Calculating expected value based on probability is extremely practical, even for singular events. Of course, understanding the risk is even more critical.
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Calculating expected value based on probability is extremely practical, even for singular events. Of course, understanding the risk is even more critical.
Not sure you meant to imply this, but just to clarify with my understanding of these cash equity transactions (one of the higher-level SolarCity experts can surely correct me if I've missed something material).
The Soros equity transaction wasn't a loan and it doesn't have an interest rate -- the loans involved in the transaction are nonrecourse to SolarCity and simply provided as a way to juice the return to Soros.
From SolarCity's perspective,
- it sold the future cash payments from 230 MW of contracted solar (roughly 10% of its total 2.2 GW as of June 30 -- or less than the total MW sold in the first half of this year).
- it received $305 million.
- it retained the obligation to continue to service the contracts and capture the entire renewal revenue stream.
Admittedly, a 7.4% cost of capital isn't as good as its assumed discount rate of 6% -- but it's not an impossibly high rate to make the other solar assets worthless.
Of course the probabilities are relevant. How else would you make qualified decisions?
What you are talking about is how much to bet, since the outcome will be dictated by only 1 sample.
As luck would have it - there's a formula for that.
Kelly criterion - Wikipedia, the free encyclopedia
Krugerrand
Meow
Ack!
Let this be a lesson to all; there's always more going on behind the scenes than the media or we will ever know so don't assume you've got the whole picture. (ie., the Solar City deal, frunk carpet delayed because of a shootout at the Mexican border and other supplier issues that delay cars and disrupt quarterly numbers, and so on.)
Solarcity and NV energy may have come to an agreement, but it still has to be approved by the PUC. There has been no change in the PUC commissioners at this time (who approved raising rates without grandfathering), so it's still debatable whether they will approve. Head commisioner (Noble) has not been asked to continue after his term is up by Gov. Sandoval. Don't know when his term is up.
racer26
Active Member
Let me sing you the song of how happy I am right now that I went short MBLY this afternoon.
anticitizen13.7
Not posting at TMC after 9/17/2018
And... that's the reason investing in individual stocks is not for the faint of heart. Businesses can be very complicated systems, with a lot of moving components that are opaque to those of us on the outside.
GTAT was mentioned again a few pages up, and I think that's a prime example. Back in 2014, things looked great. A deal for providing sapphire display covers for iPhone 6 seemed like a sure bet. It wasn't until some time after the iPhone 6 reveal that the truth came out about the internal production difficulties at GTAT, which made producing sapphire boules in any large quantity impossible.
Much of what retail investors do is basically a somewhat informed gamble on someone else's business idea. Sometimes the win is big, like AAPL. Sometimes there is total loss. The nature of this game is something I think every market player must contemplate.
Mention of GTAT gives me the chills. I remember there was a run-up before the Apple event and time for profit taking despite rumors from very credible sources that the iPhone will not have sapphire.
Seems we have the opposite scenario here....not much of a run up of SCTY for now...
anticitizen13.7
Not posting at TMC after 9/17/2018
Even if what MBLY's enemies (particularly George Hotz) says is true, that may not mean that MBLY loses in the long term.
Supposing that Tesla creates a better self driving system -- will they license it to other manufacturers? What are the benefits to licensing Tesla Autopilot, vs. the costs of having it no longer be a competitive advantage exclusive to Tesla cars? Would Tesla license Autopilot for use in ICE cars? This game is just starting.
What if they only license it to manufacturers to install in EVs? They would be able to benefit from the Tesla fleet learning and EM could provide a strong selling point for other EVs.
That dawg may have hunted until the S-4 was published:
"Later on June 26, 2016, the Special Committee held a meeting, with representatives of Skadden and Lazard in attendance. At the meeting, the Special Committee instructed Lazard to analyze information provided to Lazard by SolarCity management in connection with its analysis of Tesla’s proposal and SolarCity’s alternatives, including remaining as a standalone company and, at management’s suggestion, a potential sale of SolarCity’s module manufacturing business. Among other things, the Special Committee instructed Lazard to discuss with Tesla whether Tesla would be willing to consider such a potential purchase given Tesla’s manufacturing expertise....Later on June 28, 2016, ... Representatives of Lazard informed the Special Committee that Tesla had indicated in its discussions with Lazard that it was not interested in exploring an acquisition only of SolarCity’s module manufacturing business."
The fund managers at the Institutions are evaluated on their investment returns. Before the S-4, there was very little substantive details about the alternatives to and potential synergies of the transaction, the S-4 did not help much.:
" Evercore’s opinion ... did not address any other [than the exchange ratio] aspect or implication of the Merger Agreement or the transactions contemplated thereby, including the Merger. Evercore’s opinion did not address the relative merits of the Merger as compared to other business or financial strategies that might be available to Tesla, nor did it address the underlying business decision of Tesla to engage in the Merger."
Evercore expressed no view as to any projected financial and operating data relating to SolarCity or Tesla or any judgments, estimates or assumptions on which they are based. Evercore relied, at the direction of Tesla, without independent verification, upon the assessments of management of Tesla as to the Estimated Synergies and assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and good faith judgment of management of Tesla."
Fund managers at FMR and Bank of Montreal probably think the transaction is their best option to salvage what's left of their capital invested in SCTY. Fund managers at institutions with no or proportionally minor investments in SCTY may be disappointed by the paucity of substantive details in the S-4 about alternatives and synergies.
All M&A has some uncertainty arbitrage spread opportunity. MSFT is buying LNKD for $196/share (all cash), and the buy-out was overwhelmingly approved by LNKD's shareholders on 8/19/16 but LNKD closed today at $192.45--less than 2% uncertainty arbitrage.
The SCTY/TSLA spread is about ten times that at 22.5%.
anticitizen13.7
Not posting at TMC after 9/17/2018
That was my thought, although it poses a moral conundrum.
If we suppose that Tesla Autopilot becomes so good that it would save X lives/year according to stats, would it be ethical to limit licensing to EVs only? Not only would this put ICE drivers at increased risk, it would endanger all drivers on the road if everyone did not have access to the best self driving system available.
But on the other hand, licensing Tesla Autopilot for use on ICE cars would prolong the use of ICE, which would potentially worsen the speed and effects of climate change. This will also kill people (through flooding, extreme weather, and tropical disease).
Flux: I may be wrong but I think you have mixed up two good "Freds"; FredTMc and Fred Lambert
I don't think that line means what you think it means. All it said was that TSLA wasn't interested in only buying the module manufacturing business, as that's currently an unfinished project (requires capital to purchase that asset AND to complete the factory). Remember that SCTY also has experienced solar deployment teams and cash-flow from its existing PPA contracts. It's not all worthless.
Whoops! My mistake if so. How dare two competent Tesla afficionados share a given name!
GBleck
Member
Should have been more clear. Not addressing anything other then things solar city has that tesla couldn't get by building the capacity internally.
Another angle to consider; they give him flak because of all the FUD out there and because they sort of have to save face with/protect their own shareholders, but still vote as directed when the time comes.
He probably feels like he already did build his own solar business from the ground up.
hockeythug
Active Member
GTAT was just a case of a terrible business relationship with both parties making errors. Throw in some insider trading as well.
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