Bear Cub Smells Bubble

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rascott
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Re: Bear Cub Smells Bubble

Post by rascott »

bck63 wrote: Sat Aug 29, 2020 6:54 pm
rascott wrote: Sat Aug 29, 2020 5:01 pm
bck63 wrote: Sat Aug 29, 2020 11:11 am
rascott wrote: Wed Aug 26, 2020 12:41 am
DonIce wrote: Wed Aug 26, 2020 12:31 am

Of course it is. "Tech" is more than just the companies that serve you ads.
It makes cars. I'm not interested in debating it further.
Tesla isn't a tech company. And it's not a car company. It's creating a whole new industry that we can't full understand right now.

In 100 years, humans will think of the phrase "electric car" the way we now think of the phrase "horseless carriage" -- a quaint way of explaining something that was way ahead of its time and difficult to describe within the confines of contemporary culture.

Tesla is a transportation company, a power storage company, a navigation systems company, an energy company, and oh yes, it sells cars.

Tesla is undervalued. It will lead us out of the fossil fuel age into a whole new era.


Thanks for the laugh. The cult in Tesla is strong, no doubt.
I don't own Tesla stock. Yet. And cult? 49.2% of Tesla shares are owned by institutional investors, which is right in line with many other mainstream companies.

Suggestion: work on resolving your ignorance rather than trying to cover it up with pithy one-liners. :-) Good luck.
Tesla has the worst build quality and reliability of any car maker in America. Every other major car maker is getting ready to unleash a large line of EVs in the next 2-4 years.

They are a hope and dream company at its valuation. Those hope and dream companies occasionally work out long- term (Amazon). More than often they don't.
bck63
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Re: Bear Cub Smells Bubble

Post by bck63 »

rascott wrote: Sat Aug 29, 2020 9:09 pm
bck63 wrote: Sat Aug 29, 2020 6:54 pm
rascott wrote: Sat Aug 29, 2020 5:01 pm
bck63 wrote: Sat Aug 29, 2020 11:11 am
rascott wrote: Wed Aug 26, 2020 12:41 am

It makes cars. I'm not interested in debating it further.
Tesla isn't a tech company. And it's not a car company. It's creating a whole new industry that we can't full understand right now.

In 100 years, humans will think of the phrase "electric car" the way we now think of the phrase "horseless carriage" -- a quaint way of explaining something that was way ahead of its time and difficult to describe within the confines of contemporary culture.

Tesla is a transportation company, a power storage company, a navigation systems company, an energy company, and oh yes, it sells cars.

Tesla is undervalued. It will lead us out of the fossil fuel age into a whole new era.


Thanks for the laugh. The cult in Tesla is strong, no doubt.
I don't own Tesla stock. Yet. And cult? 49.2% of Tesla shares are owned by institutional investors, which is right in line with many other mainstream companies.

Suggestion: work on resolving your ignorance rather than trying to cover it up with pithy one-liners. :-) Good luck.
Tesla has the worst build quality and reliability of any car maker in America. Every other major car maker is getting ready to unleash a large line of EVs in the next 2-4 years.

They are a hope and dream company at its valuation. Those hope and dream companies occasionally work out long- term (Amazon). More than often they don't.
So where's the uh, what'd you call it? Oh yeah. Cult. Do you know what a cult is? Do you have any clue that your comparison is completely ridiculous?
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HomerJ
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Re: Bear Cub Smells Bubble

Post by HomerJ »

texasfight wrote: Sat Aug 29, 2020 10:49 am Let me tell you how much Apple is worth with a positive earnings yield at negative 30 yr real yields. Infinity.

If a portfolio of US stocks and treasury bonds fails to keep going up and to the right from here on out, the US undergoes a sovereign default. Period. Luke Gromen is a great resource on this. https://twitter.com/LukeGromen

There is the possibility that the Fed cannot stop a relentless dollar rise (lots of discussion on fintwit debating if the Fed is actually monetizing the debt - i won't get into this cause of forum rules). If you want the most in depth discussion of the Fed, primary dealer, reserves, etc. process you should check out Brent at Santiago Capital discussion with Lyn Alden and Travis K.

Brent is betting on the most violent dollar short squeeze in history, and that unless the Fed changes policy, they will be unable to fight it with current tools.

https://twitter.com/SantiagoAuFund?ref_ ... r%5Eauthor
https://twitter.com/coloradotravis
https://twitter.com/LynAldenContact
Inflation is all the government needs to handle the debt.

Interest rates are SUPER low on Treasury debt, and if inflation is just slightly higher than those rates, the government will not go into default.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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HomerJ
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Re: Bear Cub Smells Bubble

Post by HomerJ »

bck63 wrote: Sat Aug 29, 2020 7:35 pm Interesting observations. Thank you. I think what is different now is that Teslas are now pretty much in the mainstream. A friend in northern Virginia told me they are as common there as some other mainstream brands. My wife and I were in NYC two weeks ago and I was shocked at the number of Teslas I saw. Really stunned at how many are on the road. Another friend in Seattle said they're as popular as VWs out there.
Why would you state something so easy to check? Some friends in Virginia and Seattle? That's not data... That's just anecdotes.
At the end of 2019, Tesla's global sales since 2012 totaled over 891,000 units.
GM sold 3 million cars in the U.S. in just 2019 alone.
Ford sold 2.4 million cars in the U.S. in just 2019 alone

Tesla is about as popular as VW, yes... But VW has like 1.5% of the U.S. market. It's good that Tesla may also have 1.5% of the US market.

Unfortunately, it's valued like it has 100% of the U.S. car market. And a good chunk of the world-wide market too.

Ford and GM together, with 30% of the U.S. market are worth $70 billion.

Tesla is worth $400 billion.

Not sure how it's going to justify those numbers. It's ALREADY priced to sell all the cars in the U.S. plus a good percentage of the cars in every other country as well.

Seriously, don't jump on my statements right away... Take a second.. Think about what I just wrote.

Ford and GM combined sell 30% of the cars in the U.S. They are worth, together, $70 billion.

Tesla sells 1.5% of the cars in the U.S. It is currently worth over $400 billion.

Take another few seconds. Reconcile those numbers. Think about it.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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TechGuy365
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Re: Bear Cub Smells Bubble

Post by TechGuy365 »

To me Tesla and Zoom are in the speculative territory and I would be afraid to touch them.

With that said, one thing I like about high tech cars like Tesla is that they can be updated while sitting in your driveway. So your Tesla can actually have more capabilities and intelligence than the day you drove them home. This is similar to computers via software updates than traditional cars. They also hire more software and AI engineers than more traditional car companies.

If Tesla can create a reliable and predictable revenue stream through maintenance, services, added capability or whatever it may be, it would have a solid business model and a fan-base like Apple.

(The thread was too long so hopefully I didn’t repeat what somebody else had said)
langlands
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Re: Bear Cub Smells Bubble

Post by langlands »

A few posters in this thread seem to have a very strong opinion about the valuation of TSLA. I presume that such posters would then be in favor of individual stock picking? If a liquid well known name like TSLA is such an obvious bubble, surely there must be all sorts of mispriced small cap stocks to take advantage of. I don't understand how one can on the one hand believe that passive investing is superior to active investing and on the other believe that the market is so inefficient as to grossly misprice a $400 billion market cap company.
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Stinky
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Re: Bear Cub Smells Bubble

Post by Stinky »

HomerJ wrote: Sat Aug 29, 2020 11:39 pm
bck63 wrote: Sat Aug 29, 2020 7:35 pm Interesting observations. Thank you. I think what is different now is that Teslas are now pretty much in the mainstream. A friend in northern Virginia told me they are as common there as some other mainstream brands. My wife and I were in NYC two weeks ago and I was shocked at the number of Teslas I saw. Really stunned at how many are on the road. Another friend in Seattle said they're as popular as VWs out there.
Why would you state something so easy to check? Some friends in Virginia and Seattle? That's not data... That's just anecdotes.
At the end of 2019, Tesla's global sales since 2012 totaled over 891,000 units.
GM sold 3 million cars in the U.S. in just 2019 alone.
Ford sold 2.4 million cars in the U.S. in just 2019 alone

Tesla is about as popular as VW, yes... But VW has like 1.5% of the U.S. market. It's good that Tesla may also have 1.5% of the US market.

Unfortunately, it's valued like it has 100% of the U.S. car market. And a good chunk of the world-wide market too.

Ford and GM together, with 30% of the U.S. market are worth $70 billion.

Tesla is worth $400 billion.

Not sure how it's going to justify those numbers. It's ALREADY priced to sell all the cars in the U.S. plus a good percentage of the cars in every other country as well.

Seriously, don't jump on my statements right away... Take a second.. Think about what I just wrote.

Ford and GM combined sell 30% of the cars in the U.S. They are worth, together, $70 billion.

Tesla sells 1.5% of the cars in the U.S. It is currently worth over $400 billion.

Take another few seconds. Reconcile those numbers. Think about it.
Great post.

It’s always good to bring statistics and facts to a discussion.
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columbia
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Re: Bear Cub Smells Bubble

Post by columbia »

Is Tesla in the midst of an irrational bubble? Probably and/or it sure seems like it, but who knows...

Having said:

Image

Source for image:
https://stockdividendscreener.com/auto- ... -analysis/

My assumption is that the market believes that the energy generation and storage revenue will be the driver (rim shot) in the future.
bck63
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Re: Bear Cub Smells Bubble

Post by bck63 »

HomerJ wrote: Sat Aug 29, 2020 11:39 pm GM sold 3 million cars in the U.S. in just 2019 alone.
Ford sold 2.4 million cars in the U.S. in just 2019 alone
The obvious answer to your post is -- wait for it -- markets are forward looking!

Many estimates put Tesla's annual car sales at 5 million by 2025, placing it close to all sales of GM and Ford combined.

That is what is meant by "forward looking." Yes, the valuation may look ridiculous now, but the market is not myopic. It is looking years out.

This is not to say that Tesla stock couldn't drop 80 percent or more at any moment. It happened to Amazon, and Apple came close to that as well.

It's also not to say that a competitor or multiple competitors won't beat Tesla at the game. Nothing is certain in life. And the market is not omniscient, despite what some of these whacky pseudo-EMTers claim around here.
PicassoSparks
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Re: Bear Cub Smells Bubble

Post by PicassoSparks »

langlands wrote: Sun Aug 30, 2020 12:53 am A few posters in this thread seem to have a very strong opinion about the valuation of TSLA. I presume that such posters would then be in favor of individual stock picking? If a liquid well known name like TSLA is such an obvious bubble, surely there must be all sorts of mispriced small cap stocks to take advantage of. I don't understand how one can on the one hand believe that passive investing is superior to active investing and on the other believe that the market is so inefficient as to grossly misprice a $400 billion market cap company.
The efficient market hypothesis states only that the market price of every security in the market reflects all currently known information about the stock. Some of the information that it reflects includes all the wrongheaded ideas that people have about the stock. The humbleness of index investing is recognizing that our own ideas are extremely likely to be wrongheaded as well.

It’s the efficient market hypothesis, not the rational market hypothesis.

When the markets crashed in March, we had record setting drops followed by record setting gains. If you believe that stocks are only priced based on their fundamentals, then you need to take the position that people’s expectations about the future earnings of the market rationally whipsawed up and down over the course of days. If you believe that some of the price information in stocks includes people’s expectations about near term changes in price, then this kind of swing makes a lot more sense.

Tesla’s price reflects both the expectations of long term investors and short term traders. I think it is reasonable to strongly suspect that the current pricing is dominated by the expectations of traders rather than investors.

Fama has said “every price is wrong in retrospect” and has tried to account for the wild swings of the market during a crisis by positing that what’s changing is people’s risk appetites. Which, again, are not rational but a form of investor taste.
Whakamole
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Re: Bear Cub Smells Bubble

Post by Whakamole »

nisiprius wrote: Wed Aug 26, 2020 6:26 am 1) The old devil efficient market hypothesis applies during a bubble, too. If everyone believed it was a bubble, there would not be a bubble.
I remember 1999. Many investors thought dotcom valuations were insane but that it would work out since they could sell to a bigger idiot, thus all the people who quit their jobs to day trade. :oops:
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TheTimeLord
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Re: Bear Cub Smells Bubble

Post by TheTimeLord »

TechGuy365 wrote: Sun Aug 30, 2020 12:22 am To me Tesla and Zoom are in the speculative territory and I would be afraid to touch them.

With that said, one thing I like about high tech cars like Tesla is that they can be updated while sitting in your driveway. So your Tesla can actually have more capabilities and intelligence than the day you drove them home. This is similar to computers via software updates than traditional cars. They also hire more software and AI engineers than more traditional car companies.

If Tesla can create a reliable and predictable revenue stream through maintenance, services, added capability or whatever it may be, it would have a solid business model and a fan-base like Apple.

(The thread was too long so hopefully I didn’t repeat what somebody else had said)
My problem with Zoom is I don't like the product and have no clue how it isn't displaced by Teams or WebEx if Cisco ever gets a clue. It seems like its future is to be acquired.
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Ed 2
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Re: Bear Cub Smells Bubble

Post by Ed 2 »

000 wrote: Wed Aug 26, 2020 12:00 am 1. Tech stocks are priced to perfection. TSLA, AAPL come to mind.
2. 100% stock portfolios are all the rage. Bonds are bad. Cash is trash. Gold is gross.
3. The mainstream is pushing TINA (There Is No Alternative to stocks) as well.
4. Almost everyone is either euphoric about stocks or has succumbed to TINA.
5. Berkshire Hathaway has succumbed to holding huge portions of AAPL.
6. People who would never have owned (as much in) stocks in the past are piling in.
7. Some are day trading their stimulus checks or student loans.
8. Some are leaving good jobs in their 30s to live off stocks passively for 50+ years.
9. I have seen discussions about the stock market in non-investment contexts.

Are stocks in a bubble? Or have they reached a permanently high plateau? Or do I need a dose of optimism? :mrgreen:
Bear Cub need to skip this forum. This place for investors - not predictions and speculation. You are welcome!
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Steve Reading
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Re: Bear Cub Smells Bubble

Post by Steve Reading »

PicassoSparks wrote: Sun Aug 30, 2020 11:37 am
langlands wrote: Sun Aug 30, 2020 12:53 am A few posters in this thread seem to have a very strong opinion about the valuation of TSLA. I presume that such posters would then be in favor of individual stock picking? If a liquid well known name like TSLA is such an obvious bubble, surely there must be all sorts of mispriced small cap stocks to take advantage of. I don't understand how one can on the one hand believe that passive investing is superior to active investing and on the other believe that the market is so inefficient as to grossly misprice a $400 billion market cap company.
The efficient market hypothesis states only that the market price of every security in the market reflects all currently known information about the stock. Some of the information that it reflects includes all the wrongheaded ideas that people have about the stock.
Back in 2014, there was a close-ended mutual fund named $CUBA, which traded on the NASDAQ I believe. Its net asset value was about $8 a share. In December, Obama released the statement that the USA would renew relationships with Cuba, the country. Investors began to bid up the price of the fund $CUBA, despite the fact that the fund had nothing to do with Cuba :oops: . The CEF ended up trading at a peak of $14, until it then dropped back.

Most academicians would call the above a gross inefficiency. Institutions can clearly short CUBA, go long its underlying assets, and enjoy a completely riskless profit. I'm sure many did, the price eventually reverted back to NAV.

But you would say the above is no inefficiency at all. That $CUBA was simply accurately reflecting the wrongheaded views of people?
langlands wrote: Sun Aug 30, 2020 12:53 am A few posters in this thread seem to have a very strong opinion about the valuation of TSLA. I presume that such posters would then be in favor of individual stock picking? If a liquid well known name like TSLA is such an obvious bubble, surely there must be all sorts of mispriced small cap stocks to take advantage of. I don't understand how one can on the one hand believe that passive investing is superior to active investing and on the other believe that the market is so inefficient as to grossly misprice a $400 billion market cap company.
Agreed 100%.
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nedsaid
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Re: Bear Cub Smells Bubble

Post by nedsaid »

HomerJ wrote: Sat Aug 29, 2020 11:39 pm
bck63 wrote: Sat Aug 29, 2020 7:35 pm Interesting observations. Thank you. I think what is different now is that Teslas are now pretty much in the mainstream. A friend in northern Virginia told me they are as common there as some other mainstream brands. My wife and I were in NYC two weeks ago and I was shocked at the number of Teslas I saw. Really stunned at how many are on the road. Another friend in Seattle said they're as popular as VWs out there.
Why would you state something so easy to check? Some friends in Virginia and Seattle? That's not data... That's just anecdotes.
At the end of 2019, Tesla's global sales since 2012 totaled over 891,000 units.
GM sold 3 million cars in the U.S. in just 2019 alone.
Ford sold 2.4 million cars in the U.S. in just 2019 alone

Tesla is about as popular as VW, yes... But VW has like 1.5% of the U.S. market. It's good that Tesla may also have 1.5% of the US market.

Unfortunately, it's valued like it has 100% of the U.S. car market. And a good chunk of the world-wide market too.

Ford and GM together, with 30% of the U.S. market are worth $70 billion.

Tesla is worth $400 billion.

Not sure how it's going to justify those numbers. It's ALREADY priced to sell all the cars in the U.S. plus a good percentage of the cars in every other country as well.

Seriously, don't jump on my statements right away... Take a second.. Think about what I just wrote.

Ford and GM combined sell 30% of the cars in the U.S. They are worth, together, $70 billion.

Tesla sells 1.5% of the cars in the U.S. It is currently worth over $400 billion.

Take another few seconds. Reconcile those numbers. Think about it.
Good work Homer. This is why I am not rushing out to buy Tesla stock. Thanks for posting.
A fool and his money are good for business.
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TheTimeLord
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Re: Bear Cub Smells Bubble

Post by TheTimeLord »

nedsaid wrote: Sun Aug 30, 2020 12:28 pm
HomerJ wrote: Sat Aug 29, 2020 11:39 pm
bck63 wrote: Sat Aug 29, 2020 7:35 pm Interesting observations. Thank you. I think what is different now is that Teslas are now pretty much in the mainstream. A friend in northern Virginia told me they are as common there as some other mainstream brands. My wife and I were in NYC two weeks ago and I was shocked at the number of Teslas I saw. Really stunned at how many are on the road. Another friend in Seattle said they're as popular as VWs out there.
Why would you state something so easy to check? Some friends in Virginia and Seattle? That's not data... That's just anecdotes.
At the end of 2019, Tesla's global sales since 2012 totaled over 891,000 units.
GM sold 3 million cars in the U.S. in just 2019 alone.
Ford sold 2.4 million cars in the U.S. in just 2019 alone

Tesla is about as popular as VW, yes... But VW has like 1.5% of the U.S. market. It's good that Tesla may also have 1.5% of the US market.

Unfortunately, it's valued like it has 100% of the U.S. car market. And a good chunk of the world-wide market too.

Ford and GM together, with 30% of the U.S. market are worth $70 billion.

Tesla is worth $400 billion.

Not sure how it's going to justify those numbers. It's ALREADY priced to sell all the cars in the U.S. plus a good percentage of the cars in every other country as well.

Seriously, don't jump on my statements right away... Take a second.. Think about what I just wrote.

Ford and GM combined sell 30% of the cars in the U.S. They are worth, together, $70 billion.

Tesla sells 1.5% of the cars in the U.S. It is currently worth over $400 billion.

Take another few seconds. Reconcile those numbers. Think about it.
Good work Homer. This is why I am not rushing out to buy Tesla stock. Thanks for posting.
Image
Image
Last edited by TheTimeLord on Sun Aug 30, 2020 12:36 pm, edited 1 time in total.
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nedsaid
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Re: Bear Cub Smells Bubble

Post by nedsaid »

I like the Tesla chart that The Time Lord published which shows the promise of Tesla. The problem is the valuation. Even if Tesla has great growth, the expectations of the stock might be just too high. Tesla could become a great company but be a terrible investment.
A fool and his money are good for business.
minimalistmarc
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Re: Bear Cub Smells Bubble

Post by minimalistmarc »

I don’t buy individual stocks but if I did I would definitely buy Tesla now and any time in the past few years. It will be volatile for sure, but today’s share price will eventually seem cheap.
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HomerJ
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Re: Bear Cub Smells Bubble

Post by HomerJ »

bck63 wrote: Sun Aug 30, 2020 8:07 am
HomerJ wrote: Sat Aug 29, 2020 11:39 pm GM sold 3 million cars in the U.S. in just 2019 alone.
Ford sold 2.4 million cars in the U.S. in just 2019 alone
The obvious answer to your post is -- wait for it -- markets are forward looking!

Many estimates put Tesla's annual car sales at 5 million by 2025, placing it close to all sales of GM and Ford combined.
You didn't take a second to think about the numbers like I asked.

Sure, markets are forward-looking, but they are not just assuming Tesla will match GM and Ford sales combined 4 years from now. They are assuming SIX times the profit as well.

That's a lot of assumptions. Profit margin may be higher, but six times higher? For the stock to be worth what it is today, Tesla will have get 30% market share and have 6x the profit. Or are we looking for 60% share and 3x the profit? Even if they achieve that, not much room for growth there.

Now, that said, the stock could still continue to grow from here. The market can stay irrational a long time.

Look I get it. They do charge for software, and that scales very nicely with great profit margins. Maybe they will increase revenue in their other businesses.

But remember, it's already priced for those things. People already assume those other things will happen. Maybe they will and Tesla should be worth $400 billion. But we're taking about buying it today where it's already priced at $400 billion. I'm not just talking about the chance of a crash, I'm asking how can it grow farther?

Even if it's worth $400 billion legit, how will it grow from there? Tesla can be a great successful company, but they are pricing it like it will be the ONLY car company on the planet someday. It's ALREADY worth more than Ford, GM, Toyota, and Honda combined (30B + 40B + 200B + 70B = $340 billion). Heck, there's room left for ANOTHER Ford and GM in that valuation.

Even if it achieves that somehow, how is it going to grow substantially from here?
Last edited by HomerJ on Sun Aug 30, 2020 1:59 pm, edited 4 times in total.
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HomerJ
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Re: Bear Cub Smells Bubble

Post by HomerJ »

minimalistmarc wrote: Sun Aug 30, 2020 12:55 pm I don’t buy individual stocks but if I did I would definitely buy Tesla now and any time in the past few years. It will be volatile for sure, but today’s share price will eventually seem cheap.
Only if does a lot more than cars.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
Addy
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Re: Bear Cub Smells Bubble

Post by Addy »

HomerJ wrote: Sun Aug 30, 2020 1:48 pm ...
Even if it's worth $400 billion legit, how will it grow from there? Tesla can be a great successful company, but they are pricing it like it will be the ONLY car company on the planet someday. It's ALREADY worth more than Ford, GM, Toyota, and Honda combined (30B + 40B + 200B + 70B = $340 billion). Heck, there's room left for ANOTHER Ford and GM in that valuation.
...
I think you need to compare Enterprise Value (EV), which accounts for debt, rather than Market Cap alone, Tesla = 435B, Ford, GM, Toyota, and Honda (164B + 143B + 339B + 95B) = 741B.

By this measure, Tesla is worth roughly the same as Toyota + Honda.
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jjustice
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Re: Bear Cub Smells Bubble

Post by jjustice »

Robot Monster wrote: Wed Aug 26, 2020 8:13 am
000 wrote: Wed Aug 26, 2020 12:00 am Are stocks in a bubble?
If you're asking about US stocks, Vanguard says, "no". Compare the blue line of today to where the blue line was during the dot-.com bubble, where CAPE reached 44. S&P's CAPE is only 31.69.

Vanguard says, "no":
Image

Certainly it's far away from Japan 1989.
Image
I'm happy to see this kind of relevant statistical information. Unfortunately, it is already out of date. The CAPE has risen 6.5% just since the July 31 date of this chart. I assume that the market is now above the 1/2 sd band sheltering Vanguard's fair-value CAPE.

Not that it changes my policy of keeping a constant allocation in stock by rebalancing in tax-deferred funds, but I do think that we are in a bubble.

John
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Re: Bear Cub Smells Bubble

Post by Robot Monster »

jjustice wrote: Sun Aug 30, 2020 3:48 pm
Robot Monster wrote: Wed Aug 26, 2020 8:13 am
000 wrote: Wed Aug 26, 2020 12:00 am Are stocks in a bubble?
If you're asking about US stocks, Vanguard says, "no". Compare the blue line of today to where the blue line was during the dot-.com bubble, where CAPE reached 44. S&P's CAPE is only 31.69.

Vanguard says, "no":
Image

Certainly it's far away from Japan 1989.
Image
I'm happy to see this kind of relevant statistical information. Unfortunately, it is already out of date. The CAPE has risen 6.5% just since the July 31 date of this chart. I assume that the market is now above the 1/2 sd band sheltering Vanguard's fair-value CAPE.

Not that it changes my policy of keeping a constant allocation in stock by rebalancing in tax-deferred funds, but I do think that we are in a bubble.

John
Fair enough. Point taken. I see that the CAPE has gone from 30.32 on August 1st to 32.28 on August 28th. Maybe it's a bit overvalued at this point.
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bck63
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Re: Bear Cub Smells Bubble

Post by bck63 »

HomerJ wrote: Sun Aug 30, 2020 1:48 pm Sure, markets are forward-looking, but they are not just assuming Tesla will match GM and Ford sales combined 4 years from now. They are assuming SIX times the profit as well.

That's a lot of assumptions. Profit margin may be higher, but six times higher? For the stock to be worth what it is today, Tesla will have get 30% market share and have 6x the profit. Or are we looking for 60% share and 3x the profit? Even if they achieve that, not much room for growth there.
Now I understand what you're saying. And yes I did read your other post!! And I just re-read it as well. Just takes me a while. Six times the profits -- beyond a tall order.

Thanks for all the time you took to respond. As I said in another post, I haven't bought Tesla. But it is a fascinating story. We shall see.
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Re: Bear Cub Smells Bubble

Post by PicassoSparks »

Steve Reading wrote: Sun Aug 30, 2020 12:24 pm Back in 2014, there was a close-ended mutual fund named $CUBA, which traded on the NASDAQ I believe. Its net asset value was about $8 a share. In December, Obama released the statement that the USA would renew relationships with Cuba, the country. Investors began to bid up the price of the fund $CUBA, despite the fact that the fund had nothing to do with Cuba :oops: . The CEF ended up trading at a peak of $14, until it then dropped back.

Most academicians would call the above a gross inefficiency. Institutions can clearly short CUBA, go long its underlying assets, and enjoy a completely riskless profit. I'm sure many did, the price eventually reverted back to NAV.

But you would say the above is no inefficiency at all. That $CUBA was simply accurately reflecting the wrongheaded views of people?
I love this story and I know that Richard Thayer likes to bring it out as a very compelling counterexample to efficient market hypothesis. I saw an interview/debate with Thayer and Fama and they talked about this example. Fama dismissed it as an anecdote and suggested that all Behavioural Economists had as evidence were weird curiosities like this and not compelling evidence that rose to statistical significance. Thayer agreed to this and suggested that this is partially because the efficient market hypothesis is essentially untestable, since you can keep modifying your models to fit with reality (as Fama and French did with the factors). It was interesting watch two people from different epistemic regimes trying to speak across the divide of their incompatible starting assumptions.

Efficient market hypothesis needs to claim that bubbles don’t exist. Fama says that no one has a compelling rigorous definition of a bubble. So when faced with 1996-2001 he says that what changed it investors’ taste for risk. That feels like begging the question to me. Fama says that since you can only identify a bubble in retrospect, it’s not really a term of analysis.

That said, even the Five Factor model only claims to account for 90% of the differences of returns between two well diversified portfolios and there has been an explosion of new factors proposed and modified by academics trying to find an accurate model that explains market returns. The efficient market hypothesis is the untestable assumption that drives this search. I read an interesting paper recently that used Bayesian analysis to suggest that the real factors were probably a hitherto unknown basket of factors—a multidimensional array with perhaps dozens of elements.

To answer your question: all of this has me deeply suspicious of any strong efficient market hypothesis, though I am prepared to agree with the much weaker hypothesis that the market is mostly efficient most of the time. I’m fascinated by the Grossman-Stiglitz paradox which seems to put an upper bound on how efficient the market can be. I think that, most of the time, people’s wrongheaded ideas cancel each other out and we get a wisdom of crowds situation. But from time to time—in ways that are difficult to spot except in retrospect—we stop getting independent wrongheaded ideas and they all push in the same direction and we get a madness of mobs situation.

I strongly suspect that Tesla is overvalued right now and that speculation about its continued rise is driving it higher than any reasonable expectation about the company’s future growth. I have suspected that for a long time, so its continued growth continues to surprise me.

The nice thing about this is I don’t need to worry about whether the efficient market hypothesis is true or not. Nor do I need to worry about whether or not I am right about Tesla. I can continue to invest in index funds in blissful ignorance of the specific dynamics that underlie market conditions, knowing that in the long run these moments of boom and bust disappear as noise.
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Re: Bear Cub Smells Bubble

Post by Steve Reading »

PicassoSparks wrote: Sun Aug 30, 2020 5:58 pm
Steve Reading wrote: Sun Aug 30, 2020 12:24 pm Back in 2014, there was a close-ended mutual fund named $CUBA, which traded on the NASDAQ I believe. Its net asset value was about $8 a share. In December, Obama released the statement that the USA would renew relationships with Cuba, the country. Investors began to bid up the price of the fund $CUBA, despite the fact that the fund had nothing to do with Cuba :oops: . The CEF ended up trading at a peak of $14, until it then dropped back.

Most academicians would call the above a gross inefficiency. Institutions can clearly short CUBA, go long its underlying assets, and enjoy a completely riskless profit. I'm sure many did, the price eventually reverted back to NAV.

But you would say the above is no inefficiency at all. That $CUBA was simply accurately reflecting the wrongheaded views of people?
I love this story and I know that Richard Thayer likes to bring it out as a very compelling counterexample to efficient market hypothesis. I saw an interview/debate with Thayer and Fama and they talked about this example. Fama dismissed it as an anecdote and suggested that all Behavioural Economists had as evidence were weird curiosities like this and not compelling evidence that rose to statistical significance. Thayer agreed to this and suggested that this is partially because the efficient market hypothesis is essentially untestable, since you can keep modifying your models to fit with reality (as Fama and French did with the factors). It was interesting watch two people from different epistemic regimes trying to speak across the divide of their incompatible starting assumptions.

Efficient market hypothesis needs to claim that bubbles don’t exist. Fama says that no one has a compelling rigorous definition of a bubble. So when faced with 1996-2001 he says that what changed it investors’ taste for risk. That feels like begging the question to me. Fama says that since you can only identify a bubble in retrospect, it’s not really a term of analysis.

That said, even the Five Factor model only claims to account for 90% of the differences of returns between two well diversified portfolios and there has been an explosion of new factors proposed and modified by academics trying to find an accurate model that explains market returns. The efficient market hypothesis is the untestable assumption that drives this search. I read an interesting paper recently that used Bayesian analysis to suggest that the real factors were probably a hitherto unknown basket of factors—a multidimensional array with perhaps dozens of elements.

To answer your question: all of this has me deeply suspicious of any strong efficient market hypothesis, though I am prepared to agree with the much weaker hypothesis that the market is mostly efficient most of the time. I’m fascinated by the Grossman-Stiglitz paradox which seems to put an upper bound on how efficient the market can be. I think that, most of the time, people’s wrongheaded ideas cancel each other out and we get a wisdom of crowds situation. But from time to time—in ways that are difficult to spot except in retrospect—we stop getting independent wrongheaded ideas and they all push in the same direction and we get a madness of mobs situation.

I strongly suspect that Tesla is overvalued right now and that speculation about its continued rise is driving it higher than any reasonable expectation about the company’s future growth. I have suspected that for a long time, so its continued growth continues to surprise me.

The nice thing about this is I don’t need to worry about whether the efficient market hypothesis is true or not. Nor do I need to worry about whether or not I am right about Tesla. I can continue to invest in index funds in blissful ignorance of the specific dynamics that underlie market conditions, knowing that in the long run these moments of boom and bust disappear as noise.
Wait, no, I think I wasn't clear enough.

My comment in no way pertains to the validity of the hypothesis.

My point was that I don't think EMH is simply "information gets factored into the price, even if totally wrong". Otherwise, why would Fama find the CUBA story in any way against the EMH? Why wouldn't Fama, like you, just say "well, $CUBA was just showing the wrongheaded views of people, so it's still efficient".

I'm not sure if I'm being clear enough.
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Re: Bear Cub Smells Bubble

Post by unclescrooge »

HomerJ wrote: Sun Aug 30, 2020 1:48 pm ....
Even if it achieves that somehow, how is it going to grow substantially from here?
By figuring out how to get the government to pay for or subsidize the products it gives to consumers.

I recently started a post where I explained I was getting two free Tesla powerwalls, subsidized by the state.

Without at least an 80% rebate, it wouldn't have made financial sense for me to buy them.
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Re: Bear Cub Smells Bubble

Post by PicassoSparks »

Steve Reading wrote: Sun Aug 30, 2020 6:58 pm Wait, no, I think I wasn't clear enough.

My comment in no way pertains to the validity of the hypothesis.

My point was that I don't think EMH is simply "information gets factored into the price, even if totally wrong". Otherwise, why would Fama find the CUBA story in any way against the EMH? Why wouldn't Fama, like you, just say "well, $CUBA was just showing the wrongheaded views of people, so it's still efficient".

I'm not sure if I'm being clear enough.
I mean, that's a question for Fama and not me. I found the debate here, if you want to see how he deals with CUBA. I think his answer verges on question begging, but he is a Nobel prize winner and I am an idiot on a finances chat forum.

The idea that markets incorporate all our wrong headed ideas… (let me frame this less flippantly) The idea that markets reflect all available information including competing hypotheses is a core tenet of market capitalism. The notion is that markets are better at ferreting out the correct price than a central planning system because all the different utilities of all the individual agents in the system find the point where supply meets demand. The markets are completely agnostic about the source of our demand, whether it's rational need or consumer taste.

The efficient market hypothesis is just that markets reflect all available information. I think people's competing expectations about the future returns and future price is part of that sea of information. Recall Keynes' example of the beauty contest where everyone's goal is to pick the contestant that will win. TSLA's current price reflects both the views of people who think that TSLA's long term future is incredibly bright and people who don't give a toss about TSLA's long term future, but think that its next few weeks or months will continue to show appreciation (not to mention the views of HFT market makers who have no position about the long or near term prospects, just their ability to shave fractions of a penny off the next few seconds of order flows). It also reflects the views of people who think this is a ridiculous bubble through their lack of demand for the stock at this price.
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Re: Bear Cub Smells Bubble

Post by HomerJ »

Tesla's value just increased by one entire Ford.

In one day.

Ford market-cap is $30 billion. Tesla just increased in value by $30 billion. Today.

One day.

Some one pointed out that market-cap is the wrong metric to use. He may be right.

I am still amazed.

Ah, well Vanguard Total Stock Market Index Fund contains Tesla, so I got some of that craziness.
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Re: Bear Cub Smells Bubble

Post by BogleFan510 »

PicassoSparks wrote: Sun Aug 30, 2020 5:58 pm
Steve Reading wrote: Sun Aug 30, 2020 12:24 pm Back in 2014, there was a close-ended mutual fund named $CUBA, which traded on the NASDAQ I believe. Its net asset value was about $8 a share. In December, Obama released the statement that the USA would renew relationships with Cuba, the country. Investors began to bid up the price of the fund $CUBA, despite the fact that the fund had nothing to do with Cuba :oops: . The CEF ended up trading at a peak of $14, until it then dropped back.

Most academicians would call the above a gross inefficiency. Institutions can clearly short CUBA, go long its underlying assets, and enjoy a completely riskless profit. I'm sure many did, the price eventually reverted back to NAV.

But you would say the above is no inefficiency at all. That $CUBA was simply accurately reflecting the wrongheaded views of people?
I love this story and I know that Richard Thayer likes to bring it out as a very compelling counterexample to efficient market hypothesis. I saw an interview/debate with Thayer and Fama and they talked about this example. Fama dismissed it as an anecdote and suggested that all Behavioural Economists had as evidence were weird curiosities like this and not compelling evidence that rose to statistical significance. Thayer agreed to this and suggested that this is partially because the efficient market hypothesis is essentially untestable, since you can keep modifying your models to fit with reality (as Fama and French did with the factors). It was interesting watch two people from different epistemic regimes trying to speak across the divide of their incompatible starting assumptions.

Efficient market hypothesis needs to claim that bubbles don’t exist. Fama says that no one has a compelling rigorous definition of a bubble. So when faced with 1996-2001 he says that what changed it investors’ taste for risk. That feels like begging the question to me. Fama says that since you can only identify a bubble in retrospect, it’s not really a term of analysis.

That said, even the Five Factor model only claims to account for 90% of the differences of returns between two well diversified portfolios and there has been an explosion of new factors proposed and modified by academics trying to find an accurate model that explains market returns. The efficient market hypothesis is the untestable assumption that drives this search. I read an interesting paper recently that used Bayesian analysis to suggest that the real factors were probably a hitherto unknown basket of factors—a multidimensional array with perhaps dozens of elements.

To answer your question: all of this has me deeply suspicious of any strong efficient market hypothesis, though I am prepared to agree with the much weaker hypothesis that the market is mostly efficient most of the time. I’m fascinated by the Grossman-Stiglitz paradox which seems to put an upper bound on how efficient the market can be. I think that, most of the time, people’s wrongheaded ideas cancel each other out and we get a wisdom of crowds situation. But from time to time—in ways that are difficult to spot except in retrospect—we stop getting independent wrongheaded ideas and they all push in the same direction and we get a madness of mobs situation.

I strongly suspect that Tesla is overvalued right now and that speculation about its continued rise is driving it higher than any reasonable expectation about the company’s future growth. I have suspected that for a long time, so its continued growth continues to surprise me.

The nice thing about this is I don’t need to worry about whether the efficient market hypothesis is true or not. Nor do I need to worry about whether or not I am right about Tesla. I can continue to invest in index funds in blissful ignorance of the specific dynamics that underlie market conditions, knowing that in the long run these moments of boom and bust disappear as noise.
Excellent post.

My personal opinion is that markets have a very difficult time establishing a good estimate for value for the ' true ballance sheet' of a company, so they overly rely upon reported and projected income, CAPE and other measures. The available measures are not very good at understanding how assets are used to create value. The classic, more easily understood anectode is that of real estate values. A famous advertising agency was acquired for a fraction of its value in the 80s because the acquirer discovered it owned a small building in Tokyo, in the balance sheet at book value. Sale of the building was more than the acquisition cost. I learned this as I helped a large company realize their $13B in real estate assets were almost unmanaged as an asset, and over $500M in annual bottom line value was sitting on the table uncaptured. Markets have no idea if management has no idea.

As I mentioned in a previous post, in the current economy, the brand value, or intellectual property value, or scarce human skill value of a company may be among its most critical assets. Since markets have a hard time valuing real estate, imagine how hard it is to place a value on Apple's global application delivery and sales platform, plus the supply chain of engineers and allied companies and customer relationships that manage and empower it.

My prior work experience suggests that senior management struggles to understand, so markets likely struggle fairly inefficiently. One paper I wrote years ago suggested that managers apply Deming-like (https://en.m.wikipedia.org/wiki/W._Edwards_Deming) principles to document and measure how flows of information, people and materials change and move among stakeholders to create value, analyzing where efficiencies could be applied and competitive advantages. Even among the top strategy advisors I knew, few wanted to bother being scientific and analytical (in this more detailed way) about the huge capital bets they were making. It was frustrating to speak with the C suite in several industries and point out how the internet and a mobile application would likely, within 10 years, be able to deliver their core value proposition at costs and quality levels orders of magnitude superior to their current business model and not have them feel any urgency to change. How much is Coke, Disney's or Google's global brand worth, given their management ability to monitize the brand? How much did the value of the Lakers change when LBJ and Anthony Davis joined up? These are questions that investors need to ask management. Put some estimated numbers up against those big assets you are betting on. Some executives get what it takes to win in their industry and some don't. Often markets are relying on winning streaks more tan any real notion of why those streaks occured or the numbers. We dont have press conferences with tough questions, post game, often enough.

So yes, markets are quite inefficient. Especially regarding balance sheet valuations.

That said, the economics are also there for many amazing future value creating innovations, should trends play out. If one measures them, the potential for things like Musk's recently announced brain chip effort to optimize certain human activity is crazy. Will they do it, who knows? But science fictiin has been pretty decent at imagining the future..or does it inspire human invention? Imagine human machine augmented driving.
Last edited by BogleFan510 on Mon Aug 31, 2020 12:20 pm, edited 2 times in total.
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Re: Bear Cub Smells Bubble

Post by anoop »

I sold FB today, in at 260 just a couple of weeks ago, out at 295 today. Still holding AAPL and ZM.
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Re: Bear Cub Smells Bubble

Post by ActionJackson »

HomerJ wrote: Sat Aug 29, 2020 11:39 pm ...

Ford and GM combined sell 30% of the cars in the U.S. They are worth, together, $70 billion.

Tesla sells 1.5% of the cars in the U.S. It is currently worth over $400 billion.

Take another few seconds. Reconcile those numbers. Think about it.
When you put it in terms like this... I'm like holy crap.
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Re: Bear Cub Smells Bubble

Post by BogleFan510 »

ActionJackson wrote: Mon Aug 31, 2020 12:20 pm
HomerJ wrote: Sat Aug 29, 2020 11:39 pm ...

Ford and GM combined sell 30% of the cars in the U.S. They are worth, together, $70 billion.

Tesla sells 1.5% of the cars in the U.S. It is currently worth over $400 billion.

Take another few seconds. Reconcile those numbers. Think about it.
When you put it in terms like this... I'm like holy crap.
I think the market is assuming cars are the cash cow that will fund other market innovations. Their team has proven to be able to solve and deliver innovation, profitably, in markets traditionally tough to change and innovate in. Dont own any shares, but we will see.
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Re: Bear Cub Smells Bubble

Post by langlands »

I found this Forbes article by Malkiel that I think does a good job of clarifying what the EMH is and what it has to say about bubbles:

https://www.forbes.com/sites/quora/2014 ... dbd1277c4b

I think of it like predicting the flip of a fair symmetric coin. I define the "EMH for coin flips" to be the hypothesis that the next flip will come up 50/50 heads tails. But we know that's not true. Coins are "classical" objects determined by Newtonian laws and with good enough modelling, you can predict the flip of the coin perfectly. But imagine we are in the year 1700. No one on earth would be able to do much better than 50/50, and hence the "EMH for coin flips" would basically be true in 1700. The real EMH as applied to modern day financial markets essentially says that our ability to predict market prices is the same as a year 1700 person predicting coin flips. The EMH isn't really a statement about the "fundamental unpredictability" of financial markets. It's a statement about the limitations of human reason. To a super advanced alien species who could model all human behavior on their super advanced macbook, the markets would be horribly inefficient since they would be able to predict all future prices deterministically.
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Re: Bear Cub Smells Bubble

Post by anoop »

An LOL tweet of the day that shows even professionals agree this puppy is going sky high from here.
https://twitter.com/michaelsantoli/stat ... 3773295616

Tony Dwyer at Canaccord, who's been bullish and has carried a "3300+" S&P 500 target, says this morning he is "withdrawing SPX targets because there is no precedent to how high valuations can go."

In one fell swoop, the fed has rendered worthless all market analysts and their analysis!
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Re: Bear Cub Smells Bubble

Post by Robot Monster »

anoop wrote: Mon Aug 31, 2020 4:10 pm An LOL tweet of the day that shows even professionals agree this puppy is going sky high from here.
https://twitter.com/michaelsantoli/stat ... 3773295616

Tony Dwyer at Canaccord, who's been bullish and has carried a "3300+" S&P 500 target, says this morning he is "withdrawing SPX targets because there is no precedent to how high valuations can go."

In one fell swoop, the fed has rendered worthless all market analysts and their analysis!
Seems the people finally got what they wanted. A 2008 article from the Onion:

Recession-Plagued Nation Demands New Bubble To Invest In
https://www.theonion.com/recession-plag ... 1819569940
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Re: Bear Cub Smells Bubble

Post by dogagility »

columbia wrote: Sun Aug 30, 2020 7:29 am My assumption is that the market believes that the energy generation and storage revenue will be the driver (rim shot) in the future.
I don't invest in individual companies, but my hunch is you are correct. Perhaps TSLA isn't a car company but rather an energy company.
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Re: Bear Cub Smells Bubble

Post by nisiprius »

Robot Monster wrote: Mon Aug 31, 2020 6:30 pm...Recession-Plagued Nation Demands New Bubble To Invest In
https://www.theonion.com/recession-plag ... 1819569940
:D

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Re: Bear Cub Smells Bubble

Post by Robot Monster »

Stocks in ‘Euphoric Land’ With Nasdaq 100 Surging Past 12,000
https://www.bloomberg.com/news/articles ... nd=premium

"A sentiment gauge, Citigroup’s panic/euphoria model, which tracks metrics from options trading to short sales and newsletter bullishness, is having its longest run of extreme bullishness since the early 2000s. At around 1.1, the current reading is almost three times the level that denotes euphoria...Investors are willing to pay up for earnings, sending the S&P 500’s price-earnings ratio to the highest level in two decades...While a dovish Fed offers support to the market, it’s worth noting that similar readings in the panic/euphoria model historically almost always corresponded to negative returns over the next 12 months, [Tobias Levkovich, chief U.S. equity strategist at Citigroup] said."

Image
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Re: Bear Cub Smells Bubble

Post by 000 »

Robot Monster wrote: Mon Aug 31, 2020 8:50 pm Stocks in ‘Euphoric Land’ With Nasdaq 100 Surging Past 12,000
https://www.bloomberg.com/news/articles ... nd=premium

"A sentiment gauge, Citigroup’s panic/euphoria model, which tracks metrics from options trading to short sales and newsletter bullishness, is having its longest run of extreme bullishness since the early 2000s. At around 1.1, the current reading is almost three times the level that denotes euphoria...Investors are willing to pay up for earnings, sending the S&P 500’s price-earnings ratio to the highest level in two decades...While a dovish Fed offers support to the market, it’s worth noting that similar readings in the panic/euphoria model historically almost always corresponded to negative returns over the next 12 months, [Tobias Levkovich, chief U.S. equity strategist at Citigroup] said."

Image
Looks like we've got another 0.4 ticks to go :twisted:
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Re: Bear Cub Smells Bubble

Post by anoop »

What will they call it when it sails past 25,000 in the next two years?
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Re: Bear Cub Smells Bubble

Post by Robot Monster »

anoop wrote: Mon Aug 31, 2020 8:53 pm What will they call it when it sails past 25,000 in the next two years?
Japan 1989?
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Re: Bear Cub Smells Bubble

Post by 000 »

Robot Monster wrote: Mon Aug 31, 2020 9:05 pm
anoop wrote: Mon Aug 31, 2020 8:53 pm What will they call it when it sails past 25,000 in the next two years?
Japan 1989?
Party like it's 1989!!!
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Re: Bear Cub Smells Bubble

Post by TheTimeLord »

Robot Monster wrote: Mon Aug 31, 2020 8:50 pm Stocks in ‘Euphoric Land’ With Nasdaq 100 Surging Past 12,000
https://www.bloomberg.com/news/articles ... nd=premium

"A sentiment gauge, Citigroup’s panic/euphoria model, which tracks metrics from options trading to short sales and newsletter bullishness, is having its longest run of extreme bullishness since the early 2000s. At around 1.1, the current reading is almost three times the level that denotes euphoria...Investors are willing to pay up for earnings, sending the S&P 500’s price-earnings ratio to the highest level in two decades...While a dovish Fed offers support to the market, it’s worth noting that similar readings in the panic/euphoria model historically almost always corresponded to negative returns over the next 12 months, [Tobias Levkovich, chief U.S. equity strategist at Citigroup] said."

Image
Of course the 10 year Treasury averaged something like 6.656% in January of 2000, so stocks had competition.
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Re: Bear Cub Smells Bubble

Post by knpstr »

Robot Monster wrote: Mon Aug 31, 2020 8:50 pm Stocks in ‘Euphoric Land’ With Nasdaq 100 Surging Past 12,000
https://www.bloomberg.com/news/articles ... nd=premium

"A sentiment gauge, Citigroup’s panic/euphoria model, which tracks metrics from options trading to short sales and newsletter bullishness, is having its longest run of extreme bullishness since the early 2000s. At around 1.1, the current reading is almost three times the level that denotes euphoria...Investors are willing to pay up for earnings, sending the S&P 500’s price-earnings ratio to the highest level in two decades...While a dovish Fed offers support to the market, it’s worth noting that similar readings in the panic/euphoria model historically almost always corresponded to negative returns over the next 12 months, [Tobias Levkovich, chief U.S. equity strategist at Citigroup] said."

Image
Should be the most bullish sentiment ever in my opinion, being that we're coming from the period of making it illegal to be open for business 5 months ago. Market tanked and popped right back up.

Went from record highs, to an artificially shut down market, to now going back to where we left off, record highs.
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Re: Bear Cub Smells Bubble

Post by NoRegret »

BogleFan510 wrote: Mon Aug 31, 2020 12:24 pm
ActionJackson wrote: Mon Aug 31, 2020 12:20 pm
HomerJ wrote: Sat Aug 29, 2020 11:39 pm ...

Ford and GM combined sell 30% of the cars in the U.S. They are worth, together, $70 billion.

Tesla sells 1.5% of the cars in the U.S. It is currently worth over $400 billion.

Take another few seconds. Reconcile those numbers. Think about it.
When you put it in terms like this... I'm like holy crap.
I think the market is assuming cars are the cash cow that will fund other market innovations. Their team has proven to be able to solve and deliver innovation, profitably, in markets traditionally tough to change and innovate in. Dont own any shares, but we will see.
TSLA bulls are betting on its SPX inclusion. We’ll see, last Q’s profit hinged on accelerated recognition of regulatory credits.

https://www.collaborativefund.com/uploa ... ubbles.pdf

It’s always good to read and re-read this piece by Morgan Housel. Remember, at any one time there is only one market price, but there are many market participants each with his own time frame, risk tolerance, utility function, etc, The market price is not always right for everybody.
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Re: Bear Cub Smells Bubble

Post by adave »

Tesla makes a great car. When I first drove one I was convinced it was a special product. But, I believe people see tremendous additional opportunities for the company outside of cars, and it’s hard to argue that the opportunities are not there - decarbonization trends are the future. The real question is if Tesla will be able to execute - might be worth holding a few shares just for kicks over the next decade. It will be really interesting to see how things go for the company.
Robot Monster
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Re: Bear Cub Smells Bubble

Post by Robot Monster »

adave wrote: Tue Sep 01, 2020 12:49 am Tesla makes a great car. When I first drove one I was convinced it was a special product. But, I believe people see tremendous additional opportunities for the company outside of cars, and it’s hard to argue that the opportunities are not there - decarbonization trends are the future. The real question is if Tesla will be able to execute - might be worth holding a few shares just for kicks over the next decade. It will be really interesting to see how things go for the company.
Doesn't Tesla have to dominate the entire car industry at this point in order to justify its valuation? Can't help but think that's a bit of a tall order. But, yeah, who knows, maybe he can pull it off. My strategy would be to own all the car companies, so I don't have to worry which of them wins. Yes, I realize I didn't exactly invent that strategy.
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Re: Bear Cub Smells Bubble

Post by Whakamole »

anoop wrote: Mon Aug 31, 2020 8:53 pm What will they call it when it sails past 25,000 in the next two years?
Maybe the stock of "Dow 35000" books will finally sell out.
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Re: Bear Cub Smells Bubble

Post by fredflinstone »

BogleFan510 wrote: Wed Aug 26, 2020 12:38 pm As I read the OP, a few ideas came to my mind that I am sharing to try to keep minds open to a different way of looking at market valuations for companies like Apple.

My thoughts:
The value of equities, as reflected in stock indexes is a sort of proxy for the cumulative 'Global Balance Sheet' of incorporated assets held. The values also our aggregated assumptions about the future income to be generated by those assets, respectively.

If you look at the 'global balance sheet' of economic activity, there are some long term trends which have recently hit inflection points such that the wealth creation potential of the two 'sheets' above are dramatically changed. A few of the top trends are:

----- Capital markets are global. Money moves efficiently to its best use, faster and faster. This is a key factor behind the rapid economic rise of China. US, EU, and Japanese and Western capital flowed there despite political barriers, transforming the country. As Kenichi Ohmae argued in his book The Borderless World the late 80s, one can argue, large nation states have very little power over their own currency anymore.

----- Trading markets are defacto global. Incredibly efficient global supply chains are creating very efficient product and service markets. The impact for companies is an incredible pressure to 'win,' which is both harder and exponentially more profitable. This over time, wealth will concentrate in the winning global supply chain platforms. Well positioned companies will accumulate historically disproportionate wealth.

----- Information capital has emerged as increasingly important to corporate balance sheets. When I researched asset based value creation on the 80s and 90s, I classified the wealth creating assets of corporations within 5 categories: 1) physical capital (e.g. trucks, land); 2) financial capital (e.g. currency, debt instruments, stocks, related contracts), 3) human capital (e.g. skilled labor, education), 4) information capital (e.g. data, patents, process knowledge), and 5) brand/habitual capital (manifests as consumer and b2b habits and 'sticky' relationships, like those built via marketing strategies. Over time the relative value of information capital as the key to wealth creation has dramatically changed our economic system. Two interesting differences: information is fundamentally 'not scarce' as long as distribution systems like networks exist, and the `marginal cost of production' of information while formerly very expensive is exponentially trending towards zero. So in the global balance sheet, if you measure the percentage of the 5 asset types, trucks, people, money, etc are mostly similar, but the amount/value in information and brand/habit are ballooning. This is because if you have the information and brand edge, in an industry like Apple or Google's core markets, you print money. Your key asset has a marginal cost trending down and your market for sales and profit is global, sticky and trending towards monopoly power (if you can sustain it).

----- Commoditization of global markets. Where scarce assets create no proprietary advantages, competition for capital is driving scale economies and production efficiency to historic levels. Since information flows globally, the best ideas are allowed to rapidly create efficiency where inefficient production models used to be allowed to persist. This is taking time as political forces still get in the way, but over time seems inevitable.

So, I believe the valuations we are seeing reflect these changes in the global economy. Traditional measures such as 10 yr avg P\E are not the right way to look at a changing global supply chain and market landscape.

* Key industries will continue to globalize
* The most efficient global supply chains will trend toward monopolies
* Information intensive industries (if proprietary) be hugely profitable
(as they benefit from decreasing marginal costs of production and scale economies... e.g. web apps, pharma, software; hence the best investments, if among the winners)
* Industries without scarce asset advantages to protect profits will be squeezed by global efficiency forces, with value flowing directly to consumers vs becoming profits.

Just my thoughts as I read OP. My personal opinion is that bubbles are the new normal. I also believe that financial capital may not be a scarce thing in the future, so it may not matter as much as it has been in the past, which could be bad news for investors, but there will be a lot of wealth created for consumers, so we all should be ok. A lot depends on if the future' big winners' use public markets to finance their companies or not. That said, no other game in town to play.
Thank you. Good, thoughtful post arguing that the Internet economy creates winner-take-all competition. Of course, similar arguments were made about MySpace, Yahoo!, AOL, and Netscape back in the day.

I would like to point out that the flip side of highly efficient, very lean supply chians is vulnerability to supply chain disruptions, such as those that occurred this year due to the coronavirus pandemic.

I'm curious, since you mentioned Apple, how vulnerable you think Apple is to competition in the smartphone segment. The company hasn't really innovated much since Steve Jobs died. It's top seller, iPhones, is becoming a commodity. If you believe, as I do, that consumers will be doing some belt-tightening in the coming years, won't lower-cost phone makers (such as those using the Android operating system) benefit at Apple's expense? I jsut can't see consumers shelling out $700 or more for a new phone every 2 or 3 years when much less expensive alternatives are available. If I'm right, doesn't Apple's current P/E ratio (about 40) seem pretty high?
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