No matter how confident you are in your belief that a stock or the market in general is overvalued, never forget what John Maynard Keynes said: "The market can stay irrational longer than you can remain solvent."
I repeat this to myself any time I'm tempted to short what I think is a grossly over-valued tech stock.
To what extent is is "unsustainable" and to what extent is is self-fulfilling?
i.e. if the engineering is sound, can a company leverage the higher share value (by issuing or selling shares?) to deliver more and thereby justify the value?
An analyst firm, ARK research, on Jan 31st raised the forecast for Tesla to $7,000 by 2024, for a market cap of well above one trillion. Because "robotaxis".
This confidence in Tesla was really odd, given that they apparently significantly reduced their investment in Q4 [1].
It's not odd if you read the article that you linked. It explains that ARK does not allow more than 10% weight for any position, so they had to sell some Tesla shares to rebalance.
I think the safer option is to buy a solid competitor that will benefit if the overvalued stock corrects. For example, if you think Ford or BMW will attract investors if Tesla deflates, buy that instead.
or use options to hedge. You'd really have to be certain about the correlation between tesla and ford/bmw etc for that to make any sense, and I can't imagine that all the elon-worshipping retail investors and the people buying the tesla hype would, if disillusioned, decide to go buy a boring, lame company like Ford. DOesn't seem like the same set of investors
Yea, but it applies to shorting more than most other forms of speculation.
When you buy a stock because you think it's going to go up, the maximum amount of money you could loose for being wrong is whatever you spent on buying it.
When you sell/don't buy a stock because you think it's going to go down, you're only loosing potential upside, there is no downside. In other words, there's no way for it to cause you to have less money than you have today.
But, when you short a stock, your potential downside is uncapped. That stock can keep going up to infinity, and as it does, your losses go up towards infinity.
It really depends on how you look at short positions. If you also have a long portfolio, and you would like your returns to be less market correlated, then short positions can be fine. I’d recommend almost every retail investor never short anything, but the math can be different if you are a large fund or institutional capital
if anyone is familiar with the chinese electric car scene, then one will know that tesla, america's darling, is not as ahead as people give them credit before. if any of the chinese car manufacturers come to the u.s. and are able to break through stigma, then tesla will be in trouble. neo, byton, weltmeister, byd, and more have serious competitive car offerings. i have ridden in a nio suv, and the quality greatly surpasses that of tesla.
you can have the greatest tech in the world, but that won't help you if you can't market your product properly. I've never even heard of any of these brands, yet I'm actually an avid fan of chinese breakthrough tech in many areas, and have absolutely no problem supporting the Chinese tech industry.
But almost all of them have one flaw in common; they don't know how to build a brand and market to western consumers, which is where a lot of the revenue is found. This seems to apply whether we're talking about cheap consumer electronics, specialized digital equipment (in my particular case, audio processing equipment), or cars.
Usually it takes a few decades. But there were times that Samsung and Toyota were unknowns.
I think China’s problem is the Western belief that their tech products are built to spy first and perform second. And that primary functionality could just be removed for the western market.
Also the anti-Chinese practices - my next cellphone would definitely be a Huawei P30 Pro if it wasn't for the fact you can't use Google Play Store etc. with it anymore.
I'm not sure who's winning these trade wars, but the consumer is losing.
They aren't doing very much to assuage fears about spying. The west doesn't fear that because they're chinese or asian (we have no problem trusting Japanese products for example) - the fear is because China has an authoritarian government with very close links with industry and state run businesses.
Great Wall, Geely and others have tried for many years. The problem isn't "stigma" but simply terrible test results for safety and quality. That's why most Chinese who can affort it buy Western or Japanese cars too.
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[ 2.8 ms ] story [ 79.3 ms ] threadI repeat this to myself any time I'm tempted to short what I think is a grossly over-valued tech stock.
i.e. if the engineering is sound, can a company leverage the higher share value (by issuing or selling shares?) to deliver more and thereby justify the value?
Tesla Apartments anyone?
You might be onto something with an apartment option!
(only joking, well mostly joking)
https://thehackernews.com/2020/02/philips-smart-light-bulb-h...
But after a google, it does seem to be a live product, being worked on.
This confidence in Tesla was really odd, given that they apparently significantly reduced their investment in Q4 [1].
[1] https://www.barrons.com/articles/tesla-stock-7000-ark-invest...
Appreciation of an existing beyond 10% is at the discretion of the portfolio manager.
Not that I would, but
I interpret it as a general 'warning' for any market speculation.
When you buy a stock because you think it's going to go up, the maximum amount of money you could loose for being wrong is whatever you spent on buying it.
When you sell/don't buy a stock because you think it's going to go down, you're only loosing potential upside, there is no downside. In other words, there's no way for it to cause you to have less money than you have today.
But, when you short a stock, your potential downside is uncapped. That stock can keep going up to infinity, and as it does, your losses go up towards infinity.
If your time horizon is more than two years, then it's not much of a prediction anyway as most companies are likely to go to zero given enough time.
But almost all of them have one flaw in common; they don't know how to build a brand and market to western consumers, which is where a lot of the revenue is found. This seems to apply whether we're talking about cheap consumer electronics, specialized digital equipment (in my particular case, audio processing equipment), or cars.
I think China’s problem is the Western belief that their tech products are built to spy first and perform second. And that primary functionality could just be removed for the western market.
I'm not sure who's winning these trade wars, but the consumer is losing.
Where do people get their short interest data ?