Yesterday evening I was watching Uncut Gems on Netflix when a friend texted me:
F: Are you looking at Tesla?
Me: Did it break $700?
(Narrator: it closed at $780)
This is what it looks like:
Previously, on Tesla: in August 2018 Musk twitted the now infamous ‘funding secured’, announcing he wanted to take Tesla private because he was dissatisfied by the market valuation of his company. His target was $420/stock and everyone thought he was crazy (well, everyone except Tesla stans); in fact, Tesla had never reached any of Musk targets in the past and lot of money managers were shorting the stock. Despite multiple executives left the company in a short period of time, things started to turn for the better, targets were met and the mother of all short squeezes started. But I think no one was expecting this.
As I am writing, Tesla market cap is $140bio, more than Ford, GM, FCA and PSA combined; internet is full of these stats, so I will stop now, but still, pretty wild! Curiously enough, the short squeeze of the century involved another car-maker, Volkswagen in 2008. Back in 2005, VW was facing bankruptcy and the only way the German Government found to save the company was to ask Porsche help; Porsche, a way smaller company, replied jawohl! and started to accumulated VW shares, slowly but steadily. Fast-forward 3 years, the world is in the midst of the Great Financial Crisis and VW shares climbed to 200 from 30; hedge funds thought the company was overvalued (sounds familiar?) and started to short, heavily, borrowing shares from Porsche, which in turn was buying back the shares it was lending. When Porsche announced it owner 75% of VW, with the remaining 25% in the pocket of the Bavarian state, the hedge funds had no where to go to buy back the shares they owned to Porsche…other than Porsche itself, who was now able to set its own price:
For a brief moment, VW was the biggest company by market cap in the world.
What is happening?
As for other similar cases, no one really knows…other than there are more buyers than sellers. Tilray last year did something similar, lot of (retail) investors were bullish on the future of legal cannabis and the stock exploded:
As you can see, when there was no one left to buy, the stock started a slow but inexorable descent towards reality. I talk about retail investors because I found this chart on Twitter: pink line is Tesla price (LHS) and green line is the number of Robinhood accounts holding the stock at each price point (RHS).
As you can see, the correlation is quite glaring…but remember that correlation and causality are not the same thing.
And here is Tesla vs Bitcoin:
If you go back and read the news while the above were running higher and higher, you will find people rationalising every step up, like it is happening now for Tesla: it is a tech company not a car manufacturer, its technology is way ahead competition, Musk is a genius, etc etc. It is impossible to say when is going to end (probably not today, since it already opened at $880), what is sure is that these events never ends on a high ‘plateau’ but usually revert back down almost as fast as they went up. Can it reach $1000? Sure. $1500? Why not. The moment it passed $400, to pick a number, all ‘logical’ arguments went out of the window and we entered in a dimension where figures are way less important then emotions.
I am not saying that is impossible that in a year, or five, the stock will be at today level or above, I just want to stress that if you are buying today you are driven by your emotions…and rarely those decisions end up well.
…or post in below section a picture of the car you bought with today gains 😉
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