It is uncommon for me to write this, but if Monitise's management team continues to execute, the shares could rise threefold or more over the next several years.
Shorted More Tesla
Originally published on Thursday, Feb. 20 at 7:32 a.m. EDT.
My short cost basis now approximates $212 a share.
As a professional short seller, I am acutely aware of the risks of shorting valuation. I have the scars on my back to show how harsh those lessons were back in 1999.Subject to one's risk profile/appetite, however, there is always a place for speculative shorts and longs, and there is always the exception to the rule. I believe that Tesla might prove to be the exception to my rule of only shorting equities that have low short interest ratios (as measured against daily average trading volume and/or outstanding float), but shorting Tesla or any other stock is not for most investors. Shorting provides an asymmetric risk vs. reward -- you can only make 100% on a short but you can lose a multiple on your investment if you are wrong. I am simply explaining, as I do with my long investments, what, why and when I am doing. A few months ago and before the silly Apple (AAPL - Get Report) talk last weekend, I was uncharacteristically positive about Tesla and avoided shorting the shares as it rose from about $40 a share in early 2013 to over $200 a share this year. The silly Apple acquisition talk, which made no sense, piqued my interest in shorting Tesla, and I initiated a short at $205 a share. Yesterday's earnings beat -- albeit, the better profits excluded noncash compensation costs and other expenses -- provided me with an opportunity to expand my Tesla short.
- A sentiment extreme may have been reached with Tesla's equity valuation approaching $30 billion. To me this is reminiscent of the euphoria related to the elevated price of gold in the fall of 2011 (when I went short the commodity). A speculative buying frenzy was reached -- it seemed as if every hedge fund extant had a significant weighting -- and, in quick order, over the next 12 months, gold's price fell dramatically (for no apparent reason). In fact, additional bouts of easing (QE2 and QE3) and a drop in real interest rates, which were supposed to be a friend of the price of gold, failed to have a positive impact. Just the opposite occurred.
- The hatred that emerged from my Tesla short (on Tuesday) is eerily reminsicent of my analytical criticism of Apple and many other former market favorites. History may not repeat itself, but it sure does rhyme! Over time, that sort of response (hatred) has yielded me short profits.
- Beware of iconic figures such as Elon Musk's, who are put on investment pedestals. Brilliant as they might be, they are human beings just like us. Pride goeth before fall.
- Tesla's competitive leadership position will, in the fullness of time, be supplanted by competition. Similar to Apple, as it breached $700 to the upside during late September 2012, Tesla will likely face a more competitive landscape that will inevitably devastate profitability. I referred to this In my comparison with Audi, but there will be many more competitors. I think it is laughable that the shares are higher and that talking heads are excited by the better margins just recorded in the current quarter (28%). To me, this is fanciful, narrow thinking and fails to see the developing larger picture, much like when AOL (AOL - Get Report) leaped ahead of Compuserve in the Internet service provider space in the late 1990s and ultimately garnered a huge valuation. That notion was shortlived, and AOL's shares dropped from $80 a share to $10 a share as the competitive landscape changed. (I will be expanding on the competitive threats to Tesla in the days ahead.)