New must-see rant by Gali on HyperChange.
Love his enthusiasm and how he clearly articulates many of the issues that should be on the mind of every Tesla investor. For example, what theory of value investing should we rely on? the wider macro environment with low-yielding bonds, disruptive technologies, the possibility that Tesla might be even bigger than our wildest dreams etc etc.
sorry if this has been posted before but haven’t seen it in the thread.
Rant is right. He lost me at "e=mc^2"
And his rant about Warren Buffett - does he realize that Buffett is planning to invest
$570M in the biggest tech IPO of the year - Snowflake?
And his ranting about PE and other valuation metrics is is like talking about the braking performance of vehicles without ABS. It's just an out of date attack. If Gali wants to attack traditional valuation, then he needs to read up on
Aswath Damadoran who provides reasoned - and forwards looking - valuation analysis.
The issue with Wall Street isn't as simple as Gali states - that it's backwards looking and demands profitability. In actuality, Mr. Market is always forwards looking, as demonstrated by its reaction to every company that announces they just had a great quarter, even much better than expected, but then does not raise guidance for future quarters.
The problems with Mr. Market are at least two-fold:
1) It doesn't look far enough into the future
2) It doesn't believe things will change that much
For the first point, just look at almost any Wall St. Analyst (ARK Invest is an exception). They will give you "Price Targets" which are always just one year out. Adam Jonas probably got slapped around for his earlier multi-year high price targets for Tesla, and you'll notice today he only gives 1 year targets (and still gets it wrong, but that's another tale). So, Mr. Market cares about the next 3-6 quarters, but not further.
For the second point, Mr. Market underestimates how much things can change. When companies have revenue growing at rates of 75% YoY (or more!) those companies get what might appear to be high valuations, but it doesn't take long for that compounding to exceed the stock valuation.
They don't really believe disruption, as defined by Clayton Christensen (read
The Innovator's Dilemma if you haven't already!) actually happens until it's too far along - and then they go too far. We see that today with Tesla. For a decade and more it was a company to laugh at, with evidence like no successful US automaker starting within the last half century, or that EVs would never be mainstream, etc.. And now it's swung so far that Mr. Market values snake oil salesmen founded companies with little IP at doublt-digit billions of dollars.
Five years ago, people were laughing at Tesla (I know, I was at CES and was at the dinners and parties). Today, people are finally questioning whether GM, Ford or Toyota will survive.
But, Gali's view that it's because of outdated PE type metrics is just wrong. The truth is less obvious and more ingrained into human psychology.
Investing is about predicting the future better than everyone else.
It's not about beating old men using PE ratios to guide their investments.
