TomB16 investing blog

By the way, I'm probably less qualified than you but I pretend to be passingly acquainted with a couple of industries I saw featured on an episode of 60 Minutes in 1981.

 

That sounds decidedly less relaxing than he probably expected.

 

Thank you, Bettina. I'm not sure what you are referring to with your endorsement, or if it has anything to do with me, but I appreciate anything positive.

It's great to see you posting on the site. I look forward to getting to know you and your investment approach better in the future.

 

Dead Industries.

These days, we have a lot of industries and sectors that are on the way out. So many that it's hard to stay away from them. Here are a few thoughts on them.

Coal:

I think there is a long term need here but it's a minor fraction the industry, even at it's current size. At this point, I wouldn't buy a coal stock with WXYZ's money.

Oil:

Oil, as a fuel, is on the way out but I believe it is going to be an exit that will take 30~50 years. If we really wanted to convert to electrified transport, the fastest we could do it is likely around 30 years. I believe oil will be around for the rest of my lifetime. When we stop using oil as a fuel, there is still a need for petro-chemicals, etc. I'm guessing the cost of petro-chemicals will go up, as fuel becomes less used for transportation. Many of the petro-chemicals used today were once considered a waste byproduct of the refining process.

Oil is an easy investment for me. I'm familiar enough with oil production and oil field services that I can invest in some of these companies with a degree of comfort, thinking I have a bit of an understanding of the business dynamics. I own oil today. Of course, I plan to get out but those plans aren't imminent. In 10 years, I will probably have a different view but I'm not scared of oil today.

Banking:

The banking world seems to be on the cusp of disruptive change. There are new age financials that can loan small sums with extreme low overhead traditional banks can't touch. They can do it quickly, also. If you need a small business loan, you can use any number of startup lenders to get money in a day or two entirely through the web. A traditional bank would require an in-person visit and perhaps a couple of weeks. This is why banks prefer lines of credit, over traditional loans. They have too much overhead per-loan. Actually, they have too much overhead, full-stop.

Automotive:

At some point, it will be illegal to sell a car without full self driving. A Tesla with autopilot is already a multiple safer than a car without it. What's more, it's getting better.

GM's attempt at self driving is badly misguided. It does work, if you want to stay in one suburb of San Francisco, but it is not a generalized solution.

Auto companies still have a couple of years but they are going to have to buy an FSD solution. Of course, there are non available but I something will be available, in time.

I've considered the idea of Tesla buying the majors over time but I don't think that will happen. Tesla wants nothing to do with traditional auto, including the dealership networks. Maybe a company like Google will buy or partner with auto makers to guide them through the difficult task of setting the time on their VCRs which are currently blinking "12:00".

I don't hide my ownership of Tesla. They are the future and they are robust. At this point, they can make some mistakes and the company can survive. I'm not sure what that would look like, as they haven't made any mistakes of significance, but it's nice to know they are a bit durable.

Office Real Estate:

AI accounting isn't really AI but it's a step forward in automated accounting and staff reduction. Office work is not on the rise.

I own an office REIT. It took a big hit in March and has only partially recovered but it continues to pay a terrific dividend. This company is on the way out but I don't think it's imminent and I'm in no rush to exit this rather small position. Like our oil companies, it has paid for itself and continues to deliver a nice yield.

Healthcare:

Everything I read indicates we are on the cusp of a healthcare revolution. There is talk of curing cancer genetically, before people even get it. There is talk of imminent genetic cures for hundreds of ailments that we either chronically treat today or have no treatment at all.

To be clear, I have no thought of healthcare going away. I just think we will be able to treat a lot more with a much smaller footprint. What's more, the treatments will be permanent so the cost will be a fraction of current healthcare costs.

This is a big one for me because we have a lot of healthcare in our portfolio. It has treated us very well over the years and I am loathe to divest of it. At some point soon, I will have to mitigate our risk in this field and reduce our position.

 

I was reading the COVID bankruptcy thread, thinking about the 33% GDP hit this quarter, looking at the 178.25 WBI, and considering our record high portfolio valuation.

To be direct, this is entirely whacked. Zero chance the Fed does not have their thumb on the scale. Zero.

You will not catch me with S&P 500, at this point in history. In fact, I think I'm going to step away for a bit while others diffuse this bomb.

 

We just too a massive gain today. Wow.

Someone is pouring money into the hands of investors. If we were honest, we all know where it's coming from.

 

Our portfolio is ridiculous. Don't let the 32% GDP hit and record unemployment fool you. We're way, way, way up. Unreal.

Meanwhile, the WBI is just the tiniest smidgen below 179.

No way this can carry into December 2020 but then.......

 

Hi Road.

I have no capability to predict short term price fluctuations, which a five month prediction would be. We bought Tesla in 2016 with the intention of holding it for 10+ years. If it starts paying a decent dividend in the next five years, we may never sell it.



We are, however, approaching near term inflection points that could have an impact on price.

1) On September 22, Tesla will hold their "Battery Day".

Elon has hyped battery day quite a bit. I believe this is what is driving the current valuation.

It's difficult to imagine this as anything but a liability for Tesla stock holders. Surely, most/all battery day hype is baked into the price.

Tesla seems to be positioning itself to provide batteries to the entire industry so the significance of this is not small.

2) Giga Shanghai expansion and Giga Berlin production

Shanghai has been producing cars at roughly double the previous rate for the last two weeks. Perhaps this means a second general assembly line is now operational. The Y line is expected to come online at the end of this year. I predict it will be operational for small volumes around the first of November.

Berlin is said to be the first of a new production model that will push back the boundaries of efficiency. Time will tell if this is true and/or significant. Cars are expected to be produced in Berlin in 2021. That doesn't have a lot to do with your December question but the market cap will go up once people can see/believe it will come online, not when it actually does.

3) FSD

When FSD hits, Tesla will explode. It will change the world.

My opinion is that production isn't nearly as relevant to the stock price as FSD but it is more relevant than incremental changes to battery tech. For batteries to be more significant to Tesla's valuation than production, Tesla would have to take a major step forward, perhaps on the order of either 20% energy density improvement or 20% production cost reduction.

Tesla was in the low $200 range, last summer. It was $500 at the end of the year. It was $1000 three months later. Now it's $2000 5 months after that. Tesla is increasing their production capacity at a rate of 75% per year, which is astonishing, but that doesn't justify the market cap which has been going up at a rate of more than double that.

 

That is an intelligent question, IMO.

BI = Buffett Indicator.

Buffett Indicator = Total Market Capitalization / Gross Domestic Product

WBI = Use the Wilshire 5000 index to represent market capitalization, since it is an approximation.

WBI = Wilshire 5000 / GDP

Wilshire 5000 is a convenient way to get something very close to the total market capitalization so it is used almost universally to calculate the Buffett indicator. Buffett has said total market cap but I suspect Buffett also uses the Wilshire 5K in the numerator of his indicator, since the metric is readily available in near real time.

 

After today's wild ride, the WBI is now at 182.82.