TSLA Market Action: 2018 Investor Roundtable

[davecolene0606]

It doesn't take many. Most of the stock is owned by large institutions.



You're arguing against the very tenets of the laws of supply and demand. Nobody is going to hold on for $420 when they can sell for $420,01. You're dreaming if you think they will.

You are implying no other demand for the stock other than shorts covering. There is a boatload of underperforming capital out there looking for a growth opportunity. A private Tesla is more stable than a public one. This demand for shares will have to be fulfilled from the same supply that short will be vying for.

Fire Away!

 

[bhzmark]

Can anyone explain why the investors Elon has lined up are not purchasing now while it is still below $420?

They can purchase up to 5% (collectively as a group), and after that they have to file a Sch D SEC.gov | Schedule 13D within 10 days.

It can get tricky figuring who counts in the group and aggregating their interests. And with the 10 day window it could be that a group has already crossed the 5% and we will find out in a few days.

Relatedly, re the "funding secured" arrangement: Whatever that is, it isn't an agreement by Tesla or even a plan by Tesla the company. It is a plan/proposal/twinkle- in-the-eye by two or more shareholders, and such plan is really covered by other rules in Rule 13e-3 re go private transactions or Schedule 13D referred to above and other rules that apply to shareholders and their plans.

Also re the past disclosure issue: Tesla might also do a voluntary 8-k disclosure under Item 8.01 "Other events" But that is strictly voluntary for events/information not required by the other items. https://www.sec.gov/files/form8-k.pdf

 

[winfield100]

(Employees are different; there's a special exemption in the laws for employees to own stock in private companies. If an employee dies, their heirs are often forcibly cashed out if they're not accredited; same if an employee's stock gets taken in a divorce settlement, etc.)

is there not a way to "bend the rules until they shriek in agony, but are still legal, that's what we pay lawyers for" to make "investors" ""special employees" whose only "job function" is to "reach for their wallets once or occasionally and deposit money, which represents work since they are expending energy to do so"
that could 'negate or just ignore by redefining' the 2,000 rule, if there is one

 

[jhm]

Any institutional investors who can't take part in a private Tesla have an effectively limitless amount of shares that they need to get rid of. They have the choice:

A) $420, during the buyout; or
B) Greater than $420, selling to shorts

OR
C) above $420, selling to anyone wanting extra private shares.

Your argument is wrong because you simply believe that their are no buyers for private shares above $420. We simply do not no that at this time.

Just to stress test your assumptions, suppose that the value of a private share is over $500. If that is the case there will be buyers of Tesla common shares willing to pay upwards of $500 just to get something that converts to a private share.

Your argument has been based on speculating on the current composition of common shares. This tells us nothing about the value of a private share. It is the value of private shares that will drive the price of common shares, not the composition of the current shareholder base.

 

[gwright]

Theory on Special Purpose Vehicles - SEC.gov | Investor Bulletin: Alternative Mutual Funds
So, Fidelity and/or TRowe could manage an alternative mutual fund that has its own unique rules. They might even limit it to accredited investors, although that doesn't appear to be required. Other retail shares may be held in regular mutual funds, much like SpaceX in Fidelity's Growth Fund portfolios. Yes, there would be limits on total value of TSLAP in those funds relative to the rest of the portfolio, and those are the shares that would be repurchased by TSLAP during the liquidating events, contracting the total shares outstanding (which will be beneficial when re-listing happens). I would not be surprised to see institutional investors owning 40% or more of the stock under this scenario. Elon keeps his 20% - that's 60%. Saudis, tencent, Larry Page et al. are the "venture capital" money that makes up the delta. Media wants it to sound impossible and unprecedented. Probably for firm with such a large market cap, and is unique that VC is buying from the Street instead of selling (IPO) to the Street. But all of these investment tools exist and are simply being deployed in a unique way - sounds like something Elon Musk would figure out.

 

[Fact Checking]

If something similar were to happen with TSLA would the associated, elevated trading volume somehow create a risk that a trade could [not] be executed (due to e.g. server/connection overload somewhere) ?

I added the '[not]' - is that the question you wanted to ask?

Depends on the order type. Of the three basic order types:

• LIMIT orders actually passed through to NASDAQ by your broker should be safe and will always execute according to strict (and fair) rules. Both buy and sell orders will execute fine regardless of volatility. (Of course spreads could widen significantly during very heavy trading.) If a LIMIT sell/buy order executes the price is guaranteed.
  
• MARKET orders will also execute, but might be delayed if your broker is too far down the food chain or if they don't give you the real market, i.e. are using home inventory themselves. You of course never know what the execution price of a MARKET order will be.
  
• STOP orders are basically conditional, price-triggered market orders so the same applies as to MARKET orders: they will trigger on the exact price condition if they are passed through to NASDAQ by your broker - but there's no execution price guarantee: for example during the recent spike of TSLA from $350 to $370 there were I believe about 1M worth of shares strong STOP orders which triggered at around $360 - most of them executed at around $370, where there were strong limit orders soaking that up. I.e. most of those stop orders execution slipped up ~$10, even if they were all in the NASDAQ trading book.

Note that the TSLA spike up was a comparatively minor cascading stops event compared to other possible future events such as hitting new all-time-high levels, or start of the day price gaps due to shorts covering.

The historically worst major cascading stop events was the 'Swiss National Bank Bomb' event in 2015, when the SNB price peg was removed on a highly leveraged (50x-100x leverage was not uncommon), usually stable currency pair - the resulting lack of liquidity and the cascading stops in the largely unregulated, distributed trading FOREX market caused position losses of up to 3000%, bankrupting numerous retail traders and a handful of brokers and institutional traders as well.

In the TSLA short squeeze the theoretical worst-case scenario depends on how Elon's transfer deal is structured. If shareholders have to tender their shares before being able to convert to private shares then it's easy to imagine a scenario where the short interest is higher than the float, i.e. the stock price literally increases to infinity: there will be a point during the short squeeze where available shares literally run out and there is no price at which shorts will be able to buy TLSA shares, because there's no available shares left to buy.

Thus shorts who want to avoid that side effect of the vote should not hold a short position across the vote.

 

[KarenRei]

OR
C) above $420, selling to anyone wanting extra private shares.

Your argument is wrong because you simply believe that their are no buyers for private shares above $420. We simply do not no that at this time.

If you want more shares, why aren't you buying now when they're $352 each? Why are you waiting for $420 or more?

 

[neroden]

Theory on Special Purpose Vehicles - SEC.gov | Investor Bulletin: Alternative Mutual Funds
So, Fidelity and/or TRowe could manage an alternative mutual fund that has its own unique rules. They might even limit it to accredited investors, although that doesn't appear to be required. Other retail shares may be held in regular mutual funds, much like SpaceX in Fidelity's Growth Fund portfolios. Yes, there would be limits on total value of TSLAP in those funds relative to the rest of the portfolio,

Which is why it would suck bigtime to be forced into one of those. I'm trying to invest in Tesla, not into 15% Tesla and 85% some other random crap.

I would consider that a forced sale.

and those are the shares that would be repurchased by TSLAP during the liquidating events, contracting the total shares outstanding (which will be beneficial when re-listing happens). I would not be surprised to see institutional investors owning 40% or more of the stock under this scenario. Elon keeps his 20% - that's 60%. Saudis, tencent, Larry Page et al. are the "venture capital" money that makes up the delta. Media wants it to sound impossible and unprecedented. Probably for firm with such a large market cap, and is unique that VC is buying from the Street instead of selling (IPO) to the Street. But all of these investment tools exist and are simply being deployed in a unique way - sounds like something Elon Musk would figure out.

 

[KarenRei]

Is it possible to have one of the investors in a private Tesla be a public company with no other business activities, just its ownership in Tesla - such that retail investors could continue on as shareholders in said public company? And if it's even possible, wouldn't the liquidity of that company's shares be the very thing Tesla is trying to avoid?

 

[KarenRei]

Which is why it would suck bigtime to be forced into one of those. I'm trying to invest in Tesla, not into 15% Tesla and 85% some other random crap.

15% Tesla... 15% SpaceX... 15% Boring Company.... hmm, what else could we add in?

Come on, Musk, start up 4 more major interesting for-profit companies We all know you want to make an electric airplane - make the next Boeing! Where's your company to drive Maersk out of the market with electric cargo ships? How far is Neuralink from a commercial product... speed that one up! Violate your signed oath and have OpenAI help build the Pentagon some killbots! Come on, we need things to invest in!

 

[mongo]

If you want more shares, why aren't you buying now when they're $352 each?

Vanguard is slow...

Why are you waiting for $420 or more?

Not that they are waiting for it, they may be unaware at this point (or liquidity limited).
Edit: or purposely soaking up the freed mutual fund liquidity....

Is it possible to have one of the investors in a private Tesla be a public company with no other business activities, just its ownership in Tesla - such that retail investors could continue on as shareholders in said public company?

Likely

And if it's even possible, wouldn't the liquidity of that company's shares be the very thing Tesla is trying to avoid?

Also likely

 

[jhm]

Based on my reading of the posts from our resident experts, It looks to me that a path will be created for those with self-directed IRA's holding TSLA to go private, correct?

If that is true, can anyone tell me with any certainty that we will be able to ADD to our positions ( 2x/yr) once we have gone Private?
If so, any idea what the limits would be?

If a major squeeze happens wouldn't a person want to sell some X# of shares to later re-invest in the Private fund?

Sorry, if these questions sound silly I am an investing Newbie here and my head is spinning trying to process all this and make a smart decision for my small but very important TSLA holdings. I realize this could be a life-changing event for me and I really want to get this right.
Would very much appreciate any and all advice!

This is a very complicated trade. There is no certainty that after selling common shares in a squeeze that the price of private shares will ever be lower than what you sold for. The safer way to avoid that trade loss is simply to hold shares through and convert them into private shares 1 to 1.

Let's be clear here that private shares are worth more than common shares due to lower volatility and not dilution via shorting. Moreover Tesla value is growing especially fast now.. if you sell at one point to buy back in 6 months late, the underlying value of Tesla has substantially increased, short of volatility and shorting dilution effects.

 

[generalenthu]

Is it possible to have one of the investors in a private Tesla be a public company with no other business activities, just its ownership in Tesla - such that retail investors could continue on as shareholders in said public company? And if it's even possible, wouldn't the liquidity of that company's shares be the very thing Tesla is trying to avoid?

You could structure it as a mutual fund, and issue units, which cannot be shorted. But then again, it needs a daily price, and not sure how that will work with only semi annual liquidity events.

The more I think, the tougher it looks to create a retirement account friendly product. Though, this is not my area of expertise.

 

[LordAstinus]

If you want more shares, why aren't you buying now when they're $352 each? Why are you waiting for $420 or more?

FUD and lack of details. Time will cure most of it.

 

[jhm]

If you want more shares, why aren't you buying now when they're $352 each? Why are you waiting for $420 or more?

I've already started buying more. Other investors may take more time to wake up to the opportunity.

 

[Scuttlebutt]

It could be structured vaguely similar to the US Govt Thrift Savings Plan (TSP)
You can _only_ add funds, every two weeks and only shift rarely among funds they manage (perhaps SpaceX, or TE, or Mars Colony or something) and when you close out, it is structured either conservatively or you get everything and are done forever. So you want to stay in
I like the low volatility, low heartache,[/Q

Thanks, Winfield. I also own a small number of Common TSLA shares in a separate Fidelity Account. The self-directed IRA has only TSLA in it (also Fidelity). Perhaps I should just pay the tax penalty, close the IRA and direct transfer the shares to common stock...if that's even possible? (I bought in the 200's) Or maybe just open up a self-directed Roth?


Still not clear if, once private, we will be allowed to invest additional funds with TSLA once we go private.

I hope I am not posting these questions in the wrong thread, apologies if I am!

 

[neroden]

So that begs the question, under current securities laws, can you have an unlisted public company (which I assume is where we are going with Tesla) that non accreditied investors can own stock in?

This would require legal advice, and I'm not a lawyer; I could be wrong.

But I actually think you *can*.

You can't *sell* or *offer* shares to a non-accredited investors, but if a non-accredited investor already owns the shares, you're not required (or permitted!) to force them out.

However, for retirement plans, the situation is different: they typically don't allow *holding* of *unlisted* shares.

The cleanest deal design I can think of is this (and I'm just guessing here, Musk could come up with something totally different):
(1) Tender offer at $420, for all the shares which aren't already held by people who've committed to keep their shares;
(2) Stockholders vote to add a restriction to share sales, giving the company right of first refusal to buy any shares which were not tendered in the tender offer (like SpaceX) after the date the tender offer expires (and prohibiting stockholders from selling to non-accredited investors in the case where the company declines their right of first refusal);
(3) The company is delisted. It's still the same company and the same shares.

 

[bobinfla]

If you want more shares, why aren't you buying now when they're $352 each? Why are you waiting for $420 or more?

Well at least one of us did. For the first time ever used margin as something other than a short term carry while waiting for funds to post. And used it BIG! Either the market is behaving very irrationally over the last couple days, or I am, can't wait to find out which.

 

[The Blue Owl]

If you want more shares, why aren't you buying now when they're $352 each? Why are you waiting for $420 or more?

This argument implies prices would never rise. Everyone who wants the stock either already has it, or they can buy it at today’s price. Obviously, they do rise, so people do buy them for (sometimes much) higher prices. Not all of those people are shorts covering their positions.

 

[neroden]

Can anyone explain why the investors Elon has lined up are not purchasing now while it is still below $420?

Who says they aren't?