So I started over in September after spending the better part of a month immersed in options/investing education. I am now about 90% invested in TSLA and plan to HODL for the next 5-10 years (or more) while selling options for an extra boost
For me at least, this 5-10 year holding period (or for me, 10+ years as of today, updated from 10+ years, 8 years ago) is critical to everything else being done here. That 10+ year holding period arises from my own assessment and investment thesis regarding Tesla.
I mention this to encourage you to think about what you see in the company, that leads you to a 5-10 year investment horizon. I don't personally fill out long form expected quarter or annual earnings predictions. That level of detail is extremely important to some investors. Put another way, I do perform my own level of financial due diligence and I consider some level of that necessary, but I don't need to predict each line item.
My primary financial due diligence has to do with fraud or other bad use of money by the company (I haven't seen any evidence of that, but I am always on the look out for it). A particular form of this I look for, is a dynamic where senior leadership and my personal interests as a long term shareholder differ. More crassly - is the senior leadership busy figuring out how to loot the company for their personal gain? I see this in other companies, and they don't get my investment.
I do consider it necessary for investing to have at least a statable conceptual understanding of what each line in those financial statements means
You need to know why that 5-10 year window is meaningful to you. Without that, it's just a randomly chosen window that lacks the conviction and belief that will make it easy to hold through a 50% drop, because the only thing a 50% drop means is a buying opportunity. In my posting history, you'll be able to find multiple posts from when the shares had gone from $350 to $180 (or so) pointing out that for long term buy and hold investors, there was no difference at that point in time between a $350, $180, or a $800 (or even $2000) share price (all pre-split of course). They were all the same, and they were all meaningless - because they were all trivial next to the long term expected share price.
It also means you need to be in the financial state where you can hold through that 50% drop (we've seen these a few times over the last 5-7 years; I expect we'll see at least a few more over this decade. So if you're ready for retirement and need to be living off of your portfolio, or otherwise need money from the portfolio in a shorter time horizon, then that 50% drop might not be survivable.
My own investment thesis started 8 years ago after test driving one of the very first Model S's. It was the first test drive car to arrive in Portland, and was probably in the first 5,000 Model S's ever built. It was so far beyond anything I had ever ridden in, much less driven, that it blew my mind. It also created the conscious realization - the product matters. And when the product is so much better than anything else, it would require a monumental screw up somewhere else in the business to not succeed. That was good enough for me for the initial investment, but not enough by a long stretch for an all-in investment. I also liked that I was supporting a business that I thought had a glimmer of a chance of advancing a renewable energy economy, but there are other companies in that category - none of which I have invested in.
I liken my own reaction to what others have described as their iPhone moment. I never had that experience, as I've only reluctantly adopted smart phones at all, much less an early iPhone. The characteristic is that there is a world before, and an recognizable (and better) world after, that moment.
Characteristics of my investment thesis have to do with just how badly the competition is performing, the irrelevance today of whether competition is competent or not (the market is so big, we've got several years of everybody growing as fast as they want to / can, before actual competition sets in amongst the participants), and the number of different markets that Tesla is entering - each gargantuan in size.
All of which today, leads me to see 10+ years of reckless growth (in joke for those that have been around long enough
) in front of Tesla. And that, plus the rate at which Tesla is going to convert revenue into gross margin, and from there into profit, leads me to believe that the 2030 Tesla may well be the single largest industrial entity in the world, the most profitable industrial entity, or that the world has ever seen. And all in a good cause. And a very rough estimate of what EPS might be, a reasonable to conservative $/EPS, and a company valuation that would follow from that. You can see the #s I think are possible in some of
@FrankSG blogs if you haven't read those.
That's my investment thesis, not something I plan to get into in more detail in this thread. My point is that it's at least concrete and detailed in my own mind. Oh - and the selling of options enables me to get some income, which is necessary for me.
I am trying to learn to trust my judgment and research more, especially when opportunities present themselves. My whole life I have been extremely risk adverse and conservative with money. Some early losses in the market years before TSLA came along made me wary of even putting any money back in. I "took a gamble" and bought some shares of TSLA back in 2018, but my fear of the macros got the best of me and I sold everything after Covid at $820. I sat on the sidelines and missed the big runup. Right around the time of the split I had an "awakening" that my risk aversion would always hold me back from achieving my financial goals and the opportunity cost was tremendous. Had I trusted my judgment on TSLA, my portfolio would have been 10x where it is today.
A few ideas that have helped me with managing risk - the first is to understand / realize that EVERY decision, and every non-decision, carries with it risks and rewards, costs and benefits. Understanding both is the first risk mitigation strategy - sometimes the non decision, or the "conservative" decision, is in fact the most risky choice available. One example most people know about, is investing in cash. The returns frequently lag inflation, so you're guaranteeing long term loss of buying power. Cash looks like the most conservative, when in fact over a longer holding period, it's the most risky.
The other thing I like to keep an eye on are the tail risks, both up and down, and the consequences that would attach. An example position I have open - I've got a pile of covered calls for Sept 2022 at an 840 strike. I figure there is a reasonably good chance those will be in the money. I don't really want to get assigned on those, but I got a pile of cash up front - about $5k/contract/month (EDIT: $500/contract/month - moved a decimal point in my favor!) - I will have a choice to roll; and even if I just take assignment with the shares trading at $1500, then I'll still end up with an account that is >2x what I have today, where today is already "enough". In fact my overall portfolio will likely be at least 2x of "enough" in that circumstance.
Therefore, for me, the possibility that the shares WON'T advance that far is actually a larger risk due to lack of income and cash flow, than the risk the shares take off to $1500. More specifically, it's a shift from a growth mindset, to an income and growth mindset (plus an unwillingness, today, to sell shares for living expenses
).
Not all risk / reward, cost / benefit, decisions are equal. And if you ever think that the benefit / reward of selling options is a no-brainer or free money, remember that the market has much bigger and smarter participants than you or I will ever individually be, and they are focused on mining out every penny of gains available. If this really were free money, they would take it all until the risk and reward had balanced out again.
