Tesla Hindsight, Trading, & Being An Investor

image

I’ve been a Tesla Motors cheerleader for the past 2+ years. I bought the stock the summer of 2011 at 25.96/share and have held, added, held, and added some more to the position (highest price at 30/share). At one point my personal speculative trading portfolio was made up of 50% TSLA, 30% cash, and 20% a few other names. With the recent run-up of the stock, I reluctantly closed out my position at $88/share. At the time I figured I had learned from my mistakes of letting a stock run up and not selling and was being responsible taking profits. At this point today, I realize I was wrong.

When I originally started speculative trading, I was blindly punting money around, trading options with huge volatility premiums, and leveraging an event-driven, high volatility, almost binary outcome, short-term options trading strategy. At first I made a killing, running up over 60% in my first 3 months of trading, but quickly a few big bets went wrong, and my profits had been wiped out. It was at that point that I realized I needed to 1) understand how to roll out of options trades better and 2) start looking into simple equities more.

One of my first investments was Tesla Motors (TSLA). I was a summer analyst at a life settlements trading firm (see: Death Bonds) in Midtown, and the other summer analyst and I had been talking about the necessity to focus on a sector if you want to be trading successfully. I’ve always followed the tech sector the closest, so I started there. I previously had made money on a GOOG options trade, however their stock was too rich for my limited portfolio. One day I came across a somewhat newly-public company that was led and personally funded by the founder and former co-founder of Paypal, Elon Musk. I had always liked the idea of EVs and felt that it wasn’t “if” but “when” they were going to become mainstream. Seeing the success that Apple and other premium category leaders were having, I started reading about Tesla, and eventually decided to buy shares at $25.96. In hindsight, the amount of research wasn’t really that in-depth in regards to the company itself, but more a gut-feeling on the big picture things such as market opportunity and competitors.

Over the next year I made a bunch of good and bad calls in my portfolio, and traded mostly sideways, while still holding TSLA. I was talking to a friend of mine who worked in retail equities, and he mentioned that he was invested in a public venture fund called GSV Capital (GSVC) and recommended that I look into it as well. They had a bunch of Facebook stock, and all of the buzz in 2011 was the impending Facebook IPO. I trusted my friend, and also liked the idea of owning a name with exposure to private companies. I bought the stock at around $13/share and decided to keep checking in with my friend over time to hear his thoughts.

Leading up to the Facebook IPO the stock ran up to $20/share and I contemplated selling. I immediately decided that the FB IPO should cause an even bigger pop in the shares, and opted to hold onto my stake and ride the wave. My friend sold out some point before the IPO, but I held and held and held. Today GSVC is trading at $8.38/share and I took a serious haircut on my initial purchase.

After the GSVC trade I realized that I should have a system in place to take profits and prevent greediness. I’ve read about letting your winners ride, but figured that I could stomach a big upside swing, in exchange for downside protection. I largely ignored this rule with my Tesla shares, but eventually succumbed the pressure when the stock ballooned up to $88/share in a matter of weeks. It was finally the rumors of another offering that signaled it was time to think about selling.

I discussed with friends that the investment was emotional and financial. I loved the company, had made money on the stock, had convinced someone close to me to buy the car, and frankly didn’t see where I would put the cash in this market environment. I thought back to the GSVC trade, and a few others and hastily decided that I had let this winner ride long enough. I disregarded people who say that you should only own a stock if you would buy it at the current price (i hate that saying), because I still believed in Tesla growing to become a market-leader in EVs. I unloaded my shares, and in a bittersweet moment, watched the stock fall down to the low 80’s over the next few days. I felt triumphant, but hated rooting against a stock like that.

As of today, Tesla is trading at $102. Musk has a bunch of good news that he’ll try to spread out over time I’m sure, and the stock price will probably go up in 5%+ runs. I still believe that the market has run-up a bit too much, and expect a small fall-off by the end of 2013 or whenever the market notices Bernake taking his foot off the gas, that will impact stocks across the board.

Hindsight is 20/20 and most people will tell me to shut up and take my ~300% return, but it’s moments like these that show the difference between a pure trader and an investor. People like Bijan Sabet and Fred Wilson have made it abundantly clear that they are investing in people and ideas, not purely numbers and charts. Clearly this has worked out for them recently, and hopefully will work out again soon. After this experience, I’ll never feel uncomfortable letting a winner ride, and I’ll never pile out of a trade again because of markets, portfolio theory, or any other trading indicators.

The market has always been intended for investors, but somewhere along the way Wall St. changed that. I’m just glad to have figured out early that, for the most part, I’m an investor, not a trader.

Add comment