Author Topic: What does a bubble look like? Tesla/social(Facebook) discussion topic  (Read 9918 times)

Khan

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I am utterly convinced that we're seeing a bubble in Tesla and in Facebook and other "social" websites. I was wondering what other people think of the issue. I am also utterly convinced I don't have what it takes to short them, as shorting isn't in my constitution(plus the market will stay irrational far longer then I can stay solvent).

For Tesla, I see a "price doesn't matter" attitude toward the risk/rewards prospect of the stock itself(I'm a fan of the company, not the stock), as well as insane levels of hero worship towards Elon Musk, the coolest/best IRL Tony Stark around(ok, a nice counterpoint to Richard Branson). I understand that it's disruptive(electric, no dealership) but this is ****ing insane.

For Facebook, I see insane price targets from analysts, unsustainable growth targets, decreased usability and increased creepiness of the company(In Soviet Russia, Deepface friend you!), as well as a ridiculous M&A strategy(which makes me think that maybe Zuck knows exactly how overvalued it is).

I haven't been following other news on Twitter or other stocks.

grantmeaname

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Re: What does a bubble look like? Tesla/social(Facebook) discussion topic
« Reply #1 on: April 29, 2014, 06:50:48 AM »
Meh. I own them in proportion to their market cap as part of a total-market index, so I don't really have to care whether or not they're a bubble.

matchewed

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Re: What does a bubble look like? Tesla/social(Facebook) discussion topic
« Reply #2 on: April 29, 2014, 07:11:37 AM »
Even if we take it in isolation I'd be looking at things like cash on hand, revenue, debts, acquisitions...etc. rather than flipping a coin based on some feelings towards a CEO or creepiness of the company's behavior. Rather than use news start with the basics. Is the company profitable?

Now that aside individual stocks still have much higher risk that is mitigated by a broad index fund and you don't have to worry about being utterly convinced that a course of action is the right course of action but that you don't have what it takes to take that course of action.

soccerluvof4

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Re: What does a bubble look like? Tesla/social(Facebook) discussion topic
« Reply #3 on: April 29, 2014, 07:50:31 AM »

1. There is a bubble in the IPO market in which 75% of the deals brought to market in 2014 are not profitable.

2. There has been a bubble in the social media sector in which stocks are being valued on the notion of addressable markets -- much like back in 1999 when Internet stocks were priced relative to eyeballs. As an example in how the the momentum names' popularity has been embraced, there was a bubble seen in Tesla's (TSLA) ability to sell $2 billion of converts a about two months ago after a fourfold increase in its share price. The convert was priced with an interest rate of only 50 basis points and demanded a 40%-plus conversion premium due in 2019. Those terms were nuts, and the current price of the convert reflects the stupidity of the offering's buyers -- and is well below its offering price now.

3. There is a bubble in the belief that the Fed's quantitative-easing policy is sufficient by itself to generate a self-sustaining domestic economic recovery.

4. There is a bubble in credit:

in a recent offering in Greek bonds;
in Spanish and Italian yields converging with U.S. yields;
in investment grade spreads at +100 basis points over;
in high yield spreads at +340 over Treasuries, which is within 100 basis points of May 2007, but more importantly, yields are 200 basis points lower than in May 2007 because of where Treasuries are trading;
we are even seeing covenant light loans now are at 2x rate of issuance as they were in 2007.


5. There is also a bubble in the amount of debt as a percentage of global GDP that is held by the world's major central banks (that should cause exit concerns).

6. There are certainly excesses and bubbles in China's banking and shadow banking industries, as well as how many hundreds of trillions of derivatives notional outstanding exist.

7. Finally, there is a bubble in buybacks. Goldman Sachs reports that March 2014 was the busiest March on record, with $73 billion in buyback authorizations. For the first quarter, we saw 291 authorizations at a value of $197 billion. We are now on pace for $719 billion in authorizations for 2014, third most ever behind 2013 and 2007. We all know that corporations typically buy high and sell low. The last time we saw this rush to buy was 2007, the year the market peaked.


Short Tesla or be in Index funds. I chose the latter..

« Last Edit: April 29, 2014, 07:53:15 AM by soccerluvof4 »

Herr Schnurrbart

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Re: What does a bubble look like? Tesla/social(Facebook) discussion topic
« Reply #4 on: April 29, 2014, 08:53:18 AM »
Can't comment on Tesla, but Facebook appears to be a winner in the social media space.  It's Q1 report released last week shows that it knows how to monetize its active user base (1.25 billion).  Revenues were up 70% over last year to $2.5 billion and operating yearning tripled to $1.08 billion.  FB's growth in mobile advertising revenue now exceeds Google.

In terms of FB's M&A strategy, Instagram in retrospect was a brilliant move.  As for WhatsApp, time will tell.  It did provide FB with 500 million users, mostly outside N. America.  Zuckerberg has shown he'll do whatever it takes to maintain and grow his user base.

Is FB a bubble stock?  The same was said about Apple, Amazon and Google when they went public. 

(Note. I do not own any FB shares, nor do I even have a FB account)

kyleaaa

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Re: What does a bubble look like? Tesla/social(Facebook) discussion topic
« Reply #5 on: April 29, 2014, 09:59:36 AM »
I'm actually of the opinion there is NOT a bubble in social media, although even if there is, it isn't half as bad as the tech bubble in the late 90's. At least the companies with insane valuations have actual PROFITS these days, even if they're small relative to the prices paid. FB, I think, will be a successful company. But I must admit the valuation seems a bit rich for my taste. But in 1999, FB probably would have had a valuation 5 times as high.
« Last Edit: April 29, 2014, 10:03:19 AM by kyleaaa »

hodedofome

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Re: What does a bubble look like? Tesla/social(Facebook) discussion topic
« Reply #6 on: April 29, 2014, 10:38:18 AM »
Don't really have much to add that hasn't already been said, but I'll at least speak to shorting momentum/bubble stocks. We all believe they are overvalued but where do you begin your short? If there's no logical reason a stock should be trading at a P/E of 75, well then we shouldn't be surprised if it gets up to a P/E 150 either. Being overvalued doesn't make it a short, as it can continue to get more overvalued. IMO you have to let the momentum run it's course and then find a logical spot to short once it loses it's momentum. Most likely this is around the first earnings miss. And more importantly, you have to determine where you decide you are WRONG. This is how shorts get run over. They see a 'bubble,' short it while the stock is going up, and finally capitulate after they've lost a ton of money. The better way is to look for a technical 'topping' process in the price, an earning's miss would be helpful, and then short it. And always cover if price trades back above all time highs. Soros has no problem buying stocks in a bubble before they've topped out, and he's much more of a technical trader than many believe.

Once you are in the short, anticipate tons of volatility. Look at how big the rallies were in the tech bear market after Y2K. That would be tough to stay short through. My shorts are never as big as my long positions, and I cover half after I've made a decent amount of money. I know that the volatility on the way down is much higher than on the way up, so I don't have large position sizes on the way down. I'm really just looking to make back a little bit of the money that I gave back to the market once it topped out. I'm not trying to make a killing on the short side.

Many hedge funds have had a rough 2014. They were long all these stocks and while the S&P 500 hasn't dropped much, these momentum stocks have been killed.

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Re: What does a bubble look like? Tesla/social(Facebook) discussion topic
« Reply #7 on: April 29, 2014, 03:05:19 PM »
Wow, Tesla has a market cap of 25 billion? I mean Ford's market cap is 63 bn. I don't know though, maybe Tesla will become more valuable than Ford in ~10 years and you'll triple your money. I'm with grant - my index portfolio won't be changing its position in TSLA. I may buy one of their cars in the future though.

Cecil

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Re: What does a bubble look like? Tesla/social(Facebook) discussion topic
« Reply #8 on: April 29, 2014, 04:10:55 PM »
I think there's a bubble in calling bubbles.

soccerluvof4

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Re: What does a bubble look like? Tesla/social(Facebook) discussion topic
« Reply #9 on: April 30, 2014, 06:48:26 AM »
New tech and social media companies are nothing more than information aggregators driven by advertising that have been insanely overpriced.

Twitter, as measured by its short interest, is among the most hated. There is a reason why investment bankers priced its IPO only a few dollars more than the initial indication -- they couldn't get a higher valuation.

Twitter may be a great platform and concept, but the brain power and luck it will take to make it a sustainable $10-billion-plus company will be greater than what it took to create it from scratch.

Despite the recent drop in the Nasdaq, Facebook (FB) still possesses a $140 billion market cap. Twitter's capitalization exceeds $24 billion. LinkedIn (LNKD) trades at a market cap of more than $19 billion and a cool 750x earnings. Salesforce (CRM), which has been an awful stock, still has a $32 billion market cap (with financial statements that belong in the clouds because they are so damn confusing). Tesla (TSLA), down $60 from its high, is still priced as if gasoline won't have a commercial use in five years. Zillow (Z), although its commercials are touching, is priced at 20x sales, and last time I checked, it sells advertising and subscriptions. Then there is Yelp (YELP), a collection of restaurant (and other) reviews, clocking in at 20x revenue.

Bottom line: Avoid the whole social media space and cover your ears when talking heads, people in flip flops with MBAs and those walking into traffic on their smartphones tell you otherwise

WillPen

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Re: What does a bubble look like? Tesla/social(Facebook) discussion topic
« Reply #10 on: April 30, 2014, 07:57:43 AM »
I will admit -- Early last year I jumped on one of those momentum stocks and caught it at a low price. I keep index funds at the core of my investments but sometimes if I find what I perceive to be a value, I will act on that too (just to make a little extra cash). I bought some 3D systems in the mid 30's as a long term holding. I watched it go up over $100 a share. As outrageous as that was, I held. I was going to keep emotions out and stick to my plan. Then I watched it plummet back down to $45 or whatever it is now. I'm still sitting on a modest gain and sticking to my plan, but I will admit this is not a fun ride.

hatersgonnahate

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Re: What does a bubble look like? Tesla/social(Facebook) discussion topic
« Reply #11 on: April 30, 2014, 03:18:00 PM »
I am utterly convinced that we're seeing a bubble in Tesla and in Facebook and other "social" websites. I was wondering what other people think of the issue. I am also utterly convinced I don't have what it takes to short them, as shorting isn't in my constitution(plus the market will stay irrational far longer then I can stay solvent).

For Tesla, I see a "price doesn't matter" attitude toward the risk/rewards prospect of the stock itself(I'm a fan of the company, not the stock), as well as insane levels of hero worship towards Elon Musk, the coolest/best IRL Tony Stark around(ok, a nice counterpoint to Richard Branson). I understand that it's disruptive(electric, no dealership) but this is ****ing insane.

For Facebook, I see insane price targets from analysts, unsustainable growth targets, decreased usability and increased creepiness of the company(In Soviet Russia, Deepface friend you!), as well as a ridiculous M&A strategy(which makes me think that maybe Zuck knows exactly how overvalued it is).

I haven't been following other news on Twitter or other stocks.

If Tesla becomes a 100B car company in the next 20 years there is no bubble.

If other car companies out-compete Tesla with economies of scale in the next 20 years then there was a bubble.

It depends on what happens and nobody knows what will happen.

bwall

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The safest way to play the anticipated drop in a stock(bubble) is buying puts.  Downside is limited and upside is almost the same as a short.

soccerluvof4

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To my points above

Twitter = shitter!

soccerluvof4

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Worshiping at the altar of price works -- until it doesn't. New tech and social media companies are nothing more than information aggregators driven by advertising that have been insanely overpriced.

Twitter (TWTR), as measured by its short interest, is among the most hated. There is a reason why investment bankers priced its IPO only a few dollars more than the initial indication -- they couldn't get a higher valuation. Twitter may be a great platform and concept, but the brain power and luck it will take to make it a sustainable $10-billion-plus company will be greater than what it took to create it from scratch.

Despite the recent drop in the Nasdaq, Facebook (FB) still possesses a $140 billion market cap but is down 11$ from mid February to May 5th. Twitter's capitalization exceeds $24 billion. LinkedIn (LNKD) trades at a market cap of more than $19 billion and a cool 750x earnings. Salesforce (CRM), which has been an awful stock, still has a $32 billion market cap (with financial statements that belong in the clouds because they are so damn confusing). Tesla (TSLA), down $60 from its high, is still priced as if gasoline won't have a commercial use in five years. Zillow (Z), although its commercials are touching, is priced at 20x sales, and last time I checked, it sells advertising and subscriptions. Then there is Yelp (YELP), a collection of restaurant (and other) reviews, clocking in at 20x revenue.


 
« Last Edit: May 07, 2014, 07:25:55 AM by soccerluvof4 »

Roland of Gilead

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I will point out that MONIF trades at 12x revenues, which is still pretty expensive.  :-)

soccerluvof4

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Furthermore the bubble is bursting-

Buoyed only by currency gains.
It was another poor-quality earnings report from Tesla (TSLA) with a $6.7 million currency gain buoying results. Much like last quarter's warranty reversal, the company would have missed earnings relative to consensus.

AMustachianMurse

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1. There is a bubble in the IPO market in which 75% of the deals brought to market in 2014 are not profitable.

2. There has been a bubble in the social media sector in which stocks are being valued on the notion of addressable markets -- much like back in 1999 when Internet stocks were priced relative to eyeballs. As an example in how the the momentum names' popularity has been embraced, there was a bubble seen in Tesla's (TSLA) ability to sell $2 billion of converts a about two months ago after a fourfold increase in its share price. The convert was priced with an interest rate of only 50 basis points and demanded a 40%-plus conversion premium due in 2019. Those terms were nuts, and the current price of the convert reflects the stupidity of the offering's buyers -- and is well below its offering price now.

3. There is a bubble in the belief that the Fed's quantitative-easing policy is sufficient by itself to generate a self-sustaining domestic economic recovery.

4. There is a bubble in credit:

in a recent offering in Greek bonds;
in Spanish and Italian yields converging with U.S. yields;
in investment grade spreads at +100 basis points over;
in high yield spreads at +340 over Treasuries, which is within 100 basis points of May 2007, but more importantly, yields are 200 basis points lower than in May 2007 because of where Treasuries are trading;
we are even seeing covenant light loans now are at 2x rate of issuance as they were in 2007.


5. There is also a bubble in the amount of debt as a percentage of global GDP that is held by the world's major central banks (that should cause exit concerns).

6. There are certainly excesses and bubbles in China's banking and shadow banking industries, as well as how many hundreds of trillions of derivatives notional outstanding exist.

7. Finally, there is a bubble in buybacks. Goldman Sachs reports that March 2014 was the busiest March on record, with $73 billion in buyback authorizations. For the first quarter, we saw 291 authorizations at a value of $197 billion. We are now on pace for $719 billion in authorizations for 2014, third most ever behind 2013 and 2007. We all know that corporations typically buy high and sell low. The last time we saw this rush to buy was 2007, the year the market peaked.


Short Tesla or be in Index funds. I chose the latter..

I read your post, nodded my head, said out lout mmhmm, mhmmm....then realized I had no idea what most of the acronyms you were referencing even stand for, much less the concepts they represent.  I'm assuming you had an education in finance in college/profession.  I'm in the medical field so I have absolutely no working knowledge of any of those concepts.  I would love to be a resource for people in my field that is more advanced than "Put it all in index funds."  Are there any comprehensive free-online courses where I could turbocharge my education in this field?  I am extremely motivated and when I get my targets set on something, I gobble up information and hold on to it forever.  Do the KhanAcademies/MIT Open Courseware/etc. places have anything along the lines that you would recommend?

hodedofome

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I read your post, nodded my head, said out lout mmhmm, mhmmm....then realized I had no idea what most of the acronyms you were referencing even stand for, much less the concepts they represent.  I'm assuming you had an education in finance in college/profession.  I'm in the medical field so I have absolutely no working knowledge of any of those concepts.  I would love to be a resource for people in my field that is more advanced than "Put it all in index funds."  Are there any comprehensive free-online courses where I could turbocharge my education in this field?  I am extremely motivated and when I get my targets set on something, I gobble up information and hold on to it forever.  Do the KhanAcademies/MIT Open Courseware/etc. places have anything along the lines that you would recommend?

Generally I would recommend to folks that just want to touch their investments no more than once a year, to read stuff by William Berstein, John Bogle, Rick Ferri, Larry Swedroe, David Swensen, and others. Unfortunately (or fortunately), 'putting it all in index funds' is the best that most people can do. And it's the best advice you can give most people. They should spend their research time figuring out an intelligent asset allocation, and then get on with their lives to make as much money as possible to put into their portfolio.

But if you are curious, and you want to get a little more advanced, Mebane Faber writes some good stuff that's easy to understand. The Ivy Portfolio, his relative strength research papers on SSRN, Shareholder Yield and Global Value are all good books.

If that's still not enough for you, and you want to really go down the rabbit trail of active investing/trading (assuming you've already gone through the basic investing books above), then here you go:

Talent is Overrated by Geoff Colvin - this will tell you the effort you'll need to give to be the few % that actually can outperform the market

Michael Lewis and Jack Schwager are both good authors that cover the industry as a whole and make for entertaining reads, especially Schwager's Market Wizards books.

Value Investing authors:
Benjamin Graham
Philip Fisher
Joel Greenblatt
Whitney Tilson
Peter Lynch
Warren Buffett's letters to shareholders
David Einhorn

Growth/Momentum stock trading authors:
Jesse Livermore
Nicholas Darvas
William O'Neil
Martin Zweig
Stan Weinstein
Mark Minervini

Trend Following/Global Macro authors:
George Soros
Michael Covel (his podcast is fantastic and has a variety of guests - economists, psychologists, authors, entrepreneurs, traders, value investors, portfolio managers etc, I'd recommend listening to all the past episodes)
Andreas Clenow
Curtis Faith

Trading/Investing Psychology authors (this is actually the most important):
Brett Steenbarger
Mark Douglas
Van K Tharp
Ari Kiev

Technical Analysis/Chart Pattern authors:
Robert Edwards/John Magee
John Murphy
Steve Nison
Jeffrey Hirsch
Robert Prechter
Peter Brandt
Alexander Elder
Thomas Bulkowski

That should be enough reading for the next couple of years...

grantmeaname

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If you want to learn about how to manage your investments "put it all in index funds" is approximately all there is to it. If you want to learn about financial markets - go here and follow this course. I learned more from it than my real finance coursework.

birdman2003

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I will admit -- Early last year I jumped on one of those momentum stocks and caught it at a low price. I keep index funds at the core of my investments but sometimes if I find what I perceive to be a value, I will act on that too (just to make a little extra cash). I bought some 3D systems in the mid 30's as a long term holding. I watched it go up over $100 a share. As outrageous as that was, I held. I was going to keep emotions out and stick to my plan. Then I watched it plummet back down to $45 or whatever it is now. I'm still sitting on a modest gain and sticking to my plan, but I will admit this is not a fun ride.

Same as me.  Not a fun ride, but I have to wait on them with a focus on the future.

DoctorOctagon

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Both TSLA and FB are speculative bubbles.  TSLA more so (valued 25 times higher than it should be) than FB (valued 5 times higher than it should be).

TSLA

Tesla's valuation is 97.5% speculation, 2.5% intrinsic when compared to how the market values established automakers, in terms of their fundamentals.  They aren't offering the world products that can't be built more cheaply with higher quality by other established auto makers.  There is no competitive moat in terms of their products for sale.

From a service perspective, they also lack potential.  The disruptive business model of offering dealershipless car sales doesn't make sense knowing how people shop for vehicles.  Americans LOVE to test drive vehicles and try out 5-6 different models when they shop.

From a service perspective, buying from a dealer-based auto business makes sense long-term from a service standpoint, as you always have the guarantee of above-average service from the manufacturer at your fingertips with little driving distance.

I could see Tesla doing reasonably well if they offered SuperCharger stations, but even this is limited and won't give them a competitive moat advantage - other auto makers could just build electric vehicles that plug into their charging station.  If Tesla doesn't want to share the technology, a third party manufacturer will develop a snap-in that works in its place allowing competitor's vehicles to use their stations.

Looking at the business's current market valuation relative to earnings/revenue, Tesla is currently valued by the market at the same level as established car makers that build and sell 25 times as many vehicles as Tesla annually and as public businesses are phenomenally profitable right now relative to their share price (P/E under 9 for most of them).

As a value investor, Tesla is the last business on my list of things to buy.  If given the choice between spending $30,000 on a new car or on Tesla stock, I'd get the car, and it would be a brand new Subaru WRX - unlike TSLA, I can pretty much guarantee 5 years from now I'd be able to sell it for at least $5,000.

Disclosure - I don't own TSLA


FB

I see nothing terribly wrong with owning FB - plenty of earnings growth, ad-based internet business, etc - just not at its current price, it's probably worth 1/5 what people are paying for per share.  Its current valuation makes sense if FB monopolized the entire internet advertising business, which is a highly speculative thing and not looking good at the moment given stiff competition from google.  Social media IS facebook and it's a huge competitive moat, just as google's gmail IS free email - again with a huge quality moat.  Facebook would be a great buy if you accept the 80%+ downside potential.  A better buy would be GOOG/GOOGL, but suit yourself.

Disclosure - I don't own FB
« Last Edit: May 14, 2014, 03:30:20 PM by DoctorOctagon »

warfreak2

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Looking at the business's current market valuation relative to earnings/revenue, Tesla is currently valued by the market at the same level as established car makers that build and sell 25 times as many vehicles as Tesla annually and as public businesses are phenomenally profitable right now relative to their share price (P/E under 9 for most of them).
I think you aren't distinguishing between speculation and a speculative bubble. Tesla's high stock price must at least partly reflect speculation that they will expand, make and sell cars at a higher rate, and introduce new better models.

A bubble is what happens when people buy thinking that the price will go up, simply because other people will buy thinking the price will go up. It's pretty clear that there are other reasons that investors expect returns on Tesla, and while it could also be partly a bubble, your analysis doesn't establish that.

avongil

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You might want to ride in a Tesla to see what all the hype is about.  If they actually do make a breakthrough and mass produce a $35K 200 mile range vehicle for the masses, there is no competition. There will be no bubble. 

It's too risky for me, but I did purchase 5K of TSLA yesterday.  I know I know... a gambling man.  I feel the product is incredible - analyses all you want, I purchased on emotion because I love the product and feel it took a dump on Friday.

grantmeaname

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Looking at the business's current market valuation relative to earnings/revenue, Tesla is currently valued by the market at the same level as established car makers that build and sell 25 times as many vehicles as Tesla annually and as public businesses are phenomenally profitable right now relative to their share price (P/E under 9 for most of them).
Okay, but what makes that necessarily irrational? Why are you certain that it's wrong to expect that Tesla's revenue will grow faster than Chrysler's?

avongil

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Anything can happen. Look at GM.  I would bet on any company that Elon Musk has control over.  Waiting patiently for SpaceX IPO.

SDREMNGR

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Talent is Overrated by Geoff Colvin - this will tell you the effort you'll need to give to be the few % that actually can outperform the market

Michael Lewis and Jack Schwager are both good authors that cover the industry as a whole and make for entertaining reads, especially Schwager's Market Wizards books.

Value Investing authors:
Benjamin Graham
Philip Fisher
Joel Greenblatt
Whitney Tilson
Peter Lynch
Warren Buffett's letters to shareholders
David Einhorn

Growth/Momentum stock trading authors:
Jesse Livermore
Nicholas Darvas
William O'Neil
Martin Zweig
Stan Weinstein
Mark Minervini

Trend Following/Global Macro authors:
George Soros
Michael Covel (his podcast is fantastic and has a variety of guests - economists, psychologists, authors, entrepreneurs, traders, value investors, portfolio managers etc, I'd recommend listening to all the past episodes)
Andreas Clenow
Curtis Faith

Trading/Investing Psychology authors (this is actually the most important):
Brett Steenbarger
Mark Douglas
Van K Tharp
Ari Kiev

Technical Analysis/Chart Pattern authors:
Robert Edwards/John Magee
John Murphy
Steve Nison
Jeffrey Hirsch
Robert Prechter
Peter Brandt
Alexander Elder
Thomas Bulkowski

That should be enough reading for the next couple of years...

Thanks for the reading list.  I've read some of these guys but the added list should keep me busy for a while.

avongil

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Update:

Purchased, $4200 of TSLA last Friday. Sold yesterday for $4,900.
I think unless something unexpected happens, this company will skyrocket when the more main stream sedan come out in 3 years or so.  Right now, I think it's an easy short term money maker.




Khan

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Update:

Purchased, $4200 of TSLA last Friday. Sold yesterday for $4,900.
I think unless something unexpected happens, this company will skyrocket when the more main stream sedan come out in 3 years or so.  Right now, I think it's an easy short term money maker.

Do you know how detached from fundamental earnings the TSLA stock is? I am cautiously optimistic about the company.

But the stock? **** no.

avongil

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No way. I'm just a foolish investor, i got in and out like an addicted gambler.  I still like the product.