Posted by: Simon Lack | May 16, 2013

Markets as Theatre

Financial markets are not totally devoid of entertainment value. Sometimes a spectacle unfolds that can rivet one’s attention, rather like a movie in which the reckless driver who’s been handling his car aggressively takes one risk too many, causing his shiny sports vehicle to careen off the road and into the valley below.

This must have been the expectation of the shorts who sold 44% of the outstanding shares in Tesla (TSLA); that the company was over-hyped, relied on unproven technology and was doomed to fail taking its Hollywood investors with it. So imagine the wide-eyed horror of the unwitting passengers on TSLA’s current moon shot as they assess a company now worth over $10BN, trading at roughly 11 X trailing sales and 350 times trailing Gross Profit (there are no earnings). TSLA may be many things, but out of favor is not one of them.

As if a tripling of its price in six months isn’t bad enough, the shorts also have to deal with a CEO with a sense of humor. For Elon Musk, evidently not one you’d want to join at a poker table, has shown his exquisite understanding of markets by committing to invest $100MM of his own cash in the upcoming secondary offering of shares just as the shorts are enduring their own particular tail event. How often do you see that?

So TSLA’s price has moved beyond what must have been plausible for most short sellers, who like all shorts are further dealing with the consequences of a steadily growing position as it loses money. We have no position in TSLA and have no intention of taking one. But watching its stock price in recent days has been entertaining to say the least.


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