Tesla 5-1 Stock Split
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To be clear: I'm not interested in debating the value of Tesla. I'm curious if others have the same emotional reaction at this point. That's it. If you think Tesla is worth $1T, good. Fine by me. I don't want to debate it or be told I'm a piece of garbage.
Disclaimer: I bought Tesla calls today and now assume I’m rich so your opinion may differ
Having a driverless car which can navigate through a city would be great, but it is a much more complicated problem to solve.
Kind of sounds like you do want to debate it. I have no idea if it is or is it a it overvalued but plenty of people do share you view, and they lost a lot of money betting against Musk.
But there is no TINA ( https://www.investopedia.com/terms/t/tina-there-no-alternati... ).
The money needs to go somewhere.
I wonder why TSLA is compared to dot-com stocks. Tesla produce real, tangible things, with sale and resale value; same applies to their factories. They are in the "real sector", while dot-coms were (and are) in the "virtual" services sector propped by ad revenue.
TSLA can be a bubble, but it must be a different kind of it.
Another reason to tell why Tesla's stock is in bubbly conditions is the timing. Why is it soaring up right now? Is there some event that makes it more likely that people buy cars? No. The current events actually point towards the opposite direction of a recession, where people don't buy new cars. But they are overruled by different events which are more about more about money not knowing where it should go.
This video makes some very interesting points on the "too much money in the markets" question: https://youtu.be/Im0rzTWplwU
Let me add it is interesting that people who say Tesla is over-valued so often make this mistake, even though most of what I said is widely known. Perhaps people are being intentionally misleading.
Ad-based-internet became a big thing many years later, I believe.
(I do agree that TSLA is different, anyway.)
[0] https://en.wikipedia.org/wiki/Webvan [1] https://en.wikipedia.org/wiki/Pets.com
> Pets.com hired the San Francisco office of TBWA\Chiat\Day to design its advertising campaign.
Also here's a collection of Pets.com TV ads: https://www.youtube.com/watch?v=sICSyC9u5iI
And Webvan did ads too: https://www.bizjournals.com/sacramento/stories/2001/03/05/da...
Advertising was a cost for them, like it is for Tesla, they weren't in the business of _selling_ ads, like Google or Facebook.
Btw, I have a Nigerian acquaintance who likes to discuss a business proposal with you. How do we contact you?
I’m not short TSLA, FWIW.
I agree with you I have no idea why it is valued the way it is. My original thought for getting on at the IPO was that since they were one of the first big electric car players, they would get a patent portfolio that would be worth a lot in the future even if they failed as a car manufacturer. Of course, that logic went out the window when Elon promised to license the patents freely to anyone who wanted to build electric cars a number of years ago.
I can understand people valuing TSLA at more than, say, Ford, because of their future prospects and because they aren't burdened with legacy issues like worker pensions, but it's hard to believe it should be worth 10x. It also isn't clear to me how TSLA went down ~10% over the past 5 days but is right back up there on news of the split.
I wouldn't buy it at these levels (or even close to), but I wouldn't short it either.
(paraphrasing C.Munger)
I share Munger's opinion, not just on Tesla. I don't short companies because, as John Maynard Keynes said, “the markets can remain irrational longer than you can remain solvent.” And if I were to short companies, I'd be more likely to choose a Kodak anyway because at least Tesla has a crazy genius CEO who could conceivably grow Tesla to a point where everyone says Tesla's August 2020 would seem reasonable.
That really explains a lot with what's going on in the current economy.
I will say Tesla seems to have a pretty large competitive advantage (and perception advantage) in the market right now. It also seems like they are paying quite a bit less for batteries at the moment than anyone else.
Most Tesla competitors are announcing future vehicles with pricing and range competitive with Tesla's current vehicles, which suggests to me those same competitors are about 18-36 months behind Tesla still.
It seems clear to me anyhow that in next 20 years most new cars will be electric. How big a chunk of the market can Tesla carve out before the rest of the competition finally catches up?
Definitely my most speculative non-options stock.
Think about it - the world has been screaming for green this and that and electric vehicles are one of the biggest pieces of a such a world. Tesla and no other company is synonymous with this kind of technology. When you think electric cars, "Tesla" is the first brand in your head, in anyone's head, without fail. That is an extremely powerful position to be in.
I can see Tesla rivaling Toyota in revenue in the next five to ten years given how slowly they and others have moved on EVs. But I could also see Tesla running into trouble if they screw up their expansion or if another large manufacturers bets the farm on EVs.
Tesla right now clearly isn't worth $1T, but it is definitely on something big. Electric cars look well set to be the future, and so are the batteries that go with them. And currently, Tesla is a leader in both these fields. Furthermore, Tesla is creating an ecosystem not unlike Apple with its cars, it includes their supercharger network and all their software. And we all see how successful Apple is.
So yeah, huge potential. However, it is all speculation. Maybe traditional car manufacturers will wake up and offer decent electric cars. Maybe their ecosystem will fail to capture their market. If that happens, even if Tesla stays profitable, its value will crash. That's because Tesla will stop being a bet on the future and become just another mid-rank car manufacturer.
Personally, I am not into gambling, so I won't buy and I won't short.
Sure, everyone is investing to make money and extract it later, but its also a bet that they will be a player for a while, are more efficient at using the cash then their competitors, can scale better. At the end of the day it is capital allocation, and the market has decided this team is the best team to handle the task. (Or it is a true bubble, where everybody doesnt want to miss out, but I think its some of the former too. Ford and GM are legacy businesses that have legacy overhead.)
Facebook's stock is basically Mark's personal currency.
I understand that buying stock isn't straight up giving a company cash, but by pumping up its value, the shares the company is in control of are worth more. I also totally get how thinking people are this altruistic with investing is naive, and it's probably just fomo and short squeezes in a death spiral.
The worldwide initiative in this direction is strong, so the projected valuation could be just about right. Tesla is part of a global bet.
Despite this stock market is doing well.
The only conclusion I can see is that the stock market is completely decoupled from real life. Biggest parties participating in it are completely unaffected by reality of majority of population.
The same people who are rabidly shouting bitcoin is a pyramid scheme are buying stock of companies not because they trust its a good business model, but because its a a unicorn that will 2x in value for quick sale profit.
I am pretty sure this is irrelevant, but it's interesting.
Yet it’s one of the top stocks held on Robinhood (#3 at 700,000 users)
https://www.nasdaq.com/market-activity/stocks/aapl/instituti...
1. https://robinhood.com/us/en/support/articles/fractional-shar...
Stock splits are just a low grade attempt to pump up the stock price.
Companies in the DOW tend to have share prices below $500/ share and most are under $200 and the DOW won't add companies with high stock values as a result (Apple was added only after their last split).
It's likely being in the DOW bolsters and stabilizes stock prices as a lot of indexes are based on a the DOW. It also brings a company a certain prestige.
Whether any of this affects the Apple board's decision to split the stock or not is entirely speculation... it just seems a far more likely reason than the idea that they are splitting to make it accessible to people with $500 they want to invest.
Given how much investment capital is held by institutional investors, companies have a good reason to split their shares if the share price is too high. Berkshire Hathaway created a new share class to support the needs of institutional investors, and I would read "accessible to investors" as "conforming to the liquidity requirements of institutional investors."
PALO ALTO, Calif., August 11, 2020 – Tesla, Inc. (“Tesla”) announced today that the Board of Directors has approved and declared a five-for-one split of Tesla’s common stock in the form of a stock dividend to make stock ownership more accessible to employees and investors. Each stockholder of record on August 21, 2020 will receive a dividend of four additional shares of common stock for each then-held share, to be distributed after close of trading on August 28, 2020. Trading will begin on a stock split-adjusted basis on August 31, 2020.
[1]: https://www.sec.gov/Archives/edgar/data/1318605/000156459020...
Update: For something like TSLA which may have some psychological "Bitcoin-like" speculation going on among retail investors, I suppose the big number could reduce the desire to buy since "it can't go much higher" in some people's head, I guess.
There are "mini" options that control 10 shares, for example, but they usually have higher bid-ask spread reflecting the higher cost of pricing accurately/transaction fee/lower liquidity.
From /u/ins2be on reddit:
"That's what the OCC sets it at in their bylaws.
Unit of Trading
(5) The term “unit of trading” in respect of any series of options or futures means the number of units of the underlying interest which have been designated by the Corporation as the minimum number to be the subject of a single option contract or single future in such series. In the absence of any such designation for a series of options or futures in which the underlying security is a common stock the unit of trading shall be 100 shares."
Another issue is that out of the money contracts for a single share would frequently trade for pennies, which would greatly increase transaction costs and make the market less efficient. So you would have to standardize on some amount that is large enough to avoid such inefficiency, and 100 is a convenient number for mental arithmetic and reduces confusion. In theory you could have standardized on a larger number like 1000, which is equally convenient, but that would have priced out retail investors who may not own 1000 shares of a company whose share price is in the double or triple digits (which is common) and reduced the liquidity of the options market (which is already not very liquid).
In US the tick size for any stock is always $0.01. So a stock with a price of say $1 has a minimum bid ask spread of 1%, which is a lot.
On the contrary, if one share is too expensive, it limits liquidity in a stock. This is usually bad, though Berkshire Hathaway voting shares are deliberately kept expensive to stave off speculators.
This then get meta-player. A split suggests the company expects a price increase, and vice versa (reverse splits area thing too).
I’m on the fence about TSLA, their value is based on their perceived lead on autonomous driving, which is questionable. Their accounting practices are a bit shady as well. I’m not looking forward to it’s inclusion to the S&P 500.
"A company should be a thing, and people should be able to own a portion of its equity, and the portion that each person owned would be expressed as an arbitrarily precise percentage of the total...The “stock price” would be what we now call the “market cap”: The market would place a value of $X on the company as a whole, and if I wanted to buy another 0.01429% I would pay 0.01429% of $X....
The traditional, 19th-century answer to how many shares a company should have was that stocks should have a normal price, they should cost like $40 to $100...This was so standard that, when Charles Dow created a stock index in 1884, he just averaged the dollar stock prices of a bunch of stocks...because the stocks had normal prices.
There is an argument that high-priced stocks reduce liquidity because traders have less incentive to post quotes. It is good for a stock to trade at a bid/ask spread of a couple of “ticks,” the minimum price increment for trading. If a stock is worth $50 and trades at a bid/ask spread of $49.99/$50.01, a trader who posts a bid to buy at $49.99 will be able to buy from anyone who wants to sell immediately. If it’s worth $500 and trades at $499.90/$500.10, a trader who posts a bid to buy at $499.90 might lose out to a trader who bids $499.91. You can’t reliably earn a “normal” spread by trading the stock, so your incentive to provide liquidity is lower. Nasdaq published a paper arguing this point
At the time of Apple’s last split, in 2014, one popular explanation was that Apple was trying to get into the Dow Jones Industrial Average, which is still price-weighted and so still has an old-fashioned fondness for normal-priced stocks, but that worked and now it’s in the Dow so that’s no reason to split again"
As for fractional shares, keep in mind that these are a creation of brokerages, they are not universally available, and they create complications with shareholder rights (e.g. voting).