"Sold some shares to buy options" did he say? Leveraged up to cover the drops, but that didn't work? Hmm...
I recall a discussion around here a few years ago about only leveraging 10%, but especially the ongoing "only bet what you can afford to lose." So sounds like Lee bet more than could afford, and then the story backed it up (as already mentioned). And by "afford", I mean mentally not just mathematically. I could lose a lot more and survive, but at what point do we break down and panic sell? That's a different spot.
Long time lurker, finally got something to say. Intro first. Bought my Model S in 2014 when it first arrived in UK, bought TSLA soon after, bought each new model as they arrived and continued investing in TSLA. Now TSLA is my only listed security and I have no managed investments. I have assets: property, cars, aeroplanes and a portfolio of angel investments in small startups.
But this story is not about me, it's about my very good friend who is a super smart ex trader. He started quite sceptical about TSLA and balanced what he heard from me against his sources which were the financial media with their sceptical take. He's a time-the-market guy and struggles to get away from judging only on price. We discuss it alot and as my TSLA investment grew his relentless and loud recomendation was, "Price is crazy high, for God's sake SELL while you're ahead". As Tesla turned profitable and its many brilliant innovations started to tell on the financials his scepticism faded but he couldn't get his mind around the too-high share price.
Until 2022.
I had got greedy on margin and got caned like many here. I started getting margin calls and at $185 I took my medicine and sold down enough to clear margin. In all I lost 50% of my position. As the price continued to fall we discussed getting back in. Over Christmas he was finally ready to take the plunge. But it takes time to get ready to trade - liquidate cash, FX to USD (he has to wait for the right time, did I mention he's a trader?), W8-BEN tax form, etc. By the time he's ready to trade, the price is $120 and he decides to wait because it's shot up from 101 and it will surely come back to give him his open. He's still waiting. And here's the point of this: How do you help your friend stop trying to time the market? Here's my suggestion and I hope it might help others.
Would you be willing to invest a proportion of your stake in a different strategy that you approve of, where YOU set the parameters, and have objective and subjective measures to monitor it going forward.
The investment thesis is: Invest in a High growth, High GM, High operational efficiency stock with sufficient TAM and it will deliver if given enough time. (i.e. the market is a weighing machine in the long term).
If that's an acceptable thesis then next set the objective which I suggest should be somewhere between 5x and 10x share price growth from the starting investment price. Less than 5x is too short term for a company that's growing fast like TSLA and doesn't allow enough time to overwhelm market volatility. More than 10x is too long term and the company might be in a very different phase of its growth. So you should rethink whether the thesis still applies. You set your objective and stick with it.
Now set the parameters for the minimum acceptable performance as you monitor your investment going forward. These are 3 objective and 2 subjective measures to judge whether the investment is on track.
1. High Growth - set your minimum baseline revenue growth. I suggest somewhere between 30% and 40% annual growth, maybe measured over the past 4-6 quarters. Provided it stays above the baseline the investment thesis of high growth still holds.
2. High GM - baseline maybe around 20% - it's got to be profitable growth
3. Operational Margin - baseline maybe around 10% to ensure that overheads are not getting out of control.
4. Short term TAM - this is subjective, it's your judgement about whether the main existing products (today MX and MY, maybe energy in 2024 and cybertruck in 2025) can grow at your target Growth Rate over the next 1-2 years. Is there enough room and appetite in the market to absorb that level of growth.
5. Long term TAM - your subjective judgement of whether the new products coming down the line can support the target Growth Rate over the 3-5 year time frame. This is capturing innovation and the potential for products like Semi, FSD, Robotaxi, Optimus, AGI to support the Growth Rate over the long term. I would think any one of those 5 if successful would sustain the growth rate over at least 5 years. And the probability of at least one being successful is high enough to give a pass mark.
That it. You review these 5 every quarter using the Q10/K10 report and record the results. If everything is green then you consider increasing your investment. If one or more are red, you think carefully about why and whether it's a blip or the start of a trend. If you think it's a blip then monitor closely over the next quarter, if you're less confident then consider reducing your investment.
What you are not allowed to do is to sell because you think the price has got too high. Let it run as long as the fundamentals of your strategy are holding true. By all means track price, PE ratio and all the rest, but let your strategy play out.
I hope this might help some of those waiting on the sidelines for the price to drop back down. It's never easy.
Cheers to the longs.
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