Invest in TSLA, and have no trouble sleeping at night

[anticitizen13.7]

I have noticed some angst, particularly over the past week, over the share price.

I think that to avoid stress over investing in TSLA, it is best to follow this strategy:

(1) Always have a "core" of (relatively) safe investments. These might be mutual fund holdings in a 401(k) or IRA that account holders can't access easily until retirement. I recommend broad market index funds. Sure, they are not 100% safe, and will go up and down with the whole market, but over time they generally go up. This is a backstop in case holdings in individual stocks go to pieces. Don't sell your core holdings, except to re-balance your asset allocation (stock/bond/cash percentages). Always contribute periodically to your core holdings. 401(k) contributions are the most common way to do this.

The "core" will not make you rich quickly. It may never make you rich at all. It's there to ensure retirement security.

(2) Use money that is less or not at all critical, for investment in individual stocks, like TSLA. This is money that can make you rich. But if it plummets to 0, the core will still be there for you.

(3) Derivatives can cause a lot of stress. Know how you react to this level of risk and avoid derivatives if they freak you out.


So hypothetically, suppose I have been working for awhile and I have, say for the ease of argument, 100k in my IRA (contains rollovers from old 401(k)s, some other contributions).

Suppose, based on my age and projections, I need 75k in funds to grow to meet my retirement goals.

Allocate 75k to the "core": 70k in stock index funds, 5k in bond index funds, or whatever is age appropriate.
Allocate 25k to individual stocks.

Divide additional contributions between "core" and non-core assets as time goes on.

If you are fortunate enough to have $ for investment in taxable accounts, use the same strategy.

Enjoy the gains from individual stocks. Sleep at night knowing that if you bet on a couple wrong companies, you won't be left with nothing.

Just my 2cents, based on experience over the past few decades.

 

[mershaw2001]

I have noticed some angst, particularly over the past week, over the share price...
]
Allocate 25k to individual stocks.

Yeah that sounds like it works well. Some of us with only 30-50k total net assets are all in on tesla. It's not worth trying to buy 5 shares just to keep a core holding that is separate.

 

[DaveT]

Diversification vs focused investing

I think it's difficult to give investing advice because each person's situation is so different (ie., income, ambition/goals, risk tolerance, age, etc). It's probably wiser for the individual to weigh the pros & cons of various investing approaches depending on their unique situation and personal goals.

That being said, I do have a few thoughts. Diversification is a powerful concept. The benefit of diversification is safety, not rapid growth. For rapid growth, you typically need to focus your investments. But when you focus, you usually give up the safety of diversification. I think one way to add some element of safety (though it still will be a lot more risky than diversification) is to have a ton of knowledge, skill, insight regarding your focused investment. For example, if you know the industry and company like the back of your hand, that can make your focused investment less risky (vs not having deep knowledge/insight into the company and industry). However, the danger is having an inflated view of your knowledge/insight on the company and industry in which case it's likely to end badly. It's like starting a business but thinking it's going to be easy... that usually doesn't end well. But if you start a business with a ton of knowledge/experience/insight in the industry and business, then you'll have a better chance. But still it's a risky endeavor (vs keeping your day job at a company). But some people still pursue entrepreneurship because the rewards can be great.

I think to get really good at investing, it takes an immense amount of work. You might get lucky with one or two companies, but it's not easy to pick great companies consistently. I'm reminded of Warren Buffett who reads annual reports as a hobby. He goes through a ton of annual reports every year just to find that one special company. Most people don't have the diligence or belief in that kind of effort to be like Buffett.

I'm starting to taste the power of focused investing (note: though again I don't want to downplay the risks). If one can do a 10x investment with a meaningful amount, and then follow up that investment with another 10x investment, then you're looking at a 100x return. That can be definitely life-changing (ie., $100k becomes $1m which becomes $10m). Some might say that's a pipe-dream. But I see it differently. I think it's something that's possible (and there are people who can testify to that), but it's extremely difficult. And a lot of people have lost a lot of money trying (thus the risk). However, among those who have tried there are some that have increased their odds of success by acquiring deep skills, knowledge and insight into investing, companies, markets, and trends. This by no means guarantees success, it just increases your odds.

As powerful as a concept that diversification is, I think the concept of a 100x return is also an equally powerful concept. Diversification focuses on safety, while the 100x return focuses on rapid growth. Diversification is a much more accessible concept. If you want to be diversified, it's quite easy to get started. But the 100x return is the narrow way. It's not easy to get started, and many people will fail along the way.

One of the pitfalls of the 100x return is the lure of greed and ambition. Often people view the 100x return as the goal in of itself. They can be so focused on the goal that they miss the process that can increase your odds toward that goal. That short-sightedness often ends the pursuit of the 100x return in short fashion.

Anyway, I don't want to downplay the power of diversification. Again, I think it's a very powerful concept. But I just want to bring up another side that is often overlooked. Often people think the opposite of diversification is picking a few companies and getting lucky. They often leave out the true power of focused investing, which is the skills, knowledge, and insight that gives you greater odds to make a successful investment of rapid growth.

I started several years ago to dive deep into the world of focused investing and the skills and knowledge required to increase my odds. It's been a fascinating journey thus far. I actually wish somebody would have told me earlier some of the things I've mentioned here.

Cheers.

 

[ongba]

Dave,

I agree completely. However, I think it is difficult to attain a 100x gain using stock, unless one strikes the jackpot with a stock like MSFT or AAPL in its early phase and hold over the course of 20 years. I think 100x gain is more feasible using the leverage of options, mainly LEAPS as an investment, not a short term trade.

 

[DaveT]

I agree completely. However, I think it is difficult to attain a 100x gain using stock, unless one strikes the jackpot with a stock like MSFT or AAPL in its early phase and hold over the course of 20 years. I think 100x gain is more feasible using the leverage of options, mainly LEAPS as an investment, not a short term trade.

Yeah, I purposely didn't include a timeframe in my post because there are different approaches. Stock will typically take much longer. Short-term options will take much shorter but the risk is immense. LEAPs is definitely a middle ground. But in all cases in order to get 10x on an investment you'll likely need to get in early when others don't recognize it. That's the most challenging part. I also think it's more likely to do 10x on a first investment and a 10x on a second investment (to equal 100x) rather than 100x on a single investment (though possible, probably much more difficult than two 10x investments).

But even with stock, if you can do 100x in 20 years (ie., one 10x in 10 years and a second 10x investment 10 years after that), that's super impressive. But again, not easy.

 

[ongba]

Agree that doing it in stages is the best approach. For example, with tsla and Medium term options/Leaps, if tsla continues to do well, one could do something along the lines of the following: 100k in march 14 175-225 bull call spread for 10.50 with max gain of 39.50 if tsla finishes above 225 (50% stock gain) in march 2014, with break even of 185.50. If max gain is realized that one would now have close to 500k (100k original capital and 395k gain or 376% gain). Wait for tsla to correct before buying 500k of the next 3-4x spread, likely expiration in jan 15 and if successful, one now would have 1.5-2 million, and hence 15-20x times initial capital in about 15 months. Keep repeating until 100x gain is achieved. The key is that timing has to be very good (ie have enough patience to wait for tsla to correct) and tsla has to be able to recover from its inevitable correction, before ones options expire. Definitiely risky, but life altering if successful, esp if one knows the underlying company well.

Also, DaveT, have u had a chance to glance over the Appl options pdf I sent you, and if so, what do u think?

 

[juventuss]

Ongba,
what tools would you suggest for the strategy you posted above ?

 

[ongba]

Ongba,
what tools would you suggest for the strategy you posted above ?

When I am using my laptop/desktop computer, I use thinkorswim. If using an ipad, there is an inexpensive app called options wizard.

I find myself using my ipad more and more, so options wizard is what I would recommend.

 

[juventuss]

When I am using my laptop/desktop computer, I use thinkorswim. If using an ipad, there is an inexpensive app called options wizard.

I find myself using my ipad more and more, so options wizard is what I would recommend.

Thanks

 

[justdoit]

I think it's difficult to give investing advice because each person's situation is so different (ie., income, ambition/goals, risk tolerance, age, etc). It's probably wiser for the individual to weigh the pros & cons of various investing approaches depending on their unique situation and personal goals.

That being said, I do have a few thoughts. Diversification is a powerful concept. The benefit of diversification is safety, not rapid growth. For rapid growth, you typically need to focus your investments. But when you focus, you usually give up the safety of diversification. I think one way to add some element of safety (though it still will be a lot more risky than diversification) is to have a ton of knowledge, skill, insight regarding your focused investment. For example, if you know the industry and company like the back of your hand, that can make your focused investment less risky (vs not having deep knowledge/insight into the company and industry). However, the danger is having an inflated view of your knowledge/insight on the company and industry in which case it's likely to end badly. It's like starting a business but thinking it's going to be easy... that usually doesn't end well. But if you start a business with a ton of knowledge/experience/insight in the industry and business, then you'll have a better chance. But still it's a risky endeavor (vs keeping your day job at a company). But some people still pursue entrepreneurship because the rewards can be great.

I think to get really good at investing, it takes an immense amount of work. You might get lucky with one or two companies, but it's not easy to pick great companies consistently. I'm reminded of Warren Buffett who reads annual reports as a hobby. He goes through a ton of annual reports every year just to find that one special company. Most people don't have the diligence or belief in that kind of effort to be like Buffett.

I'm starting to taste the power of focused investing (note: though again I don't want to downplay the risks). If one can do a 10x investment with a meaningful amount, and then follow up that investment with another 10x investment, then you're looking at a 100x return. That can be definitely life-changing (ie., $100k becomes $1m which becomes $10m). Some might say that's a pipe-dream. But I see it differently. I think it's something that's possible (and there are people who can testify to that), but it's extremely difficult. And a lot of people have lost a lot of money trying (thus the risk). However, among those who have tried there are some that have increased their odds of success by acquiring deep skills, knowledge and insight into investing, companies, markets, and trends. This by no means guarantees success, it just increases your odds.

As powerful as a concept that diversification is, I think the concept of a 100x return is also an equally powerful concept. Diversification focuses on safety, while the 100x return focuses on rapid growth. Diversification is a much more accessible concept. If you want to be diversified, it's quite easy to get started. But the 100x return is the narrow way. It's not easy to get started, and many people will fail along the way.

One of the pitfalls of the 100x return is the lure of greed and ambition. Often people view the 100x return as the goal in of itself. They can be so focused on the goal that they miss the process that can increase your odds toward that goal. That short-sightedness often ends the pursuit of the 100x return in short fashion.

Anyway, I don't want to downplay the power of diversification. Again, I think it's a very powerful concept. But I just want to bring up another side that is often overlooked. Often people think the opposite of diversification is picking a few companies and getting lucky. They often leave out the true power of focused investing, which is the skills, knowledge, and insight that gives you greater odds to make a successful investment of rapid growth.

I started several years ago to dive deep into the world of focused investing and the skills and knowledge required to increase my odds. It's been a fascinating journey thus far. I actually wish somebody would have told me earlier some of the things I've mentioned here.

Cheers.

Thanks for sharing this DaveT. I was also always told to just invest in index funds and a 9% yearly return is great...etc. Which is definitely true. But for my circumstance (20's, decent income, can take risk, etc) it's not always the best strategy. I'm glad I didn't listen to those people and invested in Tesla as early as I could b/c I just loved the car so much. Just hope I can buy one sometime soon now

 

[marvinat0rz]

I think this thread has moved away from its premise. If you're chasing a 100x return...you won't be sleeping well at night.

 

[EnergyMax]

Another way to sleep well at night, is to income average into a risky stock. I've bought some TSLA at $27, $50, $78, $94 and $106 (largest amount), so my ASP is $92. This takes more time, and I've lost potential gains, but I felt it lowered my risk. I'm a moderate income earner, and have placed nearly everything in TSLA.

 

[marvinat0rz]

I'm a moderate income earner, and have placed nearly everything in TSLA.

Are you prepared for the possibility that Tesla announces a recall of 10,000 Model S tomorrow due to a major safety defect, resulting in a 60% drop in the share price? Or that a major earthquake in California causes damage to the factory and has the same result? Your approach isn't what I'd think was very conductive to sound sleep. Sorry if this sounds harsh, but I see a lot of people on this forum who really aren't quite aware of the risk they're taking.

 

[justdoit]

Are you prepared for the possibility that Tesla announces a recall of 10,000 Model S tomorrow due to a major safety defect, resulting in a 60% drop in the share price? Or that a major earthquake in California causes damage to the factory and has the same result? Your approach isn't what I'd think was very conductive to sound sleep. Sorry if this sounds harsh, but I see a lot of people on this forum who really aren't quite aware of the risk they're taking.

Interesting question. I think I'd be more accepting of a 50% loss vs. missing out on a 50% gain. Reason is the loss would come from some unexpected event like you mentioned. But the gain I feel pretty confident about (of course I could be wrong). But if I really believe in a company, it's product, it's team, etc and know I should invest in it and then I don't and I miss out on its rise, that would make me lose sleep at night

To be clear, I'm in a position where I can take risk right now. Sure, it would suck but i'm not dependent on any of it for the short term and most of my funds are from profits anyways.

 

[anticitizen13.7]

I'm a moderate income earner, and have placed nearly everything in TSLA.

Are you prepared for the possibility that Tesla announces a recall of 10,000 Model S tomorrow due to a major safety defect, resulting in a 60% drop in the share price? Or that a major earthquake in California causes damage to the factory and has the same result? Your approach isn't what I'd think was very conductive to sound sleep. Sorry if this sounds harsh, but I see a lot of people on this forum who really aren't quite aware of the risk they're taking.

I am of the opinion that most people should not bet their entire portfolio on one stock, no matter how good the company behind those shares.

I think it is fine to take risks on shares that may return 10, 20, 30x or more. But this shouldn't be done without a backup plan.

I want to analogize a bit with Tesla/SpaceX engineering philosophy. They design their systems with the assumption that stuff will go wrong, and that the system will have to handle faults. The Tesla battery is designed under the assumption that some individual cells will fail, and the battery has a system to isolate failed cells and dissipate abnormal heat away from working cells.

So what happens to a portfolio based on one stock if something goes wrong? How do you handle that fault and recover?

I think Tesla will keep doing great things, and bring huge returns to its investors, but I also know there are no guarantees.

Just be careful out there.

 

[sub]

I currently have everything in TSLA. However, even if it were to go to zero my life wouldn't change in the short or long term. The money can be replaced in ~6 months. However, I'm not sure what type of event would have to happen for the stock to drop to zero before some or all of the shares could be sold (yes, anything is possible). I currently have a stop loss set up but it's very low to avoid being triggered and being stuck with short term taxes. My only reasoning for having it is a bit of safety (due to unforeseen event) and also to possibly buy back in slightly lower and get more leverage. I don't see the stock hitting my stop loss unless one of the above mentioned "highly unlikely" scenarios happens. I'm willing to risk a 25-50% loss in order to gain another potential 1-5 bagger. Everyone has to asses their risk tolerance and financial situation. I'm still fairly young and tesla got me interested in putting money in stocks. I would not put everything I had in TSLA if I have a portfolio that had been growing for 10-20 years, or if my portfolio was multiples of my current income.

 

[EnergyMax]

Are you prepared for the possibility that Tesla announces a recall of 10,000 Model S tomorrow due to a major safety defect, resulting in a 60% drop in the share price? Or that a major earthquake in California causes damage to the factory and has the same result? Your approach isn't what I'd think was very conductive to sound sleep. Sorry if this sounds harsh, but I see a lot of people on this forum who really aren't quite aware of the risk they're taking.

I am up 63%, am a long term (5-10 year) investor who has few expenses, and have little immediate need for my money. So a 60% drop would not be fun, but I would ride it out.

I guess one question is, at what milestone would my initial investment at $92 be truly considered "safe." I'm guessing that milestone is when GenIII starts selling in 3-4 years. So I'll find out then if mine (and others') gambles have paid off.

--- update

clearly, my financial math skills were subpar yesterday evening. 60% of ~$150 is >> than 60% of my average purchase price ($92), so a 60% drop would be far below my cost basis, and have me underwater. Such a drop is a possibility, I acknowledge, but accept the risk for the possible rewards. Such a drop could also happen to the whole market, and thus affect an index fund.

 

[Jonathan Hewitt]

Interesting question. I think I'd be more accepting of a 50% loss vs. missing out on a 50% gain.
To be clear, I'm in a position where I can take risk right now. Sure, it would suck but i'm not dependent on any of it for the short term and most of my funds are from profits anyways.

^^ My thought process. I have some "safe" money in mutual funds but everything else is in TSLA. My "safe" money will take care of unexpected issues in my life that my normal income can't take care of. Everything else (majority of my investments) is in TSLA. It would suck to lose all or a majority of that money but it would suck more if I didn't fully capitalize on what I think TSLA is going to go over the next few years. Plus, I've taken out more from TSLA than what I originally put in so even if it goes to 0 I am ahead of where I would've been if I had never invested in it.

 

[haid]

I think this thread has moved away from its premise. If you're chasing a 100x return...you won't be sleeping well at night.

On the contrary, as one who has achieved 6x in aapl and then moved it all to tesla for another 6x.... I sleep quite well. I don't stress the fact that it goes up or down daily more than my original investment. The trick is to just buy and hold. And once you get past the first 20% profit, it gets easier. On average, stocks double every seven years. If you are doing better than that, then you are winning.

The only question you really need to answer is do you believe Tesla will be higher or lower in the next X years. The day to day, up and down may be fun to watch, but it doesn't change the year over year potential.

On the other hand, I have recently puttered around with small money in options. While the outcome was good (just about any call buy in the last 6 months was good), I worried more about that 6K than I have worried about many hundreds more than that in stocks. At least for me, I don't like having time as my enemy.

 

[DaveT]

On the contrary, as one who has achieved 6x in aapl and then moved it all to tesla for another 6x.... I sleep quite well.

Hi Haid, I was just thinking about your story earlier today. It's pretty remarkable. If Tesla does a 17x from your original investment (ie., $25 to $417 stock price), then you'll have your 100x return via your Apple and Tesla investments.

I don't stress the fact that it goes up or down daily more than my original investment. The trick is to just buy and hold. And once you get past the first 20% profit, it gets easier.

I'm actually very similar with my original stock investment. It doesn't bother me if it goes down cause 1) I got it while it was low and 2) I'm very confident in the future of Tesla.

On the other hand, I have recently puttered around with small money in options. While the outcome was good (just about any call buy in the last 6 months was good), I worried more about that 6K than I have worried about many hundreds more than that in stocks. At least for me, I don't like having time as my enemy.

I'm usually very stress-free with my stock on deep ITM LEAPs. It's just during periods when I'm drawn into the world of short-term "speculating" with short-term OTM calls... that's when things get a bit stressful. But I've been learning to do it with amounts of money I'm okay with losing. But still it hurts when you lose it.