Any Value Investors in TSLA?
Yup! My username gra-phil-war is a mash up of three people:
1. Benjamin Graham
2. Philip Fisher
3. Warren Buffett
Let’s talk about mistakes. In my youth, I refused to buy Apple when it was sub-200B market cap because I was a so-called value investor looking for defensible moats like Warren Buffett in industries that do not change very much, like candy or Coke. basically i was looking for good companies at a cheap price, and I would be hunting in the sub-10 p/e range, etc. Avoided tech companies because: “well Warren doesn’t think they have a moat because tech turns over too much, so why should I ever invest in Apple.”
10 years later, Apple is like 30% of Berkshire’s investment portfolio, Warren Buffett is fawning over Apple’s massive moat and taking selfies with Tim Cook and I have managed to talk myself out of a 10-bagger because of my self imposed blinders.
To be brutally honest, my mistake was that I was just copying styles. Yes I was listening to Graham, Fisher and Buffett, but I was not truly understanding the spirit of investing — which is being able to see the future, and paying less than it is worth in the present. I was, in being so straight and narrow to the style and not the substance— putting myself in a mental straight jacket.
The lesson I took away from that experience is that growth companies ARE value companies.
Typical “value” companies are undervalued based on their past 10 year track record of earnings power, and everyone can see that record so it’s competitive and the market is actually pretty good on handicapping the odds in those situations, making it really hard to get an edge. You need to turn over a lot of rocks to find these, and you’re hoping for some mean reversion to get you that nice bump and rinse and repeat. On the other hand, growth companies (not all, I’m talking about a select few) tend to be underpriced on the basis of the next 10 years, and you can hold without paying cap gains taxes, and sometimes a growth company will evolve to something 10 years in the future far greater than what you can see from your vantage point in the present (see: Netflix evolution from shipper of DVDs to streaming to content production+streaming, and Amazon from online bookseller to AWS to well whatever the hell they are today. Behemoth?) Most people are skeptical/uncomfortable basing their valuation on future growth that by definition hasn’t happened yet. Because of that discomfort I think growth companies can be severely mispriced, on the growth that you can see from your vantage point today alone (with all the other unforeseen growth potentially serving as improved upside that you never paid for but would definitely benefit from).
Of course you’ll need to have conviction about the next 10 years, and your vision of the future needs to be roughly accurate. But yeah severe mispricings occur, especially when you get the combination of multiple expansion (as the market awakens to the company) AND earnings growth (the company executed on your vision of the future potential).
When I look at TSLA at 1500, it’s underpricing my vision for auto growth and margin potential in 2020 already. Then there’s two other free call options built into the stock price: a call on autonomy, and a call on energy. I think both of those are enormously valuable and they’re currently priced at $0. So as a value investor I think it’s an enormously compelling opportunity.
Like Warren once said, you might only get 20 punches in your punchcard over an investing lifetime, where a pitch comes right down the middle. What are you going to do when you see that fat pitch? Bunt to get to first? No, you SWING for the fences, ya bum! And that’s what I’m doing as a so-called value investor in TSLA.
