Are you exploiting the power of negativity to its fullest?

As if a hundred short sellers screamed in agony* and suddenly fell silent

-“funding secured”

(*actually not, rather they celebrated, knowing the endgame had finally arrived; since knowing the facts rather than a wishful narrative, they understood the action was the last desperate act of a fraudster at the end of his rope)


Topic: why all the negativity?

Discussion: investors are on balance long biased and thus need an opposing view for balance

Conclusion: more pessimism (almost) always leads to a more balanced view

Bonus: a little tip regarding perspective, productivity and happiness (asking past friends for advice)


With a little help from my (previous) friends

You know the 150 people you actually know? They aren’t the same as they were 10 years ago. If you’re serious in your quest for a fresh perspective on things, write an e-mail and ask for your advice from your old network (I got the idea from the book about networking effectively, that Anna Svahn is writing as we speak).

Tip: start by expressing some appreciation and if possible provide something of value. Givers are more successful than matchers and takers. And appreciative people are happier.


The curious case of the lone genius giga fraudster

Let’s forget for a while that Tesla is burning a billion dollars every three months (e.g., cash flow was -1.3 to -1.4bn in Q2), and that it’s effectively running out of money by the turn of the year, unless it manages to raise new capital by then. Nota Bene, this isn’t controversial; it’s a financial fact.

Tesla has over 10 billion dollars in debt. Tesla holds a billion dollars in client deposits. Tesla has a negative net working capital of 3 billion dollars, giver or take. Tesla has 1 billion in convertible debt maturity effectively coming up by the turn of the year. Tesla has at least half a billion of its cash reserves where it can’t be accessed. Anyway, let’s forget about money running out in just a few months, since that’s not really an issue of cash flow turns positive.

Let’s forget that even though sales have increased at an impressive rate, so have losses and executive compensation. These are indisputable financial facts. If anything, the numbers are artificially positive due to creative accounting, not least by under reserving for service costs.

Let’s also forget about the quality issues with hastily manufactured tent “lemons”. Let’s also forget about Tesla’s failed attempt at disrupting the “stealership” model, consequently leaving clients to deal with maintenance, repair and spare parts themselves.

Let’s forget about the super high death rate of Tesla drivers.

Let’s also forget about all the weird and lofty claims Elon Musk spouts every opportunity he gets. I’m thinking about new car models, trucks, pick-ups, solar house roofs, solar car roofs, bricks, 1 USD/trip super-mach intercity hyperloops etc., without the necessary factory investments.

Let’s also forget about the hundreds of former Tesla fans, witnessing about poor to non-existent service, about cars being paid for but not delivered, about deposits not being returned on demand, about suppliers not getting paid or are asked to pay money back (!)


Before: several years of a monopoly-like situation + subsidies = increasingly unprofitable

Now: serious competition (BMW, Porsche, Volvo, Jaguar, Audi…) + no subsidies => profits?


Chart by Tesla Charts


Build it and the profits will come

At this point let’s just think about one single thing, since profits and cash flows are what ultimately decide the fate of a company:

Some of the bullish analysts and bag holders of Tesla stock are counting on Tesla and Musk finally turning profitable now that its subsidies are ending and a tsunami of competition (with subsidies) is entering their market.

Wait, what? Wut? Hqr sez wut?

Yup, that’s right, that’s what’s coming now according to bulls. Elon Musk has never turned a profit in any of his companies. The last fifteen years, Tesla has only increasing losses to show for its efforts to exploit its supposed first mover advantage and massive subsidies. But, now, finally, with a deluge of formidable competitors, with as deep pockets as experience in building and testing cars, Tesla is supposed to somehow reap the benefits of… scale, competitive position, increased margins?

Not only that, just as the available market is about to fall by 90% in the coming years, Tesla’s subsidies are going away. Tell me again how that is supposed to finally push margins into positive territory.


OK, back to the fraudster

The bigger the lie, the easier to get away with it, and Tesla is about as big as they get, just like Theranos, Enron and Madoff before that. Or Nick Leeson and Jérôme Kerviel.

Many fraudsters start out with good intentions, probably Elon Musk too. However, as reality catches up with dreams, losses and mistakes have to be swept under the rug. “It’s just temporarily“, they think, “for the greater good in the long term“, they reason, and go on to make bigger and bolder bets to cover up their little mishaps.

An idea about luxury roadsters and other premium cars making profits, that finance investments in mass-market car manufacturing that’s supposed to make even greater profits, instead turn into ever increasing losses and thus the necessity for side-shows of acquisitions and unrealistic innovations.

At some point the well-intentioned and benevolent disruptor realizes his predicament and steps over the fraud line. The genius has now become a fraudster; and with increasing vitriol and intensity he attacks everyone who expresses the least bit of skepticism, while coming up with ever more fantastic claims about breakthroughs that are on an “order of magnitude” above and beyond anything previously seen. At this point the smart money knows the game is up and starts pointing it out, but it takes years (Enron, CDOs, Allied Capital), sometimes decades (Madoff), for the Ponzi scheme to collapse into the surprised and devastated hands of the bag holders.


This is not about Tesla, but about balance and perspective

Why all the negativity? Because almost everybody else has a positive bias. It takes effort and guts to find and relay negative information to a herd of stampeding bulls. Very few bother, since everybody seems to hold nothing but contempt for short sellers, including SEC officials (who famously like to interrogate whistle-blowers and short sellers rather than investigate the actual perpetrators).

It’s simply humans being humans when bullish investors turn a blind eye to all the obvious negative facts, and instead pat each others’ backs, repeating their faith based narrative, “obviously corroborated by the stock price (bro)”. It’s not really their fault. The problem actually lies with bears being too silent, passively allowing gullible bulls to be had for a ride. Humans are gullible by nature; we like a good story and we tend to positivity. We want to believe in stories bout heroes. We want to believe in seeing ourselves becoming rich, in particular if it’s by supporting a good cause at the same time. Fraudsters (whether by design or mistake) take advantage if that trait.

That’s why bears armed with facts are so important. They perform an almost invaluable service in their quest of fact finding and creating balance in the otherwise one-sided bullish narrative. Humans are lazy and blind to other stories than their own. Nothing wrong with that, it’s just our nature. But that’s exactly why the bears are needed: to create perspective, to catalyze questioning and to provide facts and arguments that can be directly measured against whatever the bull story is.


It’s currently the most important story there is

But why Tesla all the time? You keep ranting about Tesla; why the negativity?

It’s because it’s the biggest and simultaneously most obvious house of cards out there. It’s the most unbalanced narrative there is in public markets right now, in terms of the bull story being the least factful and the bear story being the most tangible. There’s almost a hundred billion dollars at stake, not to mention bag holders car owners that have or have not received their cars but stand to lose any kind of warranty, pre-payments or access to spare parts or super-chargers.


Quite often, bear stories are more qualitative than financial in nature, i.e., less numbers based and more speculative regarding troubles ahead. Not too rarely, very high valuations feature in bears’ short stories, although most smart bears know that’s nowhere near what’s needed for a successful short.

Not this time though. This time the bulls are the dreamers, and the bears don’t even need to start talking about the valuation, since Tesla’s money is actually running out (and with no plan for raising new).

No matter how much bloggers, podcasters and successful investors try to dig out the true foundations of the bull story in Tesla, they come up empty handed. It’s all narrative and hope that the lone genius, who so far has accomplished nothing, will soon magically wave his cave dildo, display his magic beans, and create actual profits.

Occam’s razor would long ago just have labelled Musk a fraudster rather than a genius, and all his actions would be all that much easier to explain.

A genius wouldn’t manufacture lemons and losses. A fraudster could. A genius wouldn’t fantasize about products he could never afford to build. A fraudster might as a cover-up. A genius wouldn’t put himself at the mercy of markets (no cash, negative flow). A fraudster would claim funding is secured (even if the claim might prove to be securities fraud). Would an environmentalist genius have five large Bel Air mansions and the biggest private jet there is (G650)? He could, but a fraudster fits the bill better. A genius maybe should have produced profits some time in his history. A fraudster wouldn’t see why. Finally, a genius wouldn’t pump up numbers in collaboration with his brother in an unrelated company and push his board into accepting a takeover at the very peak of that company’s business. A fraudster? Hell yeah!

This last bit is admittedly speculative, but the perspective is still important. No matter, the bull-genius narrative has only dreams, hopes and fantasies in its corner; while the bear-fraudster story is based on facts about sales, costs, profits, production numbers, quality reports, traffic statistics and not least a much more likely and coherent overall picture.


Market perspective

By the way, how’s this for perspective: imagine a private investor, an amateur with less than a decade under his market belt, doing all his research after his ordinary job hours, without any real insight in the inner workings of either the financial industry or that of the stocks he invest in. Imagine that same person thinking he understands more than, oh I don’t know, e.g., Mark Spiegel, David Einhorn, Jim Chanos…, and me.

I know, I know, I know… why would decades of profitably navigating several bull and bear markets, including investing on both the long and short side in hundreds if not thousands of individual companies, no less with the help of a solid financial education, actually having investing as full-time profession, supported by many, many competent co-workers and with access to dozens of the top financial research firms, ever stand a chance against a lone amateur? Or, er, wait a minute…

 

That’s not how herds operate

 

Maybe, just maybe, the unquestioning bulls need to be shaken out of their confirmation bias bubble and start listening to the fact-finding minority. Sure, we are guilty of CB too, but I’m sure all experienced bears make a true effort of mapping out the bull case in as much detail as humanly possible. The bulls? I’m not so sure, that’s not how herds typically behave.

How about you? Are you long or short Tesla, and have you queried the other side for their best arguments and pitched your own against them yet?

Regretting decisions and frettings over losses and past events at best doubles the pain

“I’ve never experienced adversity”

That’s what I spontaneously say when asked

How about you, has your life experience been a total joy ride?


Topic: personal growth

Conclusion: counting your blessings and learning from your lossses

Teaser: My failures

Length: 5 minutes


Sure, I was bullied in school on account of my accent, of my poor family, small house, garden and single car garage (!), the wrong clothes, Asperger’s (before it was a thing) and so on. Oh, yeah, right, I’ve had 8 concussions, two torn ACLs, a few broken bones, heartbreaking break-ups etc., but I’ve never considered any of it facing adversity. Those are just facts and stories of the past. Experiences. They hurt in the moment of course, but real adversity should entail substantial and permanent loss, without compensation, shouldn’t it?

I can continue: my big brother drowned before my eyes when I was 8, which triggered my parents’ pretty ugly divorce shortly after; but how is that my problem? Hasn’t everybody divorced or dead family members? Don’t they, if you just extend your search a little? to be clear, right there and then, seeing my parents’ reaction to their first born son taken away so unexpectedly, shook me to my core.

Living my pre-teen, formative years in the tragic vacuum he left behind, and the tension between my parents, may ex plain my reluctance to commit to meaningful relations and awkward social competence. Maybe it has some bearing on my flat interactions with my father and somewhat sporadic and disengaged socializing with my siblings. I can definitely be perceived as cold and distant, so maybe I am “damaged”. The thing is I don’t feel damaged. On the contrary, Ola’s death probably contributed to my obsession with coding, which in turn gave me intense training in logic, English, perseverence, patience, responsibility (for bugs and finding them) and grit.

Most of all grit.

– – – – – – – trigger warning, sentimental stuff

When you’re 10, 11, 12, 13 years old, frequently physically bullied in school, your parents are arguing and involved in jealous and toxic scheming and monitoring new acquaintances, you’re the smallest and youngest kid in class, the new kid on the block, with Asperger’s on top and the only one in your neighborhood coding; imagine the required grit to code, debug, test and come up with solutions all alone. Need I remind you this was in 1982-1985; there was no internet, no one to ask. Was it difficult? Yes. Was it frustrating? Definitely. Did I want to smash my 22″ cathod ray tube TV set? Oh, yes! Was I devastated when the computer crashed mid-debugging? No, I just wanted to kill myself and burn everything around me down to the ground. I don’t know what drove me; perhaps I fled from facing my brothers demise or dealing with my and my family’s loss. In any case, my new core programming, manifested as indestructible neuron highways in my brain, regarding grit, will power, logic, algebra and optimization have proven invaluable.

I used to be a troubled child, but after my brother’s passing, and the second coming (the computer), I turned into an effective, and eventually immensely appreciative, serene and happy, pattern recognizer. I can’t see how I could ever have become a better person than I am — well, according to my preferences. Consequently, none of this can be considered a bad thing.

– – – – – – – – end of croc tear rant

Professionally, I’ve had to live with a few disastrous recommendations to clients (e.g., Prosolvia went bankrupt, the stock to zero, when I had a Buy recommendation on it), not to mention loss-making investments when I was a portfolio manager (shorting bank stocks en masse in the second half of 2013 was not my smartest move; actually it was my worst ever, I think). I’ve lent out money that I never got back. I’ve invested in several start-ups that all went belly-up.

To summarize: yes, I’ve lost friends, family members, girlfriends, limbs, money and honor. I just never think of that as adversity. It just is. Later in life I’ve learned that some people keep thinking about past events and past decisions, just as some people believe all their thoughts and cede control to them. Meditation seems to help center people in the present, but for me accepting my thoughts or stilling my mind or controlling my emotions have never posed a challenge.


I’ve heard somewhere that you don’t know how strong you are until it’s your only choice. A bit dark, don’t you think? Or, is it? It’s pretty hopeful to know there probably are hidden resources that appear right when you need them, should you ever.

You only get challenges you can (barely) handle“, goes another saying. I can’t say I agree with that one. Neither do, I imagine, many victims of violence, war and worse (murder). There’s still, however, some truth to the cliché. For moderately unwanted experiences you can choose how you frame them (it could have been worse) and how you choose to remember and deal with them and not least what you learn from them.


Today I’m exactly who I want to be.

Consequently, I wouldn’t change a single thing of my past if I could. I actually can’t see I’ve ever truly suffered, taken a real hit (street fights don’t count), or lost anything I didn’t learn more from than I paid.

What’s the worst thing I can remember that even in retrospect seems unnecessary? Maybe when my girlfriend’s old dog died. That was excruciating. No matter, it emphasized the importance of appreciating every day you get to experience with your loved ones, rather than telling me life hurts.


Why do we fall Bruce?

Once, I crashed my motorcycle in the woods and hurt my knee badly. I could say that I tore some ligaments, my right knee ACL and ruptured my meniscus and still had to walk the bike back to base, but my physician told me all that damage was already done some 8 years earlier. Actually his exact words were “13 years”, since I waited another 5 years before checking up on my increasingly unreliable knee. Anyway, lying there around April or May 2000, alone in the woods, screaming my lungs out, not even daring to look at or touch my leg, I thought “The good news is, whatever the damage, nanomedicine will sooner or later make my knee even better than the original”. Sunny disposition much?


Takeaway: love your losses — and yourself

Have you really had a tough life? Have you really experienced adversity, or are you just dwelling on the past, regretting decisions and events you had no control over?

Aren’t you a better person for all your experiences?

If not, perhaps now is the time to think about how you handle life’s little misfortunes. Why don’t you choose to learn, rather than just complain?

No investor on the stock market would blame bad luck or fret over losses in the past. They would just update their best practices list and strategy and make sure they do better next time. Life is no different, it’s an eternal cycle of trials, investing, losses, analysis, learning and improvement. Losses and “adverse” experiences are a natural and important part of the process — and the sooner the better. Logically you should love losses, since they are much more effective teachers than wins, in particular lucky windfall gains.


Man in the mirror

Aren’t you who and where you want to be?

WHY NOT? And…,

…who’s responsible for that? Either you change, or you change your mind (alternatively stay unhappy and hope for your miserable life to end as soon as possible)


CTA: By the way, how long has it been since you wrote an entry in your appreciation diary? What do you love? Who do you love? What are you doing to love life and yourself even more?

P.S. Actually, that hangover when I woke up, covered in blood, in a 3x3x3 ft (1 cubic meter) box at a gas station 15 miles from home might have been my low point.

P.P.S. No, come to think of it, when the Spanish police chased me with dogs and threatened to rip my “passaporte” to shreds unless I left the country might top the gas station incident

P.P.P.S. I almost forgot, the sleepover when I was 17, in a “house” in Amsterdam’s outskirts, built from driftwood, populated by drug addicts, that turned into a slow motion knife kerfuffle, could have ended in tears. No matter, that wasn’t even close to adversity, just an exciting experience.

Tell me again, how did I ever become a hedge fund manager? Oh, that’s right, I almost got fired even before I started on account of an interview I made between jobs back in April 2000.

How 1 random act can create 4 times as many rainbows

Topic: Paying it forward, randominity, addiction and satisfaction

Length:  30 seconds


Random rewards are more addictive than predictable constant “pay”. That’s why casinos and lotteries are more exciting than work (for some people).

All sorts of companies and governments exploit this human trait. You can too, but in a good way.


More fart!

Similarly to gambling, random acts of kindness have disproportionally positive effects compared to equal acts with a higher regularity. The kicker is that you will probably feel good in proportion to the impact you’re having on the recipient. Thus, your +1n amount of random action will have +2n impact on the recipient which in turn will render you +2n happier, for a total of 4n of unicorn rainbow fart created from just 1n of sweat investment. With a little luck you can both use those 4n units as basis for future action, causing an explosive chain reaction

The challenge, however, isn’t daring to flash a creepy smile to strangers, or bothering to offer help to older people struggling with heavy bags of groceries, but to do it without making them secure their wallet & watch, and call for the police.

As a bonus you get to practice your social skills in order to be able to spontaneously approach strangers and start multiplying the farts. So, what will be your first attempt at creating rainbows?

Conclusion?

Always be investing. Try to find and use patterns that enable compounding rewards over time, be it incentivizing your kids to take care of their spirits, bodies and minds, or just to crassly amass piles of material wealth.