Anyone having a hard time sleeping the past couple weeks because of TSLA?

[kevin99]

I like Buffett's approach/advice to this this. He says most people should invest in an index fund tracking the S&P500 (ie., SPY). His reasoning is because he's overall bullish on the American economy from a long-term perspective (ie., looking back over the past 100 years and looking forward). Also, most people don't have the time, energy and focus to do the research needed to be successful at investing large amounts in an individual company.

However, Buffett also says that if you can spend the time and energy to learn how to read companies (ie., annual reports, quarterlies, etc) and become an very knowledgable in a sector/industry, then you should NOT invest in an index fund but rather invest in an individual company (ie., the best of breed, defensible "moat", etc) after much due diligence and searching. He even says you just need to pick one every several years and over your lifetime if you've picked a good handful, then you'll have done multiple times better than the person who invested in just an index fund.

Oftentimes, people like to take shortcuts in investing (ie., invest because of hype going around or what someone says), but that can be dangerous. I advise always keeping a close hand at the objective, real data at hand (ie., product demand, growth, margins, revenue, leadership changes, sector changes, overall economy, etc.). I think the minimum is people should be reading the annual/quarterly reports and listening to all conference calls for the companies they're invested in.

The cool thing about TMC is you can get in touch with some on-the-ground real data points that can keep you in touch with the health/status of your investment in TSLA... like demand, owner satisfaction, production output, and overall get a decent feel of how the company is doing. Super valuable.

Dave, I need to thank you for quoting Buffett. I remember seeing It earlier and that gives me the theoretical foundation for going extreme risky. Without it, I probably have a harder time stick to overwhelmingly on TSLA. Now even completely on TSLA, I could hedge quite a bit. But early on I was a little scared to go big.

And can you give me a reference on Buffett's thought. I want to read more in the context.

 

[DaveT]

Dave, I need to thank you for quoting Buffett. I remember seeing It earlier and that gives me the theoretical foundation for going extreme risky. Without it, I probably have a harder time stick to overwhelmingly on TSLA. Now even completely on TSLA, I could hedge quite a bit. But early on I was a little scared to go big.

And can you give me a reference on Buffett's thought. I want to read more in the context.

Hi Kevin, glad Buffett's thoughts were helpful. I don't have a reference on hand. I'm basically paraphrasing him. When I find an interesting/brilliant thinker, I tend to focus on them and go deep with their thoughts. In Buffett's case, I ended up watching 50+ videos on him (ie., his interviews, talks, etc) on YouTube. If you do a YouTube search on Warren Buffett and watch a few of his talks/interviews, you'll probably be inspired.

On a side note, Warren Buffett is a fascinating guy to me. He understands things very simply and clearly (similar to Elon Musk). He understands the essence of what investing is, what money is, what the economy is, etc. And as a result, he's able to make investing decisions that seem both conservative and/or risky to outsiders who don't understand his values and point of view. But he tends to go big with his investments (thus people who like to spread their investments thin don't understand this), he takes his time doing due diligence (he reads a ton of annual reports every year trying to find that one stand-out company), and yet he invests conservatively as well (only in companies that he is confident in their defensible "moat").

 

[Donkasan]

Dave, I need to thank you for quoting Buffett. I remember seeing It earlier and that gives me the theoretical foundation for going extreme risky. Without it, I probably have a harder time stick to overwhelmingly on TSLA. Now even completely on TSLA, I could hedge quite a bit. But early on I was a little scared to go big.

And can you give me a reference on Buffett's thought. I want to read more in the context.

Some of his quotes can be traced to his 1996 letter to the shareholders.

http://www.berkshirehathaway.com/1996ar/1996.html

The relevant paragraphs can be found just prior to the heading named "USAir".

 

[sahanim]

While we are on the subject of youtube videos i would like to recommend Eric Schmidt. He's the chairman of Google and has some fascinating talks on the future of technology, globalization and of really interesting subjects like the arab springs and such. He is an excellent economist and computer scientist.

His videos dont tackle investing topics but he has helped me shape my understanding of the tech industry and what the future looks like. I guess he's partly the reason i was drawn to Tesla as soon as i found out about them back in 2010.

 

[dmckinstry]

I'm on the same page Bonnie. I'm committed to seeing this through GEN III. I invested early and it was all or nothing money to help support Tesla.

I'm only losing sleep because it is so exciting!

Ditto. But I'm not losing sleep.

Since I sold ~ half my TSLA to pay for my Model S outright (including about $10k for taxes) I've been relaxed. But I am watching it closely. My current rule is "Don't sell any for less than the highest I bought it for."

It's entertaining though. If I sold it for half its current value, I'd still have more cash than I originally invested and my Model S.

 

[Donkasan]

I'm on the same page Bonnie. I'm committed to seeing this through GEN III. I invested early and it was all or nothing money to help support Tesla.

I'm only losing sleep because it is so exciting!

The thing is that Tesla's current valuation already assumes a yearly revenue of 16.6 billion dollars if I compare it to Porsche, an established luxury car maker. You can meet $16.6B yearly revenue with 400,000 units of Gen3 vehicles per year. That probably assumes 5 to 6 years of flawless execution to reach that stage. Valuation like this may not be sustainable.

 

[DaveT]

The thing is that Tesla's current valuation already assumes a yearly revenue of 16.6 billion dollars if I compare it to Porsche, an established luxury car maker. You can meet $16.6B yearly revenue with 400,000 units of Gen3 vehicles per year. That probably assumes 5 to 6 years of flawless execution to reach that stage. Valuation like this may not be sustainable.

I don't think it's accurate to compare Porsche with Tesla, namely because Porsche is a niche automaker with no chance of going mainstream (ie., mass market). The reason they can't go mass market is that they have no competitive advantage to compete against the likes of the Camry and Corolla at those price points.

However, Tesla has a real shot at going mass market due to the falling cost of lithium-ion cells and improving battery tech. Their advantage in batteries is at least a few to several years ahead of the competition and this gives them the opening to release a mass market vehicle. This is something Porsche doesn't have and this Porsche's growth is capped to the luxury niche market. Their valuation reflects this reality.

However, Tesla's valuation is based both on what kind of revenue and profit they can earn within the next few years, as well as the realistic opportunity and possibility of Tesla releasing a mass market vehicle too. The P/E multiples are much higher for companies that have growth potential like Tesla (vs capped potential like Porsche).

 

[TSLAopt]

I don't think it's accurate to compare Porsche with Tesla, namely because Porsche is a niche automaker with no chance of going mainstream (ie., mass market). The reason they can't go mass market is that they have no competitive advantage to compete against the likes of the Camry and Corolla at those price points.

However, Tesla has a real shot at going mass market due to the falling cost of lithium-ion cells and improving battery tech. Their advantage in batteries is at least a few to several years ahead of the competition and this gives them the opening to release a mass market vehicle. This is something Porsche doesn't have and this Porsche's growth is capped to the luxury niche market. Their valuation reflects this reality.

However, Tesla's valuation is based both on what kind of revenue and profit they can earn within the next few years, as well as the realistic opportunity and possibility of Tesla releasing a mass market vehicle too. The P/E multiples are much higher for companies that have growth potential like Tesla (vs capped potential like Porsche).

I agree with Dave here.
Comparing TSLA to any other automaker is like comparing NFLX to CBS or comparing AMZN to Walmart/Costco but even worse because TSLA is even farther ahead of anyone else in their space than AMZN or NetFlix are in their spaces that they carved out in new technology. AMZN and NFLX have insane valuations for being the successful first movers in the space they are each in but neither has close to the magnitude 'moat' that TSLA has, no one can come close to replicating TSLA's CURRENT technology for 3-5 years at least. By that time TSLA will have even newer technology. TSLA's insane valuation is just beginning.

 

[Donkasan]

I don't think it's accurate to compare Porsche with Tesla, namely because Porsche is a niche automaker with no chance of going mainstream (ie., mass market). The reason they can't go mass market is that they have no competitive advantage to compete against the likes of the Camry and Corolla at those price points.

However, Tesla has a real shot at going mass market due to the falling cost of lithium-ion cells and improving battery tech. Their advantage in batteries is at least a few to several years ahead of the competition and this gives them the opening to release a mass market vehicle. This is something Porsche doesn't have and this Porsche's growth is capped to the luxury niche market. Their valuation reflects this reality.

However, Tesla's valuation is based both on what kind of revenue and profit they can earn within the next few years, as well as the realistic opportunity and possibility of Tesla releasing a mass market vehicle too. The P/E multiples are much higher for companies that have growth potential like Tesla (vs capped potential like Porsche).

There are some strategic positioning factors that could be Tesla's favor, that include its patent portfolio, its distribution model, and the super-charger network. They are hard to quantify though. But still Tesla's valuation is so rich it already projects the company into the years when Tesla will have to produce significant revenues.

I looked up the data for Porsche and BMW. It seems Porsche as a higher end auto-maker can use its higher profit margin to justify its market cap with a smaller annual revenue. Tesla actually has an easier time being compared against Porsche versus BMW. I made a mistake earlier because I did not realize Porsche's market cap was listed in Euros, so the revenue requirement was off by a factor of 1.33. Now it only calls for an annual revenue of $12.47B. This is obviously not the last word, but should be still an useful comparison.

Tesla Market Cap: 18.58B US
Porsche Market Cap: 20.73B Euro; 27.57B US
BMW Market Cap: 46.57B Euro; 61.94B US

Porsche 2012 Revenue: 13.9B Euro; 18.5B US
BMW 2012 Revenue: 76.8B Euro; 102.14B US