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> Perhaps it’s still overvalued beyond all of those factors. If you feel strongly about that, why not take out a short position? The issue with that is that GP

> Perhaps it’s still overvalued beyond all of those factors. If you feel strongly about that, why not take out a short position? The issue with that is that GP is arguing that this stock's investors continue to behave irrationally. There is no reason to believe they are going to suddenly behave rationally. Thus, a short position is inadvisable. If you are a value investor, the right thing to do is to just not invest in it.

rjkennedy98 7y ago
> why not take out a short position? To quote John Maynard Keynes, “The market can stay irrational longer than you can stay solvent"
- mlyle 7y ago
  Yup. And the cost of time on Tesla options right now is insane. $590 puts for April cost ~$66.
  - n00b590 7y ago
    That's not the cost of time you're seeing; it's the implied volatility.
    - mlyle 7y ago
      Sorry for the delayed response--- didn't see your comment. An option's value is its intrinsic value, plus its time value. The time value of an option is mostly sigma, yes. https://en.wikipedia.org/wiki/Option_time_value#Time_value https://en.wikipedia.org/wiki/Option_time_value#Time_value
medbrane 7y ago
So you are saying that the opposite (a long position) is advisable? But that would make the current investors behavior a rational one, right?
- sombremesa 7y ago
  > If you are a value investor, the right thing to do is to just not invest in it. I'm not sure how you got your conclusion out of what I said.
Voloskaya 7y ago
> The issue with that is that GP is arguing that this stock's investors continue to behave irrationally. Can we stop pretending that any part of the market behaves rationnally? Investors buy a stock because they think there will be someone else to buy it from them at a higher price later, that's it, they don't look further. Everyone was already complaining about this when $TSLA was at 50$ a share...
whack 7y ago
If you're investing with a 5 year time horizon, sure. If you're investing with a 20-30 year time horizon, and you're convinced that Tesla is overvalued, you should absolutely short it. Whatever "reality distortion" you are suspecting, is not going to last for 20 years. Eventually, when the promised profits and growth fail to materialize, the stock price will drop back down to its fundamentals and you will make a killing (if you're right) Every time this discussion happens, people trot out the quote about markets staying irrational longer than you staying solvent. This quote is only ever relevant if you're leveraged, or if you're at risk of someone else forcing you to exit your short position. If you're an individual investor with a 20 year time horizon, shorting a stock with less than 5% of your portfolio, you don't have to worry about either. You absolutely can stay solvent longer than the market can stay irrational. The real reason people don't go shorting TSLA nearly as much as you would think, is because Tesla's future isn't nearly close to a foregone conclusion. It's a lot more fun to make bold predictions with absolute confidence when you don't have anything to lose.
- kgwgk 7y ago
  > If you're investing with a 20-30 year time horizon, and you're convinced that Tesla is overvalued, you should absolutely short it. Do you understand how shorting works? If you had shorted $10k of TSLA stock in May you would have lost $23k by now (it's not just a paper loss, you have to post collateral to avoid liquidation). And you also have to pay to borrow the stock you're shorting, so even if you don't face a margin call time goes against you. Edit: By the way, if you had opened in May a short position in TSLA that represented 5% of your portfolio it would be 15% of your portfolio now. That's another problem of shorts: as they move against you they get bigger and at some point you may want to worry.
  - whack 7y ago
    Do you understand how portfolio management works? You run the risk of losses with any investment you make. If the size of your short position is less than 5% of your portfolio, you still have the other 95% that you can use to cover any temporary losses.

rjkennedy98 7y ago

> why not take out a short position? To quote John Maynard Keynes, “The market can stay irrational longer than you can stay solvent"

mlyle 7y ago
Yup. And the cost of time on Tesla options right now is insane. $590 puts for April cost ~$66.
- n00b590 7y ago
  That's not the cost of time you're seeing; it's the implied volatility.
  - mlyle 7y ago
    Sorry for the delayed response--- didn't see your comment. An option's value is its intrinsic value, plus its time value. The time value of an option is mostly sigma, yes. https://en.wikipedia.org/wiki/Option_time_value#Time_value https://en.wikipedia.org/wiki/Option_time_value#Time_value

medbrane 7y ago

So you are saying that the opposite (a long position) is advisable? But that would make the current investors behavior a rational one, right?

sombremesa 7y ago
> If you are a value investor, the right thing to do is to just not invest in it. I'm not sure how you got your conclusion out of what I said.

Voloskaya 7y ago

> The issue with that is that GP is arguing that this stock's investors continue to behave irrationally. Can we stop pretending that any part of the market behaves rationnally? Investors buy a stock because they think there will be someone else to buy it from them at a higher price later, that's it, they don't look further. Everyone was already complaining about this when $TSLA was at 50$ a share...

whack 7y ago

If you're investing with a 5 year time horizon, sure. If you're investing with a 20-30 year time horizon, and you're convinced that Tesla is overvalued, you should absolutely short it. Whatever "reality distortion" you are suspecting, is not going to last for 20 years. Eventually, when the promised profits and growth fail to materialize, the stock price will drop back down to its fundamentals and you will make a killing (if you're right) Every time this discussion happens, people trot out the quote about markets staying irrational longer than you staying solvent. This quote is only ever relevant if you're leveraged, or if you're at risk of someone else forcing you to exit your short position. If you're an individual investor with a 20 year time horizon, shorting a stock with less than 5% of your portfolio, you don't have to worry about either. You absolutely can stay solvent longer than the market can stay irrational. The real reason people don't go shorting TSLA nearly as much as you would think, is because Tesla's future isn't nearly close to a foregone conclusion. It's a lot more fun to make bold predictions with absolute confidence when you don't have anything to lose.

kgwgk 7y ago
> If you're investing with a 20-30 year time horizon, and you're convinced that Tesla is overvalued, you should absolutely short it. Do you understand how shorting works? If you had shorted $10k of TSLA stock in May you would have lost $23k by now (it's not just a paper loss, you have to post collateral to avoid liquidation). And you also have to pay to borrow the stock you're shorting, so even if you don't face a margin call time goes against you. Edit: By the way, if you had opened in May a short position in TSLA that represented 5% of your portfolio it would be 15% of your portfolio now. That's another problem of shorts: as they move against you they get bigger and at some point you may want to worry.
- whack 7y ago
  Do you understand how portfolio management works? You run the risk of losses with any investment you make. If the size of your short position is less than 5% of your portfolio, you still have the other 95% that you can use to cover any temporary losses.