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

[NicoV]

Almost everyone got a lot richer yesterday... on paper. But paper doesn’t buy a house, a car, food or an island. It only can if you sell shares. So almost everyone is still as rich or poor as they were the day before. Which brings me to my question: when are most of us planning to really get rich? Because if you want to be rich there will have to be a day when the HODL’ing ends.

I think to start selling far out of the money covered calls after battery day and S&P500 inclusion. This is under the assumption that the volatility will be lower after these events have played out. If my shares get called away, it means my total net worth will have increased, so no regrets. Alternatively, taking the loss on the covered calls and move them up, and hoping the profit from when they expire worthless is more then when I have to take the loss. Ideally this should provide me with some money for living expenses, while keep roughly the same exposure.

 

[StealthP3D]

Today was insane. To put this in perspective:
At this rate we will be at 2,000 by EOY, easy
Growing at a modest rate of 50% per year:
3,000 EOY 2021
4,500 EOY 2022
6,750 EOY 2023
Over 10,000 EOY 2024.Thats a 2T market cap with some dilution.
Ive gotta say thats pretty mind boggling.

The company itself can only grow as fast as it can grow (and from what I've seen, it's uber-impressive). So any share price gains now simply imply a slower growth rate over future periods. The good news is there is enough total potential growth in Tesla's businesses to achieve superior share appreciation now and still have superior appreciation in shares over the next 5-10 years.

 

[StealthP3D]

this is silly, and not how it works. Why would the stock grow at 50% per annum?
Once they establish that they can grow at a consistent pace, it will get priced in and it won’t be a surprise.

That's true, which is why the shares are appreciating so quickly now - that's the market starting to see the growth. The market is always forward looking with appropriate discounts for the growth being slower than expected or not happening at all. It all depends on much faith the market has that Tesla will continue growing at a fast pace and be able to grow margins and maintain them while continuing to grow.

 

[CyberDutchie]

Almost everyone got a lot richer yesterday... on paper. But paper doesn’t buy a house, a car, food or an island. It only can if you sell shares. So almost everyone is still as rich or poor as they were the day before. Which brings me to my question: when are most of us planning to really get rich? Because if you want to be rich there will have to be a day when the HODL’ing ends.

What you can do is borrow money from your broker with your shares as collateral. You never have to sell shares, just pay interest on the amount you borrow. Of coarse that interest payment — about $2000 per month per million dollars borrowed has to come from somewhere, if you can’t wing it, then sell a couple of shares each month (while the majority of your holdings keeps appreciating).

EDIT: additional benefit vs. selling shares: avoids capital gain tax (if regular trading account) or ordinary income taxes (if withdrawal from a traditional retirement account). Also: lower payment (interest-only payments, no principal).

 

[Right_Said_Fred]

That's true, which is why the shares are appreciating so quickly now - that's the market starting to see the growth. The market is always forward looking with appropriate discounts for the growth being slower than expected or not happening at all. It all depends on much faith the market has that Tesla will continue growing at a fast pace and be able to grow margins and maintain them while continuing to grow.

I think SP will still go up a lot and do so soon, at least to 1800 (based on the TA pattern I describe in the TA thread). But I believe we are now passing the point of it being sustainable.

Yes, Tesla fundamentals are great and its growth potential is huge, and the market is becoming more and more aware of this. But that is not what is fueling the Falcon Heavy-like trajectory of the stock this week. It is mainly being driven by speculation about S&P 500 inclusion and short covering, along with MM hedging on some days.

These forces can (and probably will) drive it even higher over the next few weeks. But it is becoming more and more superficial. And there will, not too long from now, come a moment when the SP collapses and resets itself. I’m guessing to a level somewhere between 1000 and 1500.

For proof one can just look at what happened after comparable runups that were caused by artificial factors: VW a long time ago, BYND and SPCE recently.

Yes, TSLA has this year finally started to reflect Tesla’s bright future, after having not reflected it for three years. But anyone thinking that runups of 10% or more per day are based on fundamentals and are sustainable, is fooling himself.

 

[Causalien]

Almost everyone got a lot richer yesterday... on paper. But paper doesn’t buy a house, a car, food or an island. It only can if you sell shares. So almost everyone is still as rich or poor as they were the day before. Which brings me to my question: when are most of us planning to really get rich? Because if you want to be rich there will have to be a day when the HODL’ing ends.

If you look at the upper bound. If you reached 50 mil, there is definitely a need to sell 20 mil. As 5% of that will net you 1 mil a year. Of course adjust it for taxes. This is if you want to keep going and get richer. At 1 mil a year most purchases are like pocket changes unless it is for status. So the next step is 20 mil. If you don't feel the need to up stage others which requires continued growth of asset. Selling everything at 20 mil is good enough. 1 mil per year is enough to fund a new startup and a startup's growth rate should outperform tesla. I am assuming that most got here with merit and have a few trick up their sleeves.

 

[FrankSG]

Almost everyone got a lot richer yesterday... on paper. But paper doesn’t buy a house, a car, food or an island. It only can if you sell shares. So almost everyone is still as rich or poor as they were the day before. Which brings me to my question: when are most of us planning to really get rich? Because if you want to be rich there will have to be a day when the HODL’ing ends.

Probably 2030ish, but subject to further evaluation. Could turn into 2035 or 2040. Probably not sooner.

 

[FrankSG]

I think SP will still go up a lot and do so soon, at least to 1800 (based on the TA pattern I describe in the TA thread). But I believe we are now passing the point of it being sustainable.

Yes, Tesla fundamentals are great and its growth potential is huge, and the market is becoming more and more aware of this. But that is not what is fueling the Falcon Heavy-like trajectory of the stock this week. It is mainly being driven by speculation about S&P 500 inclusion and short covering, along with MM hedging on some days.

These forces can (and probably will) drive it even higher over the next few weeks. But it is becoming more and more superficial. And there will, not too long from now, come a moment when the SP collapses and resets itself. I’m guessing to a level somewhere between 1000 and 1500.

For proof one can just look at what happened after comparable runups that were caused by artificial factors: VW a long time ago, BYND and SPCE recently.

Yes, TSLA has this year finally started to reflect Tesla’s bright future, after having not reflected it for three years. But anyone thinking that runups of 10% or more per day are based on fundamentals and are sustainable, is fooling himself.

There are ~185M TSLA shares.

If 184,999,999 of those were held by Elon and would not be sold at any price until needed for Mars colonization, Tesla's stock price and market capitalization would be decided by a single person. The person holding the only share not in Elon's hands decides what his selling price is, and therefore the stock price. At this point, it'd probably be more about scarcity and the unique 'collector's value' of this single share than the actual value dictated by fundamentals, and I expect the share would be worth millions of dollars, and give Tesla some completely absurd hundreds of trillions of dollars market cap.

If 184,900,000 of those shares were held by Elon and the effective float was only 100k shares, the price of those shares would be dictated by a handful of ultra high conviction (probably for a large part retail) shareholders. I assume Tesla's market cap would be well north of $1T. In this scenario, the stock price might as high as $10,000 today.

In reality, Elon only owns ~40M shares, so currently the TSLA float is ~145M shares. This TSLA float is about to contract significantly, and a large number of the shareholders with weaker convictions and lower price targets are about to sell their shares to funds tracking or benchmarking the S&P 500, and therefore the SP will rise significantly. Especially because even among institutional investors there are a large number of high conviction holders. Ron Baron may be an extreme example, but in his most recent CNBC interview he said he would love to buy more TSLA @ $1,000. There is no way that man is going to sell a single share today below $2,000, probably $3,000+.

There's a good chance that there will be some sort of peak and dip at some point after the S&P 500 inclusion, but I think it's highly unlikely this is it and that the dip will be to $1,000 - $1,500. Barring bad macros, I think there's a decent chance TSLA will be permanently revalued to $2,000+, with a small chance of some crazy permanent revaluation to $3,000+. Assuming the float will be contracted by approximately one third, it's going to be up to the two thirds of shareholders with the highest conviction to set a new bottom.

 

[Artful Dodger]

Nope, its not connected to a certain dollar value. Its is connected to Tesla shares, and will grow with Tesla mcap.

Its based on Teslas size, compared to all of SP500 companies. i.e. Tesla might enter at #13, top 95% of the 500 companies. Mcap of tesla is 1% of the fund. They then have to redirect 1% of their fund to Tesla. If tesla grow and make up 2% of SP500 value, the funds need to redirect 2% of their assets to Tesla buying.

The larger Tesla are before inclusion, the larger part of SP500 they have the more shares do the inedx funds need to buy.

Its all about the %, not a fixed sum

As far asI have read/understood.

Dont understand how a fixed sum can work.

Yeah, I'm still trying to understand the details, but I think TSLA's initial 'weight' will be set once by the S&P Committee before it announces TSLA's inclusion into the S&P 500 Index (NDX). So it becomes the total dollar ammount that's fixed, and not dependent on changes in the SP after the 'weight' for TSLA at inclusion in the NDX.

If the TSLA's SP goes up after the S&P announcement, those large Funds will just need fewer shares total to reach their goal for TSLA holdings.

Then once per quarter, the S&P Committee rebalances the 'weights' of all NDX components are , which does lead to buying and selling of various equities by those passively-managed index Funds.

Cheers!

 

[Artful Dodger]

But is the dollar amount the same as the share amount considering that it's the valuation that determines the weight of the Index? If Tesla is weighted at 1% of the index at 1k a share so 50 million shares need to be bought, but now is 10% of the index at 10k/share, the same 50 million shares need to be bought for 10% weight right? Because if they just bought 5 million shares, then it's back to 1% of the index, not the 10%.

Rebalancing of the 'weights' in the NDX is only done once per quarter, not continuously in real time during the trading day. I think it only makes sense for the Committee to announce the 'weight' for TSLA in advance of it being added to the NDX. Otherwise, we got a runaway feedback loop, and obviously that hasn't happened with other additions.

So I think we just need to understand the process better. Rob Maurer says he is working on a video describing the inclusion process. I'm looking forward to learning more!

Cheers!

 

[Artful Dodger]

Almost everyone got a lot richer yesterday... on paper. But paper doesn’t buy you a house, a car, food or an island. It only can if you sell shares. So almost everyone is still as rich or poor as they were the day before. Which brings me to my question: when are most of us planning to really get rich? Because if you want to be rich there will have to be a day when the HODL’ing ends.

So are you assuming that no one here is able to borrow against the value of their stock? Certainly, that's how Elon funds his living expenses, and the interest charges for the loans are far less than the taxes would be to sell the equivalent amount of stock.

Now obviously this won't work for most small retail investors, but you did specify when to "really get rich". I know a few retail investors that hold 10K+ shares of TSLA. At today's close, that over $15M USD (or more for some).

Can't you borrow against that? Makes more sense to pay 2.5%/yr interest and keep the asset that has increased an avg of 71%/yr since the IPO.

Cheers!

 

[Right_Said_Fred]

So I think we just need to understand the process better. Rob Maurer says he is working on a video describing the inclusion process. I'm looking forward to learning more!

I’m a big fan (and patron) of Rob and his level headed podcasts, so I’m looking forward to his analysis of the S&P inclusion process. I already found very interesting what he said in the first minutes of yesterday’s episode. According to Rob the 61% rise since just before the P&D report could be a sign of frontrunning: funds and other investors buying shares to be able to sell them to S&P index funds. This could imply that the actual inclusion will not cause another run up.

 

[j6Lpi429@3j]

TBH I do not expect much in the way of an SP change when S&P500 inclusion happens. This is likely the MOST widely discussed, debated and anticipated inclusion in history, so yoiu would have to be seriously living under a rock not to know its coming. People have bought the shares in anticipation.
Now naturally some institutions *cannot* buy them until they are officially in, but I suspect there are a lot of speculators who have bought recently for the express purpose of flipping them to index-holders after the inclusion.

Lets be honest, there are not many other feasible explanations for such a rise in the SP. Q2 looks surprisingly good, sure, but the company is still (and remember I'm a super-bull here, with 1,100 shares) NOT making THAT many cars. To justify the valuation, they need to have China and Berlin and Freemonet all churning out cars at maximum capacity.

I expect the share price to pause a bit now, while people wait to see how many relatively-expensive EVs tesla can really sell in the US and China post-covid, and mid-recession.

Frankly if the stock is still $1,500 in 3 months time I will be extremely happy.

*if* tesla has something genuinely unexpected up its sleeve on battery day, or if the china/berlin progress is faster than expected, then sure, I can see decent appreciation of the stock. Also maybe an external event like Ford/GM actually going bankrupt or whatever, or some amazing quantum-leap forwward in FSD. Otherwise, I think we are sat at the $1,500 level for a while, maybe even a year. Lost of future potential (semi, cybertruck, energy rampup), but even tesla has to take time to expand.

 

[Artful Dodger]

To justify the valuation, they need to have China and Berlin and Freemonet Freemoney all churning out cars at maximum capacity.

Lol! Did you mean Easymoney?

Cheers!

 

[adiggs]

Can't you borrow against that? Makes more sense to pay 2.5%/yr intesest and keep the asset that has increased an avg of 71%/yr since the IPO.

Where are you getting 2.5%/year?

At Fidelity, I'm seeing 4-8%, with 4% requiring a $1M balance.


I might need to have a conversation with them if there's an alternative broker with better rates.

 

[CorneliusXX]

I’m a big fan (and patron) of Rob and his level headed podcasts, so I’m looking forward to his analysis of the S&P inclusion process. I already found very interesting what he said in the first minutes of yesterday’s episode. According to Rob the 61% rise since just before the P&D report could be a sign of frontrunning: funds and other investors buying shares to be able to sell them to S&P index funds. This could imply that the actual inclusion will not cause another run up.

There's so many reasons to buy Tesla shares at the moment that it's near impossible to know how much to attribute to front running the S&P inclusion. There's delta hedging calls, genuine buying on strong performance, anticipation of future gains from battery day and profitability, extremely loose monetary policy, new owners seeing Tesla as the future and investing, WSB FOMOing, high conviction holders keeping the float small, shorts covering, etc.

Who know's how high this rocket ship will go before it settles into some sort of new normal post S&P inclusion/battery day news.

 

[CorneliusXX]

they need to have China and Berlin and Freemonet all churning out cars at maximum capacity

We should petition the city to change the name. I would choose this one

 

[Artful Dodger]

Where are you getting 2.5%/year?

At Fidelity, I'm seeing 4-8%, with 4% requiring a $1M balance.


I might need to have a conversation with them if there's an alternative broker with better rates.

No, I'm referring to the best rate I could get for a demand deposit account outside of an investment or brokerage, just used to discount the 54% gain against what I could get otherwise. *for illustration purposes only*

Cheers!

 

[CyberDutchie]

Where are you getting 2.5%/year?

At Fidelity, I'm seeing 4-8%, with 4% requiring a $1M balance.


I might need to have a conversation with them if there's an alternative broker with better rates.

I got quoted 2.5% by my broker. My initial thought: how can they do this, there must be a catch. The catch is: your shares used for collateral are locked up. You cannot trade those shares. My guess is that they will make another pretty penny by loaning out these shares to others. I need to investigate more what the exact terms and conditions are, especially what power the broker has to increase interest at will, or change the requirements for collateral, e.g. how far TSLA can dip until they will require additional shares added to the account.

 

[Artful Dodger]

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