Tesla - next big lottery ticket ?

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prettybogle
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Tesla - next big lottery ticket ?

Post by prettybogle » Sat Jul 29, 2017 11:31 am

Tesla has finally released model 3 this weekend. The reviews so far are very good. We probably are witnessing another apple when it released first iPhone, another google when it started advertising on its search items, .... We are seriously debating to invest some play money, in our case, may be $5000. This could potentially jump from $350 a share to $1000 in less than a decade. Any fellow bogleheads investing in tesla ? Our long term plan is index investing but this is an 'educated' investment in a very good company that may disrupt automobile industry big time

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bottlecap
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Re: Tesla - next big lottery ticket ?

Post by bottlecap » Sat Jul 29, 2017 11:36 am

I don't play games with investing, so no, I won't be doing anything.

Tesla does look like the next big thing, so, if anything, I'd be shorting.

JT

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TomatoTomahto
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Re: Tesla - next big lottery ticket ?

Post by TomatoTomahto » Sat Jul 29, 2017 11:37 am

I own a Tesla, but the car and not the stock (other than via TSM).

If I had invested in Amazon and Apple and Tesla when I bought their products, I'd be fine. Otoh, I was also a big DEC fan.

If it's fun money, go for it, but nobody can accuse you of being an early bird.

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reriodan
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Re: Tesla - next big lottery ticket ?

Post by reriodan » Sat Jul 29, 2017 11:55 am

prettybogle wrote:Tesla has finally released model 3 this weekend. The reviews so far are very good. We probably are witnessing another apple when it released first iPhone, another google when it started advertising on its search items, .... We are seriously debating to invest some play money, in our case, may be $5000. This could potentially jump from $350 a share to $1000 in less than a decade. Any fellow bogleheads investing in tesla ? Our long term plan is index investing but this is an 'educated' investment in a very good company that may disrupt automobile industry big time
Yep, at global market weight.

Saving$
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Re: Tesla - next big lottery ticket ?

Post by Saving$ » Sat Jul 29, 2017 11:56 am

Go for it if you have $5k to lose, and/or if a $5k writeoff will help your tax situation.

If it goes from $350 to $1k /share per your prediction, your $5k will be worth $14,300. If you have enough that you have $5k to lose, a $9,300 gain in 10 years is not much...and the real gain is less because you have to subtract the opportunity cost of that $5k...

Of course, if you do this and the above scenario plays out, you will be kicking yourself that you did not invest $50k. But do you have $50k to lose?

These are the types of decision that keep me solidly in the Boglehead 3 index fund portfolio camp.

daveydoo
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Re: Tesla - next big lottery ticket ?

Post by daveydoo » Sat Jul 29, 2017 12:32 pm

prettybogle wrote:Tesla has finally released model 3 this weekend. The reviews so far are very good. We probably are witnessing another apple when it released first iPhone, another google when it started advertising on its search items, .... We are seriously debating to invest some play money, in our case, may be $5000. This could potentially jump from $350 a share to $1000 in less than a decade. Any fellow bogleheads investing in tesla ? Our long term plan is index investing but this is an 'educated' investment in a very good company that may disrupt automobile industry big time
This is all baked into the current extremely-inflated share price. Tesla is not a sleeper and this is not a new realization. A little smart money and tons of dumb money have bid up Tesla. I like Tesla and I want it to succeed. I also want a P100D and whole-house battery system. But the current valuation is already predicated upon success (right?) so any bump after this announcement (of finally delivering a handful of these things) is pure speculation, imo, and as others have pointed out.

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bligh
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Re: Tesla - next big lottery ticket ?

Post by bligh » Sat Jul 29, 2017 12:47 pm

Saving$ wrote:Go for it if you have $5k to lose, and/or if a $5k writeoff will help your tax situation.

If it goes from $350 to $1k /share per your prediction, your $5k will be worth $14,300. If you have enough that you have $5k to lose, a $9,300 gain in 10 years is not much...and the real gain is less because you have to subtract the opportunity cost of that $5k...

Of course, if you do this and the above scenario plays out, you will be kicking yourself that you did not invest $50k. But do you have $50k to lose?

These are the types of decision that keep me solidly in the Boglehead 3 index fund portfolio camp.
Thank you for summing it up so beautifully. :sharebeer

sambb
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Re: Tesla - next big lottery ticket ?

Post by sambb » Sat Jul 29, 2017 12:49 pm

i own tesla in my total stock index fund, i hope it does well

Valuethinker
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Re: Tesla - next big lottery ticket ?

Post by Valuethinker » Sat Jul 29, 2017 4:22 pm

prettybogle wrote:Tesla has finally released model 3 this weekend. The reviews so far are very good. We probably are witnessing another apple when it released first iPhone, another google when it started advertising on its search items, .... We are seriously debating to invest some play money, in our case, may be $5000. This could potentially jump from $350 a share to $1000 in less than a decade. Any fellow bogleheads investing in tesla ? Our long term plan is index investing but this is an 'educated' investment in a very good company that may disrupt automobile industry big time
The numbers on Tesla (negative EBITDA) are pretty frightening. There are quite a few shorts on Twitter who talk about it, and they have some not pretty stuff.

Musk has a record of promising, and delivery being late. The company has struggled to scale production without encountering quality issues (the abrupt downrating by Consumer Reports to Not Recommended over quality issues is a warning sign).

The valuation is extreme. A market cap proximate to GM and Ford on a company which has yet to produce half a million cars (in total?). The whole solar merger left a very bad taste in many mouths-- it was clear there was no good strategic rationale, but Musk had a (?billion?) dollars at risk of total loss if the merger didn't happen.

Really. Buy the car (which by all accounts is quite cool) not the stock. Or if you buy the stock, be prepared to lose your shirt. They hit a big enough pothole, and they will struggle to recover.

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Re: Tesla - next big lottery ticket ?

Post by Valuethinker » Sat Jul 29, 2017 4:23 pm

daveydoo wrote:
prettybogle wrote:Tesla has finally released model 3 this weekend. The reviews so far are very good. We probably are witnessing another apple when it released first iPhone, another google when it started advertising on its search items, .... We are seriously debating to invest some play money, in our case, may be $5000. This could potentially jump from $350 a share to $1000 in less than a decade. Any fellow bogleheads investing in tesla ? Our long term plan is index investing but this is an 'educated' investment in a very good company that may disrupt automobile industry big time
This is all baked into the current extremely-inflated share price. Tesla is not a sleeper and this is not a new realization. A little smart money and tons of dumb money have bid up Tesla. I like Tesla and I want it to succeed. I also want a P100D and whole-house battery system. But the current valuation is already predicated upon success (right?) so any bump after this announcement (of finally delivering a handful of these things) is pure speculation, imo, and as others have pointed out.
The stock is priced for perfect execution.

This is not Apple when it introduced the iphone. It's a really serious ride to get from where they are now to where the stock price is telling you they will be in 10 years.

Valuethinker
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Re: Tesla - next big lottery ticket ?

Post by Valuethinker » Sat Jul 29, 2017 4:24 pm

TomatoTomahto wrote:I own a Tesla, but the car and not the stock (other than via TSM).

If I had invested in Amazon and Apple and Tesla when I bought their products, I'd be fine. Otoh, I was also a big DEC fan.
me too! ;-). Half the people reading this probably have no idea DEC was (briefly) the world's largest computer company (I think the market cap exceeded IBM at one point). And if they have heard of it, they have no idea what happened to it.
If it's fun money, go for it, but nobody can accuse you of being an early bird.
understatement. of century. ;-).

Valuethinker
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Re: Tesla - next big lottery ticket ?

Post by Valuethinker » Sat Jul 29, 2017 4:26 pm

Saving$ wrote:Go for it if you have $5k to lose, and/or if a $5k writeoff will help your tax situation.

If it goes from $350 to $1k /share per your prediction, your $5k will be worth $14,300. If you have enough that you have $5k to lose, a $9,300 gain in 10 years is not much...and the real gain is less because you have to subtract the opportunity cost of that $5k...

Of course, if you do this and the above scenario plays out, you will be kicking yourself that you did not invest $50k. But do you have $50k to lose?

These are the types of decision that keep me solidly in the Boglehead 3 index fund portfolio camp.
Yes losing 5k, at 30 years at 6%, say (1+0.06)^30 x 5000 = $28,716

That's before tax (both on the returns, but also an allowable loss if Tesla went to zero), and of course not including inflation.

But it gives one a feeling how much "play money" can cost you.

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Re: Tesla - next big lottery ticket ?

Post by hicabob » Sat Jul 29, 2017 4:33 pm

Always loved DEC since starting my career banging on PDP-11's, I still name variables foo from the indoctrination. ... then there was Sun microsystems, also a fine corporation in its heydey. Even very profitable, inventive, seemingly well run corporations can have a surprisingly short lifetime. I agree with the OP who said they enjoy holding TSLA in their total stock market fund/etf.

avalpert
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Re: Tesla - next big lottery ticket ?

Post by avalpert » Sat Jul 29, 2017 4:37 pm

Have you not looked at the stock history - you are a bit late to that party.

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whodidntante
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Re: Tesla - next big lottery ticket ?

Post by whodidntante » Sat Jul 29, 2017 4:39 pm

It's your money, but I think the ship sailed on that one.

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HomerJ
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Re: Tesla - next big lottery ticket ?

Post by HomerJ » Sat Jul 29, 2017 4:41 pm

prettybogle wrote:Tesla has finally released model 3 this weekend. The reviews so far are very good. We probably are witnessing another apple when it released first iPhone, another google when it started advertising on its search items, .... We are seriously debating to invest some play money, in our case, may be $5000. This could potentially jump from $350 a share to $1000 in less than a decade. Any fellow bogleheads investing in tesla ? Our long term plan is index investing but this is an 'educated' investment in a very good company that may disrupt automobile industry big time
Telsa is ALREADY priced like they've won the lottery.

They lost $773 million, only built 75,000 cars last year, and the stock is worth more than GM (who built 10 million cars, and made $9 billion in profit)

Now... it's quite possible, maybe even likely that Tesla will someday soon make millions of cars a year, and billions in profits, more than GM.

But the share price ALREADY is priced like that has already happened (or definitely will happen).

jbolden1517
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Re: Tesla - next big lottery ticket ?

Post by jbolden1517 » Sat Jul 29, 2017 4:43 pm

Tesla has lost money every quarter it has been in existence. It is trading for a P/EBITDA of 100. You are buying it for 5x sales. It is diluting shares rapidly (and as an aside an excellent example of cap weighted indexing is dangerous since it is diluting to index funds and quasi indexes), so you even if the company is successful you likely lose 1/2 your equity in it to dilution.

It is a terrible stock. I was looking to play some options spread on the short side when it got volatile. But no this is not a good idea. There are way to win from Tesla but there are lots and lots more ways to lose.

TigerNest
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Re: Tesla - next big lottery ticket ?

Post by TigerNest » Sat Jul 29, 2017 4:50 pm

Tesla was a lottery ticket until early 2013. It's now worth $55 billion, more than Ford ($44 billion) and GM ($52 billion).

For you to jump from "$350 a share to $1000 in less than a decade", Tesla would have to increase in value to $157 billion, which is about what Ford, GM, Honda and Mitsubishi combined are worth.

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Re: Tesla - next big lottery ticket ?

Post by Jack FFR1846 » Sat Jul 29, 2017 6:40 pm

The Model 3 is going to shine a light as to where Tesla is going to end up. Production numbers being promised are "real car" kind of numbers. If history repeats and cars go out the door with thousand dollar bills taped to the door, I just don't see how they can continue to exist, let alone grow to match the hype.

Tesla says they'll deliver 500k vehicles in 2018. Does anyone believe this? This is well over that of Honda Accord and would have to be made up mainly from Model 3 sales, which are expected to be well under 100k in 2018. Model X and S is stagnant. I don't know if it's because of battery availability problems that would be solved when the mega factory is at full run. Some of the new stuff might add some low numbers. Over the road trucks aided by electric (hybrid) is old news and has been done for at least 10 years by others (I forget who bought Solectria who build electric car conversions from 25 years ago).

I don't gamble, so have not shorted my life savings into Tesla, but if I had to choose to buy or short, I'd short with a 3 year limit.
Bogle: Smart Beta is stupid

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Re: Tesla - next big lottery ticket ?

Post by Helo80 » Sat Jul 29, 2017 6:40 pm

jbolden1517 wrote:Tesla has lost money every quarter it has been in existence. It is trading for a P/EBITDA of 100. You are buying it for 5x sales. It is diluting shares rapidly (and as an aside an excellent example of cap weighted indexing is dangerous since it is diluting to index funds and quasi indexes), so you even if the company is successful you likely lose 1/2 your equity in it to dilution.

It is a terrible stock. I was looking to play some options spread on the short side when it got volatile. But no this is not a good idea. There are way to win from Tesla but there are lots and lots more ways to lose.

Every time I go to LinkedIn and Reddit and read how wonderful Elon Musk is and how great Tesla is, I think of the quantitative points you have posted.

Elon Musk has done more for mass electric vehicle adoption than any person in the world. The product he is making is very neat and that in-dash screen was revolutionary for the time; plus you had decent ranges compared to some of the other solo EVs out there. Now, reliability and depreciation are another matter, but he made the EV cool and something people, including myself, would want (of course not at that price tag).

Musk is a visionary, there is no denying that. But, he's not unsinkable and even though Tesla has done well, I would never buy individual shares of it.

prettybogle
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Re: Tesla - next big lottery ticket ?

Post by prettybogle » Sat Jul 29, 2017 8:44 pm

TigerNest wrote:Tesla was a lottery ticket until early 2013. It's now worth $55 billion, more than Ford ($44 billion) and GM ($52 billion).

For you to jump from "$350 a share to $1000 in less than a decade", Tesla would have to increase in value to $157 billion, which is about what Ford, GM, Honda and Mitsubishi combined are worth.
Most of the retailers are less than 10 billion while amazon is 500 billion. I will probably get in trouble for saying this - While I understand individual stocks are risky, unfortunately when it comes to multibagger gains, they are the only game in marketville. Index investing may only get "fair share of returns".

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ClevrChico
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Re: Tesla - next big lottery ticket ?

Post by ClevrChico » Sat Jul 29, 2017 9:00 pm

I feel the same way, but GM has beat them to market with the Bolt. The Volt is a pretty good car. Other automakers have self driving cars in their pipeline. This could get very competitive.

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Re: Tesla - next big lottery ticket ?

Post by MotoTrojan » Sat Jul 29, 2017 9:28 pm

Put $5K in Ethereum. It was the equivalent of a $1000 Tesla share last month, so it has much better odds of getting there (again) in 10 years.

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Re: Tesla - next big lottery ticket ?

Post by stimulacra » Sat Jul 29, 2017 10:23 pm

prettybogle wrote:
TigerNest wrote:Index investing may only get "fair share of returns".
If you're looking for future winning lottery tickets, you're on the wrong forum.

Trying to get more than your fair share of returns goes against what Jack Bogle advocates: Index investing allows you to get your fair share of market returns at a low cost.

Regarding Tesla; what are the odds that the market hasn't already reacted to and priced in the positive feedback on the Model 3? If you're buying TSLA at $350 / share, how likely is it that the person selling it to you knows more about the stock?

If you really believe in the business model / brand of the company, a better strategy might be to wait until they hit a bump in the road and “buy the dip”, not acquiring a position after positive press.

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HomerJ
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Re: Tesla - next big lottery ticket ?

Post by HomerJ » Sat Jul 29, 2017 10:30 pm

prettybogle wrote:when it comes to multibagger gains, they are the only game in marketville. Index investing may only get "fair share of returns".
The worst possible thing to happen is for you to get a "multi-bagger" from Tesla. Then you will tempted to bet a lot more on your next big lottery ticket.

Accept the "fair share of returns" instead of swinging for the fences. Go to Vegas if you need a gambling rush.

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Re: Tesla - next big lottery ticket ?

Post by jbolden1517 » Sat Jul 29, 2017 11:56 pm

Helo80 wrote: Every time I go to LinkedIn and Reddit and read how wonderful Elon Musk is and how great Tesla is, I think of the quantitative points you have posted.

Elon Musk has done more for mass electric vehicle adoption than any person in the world. The product he is making is very neat and that in-dash screen was revolutionary for the time; plus you had decent ranges compared to some of the other solo EVs out there. Now, reliability and depreciation are another matter, but he made the EV cool and something people, including myself, would want (of course not at that price tag).

Musk is a visionary, there is no denying that. But, he's not unsinkable and even though Tesla has done well, I would never buy individual shares of it.
I have no problem agreeing with everything you said. Tesla the stock is providing cheap equity financing to Tesla the company to do amazing and cool things. Tesla is a great company. But great companies do not make great stocks. When you are buying the stock the question you want to ask is "do you want to be providing cheap equity financing so that Elon Musk can do amazing and incredible things with the money he's suckering stock investors out of?"

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Re: Tesla - next big lottery ticket ?

Post by visualguy » Sun Jul 30, 2017 1:46 am

Competition will become a problem for Tesla at some point... Others will catch up in a few years. What then? Will the charging network save them? Better self-driving? It's not clear where they'll be when there are multiple manufacturers selling a variety of compelling electric vehicles. If there was an electric 3-series or A4 or C-Class, how many would go for the Model 3? Similarly with the Model S and Model X compared to their competitors. It's not clear to me.

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just frank
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Re: Tesla - next big lottery ticket ?

Post by just frank » Sun Jul 30, 2017 6:40 am

They could be immensely successful over the next ten years, but fall below very high expectations....and the stock could go down.

jcavana1
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Re: Tesla - next big lottery ticket ?

Post by jcavana1 » Sun Jul 30, 2017 6:53 am

Just my opinion...

The stock is incredibly overpriced and risky. I read recently if everything goes according to plan their margins are like 6%. They will sell several hundred thousand cars over the next several years. But at best their profit will be a fraction of GM's.

The only way I think you can try and justify the current valuation is if you see them becoming huge sellers of car and home batteries and solar panels.

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Re: Tesla - next big lottery ticket ?

Post by basspond » Sun Jul 30, 2017 7:23 am

Unlike an IPhone you can't use it while it is being charged. If it is less then 3% of your assets don't see a problem. But I would keep your eye open for companies in fuel cell technology.

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Watty
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Re: Tesla - next big lottery ticket ?

Post by Watty » Sun Jul 30, 2017 7:39 am

Saving$ wrote:Go for it if you have $5k to lose, and/or if a $5k writeoff will help your tax situation.

If it goes from $350 to $1k /share per your prediction, your $5k will be worth $14,300. If you have enough that you have $5k to lose, a $9,300 gain in 10 years is not much...and the real gain is less because you have to subtract the opportunity cost of that $5k...

Of course, if you do this and the above scenario plays out, you will be kicking yourself that you did not invest $50k. But do you have $50k to lose?

These are the types of decision that keep me solidly in the Boglehead 3 index fund portfolio camp.
You will also need to not fall in love with it and actually sell the stock when it is worth $5,000. There are lots of people that have a lot in Apple stock that made the mistake of falling in love with it and have not sold any of it.

I "played" with a similar money during the dot com bubble like this and it went up a lot then crashed and I only got out with a couple of hundred dollars when I finally liquidated all of my individual stock holding and went with all index funds. If I had sold it at the top I could have likely retired a few years earlier. If I had just put it into index funds from the start I could likely have retired six months earlier.

You also need to remember that Apple also went through lots of bad years and only survived because Microsoft(AKA Bill Gates back then) poured millions of dollars into Apple to keep them from failing which would have made Microsoft fall under many monopoly restrictions.
Last edited by Watty on Sun Jul 30, 2017 9:37 am, edited 1 time in total.

rob65
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Re: Tesla - next big lottery ticket ?

Post by rob65 » Sun Jul 30, 2017 7:54 am

Can they ramp up production levels? Once the "cool" wears off, the car business is about volume. I don't know much about their technical side; Tesla may hold patents that make it worth the price. Otherwise, they risk being overtaken by the big car companies.

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Re: Tesla - next big lottery ticket ?

Post by jbolden1517 » Sun Jul 30, 2017 7:59 am

OK. So there seems to be a universal agreement among the posters here that Tesla is a bad stock to own.

Now I'm going to ask something more controversial. Given that I'm not in the minority at all regarding my opinion of Tesla and that most of you are heavily tilted towards cap weighted indexing (I'll exclude the value investors) why do you not object to carrying a lot of Tesla type stocks in your index funds?

MN Finance
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Re: Tesla - next big lottery ticket ?

Post by MN Finance » Sun Jul 30, 2017 8:26 am

jbolden1517 wrote:OK. So there seems to be a universal agreement among the posters here that Tesla is a bad stock to own.

Now I'm going to ask something more controversial. Given that I'm not in the minority at all regarding my opinion of Tesla and that most of you are heavily tilted towards cap weighted indexing (I'll exclude the value investors) why do you not object to carrying a lot of Tesla type stocks in your index funds?
No, you got it wrong.

First, nobody is carrying "a lot" of tsla unless you think 0.15% is a lot as a percentage of just us stocks.

Second, nobody objects to holding it. They think the market has priced it correctly. They just object to your assertion that the market has mispriced it, which is precisely your argument. As such, they are cautioning you from thinking you're smarter than millions of market players.

I have no idea if you're right, but that's exactly the point. I'll also point out that when Apple was on the brink of collapse it looked like a terrible investment and was widely accepted they were going nowhere. I remember it clearly. If you're willing to gamble, it's usually the trades that look worst that turn out best, and vice versa.

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Re: Tesla - next big lottery ticket ?

Post by 4nursebee » Sun Jul 30, 2017 8:35 am

OP, These kinds of discussion are not valued by folks here.

If I want to own a stock like this I try to do some math to justify the buy and hold.
The Nummi plant used to make 450,000 cars a year, Mush says 500,000 per year by end of 2018.
Musk has said 10% profit per car, s and X he said 25%.
My assumptions are as follows
world car production in 2016 was 88 million
avg car sold by TSLA to be 40,000 each (safe to say this is low)
164,000,000 shares

500,000 x $40,000 =20,000,000,000 in sales 2B profit
2B profit divided by share count is $12.19 profit per share
Doing some math for a range of P/E's (5 for GM and 225 for NFLX) solving for P in formula P/E=5 or P/E=225 yields a price of $60-2700
Above based upon only on the expected near term future

Doing this for 1% of world car sales yields profit per share of 214 and price range 1073-48282. Not possible in current facilites.

5% worldwide car sales would be 1070 profit per share, price 5350-240750. Not possible in current facilities

10% would be profit per share of 2140, price 10700-481500. Not possible in current facilities

VW group sold >10M cars in 2016, more than 10% of car sales.
4nursebee

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Re: Tesla - next big lottery ticket ?

Post by Valuethinker » Sun Jul 30, 2017 8:36 am

hicabob wrote:Always loved DEC since starting my career banging on PDP-11's, I still name variables foo from the indoctrination. ... then there was Sun microsystems, also a fine corporation in its heydey. Even very profitable, inventive, seemingly well run corporations can have a surprisingly short lifetime. I agree with the OP who said they enjoy holding TSLA in their total stock market fund/etf.
PDP 11 was Bill Gates and Paul Allen's first computer ;-). Their high school was the first one in North America to have a computer, supposedly (see Malcolm Gladwell "Outliers"). Maybe it was the PDP 8? But we learned Assembler on their Assembler (PDP 11), although at college the VAX machines (750s & 11/780s?) ran BSD Unix, not Vax VMS. Going to work on IBM mainframes (CICS/ COBOL/ JCL) out of university was raw torture-- like dropping back 20 years.

I had a friend who was brought into Sun at a decent level in Europe to manage their move into services (as part of that drive).

Sun Microsystems could not cure itself of the notion that it was a hardware company. When the hardware commoditized, they were dead. Macnelly and that kept making announcements about new products that would "save" Sun, and they were all just bigger, faster boxes.

Classic case of Clay Christensen disruption/ disruptive innovation. They got so good at serving their existing customers (all those dot com startups) that they were roadkill when the industry changed.

If you look at a business like Amazon Web Services, Sun could have easily created that business and been a leader in it. They had the clients, the brand name, the street cred with the techies. But they were stuck on a hardware mindset.

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Re: Tesla - next big lottery ticket ?

Post by Valuethinker » Sun Jul 30, 2017 8:40 am

ClevrChico wrote:I feel the same way, but GM has beat them to market with the Bolt. The Volt is a pretty good car. Other automakers have self driving cars in their pipeline. This could get very competitive.
At this point in the dot com bubble most of us had never even heard of Google. And it wasn't a quoted company for another 3-5 years. Look at some of the big internet stocks then: AOL, Yahoo, Sun, Netscape -- they haven't done so well. Amazon is really the big survivor.

Musk is at the peak of a hype bubble. Even if he executes according to plan the shares are very expensive. If he doesn't, then they are well overvalued.

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Re: Tesla - next big lottery ticket ?

Post by Valuethinker » Sun Jul 30, 2017 8:44 am

Watty wrote:
You also need to remember that Apple also went through lots of bad years and only survived because Microsoft(AKA Bill Gates back then) poured millions of dollars into Apple to keep them from failing which would have made Microsoft fall under many monopoly restrictions.
Apple had almost as much cash as its market capitalization then. Whereas Tesla is in a business where you need huge capex to stay in the game.

And it's not a capital intensive business- they eventually 100% outsourced manufacturing, and software (bundled with the hardware) makes them huge margins. The ipod and then the iphone and ipad lay in their future. Apple always had high operating margins (ex product writeoffs), they just had to innovate away from being a PC company.

It wasn't obvious that Apple would survive, and as you say it was largely only Microsoft that saved it.

Tesla? If it slips people might want the technology and maybe the production facilities. But they are not going to pay big goodwill for that.

Bet Musk engineers another major corporate transaction (merger with an existing car company? Something else?) before push comes to shove on this one. Shades of AOL Time Warner or Daimler Chrysler (where the weaker partner was selling out at the top).

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TomatoTomahto
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Re: Tesla - next big lottery ticket ?

Post by TomatoTomahto » Sun Jul 30, 2017 8:46 am

Valuethinker wrote:Musk is at the peak of a hype bubble. Even if he executes according to plan the shares are very expensive. If he doesn't, then they are well overvalued.
And, with the pathological honesty of an engineer, Musk would tell you so.

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Re: Tesla - next big lottery ticket ?

Post by FoolMeOnce » Sun Jul 30, 2017 8:50 am

Prettybogle, you were worried about a $100/month (and even a $30/month) increase in your rent, but now you have $5k of play money to throw at a popular stock?

Sorry, but you missed the party. If you could go back five years and buy at 18, sure. But an overheated 350? There just doesn't seem to be much portfolio-altering upside left.

If you want some new upstart stock for fun money, look into Redfin. But really, when you are worried about rent and in a squeeze for the down payment for the house you want, don't risk the 5k.

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Re: Tesla - next big lottery ticket ?

Post by jbolden1517 » Sun Jul 30, 2017 9:02 am

MN Finance wrote:First, nobody is carrying "a lot" of tsla unless you think 0.15% is a lot as a percentage of just us stocks.
I had said stocks like Tesla. Amazon, Netflix, Tenet, Staples, Halliburton,... would likely meet with similar analysis. That starts being something like 20% of TSM.
MN Finance wrote: Second, nobody objects to holding it. They think the market has priced it correctly. They just object to your assertion that the market has mispriced it, which is precisely your argument.
I think you should reread the thread. They were objecting to holding it and saying it was overpriced. If the market had priced it correctly then there wouldn't have been objections in it. This was a classic value investor type thread: buy stocks at reasonable multiples based on likely outcomes.
MN Finance wrote: As such, they are cautioning you from thinking you're smarter than millions of market players.
Again the people in the thread were doing exactly the opposite. They were all asserting (not just me) that it is possible to evaluate this sort of information. That's why I asked. If you think all stocks are always priced correctly then there wouldn't be much objection to owning Tesla.

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Re: Tesla - next big lottery ticket ?

Post by MN Finance » Sun Jul 30, 2017 9:47 am

No. The point is not that someone shouldn't own it. In fact i think a lot of people here own individual stocks. As someone said, owning 5k of tsla probably doesn't make any difference. But the broader point is valid. No need to restate what's pretty obvious.

I think the replies were pretty balanced and thoughtful. There were good points about the risk of thinking you're smarter, which don't matter for tsla, but are important for setting precedent. And there were direct responses to the valuation, which go right to the question posed. It's pretty clear that people mistake good business or technology with profitable investment opty.

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Re: Tesla - next big lottery ticket ?

Post by vitaflo » Sun Jul 30, 2017 11:11 am

prettybogle wrote:
TigerNest wrote:Tesla was a lottery ticket until early 2013. It's now worth $55 billion, more than Ford ($44 billion) and GM ($52 billion).

For you to jump from "$350 a share to $1000 in less than a decade", Tesla would have to increase in value to $157 billion, which is about what Ford, GM, Honda and Mitsubishi combined are worth.
Most of the retailers are less than 10 billion while amazon is 500 billion. I will probably get in trouble for saying this - While I understand individual stocks are risky, unfortunately when it comes to multibagger gains, they are the only game in marketville. Index investing may only get "fair share of returns".
Amazon did not need to build brick-and-mortar stores like every other retailer. Amazon sells almost everything from every other competing retailer. No other retailer is making huge sums of money off of selling cloud computing services like Amazon. Half the internet runs off Amazon servers. There's a reason they are valued as high as they are.

Telsa still has to make huge factories and build actual cars. The same thing lots of other car makers have been doing for decades. Other than making luxury vehicles and hype, there is no reason for Telsa to be valued as much as GM or Ford. These aren't phones they're making, they are $35k+ luxury vehicles.

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Re: Tesla - next big lottery ticket ?

Post by Valuethinker » Sun Jul 30, 2017 11:30 am

MN Finance wrote:No. The point is not that someone shouldn't own it. In fact i think a lot of people here own individual stocks. As someone said, owning 5k of tsla probably doesn't make any difference. But the broader point is valid. No need to restate what's pretty obvious.
I would caveat that. $5k is c. 27k in 30 years at 6%. Losing the money in Tesla *is* actually consequential, for a lot of people. I think it could go to zero: it has high operational gearing, big capex requirements, debt leverage. If things go wrong, zero is a feasible outcome. (I have ignored tax considerations).
I think the replies were pretty balanced and thoughtful. There were good points about the risk of thinking you're smarter, which don't matter for tsla, but are important for setting precedent. And there were direct responses to the valuation, which go right to the question posed. It's pretty clear that people mistake good business or technology with profitable investment opty.
In fact that is one of the known behavioural biases: Representativeness Effect? We overgeneralize from our understanding about Tesla as a product, impressed by Elon Musk, etc, to thinking that teaches us about Tesla as a stock. When, in fact, questions like valuation come into play.

I must admit I am not convinced Tesla is a good business. Making cars is a business where, cyclically adjusted, the average car maker seems to make about a 5% operating profit (EBIT) margin. Return on Capital is pretty lousy too. Every downturn, one or more major automakers seem to go to the wall. You have new entrants from emerging markets that don't seem to face the same constraints re private shareholders and capital markets. I am thinking of the Chinese-- have they even sold any cars in the USA yet? They are perhaps where the Koreans were 20 years ago, but may move up that curve very quickly (see what Huwai has done in that time frame).

I have also heard it said (but never did any research of my own) that car companies are basically consumer finance companies that have car assembly and marketing subsidiaries. That the money is being made on the finance side. That's almost certainly true in the limited sense that most cars seem to be sold with (and by) their finance packages these days. I read that 80% of BMWs and Mercedes in US are sold on lease finance. For Ford, GM & Chrysler it seems to be on the SUV + pickup side.

What Musk is doing with Tesla is pretty clearly disruptive. And from a societal/ human civilization point of view, I am rooting for him.

BMW makes good money and if he can migrate to the BMW/ Daimler niche and make good money, then hats off to him.

But as a business model? Automotive production in general? Ugh.
Last edited by Valuethinker on Sun Jul 30, 2017 11:40 am, edited 1 time in total.

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Re: Tesla - next big lottery ticket ?

Post by Valuethinker » Sun Jul 30, 2017 11:37 am

FoolMeOnce wrote:Prettybogle, you were worried about a $100/month (and even a $30/month) increase in your rent, but now you have $5k of play money to throw at a popular stock?

Sorry, but you missed the party. If you could go back five years and buy at 18, sure. But an overheated 350? There just doesn't seem to be much portfolio-altering upside left.

If you want some new upstart stock for fun money, look into Redfin. But really, when you are worried about rent and in a squeeze for the down payment for the house you want, don't risk the 5k.
This is good advice. $100 pcm would burn the Tesla investment in 4 years. If OP has an issue with $100 pcm, he/ she does not have the werewithal to risk $5k on a chancy stock.

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Re: Tesla - next big lottery ticket ?

Post by hightower » Sun Jul 30, 2017 11:47 am

The next time they drop to less than 200/share I plan on buying some shares. I won't bet the farm on them, but I allow myself about 5k of play money for such occasions. I do not think they are going to be able to hit their target model 3 numbers over the next couple of years which is why I expect their stock price to drop dramatically at some point. I do think they will EVENTUALLY take off and become a solid fixture in the automobile industry that will outshine all others. That combined with their battery systems and solar tiles for homes will make them a good stock to own.
I can't wait until their power wall units come down in price a bit more. We're moving to a farm in the next couple of years and building a small passive house and we plan on going full solar with whole house battery power. But, we'll probably just do net metering for awhile first and wait for solid state batteries to come out.

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Re: Tesla - next big lottery ticket ?

Post by TomatoTomahto » Sun Jul 30, 2017 12:14 pm

I don't get this idea of play money. 15 years ago, I invested what I considered play money in a private placement. It was, literally, 10 basis points of our current NW and it still bothers me more than any other investment, many of which went south more substantially in $ terms. I feel that way because it was hubris.

At least Tesla is a public company, but play money I don't get.

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Re: Tesla - next big lottery ticket ?

Post by arcticpineapplecorp. » Sun Jul 30, 2017 12:26 pm

great posts everyone. Really enjoyed them. The one thing I was wondering was for the prettybogle:

how did you come to determine that the price that's worth $350 now will be worth $1000 in 10 years? What kind of valuation models did you run? Do you know econometrics? (would that even help)? Have you studied the balance sheets of the company? Read the annual and quarterly reports? I'm just curious how you determined that the stock will be worth $1000 in 10 years. Was it something you heard a talking head say?

The reason I ask is because you've made an assumption. It may be wrong or right. But how did you come to that assumption?

By the way, even Elon Musk thinks the price of the stock is overpriced. That's not a screaming buy recommendation if ever I've heard one.

https://www.google.com/search?q=elon+sa ... 8&oe=utf-8
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

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Re: Tesla - next big lottery ticket ?

Post by HomerJ » Sun Jul 30, 2017 12:30 pm

jbolden1517 wrote:If you think all stocks are always priced correctly then there wouldn't be much objection to owning Tesla.
There's no objection to owning Tesla. We are objecting to the idea that one can determine which stock will be the next "lottery ticket".

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Re: Tesla - next big lottery ticket ?

Post by Helo80 » Sun Jul 30, 2017 12:40 pm

vitaflo wrote:Telsa still has to make huge factories and build actual cars. The same thing lots of other car makers have been doing for decades. Other than making luxury vehicles and hype, there is no reason for Telsa to be valued as much as GM or Ford. These aren't phones they're making, they are $35k+ luxury vehicles.

Exactly.... to me, Tesla is still a novelty stock that is getting tons of money thrown at it b/c it's Silicon Valley's poster child. Alternatively fueled vehicles are surely the future. Now, whether that includes Tesla, we don't know. The internal combustion engine industry has many a makers that either got sidelined, bought out or folded. Tesla is worth more than GM or Ford --- and GM and Ford can ramp up production a heck of a lot better than Tesla (and has the supply industry to back it up). Toyota can roll a new Camry off the line every 65 seconds in Georgetown, KY. Tesla is not any of this. Plus, GM and Ford have the distribution network, and most car buyers are not going to wait months on end for a reservation for a future car.

Over the last few years, Musk is full of talk and promises, but often misses deadlines. He has many loyal engineers and employees, but people know he's a demanding boss and you're going to work a lot of hours with him. I don't sit here and begrudge his success and wish him ill will, but you cannot build a company on wishful thinking and unfulfilled promises. If the big Tesla money backers don't get their ROI, they may take their money elsewhere (and put it in an index fund or some new venture capital project). It's comical to read on reddit and LinkedIn every time Musk fails to deliver, he has a legion of supporters that have all sorts of excuses. That's totally fine, but I would not invest my personal money in Musk beyond what the index funds do. Again, I don't begrudge Tesla any more or less than Ford or GM or FCA or any other auto maker. Rather, I'm a realist and I'll be eager to see what Musk's throughput in 2018 on this low cost Model 3 is. Plus, Musk may end up fighting demons if common issues pop up and/or there are QC issues.

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