The Amazon analogy
There once was a company lead by a visionary and competent CEO. You could tell straight away that he wasn't the build-and-flip kind of guy, he was The Real Thing. Even though nobody before had built a customer offering such as he was envisaging, he obviously knew what to do. There were complex operational issues involved - issues of costs, margins and logistics. And there were huge, established companies that at first scoffed at the newcomer, then slowly came around to copying it and trying to crush it. At first, people did not notice the stock much, but as people bought into the vision it sky-rocketed in a short while. Some said it was a bubble, others bought the stock to hold through the volatility. Clearly it was priced on the CEO's vision, not on fundamentals.
I am, of course, speaking of
Amazon.
The reason why I am bringing this up is that you would be forgiven if you thought that this description of Amazon in 1999 was actually a description of Tesla. The interesting thing about Amazon is that everyone was right. If you bought the stock at a typical 1999 price of $70, by today you have close to a four-bagger. However, you would have to stick with the company through an 8-year dip before seeing it return to $70, and another 3 years to get your 3-4-bagger. In the mean time, those who shorted the stock at $70 could cover at $7-8 two years later, making arguably more attractive returns. All this while the company was making no big mistakes in executing on its vision.
Despite the similarities with Tesla, it is not trivial to draw conclusions from the comparison. It is clear in retrospect that the company could not support its typical 1999 valuation of $32bn in the short or mid term. But
looking back at the share price, a buy-to-hold strategy at valuations of $10-15bn were clearly good - getting out of the dip in 2003 and making a 8-12-bagger by 2013.
I want your comments on what lessons could be drawn. As I see it, both short and long strategies could be valid in Tesla right now, depending on the investment horizon. The Perfect Investor, of course, bought Amazon in 1997/98 because of believing in the company, sold in 1999 because he saw it was overinflated, and then bought the dip in 2001 or 2002. However, trying to achieve that in Tesla runs a significant risk that the dip will never come (or, more likely: You sell at $90, it goes to $180, the dip goes to $120 and you don't get back in because your waiting for it to go lower when it doesn't).
What do you think?
