StealthP3D
Well-Known Member
I've never seen an investment in my 30+ years of investing that didn't have legitimate concerns. And I would know because my investing style is based on avoiding losses. I cannot invest more than a smallish percentage of my portfolio in a company unless it's about as close to a "sure thing" as it gets. And I've done very well by scooping up the big wins and having very few losses. When Tesla announced they were going public in 2012 I did the deep dive. I liked what I saw. I wanted a substantial TSLA position badly. But it didn't meet my investment criteria - far too risky. I was crushed when it continued up out of reach, especially in 2013 (I believe) but I didn't stop watching it for another 7 years. I still wanted it; I just didn't want to overpay. I kept reading the financials, not every quarter but often enough to know it still didn't meet my investment criteria. So I just kept watching.
In May of 2018 we took delivery of our first Tesla, a RWD Model 3. I had almost bought a Model S many times before but the only version I wanted would have been over $100K and I don't like to spend that much on a car even though I could have afforded a fleet of them. Anyway, I was even more impressed with the quality and performance of the RWD LR Model 3 (only release version available) that I wanted TSLA shares even worse. By this time I was following the company very closely, knew they made a great product, but the financials were still prohibiting me from taking a real position. I did buy a few hundred shares as a "token" position, just for fun but quickly sold it after the "take private" Tweet and all the surrounding madness for a small profit. I'm not a trader, things just looked like they were falling apart and I've never hesitated to dump a stock when I didn't like what I saw. I did buy a Performance Model 3 in September, but I was not a shareholder. This car was built during the EOQ rush and it was high quality and without fault as well.
I think it was the Q4 2018 financials that had me ready to start buying TSLA in earnest because I was able to see how profitable the company would become with increasing volumes and they were finally building decent volumes of Model 3's. And TSLA was in the $200 range so I started buying. And the price continued to deteriorate. Then Q1 financials came out and they were widely panned. But I thought they looked solid, so I bought more a couple more times. These were no longer token positions, I was building a large position based on my belief that Tesla was going to continue ramping volumes and the price to produce was going to continue falling. I felt it was very low long-term risk at this point because the ball was already in motion. And it was a big, heavy ball that was almost unstoppable. Tesla was going to be successfull!
People were saying demand was going to run out, but I thought the product was so groundbreaking I was confident that could not happen. My last purchases (so far) were at $220/share and I knew I wanted a lot more TSLA but I didn't know when it would stop falling. I waited through weeks of relentless FUD but it didn't faze me because I knew it for what it was (losers trying to change reality). I watched Tesla and TSLA every day, ready to swoop in should it look like the price was going to start rising or to sell if my thesis was starting to crumble. But my thesis was being strengthened by what I was seeing even as the price kept falling. Finally it bounced off $180/share, I didn't know if that was the bottom or not, but it was so cheap I decided not to continue dollar cost averaging and bought enough to double my already sizeable position in one fell swoop. And the FUD continued as strong as ever and stock was no longer falling, it was rising. I added to my position a couple more times before the rockets were lit and the share price went parabolic.
I warned people right here to not sell too early because this rocket was going higher than anyone thought. Indeed, it went higher, much higher, than even I thought. I didn't like how high it went but my investment style requires that I don't close out my position of a winner unless one of two things happens:
1) My investment thesis falls apart or,
2) The price goes so high I cannot see a reasonable path to justify it within 6-7 years.
I did take some profits but only because I live on capital gains and I need to replenish my living funds every few years so I don't have to sell stock at inopportune times.
But back to Tesla. In the first half of 2019 there was much noise, company cash reserves were low, but cash flow was positive and the company was on the verge of becoming profitable. This was a big deal. Further, Tesla had built enough cred that they could raise money relatively easily and quickly, should the need arise. I knew the future of the company was not in selling luxury cars that even relatively affluent persons such as us didn't want to pay for, future profits would come from high volume sales of mass-market cars. So, it didn't bother me that Elon was focusing on the Model 3 production at the expense of everything else.
My point here is that I learned a long time ago that if an investor waits until there are absolutely no legitimate concerns and everything looks cool to most investors, then you have to pay a lot more for your shares. And that's coming from an investor that avoids risk. Things will not look A-OK to most investors before TSLA starts trading in a higher range. And probably not the ranges above that either. An investor makes money when risks that are not real, or are very unlikely to be real, don't prevent action (while risks that are real need to be properly accounted for). I don't like taking risks but the risk that the share price might go lower is not the kind of risk I'm talking about here, it's not a real risk, unless you break the investment rules of thumb.
The rules that are pertinent in this context are, 1) no margin, 2) that you won't need the investment capital for at least two years, and 3) that you have to be ok with at least a tiny chance that you could lose most or all of it. This last one is the risk I try to keep as small as possible by investing in companies that are as close as you can get to being a sure thing as possible (won't fail and go bankrupt or languish for years). The first two rules ensure I won't have to sell if it continues lower in the near-term, and the last rule is simply a risk you have to manage to keep it as tiny and insignificant as possible. The last rule implies you have to liquidate your position at a loss if the landscape changes so much that your original investment thesis is no longer valid at current prices. That is not a concern I see with Tesla in the foreseeable future with the price as low as it is.
Never let a low share price scare you when the fundamentals are this strong. A low share price is a net positive if you have investable capital and, if you don't have any dry powder left, it's only a negative if you need to sell. It does seem like TSLA has a natural resistance to go lower at these levels, at least if the macro environment doesn't continue to deteriorate, but it wouldn't surprise me to see one more attempt to push it down briefly to clean up on one more layer of margin/stop losses, etc. Just know that, by now, there are well capitalized interests that are starting to think TSLA looks interesting so any moves down from here will probably need to be either very brief or else accompanied by significant bad news that is significant to Tesla's longer-term trajectory.
I can also see the possibility of things firming up from here based on nothing more than it often takes several days for new information (like the recent P&D report) to sink in. There are large piles of investment capital sitting around and TSLA is very investable at these levels. This money is not controlled by traders who turn on a dime, it's controlled in a very methodical manner, slow even, so it often takes a few days for momentum to build after significant news, it's more likely after favorable financials than a simple P&D report but it can happen at any time. I remember in 2019, before TSLA went parabolic near the end of the year, financials would show favorable trends overall, but the media would instantly drop poop on them and make them sound like they disappointed. Traders would dump and then it would take several days for slow, methodical money to start flooding in, sometimes with surprisingly strong and longer lasting impacts to the share price.
I don't really try to predict these things; I'm just discussing them to highlight that real strength in the share price can be a little mysterious and often comes when it's least expected and it can flow contrary to whatever the popular talking points of the day are. That's why it's so important to not get lost in the weeds dissecting details that don't matter. Smart money flows in when the big picture looks like it is turning the corner. It has nothing to do with what you see all the talking heads on TV or Twitter talking about as they endlessly repeat how distracted Elon is from the mission, how his Tweets are destroying demand, etc. This really is about longer-term growth and profits in the end and most everything else is noise, like the magician's handkerchief that draws your eyes to the left when the real action is on the right. Resist the temptation to let your attention be drawn off into the weeds.
Never forget the most important rule: Never determine the value of your investments by the share price because that works against your ability to buy low and sell high which is fundamentally why anyone invests. Whether you are buying or selling, it's critical that your valuation remain completely independent of the actual market price. The market price is only useful in determining how much you are risking. the lower it is relative to your independent valuation, the less you are risking. Which is why with an investment as good as TSLA, I am more comfortable with a low price than a high price.
