Once upon a time in the Fair republic, there was a national news organisation run by Mr Integrity. Every weekday morning, and especially on weekends, millions of readers picked up the newspaper to read informative opinion pieces or real stories written by individuals that believed both in their profession and in their cause, whatever it might be. Scoops from the newspaper made it to the radio and subsequently to the TV. Papers brought down governments and presidents, think Washington Post, and were the chief weapon in the hands of an informed population. From India to the United States, and from Japan to Germany, media served the public good.
In that golden age of journalism, our media organisations were quick to accuse Pravda and Xinhua of pandering to bureaucrats and spreading misinformation amongst their citizenry. In due course came the Internet, the smartphone, the blogger, the website and the online trading platforms. Then came the 24-hour business news network with names such as CNBC, Bloomberg, Fox- Business, BNN-Bloomberg and others.
Individuals that could not spell “straddle” were listening to experts highlighting “straddle trading”. If you do not know what that is, consider yourself fortunate, because those that do know and have learnt it on TV, are wasting precious resources chasing a chimera. You are “on-air” begins a gladiatorial contest to gain eyeballs and fill air-time. It also means that to stay on-air, anchors and producers imperiously create today’s heroes and tomorrows villains, because the show must go on. More importantly, in the business media, the subterfuge shifted from spotlighting political villains in the East, to highlighting opportunistic trading strategies driven by public relations firms for hire.
In a Facebook-driven world, where individuals are foisting every conceivable piece of information including pictures of their sock-drawer on unsuspecting friends and family, a desire to get-rich-quick in the stock market appears to be an easy way out for the self-inflicted misery of millions. For these individuals keeping up with the Joneses of cyberspace is task number 1. Therefore, while Warren Buffet and John Bogle both believe that in the stock market “Time is your friend”, that does not make for good TV. Hence the stalwarts are sidelined to annual ritualistic appearances, while the man who looks at a chart and preaches gibberish called buy-sell signals and does “rapid-fire” Q&A is a superstar. Jim Crammer famously said to Jon Stewart at the height of the financial crisis “I’m a guy trying to do an entertaining show about business for people to watch,”.
Then we have the shorts looking to generate so-called alpha (for those that do not know, alpha is the excess return of a specific asset over the market return of the same asset class). For some reason, these shorts feel the urge to advertise their positions to the entire marketplace, create a frenzy of negative publicity surrounding stocks that they are short in their portfolios, and prove to the world their short-lived two-bit smartness if they are correct. Nonetheless, if the shorts were collectively smarter than the equity market, then the so-called hedge funds would not have lost their wager of $1 million, over a period of 10 years, to Warren Buffet. As usual “Time is your friend” proved more valuable than pseudo alpha greatness. The irony is “the shorts” came up short when and where it mattered.
That brings us to Elon Musk and the predicament of Tesla Inc. Public relation consultants, equity analysts, media commentators are tied up in knots over Musk’s refusal to tolerate boredom and inanity. The premise being, that because Musk is the CEO of a public company, it compels him to tolerate insouciance. While on the one hand, the world wants to reward competence and innovation, on the other it wants the same innovators to tolerate ineptitude and irrelevance. It appears that the financial media would rather see Musk fail than succeed and is willing to go to great lengths to make that happen.
Recently, an email from Musk’s desk sent to Tesla employees became available in cyberspace. We quote Musk from that email, “Walk out of a meeting or drop off a call as soon as it is obvious you aren’t adding value. It is not rude to leave, it is rude to make someone stay and waste their time.”
Evidently, Musk is encouraging Tesla employees to focus and get rid of activities that are not value-added. If that email illustrates urgency and candour, within Tesla, why does the world outside expect to be treated differently? If shareholders, debtholders and brokers of capital are happy with that email, why are they unhappy at being cut-off? Is it because the brokers have engineered media access through public relations firms, whereas Tesla employees have nowhere to run! Before moving on it is essential to reproduce a few headlines to provide context, and as we write this, headlines have also changed course over time.
Attention deficit disorder on the Internet needs the next catchy headline to keep those eyeballs engaged.
Tesla Plunges After a Bizarre Conference Call – Bloomberg
As Musk Berates Analysts, VW unleashed a Massive Counterpunch – Bloomberg
Jim Chanos and other Tesla Short-Sellers are smelling blood in Water – CNBC
Short-seller Mark Spiegel says Tesla stock is worth zero – CNBC
The list goes ad-infinitum.
Let’s start with Mark Spiegel first. Whatever his pedigree, in his March 2018 letter to investors, Mr Spiegel outlined the performance of his fund thus: “Since inception on June 1, 2011 the fund is up approximately 102.7% net while the S&P 500 is up approximately 126.9% and the Russell 2000 is up approximately 98.4%. Since inception the fund has compounded at approximately 10.9% net annually vs 12.7% for the S&P 500 and 10.5% for the Russell 2000. (The S&P and Russell performances are based on their “Total Returns” indices which include reinvested dividends.)”.
That reminds us once-again of the wager that Warren Buffett placed. After fees, Spiegel underperformed the S&P500 by a cumulative 24.2% or approximately 2.7% annualised. If all CNBC wanted was a sensational headline, the least that the network should have done, is find someone who can keep up with the S&P500, if not beat it. Journalistic integrity and fairness to readers would demand it.
Not to be outdone in its crass commercialism, the ode to Volkswagen (“VW”) published by Bloomberg, fails to mention that VW mistakenly sits atop the good corporate governance pedestal after falsifying and cheating on its diesel emissions. VW agreed to pay fines to the Department of Justice, and multiple other agencies of the Federal government, which cost its shareholders $30B. The CEO of VW is being indicted by the justice department, while the Germans ponder over his fate.
In our view, good luck to all those believing anything VW says concerning its technology, battery range and commitment to the environment if that is important to you.
On the other hand, on Tesla’s Q1-18 call Musk said that most pertinent details are in the shareholder letter. Please read that. Musk then went on to explain the issues surrounding Model 3 in as much detail as required, with a particular emphasis on gross margins of model 3, the expected trajectory of those gross margins over time, and other relevant data. However, in our opinion, Musk was rightly flustered by needless nit-picking and repetitive questions asked by analysts to appear relevant. In our view, analysts are not entitled to get an answer to every question.
Moreover, in our opinion, some of those analysts on the call, while well-meaning do not know what they are talking about. We wrote to one, from a respectable global investment bank, seeking clarification on some of their data, valuation assumptions and conclusions. Instead of responding to us, they published an update correcting the errors we highlighted. Atrociously enough, the modified version was incorrect too! We never bothered to follow-up nor did they. Last we saw a quote from their research on the CNBC website.
In our view, they are wasting time and paper publishing on Tesla, and the bank that is supporting the said analyst is undermining its reputation and wasting its resources supporting him. Furthermore, for some reason, these same analysts feel slighted and entitled to come on TV, sit next to the short-sellers who have a mere fraction of their fund’s capital allotted to the short side of the trade, and pontificate, while the anchor or the host of the show does the cheerleading.
Musk has a lifetime of hard work, dedication and his entire fortune tied to Tesla. If we are correct in our interpretation of Musk, he is less interested in his wealth, and more in a vision of the future that is radically different from the past and the present. As Spiegel and his ilk, worry about protecting their jobs and the 2/20 model at hedge fund conferences while regurgitating ill-conceived facts that are known to all investors, Musk and his team are trying to create a new paradigm.
The man and his company may or may not deserve more capital from the markets, but they do deserve the benefit of the doubt, an acknowledgement of success beyond anyone’s imagination, kudos for a track-record of delivering what others can barely conjure let alone provide, and finally, civility. While we understand America is the land of free-speech and believes in a free for all capitalism, the way Musk and his company are portrayed currently with similarities to Enron; it is undoubtedly also becoming the land of “Fake News”. Mainstream electronic and paper-based business media and its journalists that are easily swayed by public relation firms for hire need to move on from #BTV 1234 Go, to something more substantive and constructive. That the last bastion of the tempered suffered a breach, was evident when even the Economist fell for melodrama.
In our humble opinion, fewer on-air hours would do citizen investors much good. Tesla is not going anywhere. The company will be around, the stock price will be volatile – if you cannot stomach volatility do not buy it – and the stock price will be much higher in a few years. If it is not higher but lower, we can still thank the pioneer who led the way towards a radically different future. Some believe that future envisioned by Tesla is better, whereas others do not. Time will tell.
In the end, either those that are short would have made a little bit of ill-begotten return and right to say, “I told you so”, or Tesla would be wildly successful. The media, on the other hand, would find it hard to escape from a narrative set in motion by President Trump called, “Fake News”. We are long Tesla and hope to make money for our clients by holding it for 3-4 years. We also hope to return to the integrity-based media of the Fair republic referenced in the opening line.
The whole narrative surrounding the Dow is Up; the Dow is down, the Dow swings 800 points is bogus. Reminds us of our daughter and son swinging on structures in the playground and being thrilled for a few minutes, while amused adults provide oversight.
The whole notion of “Breaking News”, is breaking the news. We are not amused.
For those keeping score now Candy has been added to the mix as well.