Long-Term Thinking
I want to share why I'm not worried about the stock dropping even to crazy low levels beyond here.
Here is my fundamental investment strategy as of today. This is not investment or financial advice. It's my plan for myself.
Premises:
- TSLA's trailing twelve month P/E ratio will always be greater than or equal to 15 (below S&P 500 at 20 today)
- By 2030, Tesla will be earning at least $150 billion per year ($43/share with today's float)
Thus, TSLA will reach at least
$650/share by 2030,
3.6x today's price. That's just rough guesswork, but it works as an acceptable floor for some conservative napkin math.
If the market forces me next year to go back to engineering employment instead of living off selling stock, I will invest the majority of my pay into Tesla stock and call spreads. At some point between now and 2030 the TSLA price would rise to $650+ and also my calls would blow up.
A lot of people tried going heavy on calls and LEAPS in the earlier years of investing in TSLA but got burned from 2014-2019 when the stock didn't reflect the progress the company was making.
Nevertheless, I think this new era is fundamentally different because Tesla has big earnings now and investors will only ignore cash for so long. If Tesla makes the kind of earnings I'm expecting, there are only three long-term options:
- Dividends
- Cash buildup
- Share buybacks
Dividends would pay me cash directly, meaning that I wouldn't necessarily care about the price of my TSLA shares on the resale market because I could make an ROI just by holding and collecting payments over time. At the same time, stock prices usually respond to dividends for the same reason, such that stable dividend yields over 10% are exceedingly rare.
Cash and buybacks would, all else being equal, tend to push the TSLA price up. It would be very strange if Tesla had $1T cash at some point yet still had a market cap of $0.6T like it does today, because that would imply Tesla's entire business has a negative $400B market valuation beyond the cash in their bank account. It would also be very strange if buybacks were to cut the share count in half without any stock price appreciation.
I feel calm because of taking the long view.
The Tesla team has thoroughly proven themselves at this point, in a way that they definitely hadn't back in 2018 when I bought most of my shares. EV market acceptance is also at an all-time high and now half the population wants one and is just waiting for a more affordable option or improved charging infrastructure. The competition is way behind and falling further away as Tesla accelerates. Tesla just needs to keeping chugging along and scaling and if they do then they're almost guaranteed to make obscene amounts of money, which will come back to shareholders one way or another. I think that I know this and the market doesn't, which has created an enormous opportunity to exploit. The timing of the payoff is uncertain, but the likelihood of massive success at some point in the next few years seems very high.
What I need to focus on in the meantime is:
- Continuously staying financially solvent
- Enjoying life and contributing to society, irrespective of my current brokerage account market value
- Having reasonably accurate estimates of future earnings growth instead of deluding myself
The fundamentals always have the last laugh.
