprised that anyone still buys European vehicles given that they're notorious for being endless money pits. The luxury cars are especially expensive and notorious for frequent 4-digit repairs and limited parts availability. So if you won't buy an American brand because of the reliability issue, then you have NO business owning a European car. Worse yet, Renault has ruined Nissan, a company once known for making solid and reliable vehicles. While Chrysler has always been known for making unreliable vehicles and is particularly notorious for bad transmissions, being owned by Fiat is making things even worse.
I'm guessing that two of them will be Honda and Toyota. They're known for making solid, reliable vehicles. Maybe Tesla and BYD... Cunning old Warren Buffett!The Captainloved all his Toyotas, one Tercel and two Corollas, the last one lasted 25 years, but the ICE age is over as much as the Horse age ended with Henry Ford. Granted, the ICE cars on the road today will last longer than the horses did back then. SMOG is not as messy as horse pee/poo.
I'm guessing that two of them will be Honda and Toyota. They're known for making solid, reliable vehicles. Just in! Japanese automotive brain drain!Toyota, Honda & Nissan engineers poached by Chinese EV companies https://www.youtube.com/watch?v=HEbkt4r0cukThe CaptainThe writing is on the wall, on the Internet, the tsunami is coming and there is no stopping it. Often before the tsunami hits the ocean recedes...How a tsunami wave works Why does the water level drop before the tsunami hits? Because it is like a tide, the tide goes out before it comes in. Traditionally we used to call these features ‘tide waves’ because they behave like a tide. https://noc.ac.uk/news/how-tsunami-wave-works
"Ashton-Tate went bankrupt a couple of years later.Ashton-Tate's best products were the tote bags they used to advertise the brand."All true, but here in my office I have an unopened set of diskettes for installing MultiMate along with the Ashton-Tate manual in case I need help.It sits on the shelf next to the other collectible software - Wordstar, Dos 6.22, Borland C++ etc.I'll be throwing them out (or selling as antiques) soon as we are preparing for a move out of state.
Neuromancer,Please let me know if and when you end up selling your vintage software! I'd like to know what they may be worth today! I have a few sets myself:DOS 1.1dBASE III and dBASE IVLotus 1-2-3Oracle DBMS v1etc.Cheers!'38Packard
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