Does anybody else share my sort of shell-shock WRT Tesla? I'm one of those who thinks its stock (and probably all the big tech names) are in a bubble. But whenever I say that I get shouted down, downvoted, told I'm an idiot, etc. I'm hoping this comment is vanilla enough to be safe... just curious if others have had the same experience.
To be clear: I'm not interested in debating the value of Tesla. I'm curious if others have the same emotional reaction at this point. That's it. If you think Tesla is worth $1T, good. Fine by me. I don't want to debate it or be told I'm a piece of garbage.
I wonder why TSLA is compared to dot-com stocks. Tesla produce real, tangible things, with sale and resale value; same applies to their factories. They are in the "real sector", while dot-coms were (and are) in the "virtual" services sector propped by ad revenue.
TSLA can be a bubble, but it must be a different kind of it.
Tesla produces real things, yes, any they have already driven change in the car industry. But even if Tesla displaces all other carmakers, which isn't likely, there is a total limit to the car market.
Another reason to tell why Tesla's stock is in bubbly conditions is the timing. Why is it soaring up right now? Is there some event that makes it more likely that people buy cars? No. The current events actually point towards the opposite direction of a recession, where people don't buy new cars. But they are overruled by different events which are more about more about money not knowing where it should go.
This video makes some very interesting points on the "too much money in the markets" question: https://youtu.be/Im0rzTWplwU
I have no idea whether or not Tesla's stock is over-priced. However, it is definitely more than an auto company. It has a solar division, and it make electricity storage systems for home and utilities. Also, there are strong indications it is about to go into manufacturing li-ion cells. It seems to me it is quite possible that at some point it will be worth a trillion.
Let me add it is interesting that people who say Tesla is over-valued so often make this mistake, even though most of what I said is widely known. Perhaps people are being intentionally misleading.
Strange that you would say Pets.com didn't use ads given in your link there is a section about their famous sock puppet mascot with the following quote:
> Pets.com hired the San Francisco office of TBWA\Chiat\Day to design its advertising campaign.
Just because Tesla welds together their primary products doesnt make them any more "real" than the products of Microsoft, Netflix, or Google. Sure, you can't melt down a season of a Netflix TV show and sell it as scrap, but Tesla's value is almost entirely in their IP as well.
Hmm. Did the same in 2008. Somehow I bought it in the summer when it was still cheap, and gold crashed soon, but went back up in the winter, and stayed above my purchase price all the way since then. (I wish I sold it in 2012, though, before the next crash.)
I honestly don't know. I owned it briefly a while ago and got scared off, only to buy back in recently... and watch it double. Right now Tesla is priced as if it was the most successful auto company in the world. I'm a little skeptical they are going to get much bigger than VW is so it's tough to see them doubling again, but maybe? I think after the split plays out, I'll likely trim my position back a bit.
I will say Tesla seems to have a pretty large competitive advantage (and perception advantage) in the market right now. It also seems like they are paying quite a bit less for batteries at the moment than anyone else.
Most Tesla competitors are announcing future vehicles with pricing and range competitive with Tesla's current vehicles, which suggests to me those same competitors are about 18-36 months behind Tesla still.
It seems clear to me anyhow that in next 20 years most new cars will be electric. How big a chunk of the market can Tesla carve out before the rest of the competition finally catches up?
I don't think that Tesla is a bubble, more like gambling.
Tesla right now clearly isn't worth $1T, but it is definitely on something big. Electric cars look well set to be the future, and so are the batteries that go with them. And currently, Tesla is a leader in both these fields. Furthermore, Tesla is creating an ecosystem not unlike Apple with its cars, it includes their supercharger network and all their software. And we all see how successful Apple is.
So yeah, huge potential. However, it is all speculation. Maybe traditional car manufacturers will wake up and offer decent electric cars. Maybe their ecosystem will fail to capture their market. If that happens, even if Tesla stays profitable, its value will crash. That's because Tesla will stop being a bet on the future and become just another mid-rank car manufacturer.
Personally, I am not into gambling, so I won't buy and I won't short.
It is worth $1T in the sense that people have said "this team looks like the best team to give $1T to to build cars."
Sure, everyone is investing to make money and extract it later, but its also a bet that they will be a player for a while, are more efficient at using the cash then their competitors, can scale better. At the end of the day it is capital allocation, and the market has decided this team is the best team to handle the task. (Or it is a true bubble, where everybody doesnt want to miss out, but I think its some of the former too. Ford and GM are legacy businesses that have legacy overhead.)
$1TN is just the last price multiplied by the number of shares. The amount Tesla raised was just however much they earned from the original sale of stocks.
Facebook's stock is basically Mark's personal currency.
I understand that buying stock isn't straight up giving a company cash, but by pumping up its value, the shares the company is in control of are worth more. I also totally get how thinking people are this altruistic with investing is naive, and it's probably just fomo and short squeezes in a death spiral.
my context: I've bought and hodl'd TSLA since the day of the IPO @ ~$19.
I agree with you I have no idea why it is valued the way it is. My original thought for getting on at the IPO was that since they were one of the first big electric car players, they would get a patent portfolio that would be worth a lot in the future even if they failed as a car manufacturer. Of course, that logic went out the window when Elon promised to license the patents freely to anyone who wanted to build electric cars a number of years ago.
I can understand people valuing TSLA at more than, say, Ford, because of their future prospects and because they aren't burdened with legacy issues like worker pensions, but it's hard to believe it should be worth 10x. It also isn't clear to me how TSLA went down ~10% over the past 5 days but is right back up there on news of the split.
I appreciate seeing Charlie Munger show up on HN. He may not be a technophile but his business and life principals are applicable everywhere.
I share Munger's opinion, not just on Tesla. I don't short companies because, as John Maynard Keynes said, “the markets can remain irrational longer than you can remain solvent.” And if I were to short companies, I'd be more likely to choose a Kodak anyway because at least Tesla has a crazy genius CEO who could conceivably grow Tesla to a point where everyone says Tesla's August 2020 would seem reasonable.
I think a lot of people share it, that's why they shorted Tesla stock before the last quarterly report. This only made the problem worse though as the brrr agency didn't want to let the price go down so it went up in a short squeeze. We'll end up with either a big burst in a few months, or inflation. But it'll take at least until the election.
Yes, I feel the same way. I’m not too hot on them being added to the S&P 500 index, which they technically qualify for now. It remains to be seen when it will be added.
Tesla was undervalued. Stocks aren't priced what they are because of how well the company is doing today, but how well investors believe it will be doing tomorrow.
Think about it - the world has been screaming for green this and that and electric vehicles are one of the biggest pieces of a such a world. Tesla and no other company is synonymous with this kind of technology. When you think electric cars, "Tesla" is the first brand in your head, in anyone's head, without fail. That is an extremely powerful position to be in.
Yes and no. My sense is the market will be speculative no matter what. In the past, that speculation was on the negative side, and now it's on the positive side.
I can see Tesla rivaling Toyota in revenue in the next five to ten years given how slowly they and others have moved on EVs. But I could also see Tesla running into trouble if they screw up their expansion or if another large manufacturers bets the farm on EVs.
I bet on self-driving trucks instead. They can go like 95% of the way via highways driverless, only accepting a driver to drive it through a city to a loading ramp, and maybe to a pump midway a very long trip. Drivers will not disappear soon but will provide local service.
Having a driverless car which can navigate through a city would be great, but it is a much more complicated problem to solve.
If they can pull that off and patent it and get a cut of everybody else doing it or block them from doing it at all then the price is justified. Otherwise they'll just be some tiny volume auto maker.
I'm longterm bullish on Tesla, even if I think that in the short run the stock is overvalued. Take a look at the Tesla Semi, for example. This thing is going to change road based logistics big time. More energy efficient. Wired in for full self-driving once the AI gets there. Once those things start coming off the line they're going to disrupt an entire global industry. That's just one of their vehicles.
Tesla is in bed with China, a country deadly serious about electric vehicles. Plus, many of the other car manufacturers buy electric parts for their own EVs from Tesla.
The worldwide initiative in this direction is strong, so the projected valuation could be just about right. Tesla is part of a global bet.
I'm a bit bitter that I sold my five shares at break-even in March after having been down for a year. But then I just think of all the people who sold more shares after holding it for far longer right before the insane growth.
Kind of sounds like you do want to debate it. I have no idea if it is or is it a it overvalued but plenty of people do share you view, and they lost a lot of money betting against Musk.
we are in global pandemic, were a lot of people lost jobs, or quality of life decreased.
Despite this stock market is doing well.
The only conclusion I can see is that the stock market is completely decoupled from real life. Biggest parties participating in it are completely unaffected by reality of majority of population.
The same people who are rabidly shouting bitcoin is a pyramid scheme are buying stock of companies not because they trust its a good business model, but because its a a unicorn that will 2x in value for quick sale profit.
The whole notion of individual shares with prices is legacy baggage from decades ago when trading was done with paper stock certificates. What really matters is the percentage of the company you own, regardless of how that percentage is sliced into units. Some retail brokerages already offer fractional share tracing so for those investors a stock split is mostly irrelevant.
Meh. Total non-event. Once upon a time I hated splits because they made record-keeping more complicated, but the online brokers do a good job of tracking basis across splits now. Once upon a time there was a real reason to do splits to enable easier purchases, but the online brokers allow fractional shares now. So, just not excited either way about splits anymore.
Matt Levine made me notice that there's still an effect of stock splits on making options more accessible i.e. there are brokers for fractional shares, but not options on fractional shares/fractional options.
I am pretty sure this is irrelevant, but it's interesting.
Speaking of splits, I love how Apple’s stock split justification is:
“We want Apple stock to be more accessible to a broader base of investors.”
https://investor.apple.com/faq/default.aspx
Yet it’s one of the top stocks held on Robinhood (#3 at 700,000 users)
Apple is in the DOW and the DOW is a stupidly weighted index where share price affects what percentage of the index that company holds. Right now a 1% increase in Apple pushes the DOW up 10 times more than a 1% increase in Cocoa Cola.
Companies in the DOW tend to have share prices below $500/ share and most are under $200 and the DOW won't add companies with high stock values as a result (Apple was added only after their last split).
It's likely being in the DOW bolsters and stabilizes stock prices as a lot of indexes are based on a the DOW. It also brings a company a certain prestige.
Whether any of this affects the Apple board's decision to split the stock or not is entirely speculation... it just seems a far more likely reason than the idea that they are splitting to make it accessible to people with $500 they want to invest.
Very few people invest in the basket of companies that make up the Dow Jones. Its use as an index of how the stock market is behaving is really a historical artifact at this point. One ETF in the top one hundred [1] ETFs is based on the Dow Jones Industrial Average and that one is ranked 43rd. Joining the S&P 500 is a big deal, on the other hand, as the three biggest ETFs are S&P 500 funds.
Fair enough. Even so, I think inclusion/ exclusion in the DOW is far more likely to affect Apple's choice to split or not than making the stock more accessible to investors.
I doubt it, and I think there is a misunderstanding about the investors Apple referred to in their public statement on the split. As a company's share price rises the stock becomes less liquid, because trades happen in smaller quantities; Berkshire Hathaway's class A shares are probably the most extreme example. Low liquidity is a problem for mutual funds, which have to sell assets whenever an investors sells their shares in the fund (which may be a relatively small sale e.g. a retirement account distribution), because low liquidity makes asset sales more difficult. In general institutional investors will have liquidity rules that constrain the assets their funds can hold to avoid that kind of problem.
Given how much investment capital is held by institutional investors, companies have a good reason to split their shares if the share price is too high. Berkshire Hathaway created a new share class to support the needs of institutional investors, and I would read "accessible to investors" as "conforming to the liquidity requirements of institutional investors."
“Accessibility” is always a bogus reason nowadays. Stock commissions are dirt cheap so there is little reason to buy in lot sizes anymore. If you have $320,000 in your account you can buy a single share of Berkshire Hathaway for less than a $10 commission.
Stock splits are just a low grade attempt to pump up the stock price.
Accessibility does not just refer to retail investors, it also refers to institutional investors who are constrained by liquidity rules; this is why Berkshire Hathaway created its class B shares.
A more informative link [1], also on sec.gov, explaining the nature of the operation, says:
PALO ALTO, Calif., August 11, 2020 – Tesla, Inc. (“Tesla”) announced today that the Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors. Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020. Trading will begin on a stock split-adjusted basis on August 31, 2020.
I don’t really understand stock splits. Is the only point to allow people to buy shares who could previously not buy because one share was too expensive? If so, why not just introduce fractional shares into the stock market with some fixed point number of decimal places? Or just keep track of ownership fraction (e.g. 0.0043% of the company)?
One thing it can impact is derivatives trading. A standard option contract controls 100 shares, which can be quite a large amount of $ if each individual share is priced highly (likewise affects the effective granularity of the common option strike prices in the market)
Update: For something like TSLA which may have some psychological "Bitcoin-like" speculation going on among retail investors, I suppose the big number could reduce the desire to buy since "it can't go much higher" in some people's head, I guess.
You have to standardize on some common granularity for strikes/expiration dates so that each symbol has sufficient volume so that the market would not get too sparse. The theory does not require it, but when you are building an exchange, I suppose that'd be of a practical concern to you. You want interchangeability in derivative contracts and don't want each individual contract to be a snowflake.
There are "mini" options that control 10 shares, for example, but they usually have higher bid-ask spread reflecting the higher cost of pricing accurately/transaction fee/lower liquidity.
You would have contracts trading for less than a dollar, which would make the system a lot less efficient (higher transaction fees etc.), not to mention raising the computational cost of matching contracts when they are exercised (there would be far more contracts to deal with).
100 shares is considered a "lot" and is a standard size. True, an investor can own fewer than 100 shares, but every so often a company will make an "odd lot offer" forcing investors to either sell their shares or buy enough to hold at least 100.
Another issue is that out of the money contracts for a single share would frequently trade for pennies, which would greatly increase transaction costs and make the market less efficient. So you would have to standardize on some amount that is large enough to avoid such inefficiency, and 100 is a convenient number for mental arithmetic and reduces confusion. In theory you could have standardized on a larger number like 1000, which is equally convenient, but that would have priced out retail investors who may not own 1000 shares of a company whose share price is in the double or triple digits (which is common) and reduced the liquidity of the options market (which is already not very liquid).
Different derivatives have different lot sizes iirc. Options contracts for listed equities have a lot size of 100. Once options markets became more standardized in 1973 with CBOE introducing call options, the default lot size became 100.
From /u/ins2be on reddit:
"That's what the OCC sets it at in their bylaws.
Unit of Trading
(5) The term “unit of trading” in respect of any series of options or futures means the number of units of the underlying interest which have been designated by the Corporation as the minimum number to be the subject of a single option contract or single future in such series. In the absence of any such designation for a series of options or futures in which the underlying security is a common stock the unit of trading shall be 100 shares."
In US the tick size for any stock is always $0.01. So a stock with a price of say $1 has a minimum bid ask spread of 1%, which is a lot.
On the contrary, if one share is too expensive, it limits liquidity in a stock. This is usually bad, though Berkshire Hathaway voting shares are deliberately kept expensive to stave off speculators.
This then get meta-player. A split suggests the company expects a price increase, and vice versa (reverse splits area thing too).
Liquidity rules are the main reason. Even Berkshire Hathaway had to give in and create the Class B shares in response to pressure from institutional investors constrained by liquidity requirements. Brokerages are also less willing to allow margin trading on equities with low liquidity because of the risk that a customer will be unable to sell their assets to cover margin calls.
As for fractional shares, keep in mind that these are a creation of brokerages, they are not universally available, and they create complications with shareholder rights (e.g. voting).
It's also generally considered a positive signal, that management is confident that nothing is going materially, negatively impact the stock price moving forward.
there was a time when you couldn't buy fractions of a share. Then it made sense to keep shares "lower" for smaller increments of share purchases. But now, most exchanges that I'm aware of allow fractional share purchases. Fractional share ownership may affect voting rights. I too would like to know "why" Tesla would opt for this... seems like they have more important things to do.
Matt Levine (as usual) has some good explanations for the value (or lack thereof) of stock splits, as well as some historical context, as seen via the lens of the recent Apple split: https://www.bloomberg.com/opinion/articles/2020-07-31/apple-... (Bloomberg has a pretty aggressive paywall, but usually a new incognito tab will bypass it).
"A company should be a thing, and people should be able to own a portion of its equity, and the portion that each person owned would be expressed as an arbitrarily precise percentage of the total...The “stock price” would be what we now call the “market cap”: The market would place a value of $X on the company as a whole, and if I wanted to buy another 0.01429% I would pay 0.01429% of $X....
The traditional, 19th-century answer to how many shares a company should have was that stocks should have a normal price, they should cost like $40 to $100...This was so standard that, when Charles Dow created a stock index in 1884, he just averaged the dollar stock prices of a bunch of stocks...because the stocks had normal prices.
There is an argument that high-priced stocks reduce liquidity because traders have less incentive to post quotes. It is good for a stock to trade at a bid/ask spread of a couple of “ticks,” the minimum price increment for trading. If a stock is worth $50 and trades at a bid/ask spread of $49.99/$50.01, a trader who posts a bid to buy at $49.99 will be able to buy from anyone who wants to sell immediately. If it’s worth $500 and trades at $499.90/$500.10, a trader who posts a bid to buy at $499.90 might lose out to a trader who bids $499.91. You can’t reliably earn a “normal” spread by trading the stock, so your incentive to provide liquidity is lower. Nasdaq published a paper arguing this point
At the time of Apple’s last split, in 2014, one popular explanation was that Apple was trying to get into the Dow Jones Industrial Average, which is still price-weighted and so still has an old-fashioned fondness for normal-priced stocks, but that worked and now it’s in the Dow so that’s no reason to split again"
To entice retail investors to dump money in, brokered by Robinhood, one share at a time (in TSLAs case)
I’m on the fence about TSLA, their value is based on their perceived lead on autonomous driving, which is questionable. Their accounting practices are a bit shady as well. I’m not looking forward to it’s inclusion to the S&P 500.
Stock splits can also be used for companies with values too low (A reverse split) . These companies split to increase the value of stocks in order to prevent delisting from exchanges.
Also makes the perception of the stock being cheaper. I can't tell you how many times I heard someone say company X stock is cheaper than company Y becausetthey compare nominal price.
About $6 trillion was "created out of thin air" in the S&P 500 since mid March. But don't confuse value with output or wealth. The market is forward looking and valuations are pretty unstable long term.
Everything is relative, we're printing a lot of money right now, possibly for the right reasons. In general though those valuation probably do make sense in a world where money is plentiful.
To be clear: I'm not interested in debating the value of Tesla. I'm curious if others have the same emotional reaction at this point. That's it. If you think Tesla is worth $1T, good. Fine by me. I don't want to debate it or be told I'm a piece of garbage.