The following post is from an email which Whitney Tilson sent to investors. It appears that Tilson has thrown in the towel on shorts – he also discusses HHC and compares and contrasts TSLA and Netflix.
1) Howard Hughes (HHC) has been my largest position for a few years and I bought more recently after it pulled back due to concerns about the possible impact that the decline in oil prices might have on the company’s two properties in Houston. Blogger and analyst Todd Sullivan did a nice job addressing this in particular and, I general, showing how cheap the stock is in the attached presentation that he gave last week at the Boys and Girls Harbor conference.
2) Last week, I sent this email to some friends comparing Netflix and Tesla (neither of which I have a position in):
Amazing how similarly TSLA is playing out so far just like NFLX did.
We shorted NFLX well below $100 and watched it skyrocket to nearly $200, at which point we re-evaluated our short thesis and decided the business and management were far superior to what we’d initially thought and thus decided it was a bad short and covered.
We felt very smart as the stock soon skyrocketed to over $300 – and then felt like total idiots as everything we’d predicted in our short thesis came true and the stock just as quickly collapsed to under $100 (finally bottoming at ~$53).
But having developed an appreciation for the business by being short it, we figured out how cheap it was at the bottom, bought it, and it turned into our most successful investment ever, returning nearly 9x in 18 months!
With TSLA, I was dumb enough to short it in the mid-$30s, took enormous pain until I FINALLY realized it was a bad short and covered at $205. It sure felt like the right move as the stock continued to rocket until nearly $300, but now the stock is back to $202.88.
Here’s hoping that, like NFLX, it falls to $53 and I can load up!
Links to various articles and a presentation that cover our history with NFLX are at:
- Why We’re Short Netflix (12/16/10)
- Netflix CEO Reed Hastings Responds to Whitney Tilson: Cover Your Short Position. Now. (12/20/10)
- Why We Covered Our Netflix Short (2/11/11)
- Why We’re Long Netflix and Short Green Mountain Coffee Roasters (11/13/11)
- Netflix slides, Value Investing Congress (10/1/12)
I got a lot of flak from some fellow short sellers who remain short TSLA, who think it’s not a valid comparison, so I sent around this follow up:
I agree that NFLX has a MASSIVELY better business model: an inexpensive (30c/day), addictive product, recurring revenues, no inventory, no A/R, can scale globally pretty much just by flipping a few switches, etc. And the valuation got down to $3 billion at the bottom!
So I’d never in a million years consider going long TSLA at even half today’s price. But that doesn’t mean it’s a good short. Yes, it’s a tough industry and the valuation is high, so they have to draw a few inside straights in a row – but I lost 5x my money when they drew a bunch in a row against me, so why would I want to bet that they’re going to stop doing that? My cousin, a Stanford engineer, says they have the best engineers in the world – and put me in touch with two of them, who convinced me that he’s right.
Do you really want to bet against the world’s smartest engineers, who’ve over and over again defied the odds – what they’re done to date at Tesla ranks as one of the great engineering feats of all time in my opinion – in one of the largest industries in the world, competing against lumbering behemoths, with a product that is, in many ways, massively superior to anything else that’s out there, with a technology lead of six years (according to the engineers I spoke with)??? Remember, the iPod initially sort of sucked and sales in the first years were barely detectable (see this chart) – and look what happened.
So, yes, the valuation is a stretch and it’s not a good long, but this is a BAD SHORT. Compare it to DDD (which, alas, I am no longer short – but would be if I hadn’t mostly exiting the shorting business last October) – all the stock and business momentum is gone, the products are mostly crap, yet it still trades at 5.3x revenues, 37.9x EBITDA and 166x trailing earnings.4
HHC presentation here HHC-Todd Sullivan-Harbor conf-2-12-15