I'm not sure if it's going to be a series. I was thinking of occasionally updating the model as one post, and just keep adding to it (ie., next updated version would be v 0.2).
-
Want to remove ads? Register an account and login to see fewer ads, and become a Supporting Member to remove almost all ads.
- Status
I'm not sure if it's going to be a series. I was thinking of occasionally updating the model as one post, and just keep adding to it (ie., next updated version would be v 0.2).
The Blue Owl
Endangerous Herbivore
Sequence, series, integral, whatever. I'll read it.
And you know what they say: if you can reach even one person... Just kidding. It's Friday night and it's late on the East coast, I'm sure otherwise there would be a chorus agreeing with me.
How to Make Crazy Outsized Gains with Common Stock, v 0.11
(note: this is version 0.11 and is a work in progress. results not guaranteed. use at your own peril.)
Overview: An investing model that combines quantitative and qualitative elements in an attempt to achieve outsized investments gains but lower the risks of attempting such gains.
1. Find a growth company (or potential growth company) that you believe is going to be continuing to grow at a fast rate even in 3-5 years.
2. Confirm that their product is awesome, their customers are big fans, and their management is smart.
3. Calculate the company’s market cap in 3-5 years by projecting profit (or potential profit if still rapidly growing) and multiplying it by a conservative multiple.
4. If the projected market cap is at least 3x greater than the current stock price, then buy the stock.
5. Hold on and don’t sell unless the company’s long-term prospects/story changes or market cap reaches your projected values.
6. Enjoy crazy outsized gains (ie., 300-1000% or more in 5 years).
Benefits of the Model:
1. Funds/institutions are typically only looking out 1-2 years and using those numbers in their calculations since looking out 3-5 years is too risky and most funds/institutions are risk-averse. Since funds/institutions look only 1-2 years out that means that there’s still a lot of untapped future growth potential in the market cap of those companies that continue their growth even after 3-5 years. This investment model taps into that.
2. Provides a model/framework to evaluate high-growth stocks like tempting IPOs, hyped up stocks, highly shorted stocks, etc. It provides a method to the madness.
3. Relies on the purchase of common stock, rather than options (which have a much higher risk/reward profile and require technical analysis and trading skills).
Limitations and Challenges:
1. You need sufficient starting capital or else the research/effort required probably isn’t going to be worth it.
2. If you lose on an investment using this model it’s likely because the company didn’t grow as fast as you expected and your revenue/profit forecasts fell short. This is why you need to be uber-confident (through your due diligence) that the company is going to continue it’s high growth even in 3-5 years. It’s also important to make the correct calculations in projecting future revenue/profit and investor multiple. This isn’t easy for most people but I’ll be covering this throughout my series with TSLA and by the end of the series hopefully you’ll have a better grasp on how to do this.
3. Another reason you could lose on this is if you get caught up during a hyper-enthusiastic time and overpay for the stock, and as a result you don’t get as outsized gains as you could have. This is why I added that the projected market cap in 3-5 years needs to be at least 3x greater than the current stock price. This helps make sure you have an entry point that’s decently low enough to make the outsized gains needed.
Exit Plan:
After the company has reached your original 3-5 year market cap projection, then revaluate company based on steps #1-4 above. If the company is still a buy with the model, then hold your position. If not, then start exit/liquidation plan (or transition investment expectations to slow growth investment).
I could write a lot on this but I’ll stop here for feedback and decide to develop/explain the model more or not based off of that.
(note: this is version 0.11 and is a work in progress. results not guaranteed. use at your own peril.)
Overview: An investing model that combines quantitative and qualitative elements in an attempt to achieve outsized investments gains but lower the risks of attempting such gains.
1. Find a growth company (or potential growth company) that you believe is going to be continuing to grow at a fast rate even in 3-5 years.
2. Confirm that their product is awesome, their customers are big fans, and their management is smart.
3. Calculate the company’s market cap in 3-5 years by projecting profit (or potential profit if still rapidly growing) and multiplying it by a conservative multiple.
4. If the projected market cap is at least 3x greater than the current stock price, then buy the stock.
5. Hold on and don’t sell unless the company’s long-term prospects/story changes or market cap reaches your projected values.
6. Enjoy crazy outsized gains (ie., 300-1000% or more in 5 years).
Benefits of the Model:
1. Funds/institutions are typically only looking out 1-2 years and using those numbers in their calculations since looking out 3-5 years is too risky and most funds/institutions are risk-averse. Since funds/institutions look only 1-2 years out that means that there’s still a lot of untapped future growth potential in the market cap of those companies that continue their growth even after 3-5 years. This investment model taps into that.
2. Provides a model/framework to evaluate high-growth stocks like tempting IPOs, hyped up stocks, highly shorted stocks, etc. It provides a method to the madness.
3. Relies on the purchase of common stock, rather than options (which have a much higher risk/reward profile and require technical analysis and trading skills).
Limitations and Challenges:
1. You need sufficient starting capital or else the research/effort required probably isn’t going to be worth it.
2. If you lose on an investment using this model it’s likely because the company didn’t grow as fast as you expected and your revenue/profit forecasts fell short. This is why you need to be uber-confident (through your due diligence) that the company is going to continue it’s high growth even in 3-5 years. It’s also important to make the correct calculations in projecting future revenue/profit and investor multiple. This isn’t easy for most people but I’ll be covering this throughout my series with TSLA and by the end of the series hopefully you’ll have a better grasp on how to do this.
3. Another reason you could lose on this is if you get caught up during a hyper-enthusiastic time and overpay for the stock, and as a result you don’t get as outsized gains as you could have. This is why I added that the projected market cap in 3-5 years needs to be at least 3x greater than the current stock price. This helps make sure you have an entry point that’s decently low enough to make the outsized gains needed.
Exit Plan:
After the company has reached your original 3-5 year market cap projection, then revaluate company based on steps #1-4 above. If the company is still a buy with the model, then hold your position. If not, then start exit/liquidation plan (or transition investment expectations to slow growth investment).
I could write a lot on this but I’ll stop here for feedback and decide to develop/explain the model more or not based off of that.
The Blue Owl
Endangerous Herbivore
To me this looks like a sensible and promising approach. Points 3) and 5) are the key. At least, I know that's where I fell short with TSLA last year when we went all the way to $120. I didn't have the rational basis to provide the method to the madness, as you put it, and I chickened out at the bottom.
The other thing I like is that it does not advocate or rely on options. That was the second mistake I made this year after Q4 earnings, when I didn't understand that the Jonas upgrade put us at the high end of the rational (according to this model) trading range and I bought Jan15 options (wrong time to buy, and wrong expiry.)
Calculating the company’s market cap in 3-5 years by projecting profit is the most difficult part for me. That, and the timing guidelines you talked about in the other posts in order to optimize stock buys, and maybe to allocate a bit to options for the more adventurous. That's where I'll try to learn more from your and others' posts.
If only it were that easy!
Some of the challenges in finding the kind of opportunity you describe
- Many young companies project to dominate their industry.
- It's hard to be an expert in so many industries that when the opportunity presents itself you are knowledgeable enough seize on it in a timely manner.
- Many great companies are delaying their IPO until they are already mature and so retail investors are not able to participate in the dramatic growth since they IPO'd at many tens of billions
- Trusting a management team and their ability to execute their plan
One could be fooled into thinking they have found the next big opportunity very easy. Basically every biotech ever fits the profile but few make it, for every Intuitive Surgical there are hundreds/thousands who fail.
There are so many companies advertising themselves as the next big thing, the next paradigm shift, the next disrupter! If you found Tesla early and bought shares it was really amazing luck. It was a perfect storm of so many good things coming together at the same time. Innovators like Musk are once a century...
The Blue Owl
Endangerous Herbivore
Dave will be along with his reply, just wanted to say that he did emphasize this:
DaveT said:
But yeah, that is the tricky part.
You're also right about the fact that many great companies delay their IPO. But sometimes we get lucky enough to recognize the value of an obscure company like Tesla was 2 years ago, and still manage to mess it up, so I think having a model to guide one's decisions is valuable.
chickensevil
Active Member
It can be hard to find such companies as Tesla (or even half as good as Tesla) but if you really wanted to have something pan out then it would take people inputting on fields that they are familiar with to help identify candidate companies... Otherwise it is likely to be very tough to find.
Those are all legitimate challenges and concerns. High-risk growth investing is risky since so much of it depends on choosing the right company. If one chooses the wrong company (ie., it fails to grow at the rate you project), then you could be in for some pain. Especially if the company bellies up. As Familial Rhino mentioned, that's why due diligence is so important and often underestimated. I will agree it's tough to do due diligence if one doesn't have expertise in the area that the company is in. Sometimes one can compensate by doing a crash course by studying/researching a few hundred hours and gain a certain level of proficiency in that market area. Sometimes that's enough to understand the product/company, but much more is needed to fully evaluate the product, market, future growth prospects, future margins, competition, risk factors, etc. I'll share more thoughts on the due diligence process below.
I also agree that more companies are going public later and much of the growth has already been realized by early investors. A few things on this though. Sometimes you get companies whose IPO is not well received and/or the price drops in the first year significantly. At what point does it become a bargain? For most people, they don't have a clear framework to make those kinds of decisions. Also, when a company does go IPO, most people don't have a good framework to know if it's a good long-term high-growth investment or not.
(note: this is version 0.12 and is a work in progress. results not guaranteed. use at your own peril.)
Overview: An investing model that combines quantitative and qualitative elements in an attempt to achieve outsized investments gains but lower the risks of attempting such gains.
1. Find a growth company (or potential growth company) that you believe is going to be continuing to grow at a fast rate even in 3-5 years.
2. Confirm that their product is awesome, their customers are big fans, and their management is smart.
3. Calculate the company’s market cap in 3-5 years by projecting profit (or potential profit if still rapidly growing) and multiplying it by a conservative multiple.
4. If the projected market cap is at least 3x greater than the current stock price, then buy the stock.
5. Hold on and don’t sell unless the company’s long-term prospects/story changes or market cap reaches your projected values.
6. Enjoy crazy outsized gains (ie., 300-1000% or more in 5 years).
Benefits of the Model:
1. Funds/institutions are typically only looking out 1-2 years and using those numbers in their calculations since looking out 3-5 years is too risky and most funds/institutions are risk-averse. Since funds/institutions look only 1-2 years out that means that there’s still a lot of untapped future growth potential in the market cap of those companies that continue their growth even after 3-5 years. This investment model taps into that.
2. Provides a model/framework to evaluate high-growth stocks like tempting IPOs, hyped up stocks, highly shorted stocks, etc. It provides a method to the madness.
3. Relies on the purchase of common stock, rather than options (which have a much higher risk/reward profile and require technical analysis and trading skills).
Limitations and Challenges:
1. You need sufficient starting capital or else the research/effort required probably isn’t going to be worth it.
2. If you lose on an investment using this model it’s likely because the company didn’t grow as fast as you expected and your revenue/profit forecasts fell short. This is why you need to be uber-confident (through your due diligence) that the company is going to continue it’s high growth even in 3-5 years. It’s also important to make the correct calculations in projecting future revenue/profit and investor multiple. This isn’t easy for most people but I’ll be covering this throughout my series with TSLA and by the end of the series hopefully you’ll have a better grasp on how to do this.
3. Another reason you could lose on this is if you get caught up during a hyper-enthusiastic time and overpay for the stock, and as a result you don’t get as outsized gains as you could have. This is why I added that the projected market cap in 3-5 years needs to be at least 3x greater than the current stock price. This helps make sure you have an entry point that’s decently low enough to make the outsized gains needed.
Exit Plan:
After the company has reached your original 3-5 year market cap projection, then revaluate company based on steps #1-4 above. If the company is still a buy with the model, then hold your position. If not, then start exit/liquidation plan (or transition investment expectations to slow growth investment).
Skills and methods involved in the 6 Steps outlined above:
Methods: This can be done through a variety of methods. Warren Buffett likes to read a ton annual reports in his free time. You could systematically research all high-growth companies. You could research new companies/products that have growing die-hard fan bases. Some people say it’s luck to discover a great new company, which is possible for some but not a very good method to rely on. But all of the greatest investors have a method besides luck to find new opportunities.
Methods: First, one needs to be able to understand the product confidently. Some products are that aren’t in your field of expertise might be too difficult for you to confidently analyze and understand. Also, one needs to compare the products/service with other competing products in the marketplace. The product/service also should be defensible against new market entrants. The product should be stellar and significantly better than the competition. The company should exemplify outstanding execution and the ability to increase it’s lead over the competition. The product should be so stellar that they have lots of fans of their product. One should dialogue with as many customers as possible/needed to understand the strengths and weaknesses of the product. The product should take advantage of larger trends of technology, user behavior, or dropping costs, etc. The market needs to be large enough to support high growth of the company for many years to come. The management should exemplify clear strategic thinking, compelling business model formation, outstanding product excellence standards, stellar execution, and good morals. The management should be noticeable more competent and excellent than every other competing company. The management should display a long-term strategy to continue it’s high growth even in 3-5 years. The due diligence required is often overlooked or minimized by most people. For example, I spent roughly 500 hours of due diligence with TSLA before making my first stock purchase in August 2012. I don’t agree with people taking significant amounts of money and investing in certain companies without significant due diligence. If you’re really looking to make a significant long-term investment in a particular company, I’d recommend at least 100 hours of due diligence minimum. There are also certain fields/areas that you might not have expertise in and in those cases you might be able to overcome your lack of expertise by spending an inordinate amount of time becoming an expert in that area (ie., spending a few hundred hours in research, but otherwise I’d recommend making significant long-term investments only in areas that you confidently understand and have an appropriate level of expertise/knowledge in.
Methods: First, one needs to project revenue in 3-5 years. The best method is to take company guidance or if company guidance isn’t given out that far (which it usually isn’t) is to peruse interviews by company management, articles, presentations, reports, etc that show that management is expecting to sell a certain # units in 3-5 years. Then, take gross margin at that time (look at current gross margin and see how management is forecasting improvements and what they’re saying about long-term sustainable gross margins). Then, calculate an operating and/or profit margin by calculating where expenses might be in 3-5 years and what kind of long-term operating and/or profit margin the management is forecasting. If the company is still in very high-growth mode in 3-5 years and is still spending significantly on expenses for growth, then calculate the potential profit of the company in 3-5 years if they didn’t spend a lot on future growth and kept that profit. Then, one needs to decide on a conservative multiple that investors will give in 3-5 years based on one’s projected growth rate, revenue and profit forecasts. Investors will give different multiples for different markets, growth rates, margins, etc. Often, the inexperienced will project a too high multiple investors will give in 3-5 years. The chances are is that the growth rate will slow down some and investors might not be thinking the company is very high-growth after 3-5 years have passed and will give a much more conservative multiple than you might imagine. (Of course it’s possible that the company is still growing super fast and the multiple is high as well. But I think it’s better to be conservative and plan that the multiple investors will give will be conservative at that time in 3-5 years). This skill/method takes a while to grasp and become good at.
Feedback invited.
Overview: An investing model that combines quantitative and qualitative elements in an attempt to achieve outsized investments gains but lower the risks of attempting such gains.
1. Find a growth company (or potential growth company) that you believe is going to be continuing to grow at a fast rate even in 3-5 years.
2. Confirm that their product is awesome, their customers are big fans, and their management is smart.
3. Calculate the company’s market cap in 3-5 years by projecting profit (or potential profit if still rapidly growing) and multiplying it by a conservative multiple.
4. If the projected market cap is at least 3x greater than the current stock price, then buy the stock.
5. Hold on and don’t sell unless the company’s long-term prospects/story changes or market cap reaches your projected values.
6. Enjoy crazy outsized gains (ie., 300-1000% or more in 5 years).
Benefits of the Model:
1. Funds/institutions are typically only looking out 1-2 years and using those numbers in their calculations since looking out 3-5 years is too risky and most funds/institutions are risk-averse. Since funds/institutions look only 1-2 years out that means that there’s still a lot of untapped future growth potential in the market cap of those companies that continue their growth even after 3-5 years. This investment model taps into that.
2. Provides a model/framework to evaluate high-growth stocks like tempting IPOs, hyped up stocks, highly shorted stocks, etc. It provides a method to the madness.
3. Relies on the purchase of common stock, rather than options (which have a much higher risk/reward profile and require technical analysis and trading skills).
Limitations and Challenges:
1. You need sufficient starting capital or else the research/effort required probably isn’t going to be worth it.
2. If you lose on an investment using this model it’s likely because the company didn’t grow as fast as you expected and your revenue/profit forecasts fell short. This is why you need to be uber-confident (through your due diligence) that the company is going to continue it’s high growth even in 3-5 years. It’s also important to make the correct calculations in projecting future revenue/profit and investor multiple. This isn’t easy for most people but I’ll be covering this throughout my series with TSLA and by the end of the series hopefully you’ll have a better grasp on how to do this.
3. Another reason you could lose on this is if you get caught up during a hyper-enthusiastic time and overpay for the stock, and as a result you don’t get as outsized gains as you could have. This is why I added that the projected market cap in 3-5 years needs to be at least 3x greater than the current stock price. This helps make sure you have an entry point that’s decently low enough to make the outsized gains needed.
Exit Plan:
After the company has reached your original 3-5 year market cap projection, then revaluate company based on steps #1-4 above. If the company is still a buy with the model, then hold your position. If not, then start exit/liquidation plan (or transition investment expectations to slow growth investment).
Skills and methods involved in the 6 Steps outlined above:
Skills required: Exploration and discovery.
Methods: This can be done through a variety of methods. Warren Buffett likes to read a ton annual reports in his free time. You could systematically research all high-growth companies. You could research new companies/products that have growing die-hard fan bases. Some people say it’s luck to discover a great new company, which is possible for some but not a very good method to rely on. But all of the greatest investors have a method besides luck to find new opportunities.
Skills required: Due diligence, research.
Methods: First, one needs to be able to understand the product confidently. Some products are that aren’t in your field of expertise might be too difficult for you to confidently analyze and understand. Also, one needs to compare the products/service with other competing products in the marketplace. The product/service also should be defensible against new market entrants. The product should be stellar and significantly better than the competition. The company should exemplify outstanding execution and the ability to increase it’s lead over the competition. The product should be so stellar that they have lots of fans of their product. One should dialogue with as many customers as possible/needed to understand the strengths and weaknesses of the product. The product should take advantage of larger trends of technology, user behavior, or dropping costs, etc. The market needs to be large enough to support high growth of the company for many years to come. The management should exemplify clear strategic thinking, compelling business model formation, outstanding product excellence standards, stellar execution, and good morals. The management should be noticeable more competent and excellent than every other competing company. The management should display a long-term strategy to continue it’s high growth even in 3-5 years. The due diligence required is often overlooked or minimized by most people. For example, I spent roughly 500 hours of due diligence with TSLA before making my first stock purchase in August 2012. I don’t agree with people taking significant amounts of money and investing in certain companies without significant due diligence. If you’re really looking to make a significant long-term investment in a particular company, I’d recommend at least 100 hours of due diligence minimum. There are also certain fields/areas that you might not have expertise in and in those cases you might be able to overcome your lack of expertise by spending an inordinate amount of time becoming an expert in that area (ie., spending a few hundred hours in research, but otherwise I’d recommend making significant long-term investments only in areas that you confidently understand and have an appropriate level of expertise/knowledge in.
Skills required: Financial
Methods: First, one needs to project revenue in 3-5 years. The best method is to take company guidance or if company guidance isn’t given out that far (which it usually isn’t) is to peruse interviews by company management, articles, presentations, reports, etc that show that management is expecting to sell a certain # units in 3-5 years. Then, take gross margin at that time (look at current gross margin and see how management is forecasting improvements and what they’re saying about long-term sustainable gross margins). Then, calculate an operating and/or profit margin by calculating where expenses might be in 3-5 years and what kind of long-term operating and/or profit margin the management is forecasting. If the company is still in very high-growth mode in 3-5 years and is still spending significantly on expenses for growth, then calculate the potential profit of the company in 3-5 years if they didn’t spend a lot on future growth and kept that profit. Then, one needs to decide on a conservative multiple that investors will give in 3-5 years based on one’s projected growth rate, revenue and profit forecasts. Investors will give different multiples for different markets, growth rates, margins, etc. Often, the inexperienced will project a too high multiple investors will give in 3-5 years. The chances are is that the growth rate will slow down some and investors might not be thinking the company is very high-growth after 3-5 years have passed and will give a much more conservative multiple than you might imagine. (Of course it’s possible that the company is still growing super fast and the multiple is high as well. But I think it’s better to be conservative and plan that the multiple investors will give will be conservative at that time in 3-5 years). This skill/method takes a while to grasp and become good at.
Skills: Financial
Skills: Financial, emotional
Feedback invited.
Last edited:
pz1975
Active Member
This is excellent DaveT and thank you. It is a very nice breakdown that most of us used (although not as thorough as you did I am sure) when we "discovered" Tesla. The one additional skill I would add for #1 is awareness. We come into contact with various products and services in our lives everyday, either in person ("hey what's that cool car that just drove by?") or when talking to others or reading/browsing the internet on our own. As much as systematically analyzing as many high potential industries and companies is great, most people don't have that much time (job, family, friends, etc). There is something to be said for having an underlying awareness (often subconscious) of potential high growth/disruptive products/services/companies that jump out at you when you come in contact with them.
I am sure many people are kicking themselves now for not investing in Tesla early. Likely many of them came into contact with the company somehow during the early years but their awareness of its excellence and potential did not make them take that extra few minutes to start some cursory research into it. Rather, most probably were preoccupied with other things and just ignored the potential.
I personally keep a list of any cool/special things I see or hear about and then spend some time researching them all even just a little bit. I of course am often wrong but keeping an awareness to these types of companies is definitely important as they are often right in front of us! Another example was when Google first became THE Internet search engine. This was way before I knew anything about the stock market but I remember having an awareness that a company that could do THAT (create the best of something vitally important to everyone) was going to be special.
I am sure many people are kicking themselves now for not investing in Tesla early. Likely many of them came into contact with the company somehow during the early years but their awareness of its excellence and potential did not make them take that extra few minutes to start some cursory research into it. Rather, most probably were preoccupied with other things and just ignored the potential.
I personally keep a list of any cool/special things I see or hear about and then spend some time researching them all even just a little bit. I of course am often wrong but keeping an awareness to these types of companies is definitely important as they are often right in front of us! Another example was when Google first became THE Internet search engine. This was way before I knew anything about the stock market but I remember having an awareness that a company that could do THAT (create the best of something vitally important to everyone) was going to be special.
Definitely great advice. Awareness is definitely huge. And I like the idea of keeping a list of cool things you hear about.
Regarding Tesla I think a lot of people were aware of Tesla, especially after they started delivering the Model S from the summer of 2012. It's interesting that people had until May 2013 (almost 9-10 months) where Tesla was producing cars, people were testing driving, etc. So, people who liked the car/company actually had quite a long time where they could have done some basic financial projections to see that buying the stock under $50 was steal. So, while I think awareness is definitely an important skill in Step 1 (Exploration and Discovery), I think in regards to Tesla that people were exposed to and made aware of Tesla and the Model S for quite a long time before the stock starting to take off. Also, with Step 2 a lot of people who test drove the car or owned it knew it was an awesome car and one could listen to Elon's interviews and know he was quite amazing. So, if people missed out it was probably more that they didn't do or know how to do Step 3/4.
With regards to Step 3 (Financial Projections), I know quite a few people took Elon Musk's stock incentive plan that projected Tesla to reach at least $43 billion by 2022 as a projection that they relied on to know that there was significant upside to the Tesla's market cap. However, when the stock started to run up some people didn't have the know-how to project their own financial projections (with increased worldwide demand for S/X) so they started to get anxious and reduced/sold their long-term positions (that they originally expected to hold for a long time) thinking the stock had run up too fast and too high.
Here's another thought:
I hear some people saying that they wish they would have bought more TSLA shares early on. But I don't think that's the best way to look at it. I think it's much better to realize that the mistake wasn't necessarily not buying a lot of TSLA shares early on, but rather not researching/calculating financial projections for the next 3-5 years and seeing huge upside to the market cap.
I hear some people saying that they wish they would have bought more TSLA shares early on. But I don't think that's the best way to look at it. I think it's much better to realize that the mistake wasn't necessarily not buying a lot of TSLA shares early on, but rather not researching/calculating financial projections for the next 3-5 years and seeing huge upside to the market cap.
Norse
Active Member
True! I remember back in 2012 when I started talking about Tesla stocks. None of my friends got in, but since Tesla became such a success in Norway they are reminded by their mistake every day
Also DaveT, thanks for sharing your thoughts and knowledge with us!
erha
Member
Tesla is my first company I'm invested in and it all started out just to learn about investing. After I got really confident Tesla would succeed I invested all my money. However, if I were to invest in a new company I would really look for what Elon talked about in some interviews after the patent release. It's really not about the position of a company, but more about the velocity of innovation, and you might even talk about the acceleration of innovation for that company. That is to some degree correlated to their ability to attract talented engineers.
chickensevil
Active Member
Yeah, you definitely need a good product, management that is always pushing for innovation, and an enthusiastic customer base. That seems to be the recipe for a great run away stock and company.
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
This last "series" is a great read as always from you DaveT! Please keep adding to it, if you have the time and energy. To me the more time that passes and the more I understand how fortunate I have been to be invested in, for me, a big way in TSLA since 2012 I'm also starting to understand that these opportunities do not come often. I think the biggest variable is the fact that Tesla IPO'ed too early - that is they were forced to do it way too early. This was uncommon and frankly sort of an anomaly that we all as early investors are now reaping the fruits of.
I also really appreciate the careful and thoughtful (as well as very accurate) analysis that Dave has given us. I was one of those who was regretting not getting in to TSLA when we got delivery of the car in February 2013. We had a fair amount of cash in our converted Roth IRA, so the opportunity was there. When the price jumped so quickly to about 180, I thought, that was it - now it is really too late. However, after the news of the fires and Q3 earnings caused the drop of the stock in November, I realized that this was panic selling and at 140 or so I put in a buy limit order at 130. A couple of days later, the stock fell from 135 to about 121 in one day and my order was filled. Now, 9 months later, the stock is not quite double my purchase price.
However, as I look both back and forward, I have come to this realization. If you have a long time horizon and do believe that TSLA is a game changer, then an eventual stock price several times (1000?) the current price is possible over a decade or more. Compound growth of 15% a year for 10 years means a 4 times increase in stock price, or 1000 based on the current price. If that comes to pass, then investing at $40/share which I could have done in February 2013 means a gain of 960, while investing at $130 which I did in November 2013, means a gain of $870, a difference of less than 10%.
At our stage in life, the Roth is intended for our estate - so that our daughter gets to inherit a vehicle (no pun intended) which will have grown tax free and will continue to grow tax free for the rest of her life (with the Roth acting as a retirement fund for her).
However, as I look both back and forward, I have come to this realization. If you have a long time horizon and do believe that TSLA is a game changer, then an eventual stock price several times (1000?) the current price is possible over a decade or more. Compound growth of 15% a year for 10 years means a 4 times increase in stock price, or 1000 based on the current price. If that comes to pass, then investing at $40/share which I could have done in February 2013 means a gain of 960, while investing at $130 which I did in November 2013, means a gain of $870, a difference of less than 10%.
At our stage in life, the Roth is intended for our estate - so that our daughter gets to inherit a vehicle (no pun intended) which will have grown tax free and will continue to grow tax free for the rest of her life (with the Roth acting as a retirement fund for her).
Johan
Ex got M3 in the divorce, waiting for EU Model Y!
You forgot one important thing. With TSLA at $40 as opposed to $130 the same amount of money would have bought you more than 3 x the number of shares. Most people don't say "I'll buy x number of TSLA" but "I'll buy TSLA for x number of $$$". I'm guessing you are no different? Regardless, great move!
- Status
Similar threads
- Locked
