The Perils of Shorting: A Real Life Example

@Colm Fagan I'll say one thing in favour of your strategy in that it gives you an interest and if your into financial markets which you clearly are then it's certainly more entertaining than buying a global ETF.
As an ex advantage gambler who tried his best to not get emotionally invested in his positions I do sometimes miss that thrill.
Maybe me small Tesla long can give me that .
 
Colm Fagan said:
@Fella You should have done your long trade with me, since I increased my short position at the open today. It would have saved us both a few bob in brokerage costs and bid-offer spreads!
In answer to @Andrew365 , my plan at the moment is to ignore price movements - in either direction - between now and when the full year results are published, probably at the end of January. In the meantime, I won't get too excited or depressed by moves in either direction. Massive short-term volatility is par for the course with Tesla.
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Did you have a chuckle when you saw the truck though? That thing is going to put the company out of business.
 
Fella said:
I'm not going to buy the truck but today I did go long on Tesla its not a rational investment but I do like what I've read about Tesla since Colm started the thread .
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That is brilliant. As you say, it's not a rational investment. It's a bit of fun and it's probably a good idea to allocate a small bit of your portfolio to a bit of fun.

Since closing my short position in Tesla, I have changed sides. It's great to see a challenger and it would be great to see him succeed. But he could still succeed brilliantly and not justify the share price.

Brendan
 
I wonder will Tesla merge with an established car maker at some stage? Their USP is on the technology side and whilst they have produced some nice cars, much of this work is doing what the that established makers do for their bread & butter...the body, the chassis, the breaks, the wheels, the bits & bobs....
 
Nearly every car maker has some form of electric car now. The question is what is harder, making cars or the battery technology? If it is the former you'd think the incumbents will eventually beat out Tesla.
 
Brendan Burgess said:
That is the big risk for short sellers. Someone else might buy them out at an irrationally high price.
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Brendan, I agree, but it won't happen. I already mentioned this risk in #102 above, and dismissed it.
Colm Fagan said:
I'm also loath to short a company that's paying (or is likely to pay) a dividend, because you have to fund dividend payments as well as the (albeit low) borrowing costs for the shares themselves. It's also extremely dangerous to short a company that could be taken over at a premium to the current market price. Neither of the last two considerations applies in Tesla's case.
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There's no chance of Tesla being taken over at anything close to its current valuation. By my reckoning (I could be wrong), its market capitalisation (at $350 a share) is 150% that of BMW. That (to me) seems ridiculous. Honestly, I could make a stronger case for Tesla to be worth $35, or possibly even $3.50, a share rather than $350.
 
Andrew365 said:
Nearly every car maker has some form of electric car now. The question is what is harder, making cars or the battery technology? If it is the former you'd think the incumbents will eventually beat out Tesla.
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Might be the decent thing to do, but a tough one for investors must have been giving away their patents....

All Our Patent Are Belong To You

Yesterday, there was a wall of Tesla patents in the lobby of our Palo Alto headquarters. That is no longer the case. They have been removed, in the spirit of the open source movement, for the advancement of electric vehicle technology.
www.tesla.com www.tesla.com
 
Firefly said:
I'm thinking a reverse takeover where Tesla merge/buy an established car maker.
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Sounds great, but if you're a director of an established car maker and Tesla approaches you with a takeover offer, the first thing you'll say is "Show me the money!" No way you'll be prepared to take Tesla stock. That's where we hit the first snag. Tesla doesn't have the spondulicks, and wouldn't be able to raise the money. It's current bonds have junk status (professional bond investors are more discerning than people who buy the company's shares), so it wouldn't be able to raise money from that source. It tried the "Saudi Sovereign Wealth Fund" trick last year. No luck. It can't try that one again. I can't think of anywhere else, other than existing Tesla shareholders. I doubt if they'll be suckered into buying even more shares in the company at an inflated price.
 
Hi Colm,

These guys, Baillie Gifford, have delivered 500% return over the last 10 years. The Scottish Mortgage Trust is one of their flagship investment vehicles. Tesla is one of their biggest holdings.

Scottish Mortgage Investment Trust | Global Investment Trust | Low-cost Actively Managed Equity Fund | Baillie Gifford | Individual Investor

Find out more about Scottish Mortgage Investment Trust.
www.bailliegifford.com

Yet you’re “in your attic” picking holes in Tesla’s business model and shorting the stock on the basis that you have some edge.

This is crazy stuff.

I am genuinely worried for you.

Gordon
 
Hi Gordon

I would be more worried by these holdings than I would be by Colm's

4154


Having said that, Colm's is too concentrated for my liking.

Brendan
 
Colm Fagan said:
Sounds great, but if you're a director of an established car maker and Tesla approaches you with a takeover offer, the first thing you'll say is "Show me the money!"
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I'm thinking an established car maker who is behind in the race for electric vehicles. A partnership of sorts could be agreed where Tesla will drive on :)p) with the electric / battery technology & self-driving side of things and the established car maker would build the bodies & all the bits and use their distribution networks.
 
Hi Brendan,

The fund in question is actually a FTSE 100 company so it’s pretty big. There are around 90 stocks in the fund. Amazon is one; from the literature, they were early stage investors in 2005. That’s not a bad eye for a bargain. And they’re one of a tiny few who Jeff Bezos actually meets each year.

They increased their Tesla position earlier this year. They’re also investors in things like Lyft and SpaceX.

I just find it preposterous that you have the managers of one of the most successful and largest investment trusts in the UK backing Tesla...guys with a proven track record of pretty stellar results...guys who are specialist tech investors and actually sitting down face to face with people like Elon Musk and Jeff Bezos and probing them for information...and then you’ve a guy like Colm looking at the accounts at his kitchen table and thinking that he has an edge when he shorts the stock!

It doesn’t matter that it’s Colm...it could be anyone...it’s lunacy!

Gordon
 
Colm Fagan said:
Brendan. I agree! I wonder if any of them has ever paid a dividend? Hardly suitable investments for a risk-averse pensioner like myself!
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Total return should be an equity investor’s focus...what about the view from across the Atlantic that a dividend represents failure? You’ve run out of ideas to grow the reinvested dividend.
 
Colm Fagan said:
Gordon, I know that by now: you've told us all often enough! It's nice that you care about me so much.
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I care about you but also anyone else who follows your lead, ‘DIY invests’ and then blows themselves up down the line.

Imagine I had to back one of the following:

- Colm ‘in his attic’
- The managers of a FTSE 100 investment company who specialise in tech, who identified Amazon, who have delivered returns north of 500% over the last decade, and who actually meet and grill people like Elon Musk and Jeff Bezos face to face

The former is short Tesla. The latter is long Tesla and increased their position this year.

Who does it make more sense to back?
 
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