Is Tesla The Greatest Short In History?

rogernusbaum

I have no idea if Tesla is a short but we are clearly living real time in a meaningful mania where the stock has skyrocketed, more than doubled year to date and up more than 60% in five days. I've had CNBC on today (I usually watch Bloomberg but the sound went out so I've been on CNBC) and all they are talking about is Tesla. Ron Baron earlier laid out a case for $1 trillion in revenue (these things always bring out the extrapolators), they talked about where the stock would have to go for Elon Musk to become the wealthiest person in the world, they had one analyst on just now for what seemed like a 15 minute segment, Robinhood which rightly or wrongly has become a proxy for dumb money reported a large number of new shareholders who bought above $700 and there's more.

You've probably seen the numbers that it's market cap is bigger than the big three US auto manufacturers combined. I saw one Tweet that said Tesla sold 367,000 cars last year versus several million for Ford yet Ford's market cap is about 1/5 that of Tesla. Before this surge, the market cap of Tesla essentially priced the cars at over $300,000 a piece and so now it might be double that.

Twitter shorts are pervasive on Twitter so I've seen some of their arguments and sleuthing, one short pointed out that in its last earnings report the company said it sold more cars than it made for the quarter but somehow the inventory did not go down. There are plenty of people short because they believe the company is a fraud and that part of the parabolic move we are now in is due to a short squeeze.

I have no skin in this game and don't know how this will play out but the behavior of the stock and the people on both sides of the trade are things we have seen before (and of course will see again). Part of long term investment success is recognizing these for what they are; manias. A few in my time that come to mind include Andrea Electronics, Comparator Systems, Iomega, the entire internet bubble, Enron and of course Bitcoin.

Historically, these do not end well or in the case of Bitcoin, don't evolve without serious pain. Early this morning I tweeted "If you're lucky enough to have bought some $TSLA awhile back and have an "oh my god" type of gain, sell a little of it even if you're religiously devoted to the stock, sell a little," this even applies to someone who just bought it at $700.

If you participate in markets long enough, there's a good chance you'll stumble into owning one of these types of stories. Anyone who has made a lot of money in Iomega, sorry, I mean Tesla needs to be concerned with risk management more so than the story. If it does do what Ron Baron or Cathie Wood (manages the ARK ETFs which own a lot of TSLA) think it will do, you can still benefit from the ride while managing your risk, the two are not mutually exclusive.

I've written this same post about past manias and will write this same post when the next big mania comes along. It is crucial to understand that there is nothing new about the market manifestations we are seeing, it's not different this time in terms of market behavior. If Tesla changes the world, that's great but manage your risk, always manage your risk.

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