Long-term TSLA Investment Strategy

[InTheShadows]

Right. On one hand we are supposed to be diversified. On the other hand we are supposed to invest in companies we understand well. Since I don't have time to understand and closely follow more than one or two stocks, the decision reduces to concentrating in 1-2 companies or punting and getting index funds. I am having more fun actively trading one stock

Our stocks are well diversified between solars (I work in the industry so I spend all day in it.) and tesla. Have a small holding in companies who's products I love and believe in but I don't follow them that closely.

However our stock holdings are no where near the majority of our net worth. They are actually the minority. I think a lot
Of this conversation started because someone stated they had 99% of their net worth in tsla.

 

[Johan]

People saying 99% or 100% "net worth" should think about what that means. It doesn't mean 99% of disposable income or 99% of what you allocate for investment. No it means if TSLA goes to $0 (and you were dumb enough to hold it still) you are broke, with no home to live in and not a single dollar to your name. Now is there some that deeply invested?? If so I would like to congratulate them on their mega-balls and the results thus far.

 

[Raffy.Roma]

People saying 99% or 100% "net worth" should think about what that means. It doesn't mean 99% of disposable income or 99% of what you allocate for investment. No it means if TSLA goes to $0 (and you were dumb enough to hold it still) you are broke, with no home to live in and not a single dollar to your name. Now is there some that deeply invested?? If so I would like to congratulate them on their mega-balls and the results thus far.

IMO Tesla will never go to 0. It would mean a complete failure of all the Tesla projects. I remember that also Elon said in an interview that such a thing couldn't happen.

 

[Johan]

IMO Tesla will never go to 0. It would mean a complete failure of all the Tesla projects. I remember that also Elon said in an interview that such a thing couldn't happen.

IMO it won't either. It would mean a complete failure of all the Tesla projects. However let's just imagine you could say something for the sake of discussion without believing it real life.

 

[Raffy.Roma]

IMO it won't either. It would mean a complete failure of all the Tesla projects. However let's just imagine you could say something for the sake of discussion without believing it real life.

Sorry I am not an expert of the matter that you are discussing and I cannot add anything more. I only wanted to point out that the complete failure of all the Tesla projects is not possible IMO.

 

[DaveT]

If so I would like to congratulate them on their mega-balls and the results thus far.

I think they should have their own classification, the TSLA Megaballers.

 

[blakegallagher]

People saying 99% or 100% "net worth" should think about what that means. It doesn't mean 99% of disposable income or 99% of what you allocate for investment. No it means if TSLA goes to $0 (and you were dumb enough to hold it still) you are broke, with no home to live in and not a single dollar to your name. Now is there some that deeply invested?? If so I would like to congratulate them on their mega-balls and the results thus far.

And I would like to thank you for your congratulations. To be fair when I started this crazy ride my net worth was 4k.

I think they should have their own classification, the TSLA Megaballers.

I like this lol

 

[Johan]

And I would like to thank you for your congratulations. To be fair when I started this crazy ride my net worth was 4k.



I like this lol

Well done sir! Well done! Are you still all in?

 

[mershaw2001]

People saying 99% or 100% "net worth" should think about what that means. It doesn't mean 99% of disposable income or 99% of what you allocate for investment. No it means if TSLA goes to $0 (and you were dumb enough to hold it still) you are broke, with no home to live in and not a single dollar to your name. Now is there some that deeply invested?? If so I would like to congratulate them on their mega-balls and the results thus far.

I think there's more people than you might anticipate who are invested like this. I have more tesla than my net worth because I use all of my margin ability at all times. I have been invested this way since before tesla popped, and I intend to stay that way. If TSLA goes to zero I'd owe large amounts of money. On the huge downturn from 194 to 122 and then again from 265 to 180, I've lost tremendously large percentages of my portfolio (~60% each time), and been margin called and sold out. I end up switching out to options then and getting more options for when it rebounds. Maybe one day I won't be so lucky and the rebound won't come.

 

[AlMc]

I think there's more people than you might anticipate who are invested like this. I have more tesla than my net worth because I use all of my margin ability at all times. I have been invested this way since before tesla popped, and I intend to stay that way. If TSLA goes to zero I'd owe large amounts of money. On the huge downturn from 194 to 122 and then again from 265 to 180, I've lost tremendously large percentages of my portfolio (~60% each time), and been margin called and sold out. I end up switching out to options then and getting more options for when it rebounds. Maybe one day I won't be so lucky and the rebound won't come.

You, my friend, are a 'megaballer'!!

 

[Cattledog]

I think they should have their own classification, the TSLA Megaballers.

Would make for an interesting Halloween costume.

 

[blakegallagher]

Well done sir! Well done! Are you still all in?

I am good sir. I recently cleared my margin as I due when we reach highs and at times I if I feel we are in overbought territory I will sell more to buy calls on the downturn. I am currently very much all in

 

[DaveT]

Would make for an interesting Halloween costume.

Now I deeply regret what I posted.

 

[kalikgod]

I am a little late to the TSLA vs boring indexes conversation. I have been following Tesla since before TSLA, through the botched Roadster rollout and the CEO that most have forgotten (Ze'ev Drori).

I bought meaningless amounts of TSLA starting in early 2011 after the IPO surge faded. I'll call that .5% of my investments. It was basically buy some stock instead of an iPad because the WhiteStar is gonna be awesome.

My next phase was right after Model S production started. I live in Texas, so no early viewing or test drives of Model S. I was on a work trip to the Bay Area and used my only day off to test drive Model S (October 2012). At this point there was still a very real prospect of Tesla running out of cash before getting the production ramp completed. I was also on the verge of transitioning from cushy corporate life to independent consultant and needed to keep cash reserves. After the funding round that fall (force majeure money) , I knew that was enough money to get them over the hump. I dropped 5% of my investment money in some stock. If the work transition wasn't coming, it would have been more like 40 - 50%. (I have been kicking myself ever since)

My last purchase came directly inside my ROTH for another 5%. This was after a downgrade (BoA I think) which sent the stock from ~150 to ~110 when nothing materially had changed in Tesla.

I was on a hair trigger to buy some LEAPs during the "media fire" last winter, but didn't get in before the price got on the high side of the growth curve. (DaveT explains this curve better than I do)

I am afraid I am sitting on the sidelines for awhile now.

------

BTW, the rest of my portfolio is the total diversified indexed low cost, etc., etc. That is basically because I cannot afford the time to track the markets enough to be active. I follow TSLA because I believe in it, the rest just tracks the market.

 

[InTheShadows]

IMO it won't either. It would mean a complete failure of all the Tesla projects. However let's just imagine you could say something for the sake of discussion without believing it real life.

Options go to $0 every week though.

 

[Robert.Boston]

BTW, the rest of my portfolio is the total diversified indexed low cost, etc., etc. That is basically because I cannot afford the time to track the markets enough to be active. I follow TSLA because I believe in it, the rest just tracks the market.

That describes me, too. I own only five companies' stocks, amounting to about one-half of our portfolio (aside from a considerable real estate position in properties we live in). These are companies I know very well and feel comfortable with, or control, the future outcomes. I've had poor success investing in stocks in which I haven't invested significant time understanding the business model, and given my time constraints, I've sharply limited the number of these firms I invest in.

 

[anticitizen13.7]

Right. On one hand we are supposed to be diversified. On the other hand we are supposed to invest in companies we understand well. Since I don't have time to understand and closely follow more than one or two stocks, the decision reduces to concentrating in 1-2 companies or punting and getting index funds. I am having more fun actively trading one stock

This actually articulates some of the reasoning behind my 2-bucket strategy quite well.

I punt with index funds in my 401(k). That's safer money (safer as opposed to safe because nothing is risk free) that grows slowly for me over time. I can retire adequately on that + Social Security even with a modest growth rate after inflation. It's enough that I probably wouldn't ever be a financial burden to the family.

IRAs and taxable accounts are the fun bucket where I focus most of my attention. This is the money that would allow me to retire early etc. if I hit it big.

 

[uselesslogin]

OK, someone tell me if this strategy makes sense or not. What if I sell my stock and buy options at a strike price with a total delta equivalent to the delta I had on my stock. So lets say I have 300 shares I bought before May 2013 and I buy 4 LEAPs with a delta of .75. If I were to do that today that strike price would be 165. Now as soon as the 2017 LEAPs come out lets say I roll those options out one year and up to a higher strike price, whatever still gives me that .75 delta. I still get the same upside appreciation if the stock continues to grow rapidly over the next 10 years but I can tell myself that even if the options expire worthless I am still ahead of the game.

Right now the 165 strike for a 2016 LEAP trades with a $10 time value. That will obviously go away so I feel like I am paying 6% for a margin loan in a way. That might eat into the total return in the long run but to me it seems like a good compromise against my psychology. I will know that even if TSLA goes bankrupt I will still be ahead of the game. At the same time I will still have close to the same upside benefit if TSLA goes to $1,000+ over the next several years. Heck, I don't even have to think about when to sell. I can be very mechanical about it if I force myself to not roll forward until/if I can get a delta of .75. If the LEAPs expire worthless before that is possible then I still have the cash left over each time I roll forward to the higher strike.

Does anyone know if there are any other downsides I am missing here? The other thing I think I like about it vs other strategies for holding onto gains is that I don't have to worry about a margin call or a stop loss being triggered just because the stock is down temporarily.

 

[Johann Koeber]

...

This theory is premised, of course, on efficient pricing. I've always been skeptical of this premise, and my three years as a Tesla investor have completely convinced me that the market is often very inefficient in pricing.

And this is why focussed TSLA investors get rich.

As Kyosaki would say: they are not deworsified

 

[adiggs]

In classic investment theory, each investment opportunity can be plotted by its expected return and risk. Every portfolio can also be plotted, recognizing that some investment's risks are negatively correlated with other's. One can calculate an "Efficient Portfolio Frontier" of those portfolios that have the highest return for each level of risk.

It is possible but highly unusual for a single stock to be on the Efficient Portfolio Frontier, and even more unusual for its level of risk to precisely line up with your preferred risk/return tradeoff. Hence, for nearly all investors nearly all the time, modern portfolio theory says you should hold a portfolio of investments.

This theory is premised, of course, on efficient pricing. I've always been skeptical of this premise, and my three years as a Tesla investor have completely convinced me that the market is often very inefficient in pricing.

Speaking of Modern Portfolio Theory, I commend this paper published at SSRN:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1840734

My key takeaway from the paper is that at the core of MPT is a flawed assumption about the nature of risk. Specifically, in order to make risk into a known quantity, the original theoreticians (and more importantly, the people that followed them), used volatility or variance as a proxy for risk, under the premise that the bigger the swings in the pricing, the bigger the risk in the underlying instrument.

In fact, I've become increasingly of the belief that although volatility can be a reasonable stand-in / proxy for risk in some situations, there are other situations where it is a very poor stand-in (e.g. TSLA).