Schrodinger’s Tesla

Sometimes I daydream. Some of them repeat. I’m sure you all have this.

One of the daydreams that recurs for me is this.

The former scientist Schrodinger puts all Tesla investors into a big box. In that box is a vial containing the truth about the company.

The truth being that Elon Musk lies all the time, makes massive claims and doesn’t deliver on them, raises debt based on his personal brand and then just burns through it on pet projects and bailing out his own family members, and does some seriously creative accounting to make Tesla stock seem way more valuable than it actually is.

The vial containing the truth is locked shut using a radioactive substance that could disintegrate at any time, releasing the poisonous truth and making all Tesla investors sell their stock, reducing it to zero.

Like in the original experiment, the radioactive material could disintegrate at any time, and we have no idea when it will. So the poisonous truth could be in the hands of investors, or they could still be buying on hype.

The quantum mechanical understanding of this is that before we look inside the big box, Tesla stock is in a “superposition”, that is to say it is simultaneously worth $565 per share, and $0 per share. It’s both.

As Billie Eilish, the young singer-songwriter, recently put it:

“I had a dream…

But it might have been nightmare…”

I feel ya, Billie.

#TeslaQ

Two things drive share prices.

Fundamentals, and investor psychology.

That’s because share prices reflect some combination of what the “true” value of the company is, and the value that people think it has.

What’s the price of a pencil? Is it the accumulated costs of everything, labour included, that went into making it? Or is it simply, what people will pay for it?

Well, in capitalism, it’s a constantly fluctuating combination of the two, and it’s the same with share prices.

In theory, fundamental should guide share prices. But should doesn’t equal will.

I was wrong, but what about?

Vomit warning – this is going to be one of those trashy “I was wrong but I still think I’m right and here’s why” arguments. Crap, I know, but I’ll try and extract something interesting out of it lower down about market psychology and cyclicality.

So how did I get it so wrong?

Excuse number #1: I was looking at Tesla from a fundamentals perspective.

My reasons for disliking it as an investment were many. For example, Elon’s lies, dodgy accounting, unprecedented waves of management leaving the company, increasing losses, heavy indebtedness, missed targets, valuation way above its peers, sales numbers or (lack of) profits, and a misperception that it was something other than a car company. Wasn’t then, isn’t now.

Pretty much all of those are still true.

And the stock has nearly tripled since I gave it what-for. Damn…

Lessons learned

  • Just because it’s bad, doesn’t mean it’ll go to zero.
  • Don’t bet against a bull market.
  • The market can stay wrong longer than you can stay solvent is valuable advice.
  • Market psychology is more important for some stocks than others.
  • Tesla still has huge potential – if it can do what Amazon did and just reject financial reality for long enough.
  • Investors are desperate for clean tech investments – if only there was somewhere they could find them (That’s me being deliberately “OTT” (over the top) by the way – there obviously is a way, it’s at the bottom of this article. Nice.).

To me, this is as clear a sign as any that psychology has taken over from fundamentals in the markets. No it’s not every company, no it’s not an “everything bubble” (bubble is an overused term in my opinion), but yes, Tesla is a sign of irrational exuberance, a canary in the coal mine.

More risk-positive investors might think “melt-up, great!” while others might follow the sage advice of long-term investment gurus like Howard Marks and Warren Buffett and think “the key to long-term wealth is avoiding big losses, I’m happy to pass up a few gains to safeguarding against big losses”.

Or presumably you might be somewhere in between.

I’d say it’s worth considering where you are.

Why hydrogen companies are trolling Elon Musk

For people in the former camp, and yes there are still plenty of reasons to be optimistic (and sectors to be optimistic about), allow me to point you ONCE AGAIN in the direction of hydrogen stocks.

Most hydrogen companies are laughing at Tesla (look at the Twitter page of hydrogen truck company Nikola’s founder, Trevor Milton, for example).

That’s because hydrogen cars are going to be cost-competitive, cheaper, and have longer range and shorter refuelling times than electric vehicles (EVs) within a decade, according to global experts like Deloitte, or Bloomberg New Energy Finance.

Honestly, pick a time frame with these companies.

They are riding the crest of a wave at the moment, but they also have one of the strongest and most urgent tailwinds of any sector – the fight against climate change.

So short or long term, it’s a happy time to be a hydro-stock buyer.

And luckily, we happen to have a specialist here – James Allen, who’s been helping his loyal subscribers profit from these since May of last year.

Want to read more from James about hydrogen investing, and his latest stock recommendation?

Click hydrogen.

All the best,

Kit Winder
Investment Research Analyst, Southbank Investment Research

PS Feel free to send any thoughts or responses to kit@southbankresearch.com.

Category: Technology

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