Before I tell my story, here are some background statements to put the story into context.
1. If something in the story comes across as bragging, please be forgiving. We are posting stories when Tesla is breaking new highs, most people here made tons of money, and it is hard to tell a story about success without talking about the success.
2. All disclosure of sensitive personal and financial information is done for the educational and entertainment purposes only, not for bragging!
3. There are many parts or aspects of the entity that is me. The whole entity of me is a team. In the story below, I will only talk about two parts of me that are relevant to my Tesla investment story.
The Story of two buddies
I am a chartered engineer with MBA. Employers hire me for my engineering skills, so engineer is paying the bills. MBA degree gave me a lot of understanding of finance and business strategies. I will call that MBA trained part of myself ‘investor’. My MBA training did not secure me a job but it did prompt me to start investing in a share market.
Several years ago, the first investment meeting between engineer and investor went something like this:
Investor: Hey buddy you are slaving away at your job and seem to be ok for now, but you will never really be financially free if you just continue slaving away. Your job is not secure. I learned a lot about finance and business analysis, and I was very expensive, so let me put my skills to use and help you a bit. I can manage your money and make you some more.
Engineer: Hmm, I like my job but I am a bit tired of my slave labour and job insecurity. I lost my job three times so far. Businesses folded due to offshore competition. I am tired of applying for new jobs. If you really think that you are as smart as you say, then go ahead and prove it but please do not lose my hard earned money. You can only have my personal account, I will leave my retirement account in a managed fund as the returns are good. Prove yourself, show me the money, and maybe I will let you manage my retirement account as well.
Investor: Ok, let me get to work.
So investor started reading company reports and financial statements of ASX (Australian Securities Exchange) listed companies. Investor would look at ROE, ROA, p/e, revenues growth, competitive edge and all other available information and would pick the stock based on all available information. Initial positions were $5000, but that quickly grew to $20000 and many multiples of that as the size of the portfolio grew. It was difficult to manage too many positions in the portfolio as the investor did all his work only after hours. The investor made sure to properly diversify the portfolio by picking many uncorrelated businesses to accommodate the risk averse engineer.
The investor was very happy to make 20% - 30% profit on a trade. There were more loosing trades than the winning ones, but the portfolio grew because the fewer profits were far larger than the numerous loses, as the losers were promptly sold. Also engineer kept slaving away and kept contributing more into the portfolio.
The investor learned few things from that period:
1. It is so easy to make money in a bull market. Anyone can do it.
2. Timing tops and bottoms is only possible with hindsight and clairvoyant abilities. Market movements are influenced by countless often un-quantifiable forces. It is almost like Heisenberg’s Uncertainty Principle applies to market, it is impossible to have complete certainty about the future market movements. Study and analysis of all available information significantly increases the chances of having a lucky break. Investors make educated guesses but anyone claiming to be able to predict or to have successfully predicted sudden turns is discounting their luck.
3. Portfolio diversification is not that relevant in a bull market but it can make a huge difference during large market downturns. Some very good businesses are insensitive to economic highs and lows and they may be a good protection against large market downturns.
4. Portfolio size has an impact on trading strategies. Small size is much easier to grow and move around. Large portfolio leads to proportionally larger positions as small positions become irrelevant or meaningless. It is more difficult to get in and out of large positions and that influences trading decisions.
In February 2013, engineer calls an urgent investment meeting:
Engineer, all demoralized and beaten down: Aaaah I lost my job again. I am not sure if I can find work again. Manufacturing sites are closing down all over Sydney. There is however some work for you, I will be getting one year salary payout, you need to park that money somewhere. Have in mind that I may not be able to secure another job so there will be no income from now on.
Investor: O poor buddy, I will cheer you up! There was an interesting story in NYT by John Broder, about some new car called Tesla. It is ev. I can smell a blue ocean here and I have only seen red oceans so far. We really need to check this story out. Check the car that Tesla is making, that is your domain. After we check it out we will meet again.
Translation: Blue ocean term is used to describe businesses with no competition. Red ocean is the term used to describe businesses with lots of competition. Red stands for blood.
Engineer checks the car online and screams in excitement: Look at the image of the powertrain! No moving parts, no belts, no fluids, only AC motor! That rigid skateboard is an excellent crash protection! Aluminium body! I have spent good part of my working life trying to repair and improve all sorts of weird and complex machinery. When I look at Tesla powertrain, I feel like hearing Beethoven’s Ode to Joy whilst watching Michelangelo’s Sistine Chapel Ceiling, o what a wonderful music to my tired soul!
Engineer continues in excitement: Also after spending my working life in manufacturing I find it highly improbable that the existing manufacturers will be able to change from ICE to ev technology. There is too much internal conflict and resistance that make such drastic transition uneconomical and not viable for the current stakeholders. Ice car manufacturers will only switch to ev technology when they are forced to and it might be too late then.
Investor also screams in excitement: Aaah first time in my life I get the opportunity to see the huge blue ocean! What a sight, I am blown away with the vastness and blueness of it! Tesla is the only business out there! They do not even have to cast their net, fish is jumping into their boat! And there are no other boats on the horizon! Barrier to entry into ev business is extremely high. Only possible entrants are, imho, cashed up mad philanthropists or cashed up businesses Google or Apple. Even if they decide to enter this blue ocean, Tesla has the huge first mover advantage. This is one in a lifetime investment opportunity, we need to put 2-3 cash equivalents of your yearly salary into this stock. I will sell some of the other holdings. There is a lot of risk as the company is small and fragile but I am willing to gamble on it!
Engineer: Agreed, lets go in with say 3 yearly salaries!
Fast forward 12 months, to now. Engineer calls a meeting.
Engineer: FYI, I got a job offer so we will have an income stream again. I have mixed feelings about this job, commute is long and I am tired of the traffic.
Investor: Good news buddy, I am happy for you. FYI, I learned a lot about options trading by reading few books, taking online classes and mostly by reading TMC Investors discussions. We can generate income that is better than your monthly salary by selling monthly OTM covered calls. There are other ways, but I like this one. If we get assigned, we will just buy leaps on the dip. Tesla is relatively small float with high level of short interest so this ride will be a roller coaster, brace up! There is so much more that we could do with options if you are comfortable with the higher risk.
Engineer: Lets thread carefully, it seems that buy and hold worked quite well so far.
Investor: Best news for last, I think we have made enough that you do not need to take that job if you decide not to. It is your money and your call buddy.
Engineer: Good job buddy, maybe you can take over managing my retirement account as well.
End of meeting.
The story continues and may take sudden unexpected turns. There will be no posts during downturns as both buddies get very depressed and do not feel like posting during downturns. There may be some posts after successful trade executions.