Articles/megaposts by DaveT

[DaveT]

Using Trading Ranges and LEAPs to Increase Long-term Gains

Last week I shared a few posts in some other threads about my long-term investing strategy using trading ranges and LEAPs to amplify gains beyond just common stock. For most people, I would just recommend getting in early on a stellar company with common stock and just holding for a very long time. But for the overly ambitious it’s possible to use timing and leveraged options to enhance gains. But whenever you use leveraged instruments, you introduce added risk. Sometimes the added risk is worth it, others times it not.

The rest of this post are excerpts from this past week:

This is the one that typically kills me, bad timing. A lack of patience has been a good part of it. Still, times like right now are very hard for me to peg. We're nearing the ATH, but we're also seeing analyst increases and significant events coming with the X later. Is the stock high value now? Mid-value? Doesn't seem likely to be low value right now, but if there's no real dip between now and the next steady rise, I guess it was.

I've created my own price forecasts with super low, low-mid, mid-high and super high trading ranges from now until 2020. I've been hesitant on sharing the details since I'd much rather people create their own forecasts that are different than mine because everyone's assumptions are different. But I probably will eventually share the trading ranges and their calculations in the series I'm doing on my thread. I just want to lay out the foundation so people know how to use it and how to adjust it to make it their own.

But according to my own trading ranges, I see TSLA at the mid-high range right now. (btw, with a growth stock like TSLA, I think a mid-high trading range is a healthy zone.)

Just to clarify your interpretation of those terms how much of a one year move would you expect if the stock was in those values assuming everything was going swimmingly with Tesla?

Would the interpretation be something like:
Super high -> hold wait for a pull back
Mid - high -> buy/hold
low - mid -> buy
super low -> buy like crazy

Again, that is assuming that what is causing the stock to be in those values is not long term related to the overall movement and goals of the company. Like when the market itself goes down but Tesla is great, or when someone blows some FUD out that causes the stock to take a dip, or maybe even when short term guidance seems to be making the price drop, but long term the overall path is still good/positive.

So, this is how I approach it with my long-term investments (short-term trading is vastly more complicated):

Super high range - hold stock
Mid-high range - hold stock
Low-mid range - buy stock. if approaches super low range, buy LEAPs (preferably 1.5-2 years out)
Super low range - buy LEAPs (preferably 1.5-2 years out)

This would apply for a taxable account. In a tax-deferred account, things are vastly different because taxes are deferred. In a tax-deferred account, I would consider the following:

Super high range - hold stock (if range goes over super-high range, then start selling stock to raise cash for correction)
Mid-high range - hold stock and LEAPs (if LEAPs purchased in low range and still has around 1 year left. if less than 1 year left, convert to stock.)
Low-mid range - buy stock. if approaches super low range, buy LEAPs (preferably 1.5-2 years out)
Super low range - sell stock, buy all LEAPs (preferably 1.5-2 years out)

But again, there's a lot of assumptions here. First, the long-term story of the company remains unchanged and has super growth potential. Second, one's price forecasts are accurate.

Regarding price forecast, for the super low range I calculate what a bargain investor like Warren Buffet would pay for Tesla in a time when the long-term story is in tact but the sentiment has turned extremely poor. This is the super low range and I don't expect it to enter this range for long because deep-pocketed bargain investors will sweep up the stock at this price. This is why I was able to recommend buying TSLA so strongly sub $135 last November since it was approaching super low trading range but the long-term story was in tact (I strongly believed they would overcome the fire issues).

For the super high range I calculate at what point will lots of institutions sell their TSLA holdings because the stock price is too high to justify (ie., the multiple of future projected potential earnings is just way too high for new institutional buyers to come in). In other words, the super high range is when TSLA doesn't make sense in terms of the multiples that investors are giving. Oftentimes, this multiple is roughly about double that of what the bargain investor would pay for potential earnings. I use "potential earnings" as the profit the company would have if they stopped invested and that money was turned into profit instead. Take that profit number 1-2 years out or so (that's what is visible to most investors) and figure a bargain investor would give 15-20x multiple, while the enthusiastic investor (hyped up) will give 35-40x multiple. This establishes the super low range and the super high range. Then, you can fill out the low-mid and the mid-high ranges from that.

Anyway, I probably need to go on in more detail for all this to make sense since there's a lot of numbers involved. But I think my point is that I believe that you can actually calculate the trading ranges investors are willing to give (albeit it takes a lot of numbers/calculations/etc), and those ranges can help make investment decisions.

Yea, I'm not a fan at this instant either and I appreciate the feedback. I've read a ton of the stuff you've written here (even if my actions do a poor job of reflecting it) and I figured it must have sounded different in my head than yours.

I failed to do enough research. Unfortunately, I don't think I was self-aware enough at the time to realize what knowledge I lacked so I'm not sure looking back in time that I could have made all that much better of a choice.

The tool is there and, while clearly dangerous, I could have done better using it. There are certainly LEAPS where the premium looks like a pretty good deal. If I look right now, I can pick up J16 $125s for about a $7 premium. So almost 2x the leverage and it seems a pretty good bet I'd more than make up the premium by then. That's why I said I failed in my implementation.

Yeah, the reason I disliked the LEAPs as stock replacement plan discussion a while back was because I think it violated a lot of basic principles. First, deep OTM options are highly leveraged instruments and the cost of high leverage is going to be shrinking time value. So, in order to use highly leveraged instruments, it's important to be confidence that your rewards are going to significantly (in a major way) be greater than the shrinking time value and more importantly, the risk of having your options expire worthless. That's why I said if you're buying 300 strike Jan15 options at the end of March, then in order to make the risks worth it you need to be confident the stock is going to $350-400. Second, with deep OTM options (including LEAPs) it's really dangerous to buy when the stock is trading in it's mid-high range (ie., $220 at end of March). I guess this is more personal perspective of how you evaluate and analyze TSLA market cap range, but if you buy at $220 at end of March and it's in it's mid-high range then the chances are even if it's keeps in it's mid-high range then it might end the year at $250-300 or so IMO. So in order to get to $300-350 then it has go to into a very high range. And to get to $350+ (which is needed to make it worth it), it has to get into a super-high trading range. And so in order for the decision to work out the stock has to move to a super-high trading range, which while is possible is very unlikely.

To me timing is the most important factor in purchasing LEAPs. The best time to buy LEAPs is when the stock is in a low/bargain trading zone (ie., $120-150 end of last year), and to give enough time/cushion for the stock to make the dramatic rise you're expecting. So, if you're expecting a conservative $300 price target by Jan16, then when the stock is at $130 one can buy $200 Jan16 LEAPs. Since you're confident TSLA will be at $300 by Jan16, then you're super confident it will be at least $220 (ie., break-even) at Jan16. And the chances of your options expiring worthless are quite low, as long as you're correct on your belief that the company's long-term story hasn't changed and your future projections are solid.

Another thing is I don't mind people making random decisions on their short-term trades, since usually the feedback loop is quick (ie., they're lose money quickly and stop doing what they're doing). But when people start trading their long-term positions in TSLA (which I'm assuming is a significant amount, but I might be wrong) into OTM leveraged options at what I think is not the right time and poor risk/reward profile, then for some reason it's frustrating. But maybe I shouldn't think about it and just focus on what I can control.

Dave, So to continue on the discussion, especially as it pertains to LEAPS vs. stock. You would not be buying LEAPS at this point because we are in the mid-high range unless they were DITM to take advantage of the increased leverage they may have over buying more stock?

Yeah, since we're in mid-high range (IMHO) I don't look at it as a good opportunity to buy a new long-term position (stocks or LEAPs). However, I do look at it as a good opportunity to keep holding a long-term position since a growth stock can keep trading in a mid-high range for many years. So if one sells at a mid-high range thinking they can accumulate more later, they might not get a chance. Even if the stock gets to a super-high range, I still think it's a good opportunity to keep holding a long-term position that you already have, since there would be tax consequences to selling your position and in the longer term future the stock is likely to be much higher. In a tax-deferred account, everything changes since taxes are deferred so I think it makes sense if you have ambition and know how to discern a super-high range, then you could convert a part of all position to cash and wait for a correction. The difficult part is when to buy back again since a correction will likely bring it back to a mid-high range but probably not a low-mid range.

Regarding DITM, I personally wouldn't be buying deep ITM options as a long-term stock replacement during a mid-high range. I don't like the risk/reward profile. I'd much rather be buying stock or LEAPs (of any kind) during a low-mid range.

It all comes down to these principles... buy stock when the company is undervalued (low-mid range or lower) and avoid getting sucked into the hype and enthusiasm (mid-high and super high ranges). Options (even DITM) are leveraged instruments, so the buying opportunity needs to be even better than if/when you bought stocks. In other words, buy LEAPs when the value of the company is even lower than the low-mid range (or lower) price you would have invested stock at.

This is the main reason I didn't agree with people selling their long-term stock positions for LEAPs several months ago when the stock was $220-250 range. I felt like at that time the stock was at a super high trading zone. Enthusiasm is the highest during the super high trading range and the stock looks so sexy (believe me I know), and I understand the appeal of buying or even trying to keep the same number of shares but with less cash via LEAPs. But with LEAPs you're taking on a much more risk asset (although with less cash than stock), which at the right trading range (ie., near super low) can have a great risk/reward profile. But a super-high trading range, the chances are you'll get burned.

Also, it appears you would do a LEAPS replace stock in a non taxable account when you feel valuation is very low....Otherwise you would never sell your stock to buy LEAPS?

I think there are a lot of factors involved. But in a tax-deferred account, if I'm confident in the long-term story of the company and it's trading close to a super low range, then I have no problems selling stock and going all LEAPs, preferably 1.5-2 years out. I also think it's could be okay to start buying LEAPs at a low-mid range but in the lower half of the low-mid range, depending on our goals.

In a taxable account, it's much more complicated because each person's tax rate is different and that affects decisions in a rather profound way when things are all calculated in a spreadsheet. Generally, the lower your taxes are (ie., if you're at 15% long-term capital gains tax and/or lower income tax brackets), then it could make sense to follow something closer to the tax-deferred account strategy I laid out above, but with some adjustments of course (you'd need lower risk and greater reward in order to sell stocks and switch to LEAPs since you'll be needing to pay taxes. So you'd probably want to buy LEAPs as it approaches the super low range. (Note: my personal super low range is quite low and I don't expect it to get there because the bargain investors will sweep it up before, that's why I say "as it approaches the super low range".)

Now on another question, it gets quite complicated when new investors come along and say, "is it a good time to buy some TSLA?" Generally, if the trading range is low-mid, then it usually is a good time to make a long-term investment. But if the stock is at a mid-high range, it's tough because if you make a long-term investment then it could go a lot lower but if you don't make an investment the stock could trade at a mid-high range for quite a few years to come and you miss out. So, in this case if the stock is already at a mid-high range and person really wants to get in with TSLA, I think I'd probably recommend more of a short-mid term position, perhaps with a smaller position, maybe ITM options, maybe stop-loss (although controversial), etc. There's no perfect approach here but I wouldn't disagree too heavily with a person wanting to take a small/modest position if they understand the risks involved. It's just that I'd much rather it was a low-mid trading range, and the person bought a large long-term position. That's a much better risk/reward profile.

 

[DaveT]

Seeing past the reactionary short-term view of analysts and so-called experts

TSLA jumped $11 today (to $259/share) on an upgrade by Deutsche Bank (from hold to buy, from $220 to $310 price target).

It’s interesting DB waited a week and a half before it’s upgrade. I think they should have done it shortly after Q2 earnings. Tesla gave stellar end of 2015 guidance of 100k production rate and that should have given them the push to release an upgrade of their price target. However, for some reason they were late and let over week go by while the stock gained. I wonder if the rising stock price gave them pressure to update their price target, as they started to realize that TSLA could go a lot higher and they still had a low $220 price target.

Sometimes, analyst updates seem so reactionary to the stock price.

It reminds me back in early 2013 when TSLA was still in the 30s. Where were the analysts that were saying that their price target for end of 2014 was $300? They probably would have been laughed off the scene. Rather, most (if not all) of the analysts tended to focus more on the next few quarters and gave price targets that seemed just a bit further along than the current stock (with the exception of the bearish analysts). But what help does that really do?

I think analysts are typically a very poor way to get investing advice. It seems like they’re just looking at the stock price, reacting to earnings calls, and following technical trends. Then, they fudge the numbers to make everything match what they expect/want the stock price to be in 6-12 months. When the stock price rises (or dips) then they just fudge their numbers and give a different price tag. Many analysts give various scenarios for the future 5 years out or so and give probabilities and discount everything. But the probabilities and discount rate are totally arbitrary and they can theoretically support any stock price they choose by changing those numbers at their own choosing.

Today Jim Cramer got behind TSLA in an interview (Cramer Answers Twitter Questions About Teslas Upgrade, SolarCity - TheStreet). Really? Where was Jim Cramer when TSLA was at $30 or $50 or $100 or even $150? He was saying “be careful with TSLA cause it’s a cult stock”. “It’s too risky for me”. “Don’t short it but I wouldn’t be buying it”. All the while Tesla keeps executing their very transparent plan and the stock keeps rising. And now that the stock is at $250, Cramer is saying that he likes TSLA. Hmmm. Well, I’m not going to critique him too much since I still think TSLA has a way to run in the long-run from $250, so as long as Cramer holds TSLA for a while I think it’ll pay off. But I think my issue is that so many analysts and “stock experts” not only missed TSLA but they actively discouraged people from investing in TSLA when TSLA was under $100 and now they like the stock. But that might change too, and they might change their mind and decide TSLA is once again too risky and too highly valued.

I wonder if these analysts/experts really do a deep dive into the long-term story of Tesla (ie., full due diligence on product quality, owner reception, demand, etc). I’m starting to think most don’t and what they care about more is their 6-12 month price targets and the next few quarters of earnings.

IBD (investors.com) is another group I’ve been disappointed with. They supposedly are experts at finding growth companies through the CAN SLIM methodology. But with TSLA they’ve been in and out of recommending positions, trying to find the exact right buying point and then selling the position (ie., through their Leaderboard). Though the got a few of the moves correct, overall it would have been much, much better for folks to just get in early and hold the stock. IBD missed a lot of the move up at various times, trying to rely on technical analysis instead of doing a deep dive into the long-term fundamentals of the company and seeing the huge upside in market cap in the coming years.

So, if analysts and experts are missing the boat with stocks like TSLA, then who should we listen to? Where do we go to find the next huge high-growth opportunity?

Well I’m not counting on anyone to hand feed stock picks to me. Sure, I don’t mind receiving suggestions on which stocks to do research on. But I prefer to do my own due diligence because when I invest I am the one who is responsible for the consequences of the investment (note: I don't mind crowd-sourced due diligence either). I’m not going to invest in a company because someone says it’s a good buy. What if the investment goes sour? Am I going to blame that person? No, it was my decision to invest and I should have done complete due diligence and understand the investment from various angles.

I’ve written about this a bit, but I think one of the keys to crazy outsized gains is the skill to do massive due diligence on a company and then to do conservative financial projections 5 years out. Analysts/funds/institutions/etc are mostly focused on the next few quarters and are looking out 1-2 years max. I’m starting to think that the long-term story is not very relevant to them. What is relevant is how much % gain they can achieve this year as a fund manager. Thus, the key to them is the next few quarters. However, by looking further out and becoming an expert on the company/product/customers/growth/plans/etc, you can have a better grasp at where the company will be in 5 years than most analysts who aren’t really spending that much time on it because again they care about this year’s return on their fund.

Note: just a quick point to clarify, I'm not saying that most/all analysts don't get the long-term potential of TSLA because some appear to in some regards. However, generally speaking I'm not sure if analysts/experts will really be all that helpful in helping us get in early on the next super high growth stock.

 

[chickensevil]

I think the real challenge is finding a company that: one, is worth the time to research... I mean let's face it. There are thousands of companies out there and 99% of them are not going to see even a 100% gain in a reasonable time. Two: has the vision the see a worthwhile product and bring it to market and three something where you can even find enough details on them in order to make get a reasonable grasp on them. So where does one begin?

Clearly you and I am many other people here have the fortitude to put forth the research and dedication necessary.. You maybe more than me haha! But still the level of effort a lot of us put into this company is more than most put in their entire portfolio... But how do you find a company that is worth putting your focus into?

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Oh and I think there is only one maybe two analysts on Tesla that seem to "get it" I think the rest are just along for the ride.

 

[SteveG3]

So, if analysts and experts are missing the boat with stocks like TSLA, then who should we listen to? Where do we go to find the next huge high-growth opportunity?

Dave, I think it's just oneself. And that's part of why there is great opportunity... if analysts really had the inclination and ability to find such stocks, the market would work more like the efficient market theory (everyone would just turn to the "experts", they'd do their job, and good returns would become both watered down and commoditized). The fact that you have the incentive to find a long range huge high-growth opportunity and put tons of homework into it while the "professionals" most of the public think are "experts" by and large do not is why you can do well as an individual investor. One reason most of the analysts do not communicate the quality of analysis so many of us have done on Tesla (for example, many of us knew long before the last call that Tesla was going to produce ~70K cars in 2015, not the 50K implied in the analyst's average revenue estimates pre-Q2 call) comes to the simple desire of job security. Having a buy on a stock is having a buy, whether you always just back into a price target a little ahead of the stock, or you really put out there the value you see in a company. Putting your neck out as Adam Jonas did circa 2011 with something like a $100 price target at the time is just not necessary, and can lose an analyst his/her job.

I've invested in only two individual stocks in the last 15 years, but I've spent a lot of time on them including seeing over years the quality of various analyst's work. In both cases, I'd say ~30% of analysts are very capable, very thorough, and very focused at understanding and communicating the long term probable value of a company.

With thousands of stocks out there, there is an element of luck in turning up a Tesla like opportunity. When it happens, you go big, because I don't think you can really depend on it happening. You can make it more likely, but I don't think you can make it happen. I never expected to have a second long happy ride, and Tesla basically found me.

 

[Robertj]

Hi Dave

Some great posts , many thanks for setting out your processes . It helps us all think more about how we approach our investments.

Personally , I think IBD has some great articles in its newspaper , and from 5,000 miles away , through articles like their New America , it gives insights into the new movers creating value . finding "high growth " companies with iconic brands is always easy in hindsight.

The issue I have with IBD is their buying and selling strategy , which is all around risk reduction , but it means you leave a lot on the table .

So , as a source of what are the new movers and shakers I think IBD assists me ( IBD subscriber for 5 years)
in my selection of stocks to consider investing in

Keep up your great articles, thanks again

 

[Chickenlittle]

[i have no respect for the large broker firms. Fidelity consistently has had poor ratings on tsla stock yet one of the major holders of tsla are fidelity mutual funds for years now. When my brother and I discuss a new investment, we go through a checklist and if everything looks good but schwab rates an F, it's the final confirmation to invest in it.

 

[RationalOptimist]

For me, the key clue is to spot genuine consumer excitement about something. Excitement, passion, wow. Those things can take a long time to show up in the numbers. But they do provide an important clue that something might have a long, long growth ramp ahead of it.

Back in 2003, Apple was valued at less than the cash it had in the bank. AND it had an army of people raving about its new iPod (along with its other products). That was a screaming indication to buy. The stock is up >50x since then. Sean Parker saw an how an early version of Facebook was completely addictive to its users. That drove his instinctive early investment.

All of us know how we felt after we drove a Tesla for the first time. We felt differently about a car than we ever had. We felt we'd driven the future. It's that feeling... and knowing that every day of every week new people are experiencing that feeling for the first time... is the what gives me conviction that Tesla's mission has 'destiny' written all over it. This one will run and run.

So for the next big thing... don't start by looking at the numbers. Instead, LISTEN to people. Listen for signs of true excitement. There's all the difference in the world between. "I quite like that" and "Wow. Just wow." The latter don't happen v often. But when they do, it's really worth researching what the long-term potential might be. Analysts won't see it in the numbers until years later when they notice this giant hockey stick of a graph. But you can.

Thanks, Dave, for hosting a deeper discussion about Tesla's long-term.

 

[AlMc]

For me, the key clue is to spot genuine consumer excitement about something. Excitement, passion, wow. Those things can take a long time to show up in the numbers. But they do provide an important clue that something might have a long, long growth ramp ahead of it.

Back in 2003, Apple was valued at less than the cash it had in the bank. AND it had an army of people raving about its new iPod (along with its other products). That was a screaming indication to buy. The stock is up >50x since then. Sean Parker saw an how an early version of Facebook was completely addictive to its users. That drove his instinctive early investment.

All of us know how we felt after we drove a Tesla for the first time. We felt differently about a car than we ever had. We felt we'd driven the future. It's that feeling... and knowing that every day of every week new people are experiencing that feeling for the first time... is the what gives me conviction that Tesla's mission has 'destiny' written all over it. This one will run and run.

So for the next big thing... don't start by looking at the numbers. Instead, LISTEN to people. Listen for signs of true excitement. There's all the difference in the world between. "I quite like that" and "Wow. Just wow." The latter don't happen v often. But when they do, it's really worth researching what the long-term potential might be. Analysts won't see it in the numbers until years later when they notice this giant hockey stick of a graph. But you can.

Thanks, Dave, for hosting a deeper discussion about Tesla's long-term.

Agree. This is similar to the Peter Lynch philosophy. See what people are excited about and investigate, then invest.

 

[The Blue Owl]

Note: just a quick point to clarify, I'm not saying that most/all analysts don't get the long-term potential of TSLA because some appear to in some regards. However, generally speaking I'm not sure if analysts/experts will really be all that helpful in helping us get in early on the next super high growth stock.

Just for the record, there is the notable exception of Andrea James (well acknowledged on this board). She's on record numerous times on YouTube with TV appearances since at least 2011, consistently getting it. The contrast between her analysis and any other analysts at the time is astounding. She has been a true contrarian, and has argued the value of TSLA again and again, against the other analysts who kept talking about EPS and losses and the big scary competition that would eat Tesla's lunch in no time, no doubt.

This isn't meant as a counter to your observation, just that she deserves to be recognized for her foresight. Listening to her past interviews today leads one to the strong suspicion that she had access to a time machine.

Here are a few great examples:
May 11, 2011
Feb 20, 2013
May 29, 2013 (this one is a classic)
July 17, 2013
Aug 26, 2013

 

[JST]

For me, the key clue is to spot genuine consumer excitement about something. Excitement, passion, wow. Those things can take a long time to show up in the numbers. But they do provide an important clue that something might have a long, long growth ramp ahead of it.

Back in 2003, Apple was valued at less than the cash it had in the bank. AND it had an army of people raving about its new iPod (along with its other products). That was a screaming indication to buy. The stock is up >50x since then. Sean Parker saw an how an early version of Facebook was completely addictive to its users. That drove his instinctive early investment.

All of us know how we felt after we drove a Tesla for the first time. We felt differently about a car than we ever had. We felt we'd driven the future. It's that feeling... and knowing that every day of every week new people are experiencing that feeling for the first time... is the what gives me conviction that Tesla's mission has 'destiny' written all over it. This one will run and run.

So for the next big thing... don't start by looking at the numbers. Instead, LISTEN to people. Listen for signs of true excitement. There's all the difference in the world between. "I quite like that" and "Wow. Just wow." The latter don't happen v often. But when they do, it's really worth researching what the long-term potential might be. Analysts won't see it in the numbers until years later when they notice this giant hockey stick of a graph. But you can.

Thanks, Dave, for hosting a deeper discussion about Tesla's long-term.

Excellent comments--this sums it up perfectly.

 

[chickensevil]

May 29, 2013 (this one is a classic)

"If Tesla is able to max out the factory at 500k cars a year, this is a 300$ stock" -AJ

Seems like she definitely "gets it" and has some pretty great foresight

 

[DaveT]

Just for the record, there is the notable exception of Andrea James (well acknowledged on this board). She's on record numerous times on YouTube with TV appearances since at least 2011, consistently getting it. The contrast between her analysis and any other analysts at the time is astounding. She has been a true contrarian, and has argued the value of TSLA again and again, against the other analysts who kept talking about EPS and losses and the big scary competition that would eat Tesla's lunch in no time, no doubt.

I agree that analysts like Andrea James and Adam Jonas have been very bullish on Tesla. And I don’t want to take away any of their hard work. However, I think that the vast majority of analysts seem to cater to the short-term thinking of the market/investors by providing short-term “price targets” that usually represent price targets 6-12 months out. 6-12 month price targets really are short-term price targets and cater to the big funds/institutions who are mostly looking to maximize their fund’s performance over the next 6-12 months. So, the whole system operates around this kind of short-term thinking and these analysts serve those needs. I’d like to see some analysts who skip the typical 6-12 month price target and only give their price targets that are 3-5 years out. But if they did that, then they’d probably lose their job since they wouldn’t be serving the people/investors/funds/institutions in the way they're expected to do so.

For me, the key clue is to spot genuine consumer excitement about something. Excitement, passion, wow. Those things can take a long time to show up in the numbers. But they do provide an important clue that something might have a long, long growth ramp ahead of it.

I definitely agree that consumer excitement can be an important clue. And it’s so important to catch on to that as early as possible and do full due diligence on the company, market, product, customers, competition, etc. to understand if the initial consumer excitement is a fad or if it’s legitimate to become a larger movement. The other key piece is after doing your due diligence is to know how to make financial projections 3-5 years to gauge the potential of market cap gain.

 

[FluxCap]

Just for the record, there is the notable exception of Andrea James (well acknowledged on this board). She's on record numerous times on YouTube with TV appearances since at least 2011, consistently getting it. The contrast between her analysis and any other analysts at the time is astounding. She has been a true contrarian, and has argued the value of TSLA again and again, against the other analysts who kept talking about EPS and losses and the big scary competition that would eat Tesla's lunch in no time, no doubt.

This isn't meant as a counter to your observation, just that she deserves to be recognized for her foresight. Listening to her past interviews today leads one to the strong suspicion that she had access to a time machine.

Here are a few great examples:
May 11, 2011
Feb 20, 2013
May 29, 2013 (this one is a classic)
July 17, 2013
Aug 26, 2013

Andrea was a reporter before she was an analyst, which is a very non-traditional path for analysts at the big i-banks and research shops. Though I have heard many (mostly men) deride this fact, I think it gives her a unique edge, and I certainly value her thoughts.

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I’d like to see some analysts who skip the typical 6-12 month price target and only give their price targets that are 3-5 years out. But if they did that, then they’d probably lose their job since they wouldn’t be serving the people/investors/funds/institutions in the way they're expected to do so.

Well Adam Jonas has a great bull/bear/medium case in his mega-report from a while back, complete with concrete price targets and justifications. Other analysts do not have as sophisticated a look into the future, largely because as you say, short-term pump-and-dump is what their firms and their clients typically ask for. Sadly.

 

[JRod0802]

Dave, do you think that most high growth companies are (relatively) new companies? Tesla is quite new relative to the rest of the auto industry.

Do you agree with what Marc Andreessen said about the trend of companies waiting longer and longer before issuing an IPO?

This isn't Tesla-related but it was an interesting read on the market and investing in general, The IPO is dying. Marc Andreessen explains why. - Vox

 

[DaveT]

Dave, do you think that most high growth companies are (relatively) new companies? Tesla is quite new relative to the rest of the auto industry.

Do you agree with what Marc Andreessen said about the trend of companies waiting longer and longer before issuing an IPO?

I definitely agree that many of the best high-growth companies/startups are IPO'ing later than before. I've been following Dropbox, Uber, Airbnb, Xiaomi and others for years and would have loved a chanced to invest in any of those companies at under $1 billion valuation. But that's not available to the retail investor. A lot of the VC industry have raised massive funds to take advantage of investing in later rounds of these kind of high-growth companies. For example, The Pro-Rata Opportunity – AVC .

So, here's a simple chart. Many of the best companies are IPO'ing increasingly later (ie., I'd consider FB IPO'ing in Stage 2c). Stage 2c investing can be perilous as it's rather close to Stage 3 when growth tapers significantly, and since markets are forward looking they can start pricing in Stage 3 while the company is in Stage 2c.

It's best to get in at the end of Stage 1 or the beginning of Stage 2a. That way you can ride the growth and market cap gains of Stage 2a, 2b, and 2c.

 

[MikeC]

I definitely agree that many of the best high-growth companies/startups are IPO'ing later than before. I've been following Dropbox, Uber, Airbnb, Xiaomi and others for years and would have loved a chanced to invest in any of those companies at under $1 billion valuation. But that's not available to the retail investor. A lot of the VC industry have raised massive funds to take advantage of investing in later rounds of these kind of high-growth companies. For example, The Pro-Rata Opportunity – AVC .

So, here's a simple chart. Many of the best companies are IPO'ing increasingly later (ie., I'd consider FB IPO'ing in Stage 2c). Stage 2c investing can be perilous as it's rather close to Stage 3 when growth tapers significantly, and since markets are forward looking they can start pricing in Stage 3 while the company is in Stage 2c.

It's best to get in at the end of Stage 1 or the beginning of Stage 2a. That way you can ride the growth and market cap gains of Stage 2a, 2b, and 2c.

View attachment 56315

Where do you think TSLA is on that chart? I'm hoping we're still in 2A.

 

[Mitthrawnuruodo]

Just for the record, there is the notable exception of Andrea James (well acknowledged on this board). She's on record numerous times on YouTube with TV appearances since at least 2011, consistently getting it. The contrast between her analysis and any other analysts at the time is astounding. She has been a true contrarian, and has argued the value of TSLA again and again, against the other analysts who kept talking about EPS and losses and the big scary competition that would eat Tesla's lunch in no time, no doubt.

This isn't meant as a counter to your observation, just that she deserves to be recognized for her foresight. Listening to her past interviews today leads one to the strong suspicion that she had access to a time machine.

Here are a few great examples:
May 11, 2011
Feb 20, 2013
May 29, 2013 (this one is a classic)
July 17, 2013
Aug 26, 2013

I never saw these, how interesting to watch them all now. I particularly enjoyed July 17, 2013: At 5:00 the analyst claims he thinks Toyota only sold 30,000 Prius' that year. Over 400,000 Prius' were sold in 2013. I can't even begin to picture where he made up those numbers. It is infuriating this is all on live TV to boot, and then bloomberg. blahhhh

 

[DaveT]

Where do you think TSLA is on that chart? I'm hoping we're still in 2A.

Perhaps the following for Tesla as a company (not talking about share price but rather company growth):
1 - 2006-2012
2a - 2012-2015
2b - 2016-2019
2c - 2020-2023
3 - 2024 and later

 

[ggies07]

Thanks for the IPO article DaveT, it was very interesting.

side not, is this forum able to get a "thumbs up" emoicon? That would be great instead of having to use, say, a smiley face.

 

[TSLAopt]

Perhaps the following for Tesla as a company (not talking about share price but rather company growth):
1 - 2006-2012
2a - 2012-2015
2b - 2016-2019
2c - 2020-2023
3 - 2024 and later

i like the the chart but think the timing is more likely to be like this:

1 2006-2012
2a 2012-2016 (model x and s ramps)
2c 2017-2021 (introducing model 3 and other models in this price range)
2d 2022-2027 (introducing gen 4, and as increased car production capacity begins to get met then also extra capacity will get built for full blown energy storage battery production, etc.)
3 2028 and later


2d could go on longer if they get into electric planes and electric fully autonomous trucks