I took some profits in my Tesla ($TSLA) position yesterday for the first time in 7 years. Technically, this was my second time taking profits, but the last I rolled my profit into Solar City ($SCTY), which was acquired by Tesla a year later.
Tesla’s share price was up over 50% on the week and up over 100% since the beginning of the year. This after a decent 30%+ gain in 2019. To me, the last week of action was an obvious “short squeeze” situation, making it a good time to take profits.
Another thing on my mind was the fact that Tesla stock is now about 10% of our net worth (minus the value of our business) and about 20% of my stock holdings across all of my retirement and brokerage accounts. I’m not too too worried about this. As Warren Buffet once said “If you have LeBron James on your team, don’t take him out of the game just to make room for someone else. … It’s crazy to put money into your 20th choice rather than your first choice.” Tesla is the Lebron James of my investment accounts.
Lesson 1: Don’t forget Main Street. Build Real World Models of How The Businesses Behind Your Stocks Make Money.
It’s easy to get caught up in the numbers and calculations of Wall Street. What’s a good PE ratio for a certain sector? This company has grown sales at 50% per year and could continue growing 50% per year for the next 5 years. This kind of math is useful for comparisons and valuations, but you want to make sure you take a step back and think about what that company looks like in the real world (Main Street) after growing revenues 50% for 5 years. Is that REALLY possible?
At the time I built my simple model spreadsheet for Tesla, there were many people talking about how a valuation in the tens of billions of dollars didn’t make sense for a company like Tesla. Traders who were short the stock talked about how Tesla could never make enough money to justify their share price. But when I put my spreadsheet together, I found that if Tesla could sell 500k cars, they’d likely make $28B in revenue, which would justify a stock price as high as $517. If Tesla only got halfway there, they’d be worth much more than the $200 or so they were trading at in 2016.
To calculate in the risk of bankruptcy or larger failure, you would want to discount the price targets of the model to account for this, but we were already assuming Tesla would only hit 50% of their target, never grow past that, and never make money off their other business lines.
I’ve updated this model a couple times, most recently today. The current tab indicates a future share price of $494 if Tesla can hit about 392k cars sold this year. This is BELOW the current price of $734. And so I am much more comfortable selling Tesla stock when it’s trading above the values my models are spitting out.
Again, while I’ve updated the model to account for energy sales and service revenue, it assumes no growth in car manufacturing or those other business lines. If you plug in different numbers for where you expect Tesla to be 5 years out, you’ll get different targets.
I was also reminded of another important investing lesson:
Lesson 2: Stock Prices Go Up Even When Companies are Not Yet Profitable
Many investors have shied away from investing in Tesla because they feared the company would never turn a profit and thus eventually run into cashflow problems. Not even eventually, Tesla’s investments into the Giga Factory and in general have required them to raise money through special stock sales a few times in the past. Each time this happens, the value of your Tesla stock is diluted.
If you wait for a high flying companies to turn a profit before investing, you might be waiting a long time and miss out on huge returns. Another big winner in my portfolios has been Amazon, who famously hit almost exactly $0 profit each year for most of its existence. Only recently have they been showing a profit, and I would guess Bezos and Amazon would invest more to avoid that profit if they had things to invest in. (Or I don’t know, maybe they think they need the cash now.)
In any case, if you waited for Amazon to turn a profit, you missed a large gain from a well run company that is changing the world. The same can be said for Tesla. So how do you invest with confidence in a company that makes no profit? Here’s what I do.
First, I focus on revenues. As long as revenue is growing or likely to grow from current investments, I feel the companies stock is likely to grow in value as well. I lean toward valuation calculations based on revenue.
Second, I think about whether the company will be able to switch their focus from revenue to profits when they want to later. Will Amazon or Netflix be able to raise their prices? Will Tesla be able to lower their production costs? I tend to give these companies the benefit of the doubt unless there are very obvious concerns about this. You can choose to focus on the negatives, like when Tesla was forced to build cars in tents in the parking lot. Or you can focus on the positives that will drive higher production speed and higher sales margins. Things like removing purchase options that slow down production and figuring out the right mix of automated and human-powered labor will improve Tesla’s bottom line.
With more and more people switching to electric cars, Tesla continuing to own the electric car market, Tesla ramping up production in its existing factories and planning on building even more factories, the Model Y coming out soon, and so much potential in their other products… Tesla is set to potentially become a very large company making a lot of money. Tesla stock has generated a lot of returns for its investors and has a grand enough vision to continue doing that. That said, while the stock is temporarily inflated from a short squeeze, I booked some profits. Tesla is still a large percentage of my investment accounts, and I will continue to try to add to my position if and when the stock’s price falls below my fair value calculations.
All Montessori Schools are a little different, so make sure you check out the particular school you are looking at. We’ve seen some that are too preppy and focused on grades (which aren’t even a Montessori thing), or just really small and quiet/depressing.
One of the main benefits is individualized learning. Each student goes at their own pace in each subject area. Smarter kids are given higher level work as they are ready for it. Kids struggling with particular subjects are given more time to get through it.
The individualized learning is also useful if you travel a lot during the school year. We can take our kids out for 1-4 weeks at any time, and when they come back, they just pick up where they left off. They haven’t missed Chapter 12 and won’t fall behind in their classes.
I think Montessori is particularly good for younger, pre-school aged children. They really teach a level of independence that other schools don’t. Montessori kids are using scissors, and getting their own food, and helping to clean up, and all of that kind of stuff a lot earlier than non-Montessori kids.
Depending on the school, children are in classrooms with older and younger kids. Our school has two pre-K/K classrooms, one 1-3 classroom, and 4-8 classroom. They also might have the same teachers year after year, which is good as the staff really gets to know your particular kids and their needs.
Some of the benefits taper off as the kids age. You probably want a PHD teaching your kids Physics in a more college-like setting. At the same time, Montessori is good for addressing the emotional needs of pre-teens and teenagers. It’s a relatively safer environment than typical public schools. I’ve found the Montessori staff more open to address the emotional growth of our children along with the academic growth.
If you are comparing a private Montessori school vs a public school, there is also just a huge difference when you are paying a private school. You are a customer and they will listen to you and generally do more for you to keep you as a customer. What might take an independent education plan (IEP) and 6 months of back and forth meetings in a public school, is usually just one meeting with a private school.
I’m bullish on Bitcoins, from a price perspective and also from a technology perspective.
Like many out there, I’m kicking myself for not jumping on the bandwagon sooner. I remember when they were $5 and I was first reading about them. I remember when they were less than $1 per coin, and my office computer could mine about 1 per week, thinking it wasn’t worth the electricity cost. I remember wanting to buy 200 of them at $10 each as a speculation play with our InvestorGeeks ad money, and then wanting …
My Mom asked me about Bed Bath and Beyond recently. She used to be a store manager there. She sold her stock a while ago (missed that big up swing) but thinks there may be a buying opportunity now. I also owned some way back and sold after a small gain, missing most of the big 2-3 year rally here.
Anyway, here is my analysis and response to her. (The spreadsheet I refer to is one based on Phil Town’s Payback Time book you should be able to find on his …
Netflix lowered their subscriber numbers for the year last night, leading to a big 14% drop in the stock price today (so far). Fellow InvestorGeek Chris texted me asking if I’d be buying Netflix in the 50s.
I personally won’t be buying any $NFLX stock today, but only because I already own a lot of Netflix stock int he $60s. I have too much tied up in $NFLX already to add to my position.Â Though I may buy in more later this year, early next, as I fund my account and if …
Unless your business is website design or something else in the arts, you donâ€™t need a beautiful website. A nice looking website is a bonus, but make sure youâ€™re working towards a functioning website instead of something that will look great printed out and framed on your wall.
Oftentimes when going over design mockups or newly updated websites, youâ€™ll find yourself leaning back in your chair and staring at your homepage for a minute or two taking it all in.
Stop it! No one browses the web this way.
If you think of your website as a work of art, you surely will find little things here and there that might be smaller or larger or a little bit to the right. Resist the urge to do this.
If you know the primary goal of your website (see post #1), make sure the design focuses on that goal. Focus your design feedback on how well the design enables sales, mailing list sign ups, contact requests, etc.
As for website design, hire an experienced web designer at a decent rate and trust their instincts for what looks good.
If you hassle your designer with a lot of feedback on what â€œlooks goodâ€, they are going to shut down and move into â€œcode monkeyâ€ mode where they just code up whatever requests you have. Unless you are paying bottom dollar (in which case you get what you pay for) you are wasting money by paying designer rates for code monkey work.
More importantly, micro managing a code monkey will not get you as good of a website as one where you control the vision via a strong primary goal, and an experienced designer controls the particulars of the siteâ€™s look and feel.
I’ll be speaking at WordCamp Philly coming up October 20th and 21st this year. Would you like to join me? Do you want to mingle with the smartest folks working on WordPress in the Philly area and beyond? Are you a little strapped for cash and balking at the $20-$25 tickets?
Well have no fear. We’ve raised enough money via CharityGoal (runs on WordPress, show it some love) to provide scholarships for 4 attendees to this year’s WordCamp Philly. Big thanks to Scott Kingsley Clark who donated on behalf of the Pods Framework.
One Saturday or Full Weekend Pass (your choice) to WordCamp Philly, October 20th and 21st 2012.
Make sure you are available to attend. Did I mention the conference is October 20th and 21st, 2012?
Write in the comments here or by email (a) how you would benefit from going to WordCamp Philly, and (b) why we should pick you over the others trying.
Optionally, send out a tweet thanking @Jason_Coleman and @ScottClark for the opportunity.
I will pick four lucky winners by October 1st and announce them here.