"So the company makes a loss, their delivery record against the projections have fallen flat, this business has nearly run out of money and got a last minute reprieve moments away from waving the white flag. Their targets are incredibly ambitious."
To market to market to buy a fat pig After an awful start to the year that led to the lows of mid February, stocks roared all the way in late March as some concerns abated about the health of the global economy. In recent weeks, the same old concerns have reared their ugly head again. There have been huge stock withdrawals by ordinary Americans on the street, selling stocks for some reason or other. Same old. Herd and crowd reaction to global events present opportunities. Oil prices, and in general commodity prices have recovered, sending materials and energy stocks to much higher levels. Whilst we have come though the best part of earnings season relatively unscathed, guidance has been lowered.
Single and collective company earnings are always set by the earnings current and potential, the share price of a business represents the balance of each and every buyer at a level. Not to say that all of them are right or wrong, time is the true determining factor on the returns that you end up with. You cannot get that time back after the returns, be they out or under performance.
What we try and do, and perhaps too often, is to draw a distinction between price and business, and most importantly prospects. There are examples of some companies with share prices that are perpetually expensive. Google is a great example. If you are waiting for Google to get to a low double digit or single digit forward multiple, you may well have to wait years. And by that time, the stock price may well be five fold higher than it is now. Remember that this is by no means an indictment on any investing style, just an observation.
Different is good, and if your investing style doesn't meet certain criteria, then that is what works for you. Being too rigid and setting rules in stone means that you may well miss many opportunities. Lastly however, you can't own everything in the market, there will always be stocks that you wished you owned and that you should have bought back then. I am sorry, you have to condition yourself for that certainty. You will miss opportunities. Equally, you will get impatient with companies, more specifically their share prices are not meeting your and the rest of the market's expectations. In fact, you should be grateful for these moments, that means (provided the thesis is still intact) that you can get the same company at a cheaper price. The provisor, as ever, is that you have the capital to add. Always be saving.
Quick look at markets as they stand this morning, our stocks locally are down over half a percent. Recently there has been a renewed bout of negative perceptions of emerging markets, our currency has weakened strangely in local step with the Dollar, that suggests other forces, the possibility of a downgrade is taking hold somewhat. Stocks overnight in New York, after a better start, softened towards the end of the session. Remember today is the "all important" non-farm payrolls report.
Company Corner
Nikola Tesla was a strange man. At least from all of the reading that I have done. He moved to New York a couple of years before the founding of our city, Jozi. There he worked for another inventor, Thomas Edison. There was a dispute between the two over a pay issue, Tesla resigned and started with his own string of inventions, including developing a patent for a biplane (it was 1915) that could take off vertically. A list on Wikipedia is a testament to his extraordinary and perhaps unrecognised brilliance -> List of Nikola Tesla patents. He was a dashing, weird, obsessive workaholic, who repeated the ordinary and suggested to all that he never slept.
Sound familiar? Workaholic, hardly sleeps inventor who is busy with craft that go straight up, once crossed by his brilliant work colleagues (whilst in the air on his way to enjoy a honeymoon). Yes, that is Elon Musk. And the company (one of them) that he runs is Tesla, named after the eccentric inventor of yesteryear. The noticeable difference between the two is that Elon Musk has built an incredible empire in a relatively short space of time. That is worth something. It is hard to believe that Musk turns 45 at the end of next month. The inter-webs tells me that Musk is "worth" 13 billion Dollars. Nikola Tesla died a pauper, with debts owed to various hotels, restaurants and others. Ahead of his time no doubt.
And perhaps Musk is too, ahead of his time. If you haven't read the Elon Musk book, you really should, it is nothing short of fabulous -> Tesla, SpaceX, and the Quest for a Fantastic Future . Enough of that, the comparisons are obvious to the past and to the modern day Iron Man, one thing is for certain, you need people like this to change the future. I asked my kids what they think about him, the failed relationships and all. Their overwhelming feeling was that he must continue to save the planet from excessive emissions and future endeavours. If he doesn't do, who will, they asked.
Tesla reported numbers two nights back, Tesla First Quarter 2016 Update. The big surprise was that the company have aggressively brought forward their aggressive roll out of the Model 3, perhaps in response to the overwhelming and unprecedented demand for the product. It is, by all counts, the most successful launch of any consumer product. Ever. As Chamath Palihapitiya points out in this article titled Hey Jerkwater: Do your math on TSLA ... , it took Apple roughly two years to reach that sort of sales number. You could well argue, and it is valid, that Apple have the capacity to product the phones on time, and have the capital to roll this out without too many problems.
Tesla, that is very different. Elon Musk suggested that they will have to raise more capital. Jim Cramer of Mad Money fame suggests that Musk's transparency is shameless, he is talking things up to raise more money. The other reason is that he loves the thrill of setting impossible (for ordinary people) targets. This is an amazing article that nails it - Why Elon Musk Keeps Promising the Impossible. The reason is that he needs everyone to be on board. Whilst two major manufacturing execs have jumped the board, just before the company reported a 12th consecutive quarterly loss, Elon Musk has his desk and a sleeping bag at the end of the production line, as you can see at the end of the article - No need to worry-Elon Musk's desk is right at the end of the Tesla production line.
So the company makes a loss, their delivery record against the projections have fallen flat, this business has nearly run out of money and got a last minute reprieve moments away from waving the white flag. Their targets are incredibly ambitious. Various Wall Street types think that he is mad, and that as an investment, you are equally mad. Short interest in Tesla has been trimmed somewhat, ahead of the recent results, just over 29 million of the 133 million shares in issue are currently short the stock, or nearly 22 percent of all the shares. There are certainly many people, even at nearly one quarter or so below their 52 week highs that think this company will hit the proverbial skids.
So why own a company of this sort at all? Surely the disappointment of another production miss and manufacturing troubles along the way will lead to a massive re-rating of the shares? You are actually owning the company for a few reasons only. Expectations are if the company can deliver on the aggressive projections, they will become profitable, the demand is most certainly there from the broader public, not just fine car lovers. Although as we have said before, the new Model 3 is a soft luxury product, not an ordinary sedan. You own this business for the visionary, the beautiful product, which is the most important thing at the end of the day, you own this business as a result of changing perceptions of rich people about the planet we live on, future trends of battery technologies. If you must own them as part of a bigger and diversified portfolio, expect an extremely volatile ride, expect the price action to be wild, you need a strong constitution. If you had to side with one man that well may change humanity, you certainly have an outlet to own a piece.
Linkfest, lap it up
Lyft is a competitor in some ways to Uber. We have seen Tesla above, Google two days ago -> Google, Fiat Chrysler to partner on self-driving minivans and now Lyft reportedly planning to pilot self-driving Chevy Bolt taxis 'within a year'. About that New York taxi medallion, the price may well actually go to zero.
There continues to be big regulatory pushback in all parts of the world against tobacco companies. Interestingly the companies themselves share prices have done well, we have got this theme wrong here at Vestact, thinking that lower volumes would lead to lower valuations. Surely this cannot however be good for their businesses over the coming years? - EU court ruling paves way for large, graphic tobacco health warnings.
Millennial this and that. Surely this graphic (via Brightest Millennials in Business: Here’s What They Think) from the Visual Capitalist tells you all that you need to know about branchless banks of the future, and most importantly being optimistic about the future. Let me know you if you fall into this age category of you patterns.
Home again, home again, jiggety-jog. Looking at a graph is a good way of knowing what happened in the past. Looking at a graph and using lines and patterns to determine what is likely to happen next is akin to rolling a dice and nodding when it lands on numbers four through six, and saying that you told me so. North Korea is putting on a phoney showing today of their global prowess. Sigh, what a tragic, tragic accident of history. Draw a line of prosperity of the two Koreas and please let me know what is going to happen next. As we said earlier, non-farm payrolls folks, this is the most important read ever. Since the last and no doubt since the next one. We owe you a few important company pieces, they are coming, stand by in the coming week. too much philosophy this week, it must be the best Marks of them all, Howard, that has fried my brain. Happy weekend sports lovers.
Sent to you by Sasha, Byron and Michael on behalf of team Vestact.
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