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From that link: > In 2010, its stock price was $20 and by 2017 had risen to $380 a share, yet Tesla reported a loss of $4.3 billion. How is this possible? Th

by dmoy 6y ago

From that link: > In 2010, its stock price was $20 and by 2017 had risen to $380 a share, yet Tesla reported a loss of $4.3 billion. How is this possible? The only way to explain this bizarre scenario is to recognize that the market is not efficient I will pass on buying/reading that book based on this excerpt alone. I am far away from a tesla fan (I actively encourage my friends/family to not buy teslas, or invest in tesla, etc), but saying "the only way to explain this" is pretty unbelievable.

ZephyrBlu 6y ago
How would you explain it then? I don't believe Tesla would be valued so highly or fluctuate so violently if the market was actually efficient.
- exged 6y ago
  The market is efficient in the sense that it aggregates all knowledge between market participants. Nevertheless, no one actually has a crystal ball to predict events far in the future. Tesla's valuation and volatility can both be explained by some market participants expecting huge growth over a long period of time, with a correspondingly huge uncertainty over the actual outcome. Just to put some simple numbers on things, a commonly held expectation is that Tesla will grow revenue at ~50% a year until 2030 while maintaining high margins. At that point Tesla's revenue would be approximately 1T with perhaps 100B in net income. A fair valuation would then be around 3T, assuming there is still some future growth left. This largely explains today's 500B valuation - if there is a 30% chance of this scenario playing out (and Tesla goes bankrupt in the other 70%) then this is a reasonable bet compared to buying other stocks. As for the volatility, imagine if the average market participant changes their mind and believes that Tesla is only likely to achieve a 40% growth rate over the next decade. This would drop 2030 revenue and profits by more than 40% compared to the previous scenario, and today's stock price would fall significantly as well.
- dmoy 6y ago
  > How would you explain it then? I am not expert enough to know, but just off hand declaring that something is "the only way" with literally no justification or reasoning puts a really bad taste in my mouhth

by dmoy 6y ago

ZephyrBlu 6y ago

How would you explain it then? I don't believe Tesla would be valued so highly or fluctuate so violently if the market was actually efficient.

exged 6y ago
The market is efficient in the sense that it aggregates all knowledge between market participants. Nevertheless, no one actually has a crystal ball to predict events far in the future. Tesla's valuation and volatility can both be explained by some market participants expecting huge growth over a long period of time, with a correspondingly huge uncertainty over the actual outcome. Just to put some simple numbers on things, a commonly held expectation is that Tesla will grow revenue at ~50% a year until 2030 while maintaining high margins. At that point Tesla's revenue would be approximately 1T with perhaps 100B in net income. A fair valuation would then be around 3T, assuming there is still some future growth left. This largely explains today's 500B valuation - if there is a 30% chance of this scenario playing out (and Tesla goes bankrupt in the other 70%) then this is a reasonable bet compared to buying other stocks. As for the volatility, imagine if the average market participant changes their mind and believes that Tesla is only likely to achieve a 40% growth rate over the next decade. This would drop 2030 revenue and profits by more than 40% compared to the previous scenario, and today's stock price would fall significantly as well.
dmoy 6y ago
> How would you explain it then? I am not expert enough to know, but just off hand declaring that something is "the only way" with literally no justification or reasoning puts a really bad taste in my mouhth