7 ms·

Frustrated with Tesla and GM, David Einhorn Amps Up Pressure

30 points by jtraffic 9y ago

draw_down 9y ago
Investor Upset Market Not Rational
- zimbatm 9y ago
  It's more like: investor tries to influence the market to benefit himself.
  - deleted 9y ago
    [deleted]
  - Fricken 9y ago
    Why not both?
zwieback 9y ago
Is this just an investor looking out for his fund or doing his duty pressuring companies to get their act together? The two examples, GM and Tesla, certainly seem to have a "wrong" stock value.
- ithinkinstereo 9y ago
  > Is this just an investor looking out for his fund or doing his duty pressuring companies to get their act together? Well as a fund manager his #1 concern is maximizing his fund's investment returns. He couldn't care less if GM/Tesla gets their "act together". TSLA definitely seems over-valued, but the market is betting on the possibility of Tesla massively disrupting combustion cars, which explains why TSLA stock is soaring while GM stock is stagnating/flat.
  - WorldMaker 9y ago
    It seems remarkably similar to a new round of the historic Dodge v Ford [1], with an extra amount of weirdness by using corporate structures against themselves and the "fiduciary duty" that Dodge v Ford helped establish. This fund doesn't seem to care at all how well the company does, just the size of the dividend check every quarter. It seems woefully short sighted and aggressively parasitic. [1] https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Company https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Company
- sergiosgc 9y ago
  Is TSLA stock at the wrong value? Let's layout the numbers: - Market cap: 50B - Expected return on capital: 10% - Expectable profit margin: 10% - Expectable average unitary price: 50k 50B*10%/10%/50k = 1 million vehicles. Tesla is selling about 80k vehicles yearly (at about double the above average sales price): http://www.ibtimes.com/tesla-motors-tsla-1q-2016-sales-14820-model-s-model-x-cars-were-delivered-first-three-2348000 http://www.ibtimes.com/tesla-motors-tsla-1q-2016-sales-14820... The current valuation requires an increase in volume of five to ten times. Given the sales volume evolution of the current product lineup and the entry in a lower segment, it's definitely not out of reach in a five year horizon. Add up to five years to pay accrued debt (it should amount to about 10B before Tesla reaches steady state in the known product lineup). All numbers are order-of-magnitude precision, but they surely do not point to a «certainly "wrong" stock value».
  - vkou 9y ago
    It can also be argued that: The market for ~$70,0000 sedans is not so great that increasing volume 10x is reasonable, within 5 years. The margins for ~$30,000 sedans are lower then 10%. So, volume may go up 10x, but returns might not.
    - Animats 9y ago
      What seems to be happening is that the price of the Model 3 is creeping up. The base model is supposedly $35K, but you get an undersized battery, no self-driving sensors, and probably give up some other things. The typical model is currently expected to be around $50K. This is not unusual in automotive; the profits are in the overpriced upgrades. (There is now a $60,000 Ford F-150 pickup. The base price of that line is $27,110.)
      - bjelkeman-again 9y ago
        No self-driving sensors? Really? Got a source for that?
        9y ago
deleted 9y ago
[deleted]
phkahler 9y ago
Unless you have a seat on the board, your investment in a company should reflect your implicit belief that what they are doing is worth your investment. To buy stock and then jump up and down in public trying to move your investment up or down seems inappropriate.
- pfortuny 9y ago
  Well no: the board is there in representation of the shareholders, who are the technical owners. So the shareholders are who should lead the board, at least in the long term (as owners).
- ChuckMcM 9y ago
  The difference between 'trading' and 'investing'. Trading is buying and selling stock, or more often stock derivatives, based on an anticipation of the stocks movement. Investing is buying or selling stock based on an evaluation of a company's value over a longer time frame.[1] He, like some others, can't figure out why people like Tesla's stock. And because of that he has bet it will go down when those investors 'wake up' to the reality as he sees it. The problem is you can't really know which reality is 'correct' until later looking back. People who value Tesla as a car company value it one way, people to value it as an energy company value it a different way. Who is right? We won't know for another 5 years at least. [1] Yes there is this weird marginal point where either definition might apply. But derivatives are (for me) always a 'trading' play.
- maxerickson 9y ago
  In what sense are you using inappropriate? Also, should Elon Musk participate in puff pieces that promote Tesla? Or is that inappropriate?
  - jackmott 9y ago
    Einhorn can do what he wants I'm just not inclined to care.
- an_account 9y ago
  When you are a ~4% _owner_ in a company, you should (and do) have say in how that company is managed.
russelluresti 9y ago
In case anyone was wondering whether or not "professional asshole" is a career - here you go.
- sanityUnbounded 9y ago
  I couldn't help but read this and think "old".
- excalibur 9y ago
  Finkle is Einhorn! Einhorn is Finkle!
  - forgotmysn 9y ago
    laces up
- MrBuddyCasino 9y ago
  That his name is german for "unicorn" just adds insult to injury.
CountSessine 9y ago
How could a company break its stock up into a 'dividend stock' and a 'capital appreciation' stock? Valuing the 'dividend stock' would be pretty easy, but what about the 'capital appreciation' stock? What value does that take on? I'm assuming that voting rights would still be split between the two - otherwise the company's board wouldn't concern itself with dividend issues. But really - without dividends or the future promise of dividends, how would anyone value the 'capital appreciation' stock?
- ksherlock 9y ago
  some companies have normal stock and preferred stock. Preferred stock acts more like a bond - no voting rights, higher priority in the case of bankruptcy, consistently pays a certain amount and the price doesn't move much. There are plenty of stocks that don't pay dividends. Tesla, for example. And Mr. Einhorn doesn't seem to think they're accurately valued...
  - CountSessine 9y ago
    There are plenty of stocks that don't pay dividends. Tesla, for example. And Mr. Einhorn doesn't seem to think they're accurately valued... There are tons of stocks that don't pay dividends, but investors value them based on the promise of future earnings and future dividends. Snap doesn't pay dividends, but either it will someday or they'll get bought up. The cornerstone assumption behind stock valuation is self-interest in ownership - either dividends based on earnings or the promise of future earnings and dividends. Or getting bought up, which is still sort of a dividend - just a dividend for the buying company. Given that GM isn't going to get bought up any time soon, what self-interest is an investor in GM satisfying by buying shares that are guaranteed to never issue dividends? Share price increases? When does that stop? Is there an upper limit? What is it based on and how do you know we haven't hit it now? How is this not a tulip-market?
    - mhermher 9y ago
      Voting rights have value. If some entity wants to gain control of the company, then they would need to buy voting shares.
CodeSheikh 9y ago
"Einhorn, whose Greenlight Capital owns 3.6 percent of GM, was equally tough in the letter he sent to shareholders..". Someone help me understand how come a person/entity who merely owns 3.6% of a company has the right to be this aggressive about the future growth and policy-making of the company?
- nradov 9y ago
  Rights have nothing to do with it. Any shareholder can write a letter.
- stupidhn 9y ago
  >Someone help me understand how come a person/entity who merely owns 3.6% of a company has the right to be this aggressive about the future growth and policy-making of the company? Some help me to understand how an owner of a company is not entitled to be aggressive about the future of the company. It's mostly in Silicon Valley where nobody cares about shareowner's rights (and yet everyone is so concerned about the little get getting the short end of the stick).
  - CodeSheikh 9y ago
    Shareowner mostly comprise of greedy wall streets fund managers and they will short the shares with out caring much about the DNA of the company or its organic growth. Shareowners as in fund manager never cared much about private small shareowners like yourself and me.
- aerovistae 9y ago
  "Merely 3.6%"? You realize the largest institutional shareholder of Apple stock is Vanguard, owning ~330 million out of 5.3 billion shares? A "mere" 6.2% or so?
  - CodeSheikh 9y ago
    Yeah 6.2% of APPL shares not the % stake in the company.
tuna-piano 9y ago
For those interested in this kind of thing, I think David Einhorn's book is excellent. It tells a story of when Einhorn realized a company was more-or-less fraudulent, and his fight against the SEC and the company to release the truth. He had the incentive for this fight because of his short position. Einhorn was ultimately proven correct, and the company collapsed. The book is equally interesting, informative and infuriating. https://www.amazon.com/Fooling-People-Complete-Updated-Epilogue/dp/0470481544 https://www.amazon.com/Fooling-People-Complete-Updated-Epilo...

30 points by jtraffic 9y ago

draw_down 9y ago

Investor Upset Market Not Rational

zimbatm 9y ago
It's more like: investor tries to influence the market to benefit himself.
- deleted 9y ago
  [deleted]
- Fricken 9y ago
  Why not both?

zwieback 9y ago

Is this just an investor looking out for his fund or doing his duty pressuring companies to get their act together? The two examples, GM and Tesla, certainly seem to have a "wrong" stock value.

ithinkinstereo 9y ago
> Is this just an investor looking out for his fund or doing his duty pressuring companies to get their act together? Well as a fund manager his #1 concern is maximizing his fund's investment returns. He couldn't care less if GM/Tesla gets their "act together". TSLA definitely seems over-valued, but the market is betting on the possibility of Tesla massively disrupting combustion cars, which explains why TSLA stock is soaring while GM stock is stagnating/flat.
- WorldMaker 9y ago
  It seems remarkably similar to a new round of the historic Dodge v Ford [1], with an extra amount of weirdness by using corporate structures against themselves and the "fiduciary duty" that Dodge v Ford helped establish. This fund doesn't seem to care at all how well the company does, just the size of the dividend check every quarter. It seems woefully short sighted and aggressively parasitic. [1] https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Company https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Company
sergiosgc 9y ago
Is TSLA stock at the wrong value? Let's layout the numbers: - Market cap: 50B - Expected return on capital: 10% - Expectable profit margin: 10% - Expectable average unitary price: 50k 50B*10%/10%/50k = 1 million vehicles. Tesla is selling about 80k vehicles yearly (at about double the above average sales price): http://www.ibtimes.com/tesla-motors-tsla-1q-2016-sales-14820-model-s-model-x-cars-were-delivered-first-three-2348000 http://www.ibtimes.com/tesla-motors-tsla-1q-2016-sales-14820... The current valuation requires an increase in volume of five to ten times. Given the sales volume evolution of the current product lineup and the entry in a lower segment, it's definitely not out of reach in a five year horizon. Add up to five years to pay accrued debt (it should amount to about 10B before Tesla reaches steady state in the known product lineup). All numbers are order-of-magnitude precision, but they surely do not point to a «certainly "wrong" stock value».
- vkou 9y ago
  It can also be argued that: The market for ~$70,0000 sedans is not so great that increasing volume 10x is reasonable, within 5 years. The margins for ~$30,000 sedans are lower then 10%. So, volume may go up 10x, but returns might not.
  - Animats 9y ago
    What seems to be happening is that the price of the Model 3 is creeping up. The base model is supposedly $35K, but you get an undersized battery, no self-driving sensors, and probably give up some other things. The typical model is currently expected to be around $50K. This is not unusual in automotive; the profits are in the overpriced upgrades. (There is now a $60,000 Ford F-150 pickup. The base price of that line is $27,110.)
    - bjelkeman-again 9y ago
      No self-driving sensors? Really? Got a source for that?
      - 9y ago

deleted 9y ago

[deleted]

phkahler 9y ago

Unless you have a seat on the board, your investment in a company should reflect your implicit belief that what they are doing is worth your investment. To buy stock and then jump up and down in public trying to move your investment up or down seems inappropriate.

pfortuny 9y ago
Well no: the board is there in representation of the shareholders, who are the technical owners. So the shareholders are who should lead the board, at least in the long term (as owners).
ChuckMcM 9y ago
The difference between 'trading' and 'investing'. Trading is buying and selling stock, or more often stock derivatives, based on an anticipation of the stocks movement. Investing is buying or selling stock based on an evaluation of a company's value over a longer time frame.[1] He, like some others, can't figure out why people like Tesla's stock. And because of that he has bet it will go down when those investors 'wake up' to the reality as he sees it. The problem is you can't really know which reality is 'correct' until later looking back. People who value Tesla as a car company value it one way, people to value it as an energy company value it a different way. Who is right? We won't know for another 5 years at least. [1] Yes there is this weird marginal point where either definition might apply. But derivatives are (for me) always a 'trading' play.
maxerickson 9y ago
In what sense are you using inappropriate? Also, should Elon Musk participate in puff pieces that promote Tesla? Or is that inappropriate?
- jackmott 9y ago
  Einhorn can do what he wants I'm just not inclined to care.
an_account 9y ago
When you are a ~4% _owner_ in a company, you should (and do) have say in how that company is managed.

russelluresti 9y ago

In case anyone was wondering whether or not "professional asshole" is a career - here you go.

sanityUnbounded 9y ago
I couldn't help but read this and think "old".
excalibur 9y ago
Finkle is Einhorn! Einhorn is Finkle!
- forgotmysn 9y ago
  laces up
MrBuddyCasino 9y ago
That his name is german for "unicorn" just adds insult to injury.

CountSessine 9y ago

How could a company break its stock up into a 'dividend stock' and a 'capital appreciation' stock? Valuing the 'dividend stock' would be pretty easy, but what about the 'capital appreciation' stock? What value does that take on? I'm assuming that voting rights would still be split between the two - otherwise the company's board wouldn't concern itself with dividend issues. But really - without dividends or the future promise of dividends, how would anyone value the 'capital appreciation' stock?

ksherlock 9y ago
some companies have normal stock and preferred stock. Preferred stock acts more like a bond - no voting rights, higher priority in the case of bankruptcy, consistently pays a certain amount and the price doesn't move much. There are plenty of stocks that don't pay dividends. Tesla, for example. And Mr. Einhorn doesn't seem to think they're accurately valued...
- CountSessine 9y ago
  There are plenty of stocks that don't pay dividends. Tesla, for example. And Mr. Einhorn doesn't seem to think they're accurately valued... There are tons of stocks that don't pay dividends, but investors value them based on the promise of future earnings and future dividends. Snap doesn't pay dividends, but either it will someday or they'll get bought up. The cornerstone assumption behind stock valuation is self-interest in ownership - either dividends based on earnings or the promise of future earnings and dividends. Or getting bought up, which is still sort of a dividend - just a dividend for the buying company. Given that GM isn't going to get bought up any time soon, what self-interest is an investor in GM satisfying by buying shares that are guaranteed to never issue dividends? Share price increases? When does that stop? Is there an upper limit? What is it based on and how do you know we haven't hit it now? How is this not a tulip-market?
  - mhermher 9y ago
    Voting rights have value. If some entity wants to gain control of the company, then they would need to buy voting shares.

CodeSheikh 9y ago

"Einhorn, whose Greenlight Capital owns 3.6 percent of GM, was equally tough in the letter he sent to shareholders..". Someone help me understand how come a person/entity who merely owns 3.6% of a company has the right to be this aggressive about the future growth and policy-making of the company?

nradov 9y ago
Rights have nothing to do with it. Any shareholder can write a letter.
stupidhn 9y ago
>Someone help me understand how come a person/entity who merely owns 3.6% of a company has the right to be this aggressive about the future growth and policy-making of the company? Some help me to understand how an owner of a company is not entitled to be aggressive about the future of the company. It's mostly in Silicon Valley where nobody cares about shareowner's rights (and yet everyone is so concerned about the little get getting the short end of the stick).
- CodeSheikh 9y ago
  Shareowner mostly comprise of greedy wall streets fund managers and they will short the shares with out caring much about the DNA of the company or its organic growth. Shareowners as in fund manager never cared much about private small shareowners like yourself and me.
aerovistae 9y ago
"Merely 3.6%"? You realize the largest institutional shareholder of Apple stock is Vanguard, owning ~330 million out of 5.3 billion shares? A "mere" 6.2% or so?
- CodeSheikh 9y ago
  Yeah 6.2% of APPL shares not the % stake in the company.

tuna-piano 9y ago

For those interested in this kind of thing, I think David Einhorn's book is excellent. It tells a story of when Einhorn realized a company was more-or-less fraudulent, and his fight against the SEC and the company to release the truth. He had the incentive for this fight because of his short position. Einhorn was ultimately proven correct, and the company collapsed. The book is equally interesting, informative and infuriating. https://www.amazon.com/Fooling-People-Complete-Updated-Epilogue/dp/0470481544 https://www.amazon.com/Fooling-People-Complete-Updated-Epilo...