Tesla’s stock the next Amazon?

NASDAQ:TSLA NASDAQ: TSLA tesla tech stock gross margin percentage tesla Inc shorts Tesla's record marketdominickvietor / Pixabay

Whitney Tilson’s email to investors discussing heroes get slaughtered; his Tesla calls; why Tesla’s stock is so volatile; Amazon-Tesla comparison; want to know the secret to staying fit forever?

Wild Gyrations In Tesla’s Stock

1) It’s absolutely fascinating to closely follow the wild gyrations in Tesla’s stock – as well as the underlying company and the mad genius CEO behind it, Elon Musk.

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But that doesn't mean I need to have a position in the stock. It remains in my "too hard" bucket, for reasons I outlined in detail in my January 30 e-mail.

Everyone else seems to have an opinion on TSLA, and is making big bets, long or short, trying to be a hero.

In my experience, heroes usually get slaughtered.

You don't need to be a hero!

The beauty of value investing is that you don't need to have more than a few opinions a year – and can simply avoid the hard ones.

Wisdom and humility are what you need to be a successful investor in the long run.

Criticism From Readers

2) Some folks are criticizing me for being wrong on TSLA, but let's review the facts.

I thought the stock was a layup on the short side last March, when the stock was at $295 – and said so very publicly.

I was right for three months as it fell to $178.

Then both the company and the stock turned around.

After Tesla surprised nearly everyone by reporting a profit in the third quarter, I realized my short thesis might be wrong... so I moved it into my "too hard" bucket (coincidentally, also at $295). I told my readers it was a bad short, and why I had changed my mind, in my October 24 e-mail.

Everyone gets a few stocks wrong on occasion – that's common. What's rare – and generally only comes from many years (or even decades) of experience – is the ability to see that a situation has changed and act accordingly. And it's even more rare to do so in the public spotlight.

There are plenty of stocks for which I'll do a walk of shame – but this isn't one of them...

Tesla-Amazon Comparison

3) For more insight on why Tesla's stock has had such a parabolic move to the upside, I first turned to my colleague Enrique Abeyta, who publishes a weekly newsletter: Empire Elite Trader (click here for a free 30-day trial). We've made his comments on Tesla, which he compares to Amazon (AMZN) in the early days of the Internet, available to Empire Financial Daily readers here. Excerpt:

Many investors and pundits are saying that they have never seen anything like the price action in the Tesla's stock.

We have, though... Think back to the dot-com bubble, which ran from the mid-1990s through the peak in March 2000 and then subsequently crashed the market.

The analogy we would make here is that "Internet 1.0" reminds us of the current situation for electric vehicles ("EVs") and self-driving, autonomous vehicles ("AVs").

In 1995, the Internet existed with all of the technology necessary to power it having already been invented. It was only a matter of time and development for its full promise to play out in the economy.

In the beginning, though, few stocks were really "pure plays," and the economic reality wasn't there yet. These stocks had massive runs higher as a result of their scarcity value. They also traded at extreme valuations relative to their current economic earnings, given the early stages of the Internet at that point. Does that sound familiar to anyone?

AVs vs EVs

We think that AVs and EVs will be as transformative for the global economy as the Internet (or the internal combustion engine, for that matter) was in the '90s... And we believe that where we are right now is the equivalent of 1997 or 1998 in that progress.

By that time in the late '90s, we knew the Internet was for real... and a few stocks were absolutely flying. One of the lead horsemen of Internet 1.0 (and indeed, the Internet today!) was e-commerce giant Amazon...

The company's stock went ballistic in the first week of December 1998... and in the next month, shares skyrocketed from around $30 to an intraday high of almost $100. The stock quickly backed off from those levels, but would go on to test (and break) them a couple more times before heading lower into the burst of the Internet bubble...

Does the massive run-up sound familiar? We don't think this is exactly what will happen with Tesla's stock, but we sure can see the rhyming here.

The AV and EV revolution is setting up to be very similar to the Internet's rise. Today is looking like 1998 with some tremendous returns ahead of us. Here in the beginning of this tipping point toward that revolution, we will see some incredible volatility... and investors who trade wisely and position themselves accordingly will benefit greatly from it.

Thank you for sharing, Enrique!

Tesla's stock and technicals

To understand the technicals behind the move, Enrique recommends this video, which explains:

The rally in TSLA is NOT a vanilla short squeeze.

It's a convexity squeeze, driven by a broken options market.

This video will show you how more fuel is added to the fire, when the stock will break, and how this is VERY SIMILAR to the crash in XIV back in 2017.

Lastly, I found this article by Bloomberg columnist Matt Levine insightful: Tesla Has Some Wild Times (he's one of my favorite business writers... You can sign up for his daily newsletter here).

I'll add one other theory: While Levine points out that the entire float – excluding shares held by Elon Musk – traded in the first three days of this week, that's not really what happened.

This is the ultimate cult stock, so I suspect that a large percentage of TSLA shares are owned by people who will never sell, almost irrespective of how high the price goes. Forced to pick a number, I'd say two-thirds of the stock is in such hands – people like Ron Baron of Baron Capital (who just said Tesla could generate $1 trillion in annual revenue within a decade), Catherine Wood of ARK Invest (who has "very high confidence" that the stock will hit $7,000 within five years), Arne Alsin of Worm Capital (I included a link to his fourth-quarter letter in my January 21 e-mail), and countless individual investors like my analyst Kevin DeCamp (who has owned it for years and says he's holding until it's his first 100-bagger).

Having so much stock effectively out of the market means that relatively small increases in demand for the stock – much less the huge increases we've seen recently – has an outsized impact on the share price...

Best regards,

Whitney

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About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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