4 ms·

I hate to be the "revenues-dont-matter" guy, but stock prices could be based on the fact that they demonstrated that they are 4.6x more likely to succeed based

I hate to be the "revenues-dont-matter" guy, but stock prices could be based on the fact that they demonstrated that they are 4.6x more likely to succeed based on their performance this year. If stocks only followed revenues, trading would be pretty meaningless. A company like Tesla has a tipping point in value based on the viability of their model. I am in no way claiming that I think they will succeed, but this year has probably shown that they are more likely to hit a tipping point than last year. This matters a lot in highly speculative investments like Tesla.

foobarqux 13y ago
The point is that the price is disconnected from fundamental value. Remember you are buying something, you want to know how much you should pay, not whether the thing underlying the security is going to be "successful".
- toomuchtodo 13y ago
  > not whether the thing underlying the security is going to be "successful". But that's exactly what determines how much you should pay. Fundamentals are "How much will this be worth in the future".
  - foobarqux 13y ago
    Your decision to invest shouldn't be equivalent to whether the company is going to be successful but whether you will get more money than what you put in (accounting for risk, alternative investments, etc). Failing businesses are sometimes good value.
- SwellJoe 13y ago
  "The thing underlying the security" is a dynamic thing, it grows or shrinks based on the market for their products, the execution of its executives, and the quality of its products. If it is not going to be making significantly more money next year than this year, you'd want to build that into your decision to buy the stock. Fundamental value can be defined in a lot of ways, but growth is not reliably quantifiable. Which is why there is fluctuation in stock prices. If I believe Tesla will continue to grow at 50-100% per year, then it may be valued reasonably right now. It may even be a bargain. If, on the other hand, I believe it is a static business now and has reached saturation of its product line in the market as it exists, I'd be a fool to pay this high a price. There are so many variables...if you're value investing rather than growth investing, TSLA is not your stock, and won't be for another decade or two. I tend to buy into growth companies, so this looks like a chance to buy into a company I missed earlier at a slightly lower price (I don't suggest trying to time the market, but sometimes the market puts something on sale that you wanted to buy anyway). It was just such a sale (only on a much larger scale) many years ago, that led to me holding a few shares of GOOG. I bought as many shares as I could afford with what was in my trading account, and I may buy as many shares of TSLA as I can afford now (after a bit of research, of course).
- hackula1 13y ago
  Would you pay differently for a lottery ticket that had a payout of 1MM if you had the chances of A) 1/2 B) 1/5 C) 1/50 D) 1/5000? The potential payout is unchanged, but the value of the ticket changes as it gets more likely to pay out.
  - foobarqux 13y ago
    All I'm saying, which should be self-evident, is that a successful business can be a bad investment if the price is too high and a failing business can be a good investment if the price is low.
    - hackula1 13y ago
      Agreed.
- lsc 13y ago
  a one out of a thousand chance at making a million bucks has a 'fundamental value' of $1000. The problem with valuing tesla is not that it lacks 'fundamental value' - it's not even that this value is risky. The problem is that nobody knows /how/ risky that bet is. Of course... once the uncertainty passes a certain point... it sure looks like it's completely disconnected from 'fundamental value' Personally? I can see the 'fundamental value' in Tesla. They are building a new kind of car, and it looks like a pretty nice car. I mean, I'm not really qualified to evaluate those things, I'm not really the sort who buys expensive cars. Now, is that value greater than the huge investment required to build those cars? Will Tesla be able to scale up to the point where they are turning a reasonable profit? Will they be able to defend their initial lead against the conventional car companies, once toyota starts making an all-electric Lexus? Yeah. Lots of very difficult to quantify risk. I'd buy Tesla before I'd buy Facebook. Long before I'd buy facebook. But I don't have money in either.
  - foobarqux 13y ago
    Thankfully your options are not limited to Tesla and Facebook
    - lsc 13y ago
      Eh, perhaps my point would be better phrased as: Of all the new technology companies... my perception is that Tesla has rather more 'fundamental value.' If nothing else, they are one of the very few companies that doesn't rely for revenue on a relatively new kind of advertising.

foobarqux 13y ago

The point is that the price is disconnected from fundamental value. Remember you are buying something, you want to know how much you should pay, not whether the thing underlying the security is going to be "successful".

toomuchtodo 13y ago
> not whether the thing underlying the security is going to be "successful". But that's exactly what determines how much you should pay. Fundamentals are "How much will this be worth in the future".
- foobarqux 13y ago
  Your decision to invest shouldn't be equivalent to whether the company is going to be successful but whether you will get more money than what you put in (accounting for risk, alternative investments, etc). Failing businesses are sometimes good value.
SwellJoe 13y ago
"The thing underlying the security" is a dynamic thing, it grows or shrinks based on the market for their products, the execution of its executives, and the quality of its products. If it is not going to be making significantly more money next year than this year, you'd want to build that into your decision to buy the stock. Fundamental value can be defined in a lot of ways, but growth is not reliably quantifiable. Which is why there is fluctuation in stock prices. If I believe Tesla will continue to grow at 50-100% per year, then it may be valued reasonably right now. It may even be a bargain. If, on the other hand, I believe it is a static business now and has reached saturation of its product line in the market as it exists, I'd be a fool to pay this high a price. There are so many variables...if you're value investing rather than growth investing, TSLA is not your stock, and won't be for another decade or two. I tend to buy into growth companies, so this looks like a chance to buy into a company I missed earlier at a slightly lower price (I don't suggest trying to time the market, but sometimes the market puts something on sale that you wanted to buy anyway). It was just such a sale (only on a much larger scale) many years ago, that led to me holding a few shares of GOOG. I bought as many shares as I could afford with what was in my trading account, and I may buy as many shares of TSLA as I can afford now (after a bit of research, of course).
hackula1 13y ago
Would you pay differently for a lottery ticket that had a payout of 1MM if you had the chances of A) 1/2 B) 1/5 C) 1/50 D) 1/5000? The potential payout is unchanged, but the value of the ticket changes as it gets more likely to pay out.
- foobarqux 13y ago
  All I'm saying, which should be self-evident, is that a successful business can be a bad investment if the price is too high and a failing business can be a good investment if the price is low.
  - hackula1 13y ago
    Agreed.
lsc 13y ago
a one out of a thousand chance at making a million bucks has a 'fundamental value' of $1000. The problem with valuing tesla is not that it lacks 'fundamental value' - it's not even that this value is risky. The problem is that nobody knows /how/ risky that bet is. Of course... once the uncertainty passes a certain point... it sure looks like it's completely disconnected from 'fundamental value' Personally? I can see the 'fundamental value' in Tesla. They are building a new kind of car, and it looks like a pretty nice car. I mean, I'm not really qualified to evaluate those things, I'm not really the sort who buys expensive cars. Now, is that value greater than the huge investment required to build those cars? Will Tesla be able to scale up to the point where they are turning a reasonable profit? Will they be able to defend their initial lead against the conventional car companies, once toyota starts making an all-electric Lexus? Yeah. Lots of very difficult to quantify risk. I'd buy Tesla before I'd buy Facebook. Long before I'd buy facebook. But I don't have money in either.
- foobarqux 13y ago
  Thankfully your options are not limited to Tesla and Facebook
  - lsc 13y ago
    Eh, perhaps my point would be better phrased as: Of all the new technology companies... my perception is that Tesla has rather more 'fundamental value.' If nothing else, they are one of the very few companies that doesn't rely for revenue on a relatively new kind of advertising.