I value your posts, even those I disagree with. I thought it odd that, in my interpretation of your posts, you suggested that because TSLA's CAGR is unprecedented, we should be concerned about growth going forward.
There's an argument to be made that past performance is a good predictor of future performance. Bad companies tend to stay bad. Good companies tend to stay good (due to momentum). There are also lots of reasons why this is unlikely to be true forever for practically any company that ever exists.
I wasn't aware of the huge CAGR in TSLA since IPO. It kind of shocked me. I went back and revisited my own very simple models and I can't think of a reason why I should think that because the growth rate has been so large that it should somehow revert to the mean, or something like that. I only try to look forward.
Momentum only works until it runs out. In the long run a company has to stand on it's own. From the perspective of a long-term investor, I think you are correct to look forward and largely ignore past appreciation when a company is growing this fast and has such good 'dna'. There is no doubt that the current share price cannot be supported if investors are only willing to look one year ahead. But, of course, that is not the case because people are willing to look farther ahead than that in order to climb aboard the kind of long-term growth that Tesla offers.
Most investors that are not complete newbies have watched high-flyers pass them by because they thought they were over-valued at the time. That's why people are willing to try to look farther ahead, because investors have to outbid each other to get a piece of the companies that they think will offer them the best long-term appreciation. It's not irrational, it's just a fact of investing that everyone wants the stocks with the most growth looking forward and, to get them, you will have to pay for earnings farther and farther forward. Technically speaking, it becomes more speculative.
Now that Tesla is in the process of showing Wall Street what they are made of in actual dollars and cents, the only language Wall Street understands, Wall Street is catching on. The current gyrations are simply caused by overall market nervousness, COVID and Elon's shares hitting the market. It's silly, really but I like the share price to not look too far forward because then the value of my portfolio is not as speculative. I can also buy more if it becomes enough of a no-brainer, something I've been avoiding because I have so much. But, if it falls enough, then I'm not as concentrated so I can buy more. If I had no position and long-term money to deploy, TSLA is a screaming buy right here at $1K. It doesn't matter how it got here, it's where it will be going in the long-term that is of interest.
Some people will never get over the nervousness that an exceptional company with great growth prospects causes simply because companies like this naturally have higher volatility with bigger swings. But that's how investors achieve the biggest long-term returns, by buying and holding such companies. It comes with the territory. Like I've said many times, if you want to run with the big dogs, you have to be comfortable peeing in the tall grass.
That said, I don't invest in companies that are too speculative because I
do get nervous! That's why I always look for companies that I think have a high probability of maintaining a superior growth rate. I don't consider Tesla as speculative as, for example, MSFT and QCOM (which I also own again) even though they are more mature companies (or perhaps because of it). Both are set up to, at some point, slow down below the growth rate they are valued at. I still like the risk/reward, or I wouldn't own them, but they are not as easy for me to own as TSLA even though they are much less volatile. I compensate for this by having much smaller positions in them.
I sincerely hope TSLA share price doesn't shoot for the sky because I like riding long waves, many, many years is the best scenario. The more years the better. I want to watch that annual appreciation average 25% or higher each year, not run up 200% and have to face the tax consequences and then find a new place to deploy the profits that remain after paying taxes. Or, alternatively, run up 200%, decide to hold, and then face years of slow decline. Neither option is as palatable as if the market retains a high amount of skepticism and the share price remains a consistently good value that just keeps appreciating. Right now, I see far more skepticism than is warranted and I kind of like that because, at some point I expect Tesla's enemies to try to "prove" the bubble theory by running it farther and faster than the market can eventually condone which will allow them to crash the price. That's what I believe they tried to do with the initial runup to $850 back in January but TSLA foiled their misguided efforts by showing better results through 2021 than the haters expected so it didn't really work.
I don't mind the normal volatility like we have right now at all, but I really dislike bigger disruptions in the market. Everyone is different, likes different things, but I think people ought to be careful of what they wish for. I mostly wish for Tesla to continue hitting it out of the park, knowing full well the share price will follow (even if it takes a few weeks or months longer than we think it ought to).
It's still all about the batteries. A home run would be solving the manufacturing issues and then replicating that quickly in Austin and Berlin. And I'm confident that is Tesla's plan, and they have raw materials contracts lined up and are getting ready to roll. The main variable is timing. Because management knows they can't roll them out in huge volume until they have confidence in both the batteries and the manufacturing process. They are one and the same really. This is what will most determine the value of our investments over the next two years. A home run here will allow the share price to boom without me getting nervous that it's getting ahead of itself.
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