Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[Artful Dodger]

In a couple years, I could see Tesla getting to be like Apple where they may not sell the most of any manufacturer, but they make more money than the rest of them combined.

Unlike Apple (who uses FoxConn for manufacturing), Tesla actually owns, builds, improves, and interates its production facilities.

Telsa's initial relationship with Panasonic was an exception to this practise, but now we are seeing technogly transfer from Tesla to Panasonic in the battery space, and Tesla themselves becoming a large battery cell manufacturer.

The difference between Apple and Tesla could not be more stark, and was perhaps best telegraphed in this comment made by Elon Musk during the 2016 AGM:

"We realized that the true problem, the true difficulty, and where the greatest potential is – is building the machine that makes the machine. In other words, it’s building the factory. I’m really thinking of the factory like a product.”​

Tesla would not have bought Grohmann Engineering, Maxwell Technologies, Perbix, or Compass Automation unless they intend to become a major manufacturer.

Tesla quietly acquired automated manufacturing firm to design factories - Electrek

Cheers!

 

[UnknownSoldier]

I do think there will be a macro market correction - probably later this year. This correction will suck TSLA lower too. I am hoping in the $500 - $600 range and and I will be ready then. What I like about this market is that TSLA has proven that a $1200 price is possible, so that when market goes up again after that correction no one will be surprised.
If I am wrong and TSLA shoots up to $2000+ later this year I will be happy too. I am just not buying more at this level for the time being.

The issue is that literally everyone will also know this and will be looking to "buy the dip" on TSLA. This will make it very hard for TSLA to dip significantly even in a total market apocalypse. I mean Elon literally tweeted "haha stock price is too high" and it dipped 5% the next day and that gap was immediately filled. At this point even Elon can't tank his own stock. You know what I did the day Elon tweeted that and the stock fell? I bought a couple of calls. That worked out great.

 

[Artful Dodger]

Maybe I need a break.

Lol, me too! Imma gonna go enjoy a beautiful warm sunny afternoon bike ride...

I think for now I'm satisfied with the contribution from @mongo that index weight rebalancing is done quarterly by the Committee, so no instantaneous need for Index Funds to constantly rebalance when they already own shares.

That will however make those Quarterly Financials reports even more 'buy the news' events for TSLA

Cheers!

 

[Tslynk67]

Why is everyone so focused on retirement? The best time of the life is before you get old!

Erm, yes, that's why we want to retire young!

Anyway, it's not true what you say. Youngsters (me included) are so full of *sugar*, anxieties, biases, preferences, and the like, that they let a lot of the good life slip past. I'm way happier in my 50's than at any time my life.

Not giving a f*ck about a lot of inconsequential stuff helps too...

 

[Tslynk67]

View attachment 560404

English is not my native language so could you help me interpret why Elon chose to use the verb "would" rather than "will"? To express uncertainty, i.e. that the said features are aspirational [but not necessarily achievable]? Previously he has spoken about FSD with pretty certain terms.

it's a nice idea, but still some way off, I think. Even if Tesla nailed the technology, the legislation would need to catch up.

So in the meantime, lets get the manned Tesla ride-hailing up-and-running, with the favourable lease deals for drivers. What are we waiting for?

 

[HG Wells]

it's a nice idea, but still some way off, I think. Even if Tesla nailed the technology, the legislation would need to catch up.

So in the meantime, lets get the manned Tesla ride-hailing up-and-running, with the favourable lease deals for drivers. What are we waiting for?

We are waiting for production, to reach demand.

 

[Tslynk67]

We are waiting for production, to reach demand.

Yeah, maybe, so enable it for owners then, some will take it - they can be the beta-testers.

 

[hobbes]

Great new drone video of GF4 Berlin by Tobias Lindh, including overlays to show what parts of the factory will be where (starting at 2:06):

 

[wipster]

Ok, I'm gonna play dummy here and ask a question (that I think I know the answers to) of some of the more knowledgeable folks here and that's just why inclusion into the S&P500 index is beneficial to TSLA and us shareholders?

 

[MABMAB]

That's why I retired at age 37! I was a proponent of FIRE (Financial Independence, Retire Early) before it was even an acronym! And I lived like a college student until I retired. Ironically, I had more fun fishing in Alaska in the summers and working at ski areas in the winter and picking up occasional seasonal work at oil refinery turn-arounds, small home-building jobs, supporting forest fire fighters in the field, landscaping, etc. than I would have had if I entered a serious career. None of my jobs came home with me. I showed up, kicked some ass (and had fun doing it) and was done. I could dream about how to invest my money so I wouldn't have to work for other people (or start 7 new businesses until I learned enough to find one that worked). I really didn't want my own business because I didn't want to bring my work home with me. Ironically, I "work" at home now (investing) but I don't have to deal with anyone on the phone or in person, I never have to please anyone or act a certain way (which is good because I'm a terrible actor) and I can check out anytime I like without worry.

Sorry for the diversion, but to answer your question, the best way to enjoy youth is to live cheaply, don't buy *sugar*, stay healthy and do awesome stuff that either costs very little or that you get paid to do (while simultaneously investing the extra for the long-term). Kids can really mess with that equation so I didn't have any. Negative population growth too!

Great stuff! PM sent.
Your story should be told!

 

[UnknownSoldier]

Ok, I'm gonna play dummy here and ask a question (that I think I know the answers to) of some of the more knowledgeable folks here and that's just why inclusion into the S&P500 index is beneficial to TSLA and us shareholders?

Index funds operate by holding shares of the same companies in the index they emulate in the same proportion.

In recent decades, index funds have become a massive proportion of the total amount of investment in the market. The index funds which emulate the S&P 500 are by far the largest of these funds by market weight.

Right now, index funds indexed to the S&P 500 hold zero shares of TSLA.

If TSLA is added to the S&P 500, these funds must purchase shares of TSLA in the same proportion as TSLA will be in the S&P 500 index in order to remain properly indexed.

It's a pretty interesting example of how the mechanics of the stock market are entirely arbitrary yet surprisingly fixed in terms of things that happen leading to other things that must happen.

 

[PeterJA]

for every doubling of TSLA's Mkt Cap, Funds will need to double the number of shares they hold. This is the virtuous cycle...

I too was thinking this yesterday when I used the term virtuous cycle. Then I realized it applies only before the funds buy TSLA shares. After they own shares, a doubling of Tesla's market cap will double the TSLA value they hold without buying more shares, because the share price will have doubled.

And now I realize my thought was incorrect both before and after funds buy TSLA shares. There is no virtuous cycle, as @dl003 said. An increasing Tesla market cap will increase the amount of money that index funds need to invest when Tesla joins the index, but not increase the number of shares they need to buy. The increased investment will be accomplished with the same number of shares. I think.

 

[ZeApelido]

I get that S&P inclusion will generally appreciate TSLA shares across some timeframe. I just don't get how anything special is going to happen to TSLA that doesn't happen to most other companies on inclusion.

Big or small, surely there are other examples where S&P500 inclusion causes buying a large % of the float.

Did those stocks see doubling or tripling of stock price (even temporarily) ? I doubt it.

 

[MABMAB]

Great new drone video of GF4 Berlin by Tobias Lindh, including overlays to show what parts of the factory will be where (starting at 2:06):

When I see stuff like that I dont give a darn about SP500 inclusion, exponential growth will take care of share price!

 

[mongo]

Well now I'm really confused. If free floats are in the numerator, and all shares are in the denominator, then the sum of the company weights will be less than 100%, because each company's free-float share count is less than its all-share count.

Individual companies are weighted by the value of their free float x their SP, and then compared to the sum in Mkt Cap of all 505 constituent companies (which includes all shares, not just the free float);

Minor quibble: it's 500 companies, but 505 stocks due to a few having multiple classes (like GOOG and GOOGL).

More importantly:
The index divisor is a derived number to make the index useable and continuous, it is not the sum of all stocks.
So much math:
https://www.spindices.com/documents/methodologies/methodology-index-math.pdf

The Index Divisor
The purpose of the index divisor is to maintain the continuity of an index level following the implementation of corporate actions, index rebalancing events, or other non-market driven actions.

The simplest capitalization weighted index can be thought of as a portfolio consisting of all available shares of the stocks in the index. While one might track this portfolio’s value in dollar terms, it would probably be an unwieldy number – for example, the S&P 500 float-adjusted market value is a figure in the trillions of dollars. Rather than deal with ten or more digits, the figure is scaled to a more easily handled number (e.g. 2000). Dividing the portfolio market value by a factor, usually called the divisor, does the scaling.

An index is not exactly the same as a portfolio. For instance, when a stock is added to or deleted from an index, the index level should not jump up or drop down; while a portfolio’s value would usually change as stocks are swapped in and out. To assure that the index’s value, or level, does not change when stocks are added or deleted, the divisor is adjusted to offset the change in market value of the index. Thus, the divisor plays a critical role in the index’s ability to provide a continuous measure of market valuation when faced with changes to the stocks included in the index. In a similar manner, some corporate actions that cause changes in the market value of the stocks in an index should not be reflected in the index level. Adjustments are made to the divisor to eliminate the impact of these corporate actions on the index value.

 

[smorgasbord]

I think for now I'm satisfied with the contribution from @mongo that index weight rebalancing is done quarterly by the Committee, so no instantaneous need for Index Funds to constantly rebalance when they already own shares.

That will however make those Quarterly Financials reports even more 'buy the news' events for TSLA

Cheers!

Except for people buying or selling the ETF and the resulting cash flows in/out, I don't understand the need for ETFs to rebalance at all.

Day 1: A fund buys all the S&P 500 stocks at the then newly published current index weighting.

Days 2-89: Fund remains closed to new investors, existing investors are locked in and can't sell nor add.

Day 90: TSLA has gone up a lot relative to the other stocks in the S&P 500. That means the new current index weighting for TSLA is higher. But, guess what? By holding TSLA and the other 499 stocks, the fund's percentage of TSLA should automatically match the new index weighting.

So, it's only net new money going into the fund that forces the fund to buy TSLA at a higher percentage since TSLA is a higher percentage of the S&P 500.

If not - what am I missing?

 

[UnknownSoldier]

Here's a fun read about a company being included in a stock index:
https://www.nber.org/digest/nov13/w19290.html

 

[UnknownSoldier]

I get that S&P inclusion will generally appreciate TSLA shares across some timeframe. I just don't get how anything special is going to happen to TSLA that doesn't happen to most other companies on inclusion.

Big or small, surely there are other examples where S&P500 inclusion causes buying a large % of the float.

Did those stocks see doubling or tripling of stock price (even temporarily) ? I doubt it.

Assuming the market cap of >$200B holds up before S&P 500 inclusion, Tesla will be one of the largest companies by market cap to be added to the S&P 500 index in history. Normally, companies make it into the S&P 500 when their market caps are much, much smaller. Tesla already has a market cap large enough to make into the 20 largest companies in the S&P 500 by market cap, displacing Netflix at #20 with a $204B market cap since Tesla is now at $224B.

I'm not much of a market researcher or historian but if anyone can think of another case like Tesla where the company was already one of the Top 20 by market cap on the day of inclusion they should definitely let us know and what the result was after inclusion. As it is, Tesla will need to be on day 1 weighted to roughly 0.8% of the S&P 500's total market cap because the S&P 500 is a capitalization weighted index.

 

[ZeApelido]

Assuming the market cap of >$200B holds up before S&P 500 inclusion, Tesla will be one of the largest companies by market cap to be added to the S&P 500 index in history. Normally, companies make it into the S&P 500 when their market caps are much, much smaller. Tesla already has a market cap large enough to make into the 20 largest companies in the S&P 500 by market cap, displacing Netflix at #20 with a $204B market cap since Tesla is now at $224B.

I'm not much of a market researcher but if anyone can think of another case like Tesla where the company was already one of the Top 20 by market cap on the day of inclusion they should definitely let us know and what the result was after inclusion.

But that doesn't necessarily mean funds have to buy a larger percent of the company than others.

 

[UnknownSoldier]

But that doesn't necessarily mean funds have to buy a larger percent of the company than others.

I actually was editing even as you were responding, but the answer is the funds have to hold, proportionally to the entirety of the S&P 500's market capitalization, 0.8% of that value in TSLA on the day Tesla is added to the index.

Someone else can do the math on how many shares that would be relative to the publicly traded float of TSLA.