Sign in     Like us on Facebook Follow us on Twitter Watch us on YouTube

News and Blog

Join 5000 other sharemarket traders for regular blog updates!

Browse to a category

Blog Search

Elon Musk Versus the Haters

Before jumping on a plane to London later this evening this article popped into my feed – Elon Musk Versus The Haters

Mark Spiegel likes to think of himself as a car guy. That’s why he began shorting the stock of Tesla Inc., the electric-car maker that is part of CEO Elon Musk’s mission to save the planet, starting with the auto industry. “I’m a total car nut; cars fascinate me,” says Spiegel. That said, he has never driven a Tesla. It just doesn’t interest him. “I’m more into sports cars,” he explains. As for the environmental benefits Tesla promises, he says, “I am agnostic on that.”

But the 56-year-old hedge fund manager has an opinion on Tesla’s high-flying stock — and it’s bad. Dressed in khakis and a baby-blue polo shirt when we met recently for drinks at the Pierre hotel’s art deco cocktail lounge in midtown Manhattan, Spiegel is a wiry ball of energy who explains how selling commercial real estate to guys running garbage and garment companies in the Bronx and Queens taught him that business is “sharklike.” He’s jazzed up on two Diet Cokes and talks almost nonstop about Tesla’s financial woes, ranting about what he calls the deceptiveness of Musk, the man whose supporters believe is the reigning visionary of Silicon Valley following the death of Apple co-founder Steve Jobs.

“Tesla is a zero,” Spiegel declares, reiterating the theme of his short presentation at the Robin Hood investment conference last November — a thesis that boils down to the fact that Tesla has been burning through cash and losing hundreds of millions of dollars a quarter, and will face a slew of electric-car competitors over the next few years. These include rivals like Porsche, which is what he drives. “Tesla is losing a massive amount of money with no competition, and yet massive competition is coming,” he says.

Spiegel has become something of a zealot on Tesla. His small hedge fund, Stanphyl Capital Management, runs a mere $8.5 million, given that it was down 20 percent this year through August. That’s largely due to his short of Tesla, which had gained 74 percent this year, making it the worst-performing short of the year through September 20, according to S3 Analytics, a firm that tracks short sales. Tesla is also the biggest short in the U.S. market; about 27 percent of Tesla’ free float is short, for a value as high as $10 billion. Even so, Spiegel says he has gotten a “lot shorter” as the stock has soared; it’s now 25 percent of his fund. “The bigger the position gets, especially when it’s going against you, the more it tends to focus your mind,” he says.

This first section is extremely instructive and a terrific lesson in what not to do. My first comment would be a rather churlish one – $8.5M is not a hedge fund, its a personal  account and given that the fund has a concentration bet on TSLA going down one could say it is perhaps not the most savvy fund going around. Nor is it surprising that it is only $8.5M. However, what is interesting is the degree of obsessiveness displayed by Speigel with regard to TSLA and particularly Elon Musk. Musk is a polarising figure – particularly for short sells of all sizes who seem to be fixated on him. This fixation is intriguing because it is a form of displacement – this displacement to an external agent is used to generally allay anxiety in the face of some form of calamity. In simple terms it is easier to blame someone else than to take responsibility for your own actions.

…..Einhorn, too, is losing money shorting Tesla as part of what he calls his “bubble basket,” as is renowned short-seller James Chanos of Kynikos Associates, who has been railing against Tesla for at least two years on CNBC and at numerous conferences. He has gone so far as to call Tesla a cult.

“If you wouldn’t short a $65 billion company with negative free cash flow, questionable accounting, an executive exodus, in a soon-to-be-competitive industry, what would you short?” Chanos said in a September 20 interview with Institutional Investor, telescoping a litany of the short sellers’ complaints.

Tesla may have briefly surpassed General Motors Co. in terms of market capitalization, but it is swimming in red ink. Its cumulative losses have hit $3.7 billion, and negative free cash flow was $1.8 billion as of June 30. Both numbers are expected to get worse before they get better. Negative free cash flow could hit $4.7 billion this year, for an unprecedented total cash burn of $10.6 billion, says Sanford C. Bernstein analyst Toni Sacconaghi.

Small wonder everyone who’s anyone in Wall Street’s small and clubby world of short sellers has been short Tesla at one point or another. Citron Research’s Andrew Left, famous for his bomb-throwing short research, was one of the first to publicly attack Tesla, in September 2013, three years after it went public, when it was trading around $180. He warned investors that “the stock is perched at a level of extreme unsustainability.” He reiterated his short arguments this summer, when it was trading at $327. Another Tesla basher is retired short-seller David Rocker, who says Tesla “is one of the most incredulous divorces between facts and dreams” he’s seen in a 50-year career of investing. Rocker has 2 percent of his net worth short Tesla, and he also has become an investor in Stanphyl Capital……

As they say misery loves company – what is interesting is that traders with the same narrative tend to cluster around. Confirmation bias is a large problem in trading because traders dont want to hear a differing opinion they want to hear their opinion mirrored back to them as if it were correct. Such traders will keep asking people for their opinion until they get the same opinion as theirs. All other opinions are discarded and then their own opinion is reinforced.

You notice to how the narrative is simply a story that someone has created and the more desperate the situation becomes the more the narrative is clung to as fact. Poor traders never realise that their narrative is simply a story it is not fact – the fact is that TSLA is up 72% this year and in the first half of the year made a continual series of new 52 week highs. These are the facts and you they do not alter whether they are believed or not. Price has no capacity at all to absorb anyone’s narrative, therefore it doesn’t care because there is no way to enforce a narrative on price. You may get lucky and price and narrative may briefly align but then this is just luck it has nothing to do with idiosyncratic notions of personal ability. With regard to the future of TSLA – I have no idea and nor does anyone else. It may go to zero or it may go to the moon.

Learn To Think

CaptureSomeone who clearly doesn’t know me very well sent me this meme. Apparently, it is from one of our many cognitively challenged politicians suggesting that the unemployed should all go into the armed forces. Whilst, it is a profoundly stupid idea as we will see in a minute it will no doubt play well with those parts of Australia where teeth, IQ points and sexual partners who are not related to you are in short supply.

Despite this it is an incredibly instructive piece about the power of a simple phrase which is merely a short narrative and the need to actually think. The meme seems to in a clear manner solve several assumed problems.

Unemployed youth are a problem.

It assumes that unemployed youth are a problem themselves as a matter of character.

The military can fix these problems because the military fixes character flaws.

Unemployed youth will be better when they come out of the armed forces.

It will save us money because they won’t have to be paid unemployment benefits.

You will also note that like all strong simple narratives it contains an element of bias. It assumes that there is something wrong with the group being referred to and they can be fixed quite easily. It is at this point that most people stop thinking and fail to consider the implications of what they have read.

To look at the reality of dumping all the unemployed youth into the armed forces I have done a bit of dodgy back of the envelope number crunching. Currently the Australian Defence Forces (ADF) personnel number 57,982 – a relatively small but professional organisation. The current budget for the ADF is $34.2B. Both these numbers are important since the form the basis for my broad brush guesswork. As best as I could tell from the labyrinthine government statistics there are about 300,000 unemployed youths between the ages of 16 and 24, which also neatly is just on the lower limit for selection. I couldn’t readily find a better breakdown so I am going to assume that this is our effective population available for service.

In the first of my really sweeping generalisations I am going to assume that we dump all 300,000 into the ADF, so the size of the ADF goes from 57,982 to 357,982. It is here that our brilliant slogan begins to run into trouble because you have to feed, cloth, house and train this suddenly resurgent military lest you have 300,000 bored bastards sitting in a field outside Puckapunyal looking for rocks to paint.

If we assume continuity in levels of training and equipment then the ADF’s budget is going to have to go through the roof. If it costs us $34.2B to have a military of 57,982 then I going to assume that to expand the military almost five fold then we will have to expand the military budget fivefold. All of a sudden the ADFs budget goes from $34.2B to $171B (I have assumed folding in the current expenditure).

This number needs to be put into context. It would mean we have the third largest military budget in the world behind the US and China. It would be about 7% of our GDP and about $68,000 per person – giving us the most expensive military in the world based upon GDP and per head expenditure.

So how much does this save us?

Apparently the most expensive part of the unemployment/welfare miasma is the Newstart allowance which approximately $10B per year which is shared among 858,373 recipients. Again assuming a simple pro rata breakdown our 300,000 unemployed youths cost us $3.5B per year.  Therefore the brilliant decision to lob everyone into the ADF costs us $167.5B per year ($171B – $3.5B)

I accept that my dodgy figures are probably off by miles but it still easily shows what an incredibly stupid idea it is. Even if I am off by an order of magnitude it is still stupid but more importantly it was easily shown to be stupid with little more than a pencil and a piece of paper. Consider this in the context of your own trading, most of the things you hear are stupid and can be shown to be so with a little bit of critical thinking. But is it is this critical thinking bit of the equation that lets people down, we are primed for simplistic explanations and slogans. Thinking is a metabolic and emotional cost because what you find out may run counter to what you believe to be true and nobody wants that to happen.

Well At Least He Was Honest

But I’m not primarily interested in the main story. Instead, I’m struck by a line of testimony offered at trial by then-Bear CEO Jimmy Cayne that does not even show up in subsequent court opinions, despite extensive recitals of the facts of the case. The generally “cocksure” Cayne apparently thought that his firm could be in trouble so he took a creative and disarmingly honest position given how aggressive Bear was in promoting Angell’s alleged expertise to its customers. Cayne brazenly asserted that Angell was merely an “entertainer” whose advice should never give rise to liability.

Economists are right only 35 to 40 percent of the time, Cayne testified. “They don’t really have a good record as far as predicting the future,” he said. “I think that it is entertainment, but he probably doesn’t think it is” (and I doubt that the Count was much amused). Cayne even noted that Angell did not have a real job description at Bear (a claim that Angell’s bioseems to support). “I don’t know how he spends most of his time,” testified Cayne . “He travels a lot and visits people and has lunches and dinners and he is an entertainer.”

Notice that Cayne did not even pay lip service to the idea that Bear’s clients were entitled to the firm’s best efforts based upon the best research (or even their best research). Moreover, he did not seem to think that the Count deserved honesty together with competent advice. For Cayne, the goal was simply to be entertaining and to make sales. That the Count lost hundreds of millions of dollars was merely collateral damage (and not even necessarily unfortunate at that).

More here – Above The Market


It is only isolating if you are a dickhead – which is true of most things in life.

It’s a rainy Wednesday morning and Clay Cockrell is sitting in his office at Columbus Circle across the street from 1 Central Park West, which houses Trump International Hotel and Tower. In front of the tower is Central Park, where Cockrell holds his popular walk and talk therapy sessions.

Dressed in comfortable pants and a flannel shirt, Cockrell, a former Wall Street worker turned therapist, spends large parts of his days walking through Central Park or the Battery Park in downtown Manhattan near Wall Street, as a confidant and counsellor to some of the New York’s wealthiest.

“I shifted toward it naturally,” he said of his becoming an expert in wealth therapy. “We are trained to have empathy, no judgment and so many of the uber wealthy – the 1% of the 1% – they feel that their problems are really not problems. But they are. A lot of therapists do not give enough weight to their issues.”

And as they stroll through Manhattan, what issues are America’s 1% struggling with? There is guilt over being rich in the first place, he said. There is the feeling that they have to hide the fact that they are rich. And then there is the isolation – being in the 1%, it turns out, can be lonely. It seems F Scott Fitzgerald was right, the very rich “are different from you and me”. Especially in 2015.

More here – theguardian

I Once Tried To Cheat Sleep, And For A Year I Succeeded

We were aware that difficulties were bound to arise, but we didn’t realize how bad sleep deprivation truly feels. Alex went back to being monophasic, but I was determined. To make it work, I changed to an easier sleep schedule: the Everyman, where I slept for 3.5 hours at night and took three 20-minute naps in the day.

After three weeks and a few more obstacles, I finally settled into the new schedule. I was getting 4.5 hours of sleep in total, which was just a little more than half the hours I used to sleep.

The extra time was proving to be a wonderful benefit: I finished my first-year thesis; successfully defended it; decided that after finishing my doctorate I didn’t want to be in academia for the rest of my life; got a chance to explore Oxford University’s wonderful offerings without sacrificing on lab time; started exploring other career options, including writing, which eventually led me to become a journalist.

There were other gains. I found myself waking up fully refreshed after a nap. Quite often, before the alarm began ringing. The best bit was that I was benefitting from that superb early-morning blank mind four times a day instead of just once.

More here – QUARTZ

PS: the cynic in me really wants to suggest that if cheating sleep for a year lead to a decision to become a journalist then sleep actually won….

Billionaires Bunkers

Are you laying awake at night fearing the next zombie apocalypse? If so then you need your own bunker….

Vivos founder and CEO Robert Vicino announced Vivos Europa One which will be an invitation only, five star, underground survival complex, similar to an underground cruise ship for the elite. Each family will be provided a private 2,500 square foot of floor area, capable of two story improvements for a total of 5,000 square feet of private living quarters. With fit and finish comparable to a mega-yacht, each member family will hire their own architect and contractor to build out their living quarters to the custom standard they desire.

The expansive shelter is located in Germany and is one of the most fortified and massive underground survival shelters on Earth. Originally built by the Soviets during the Cold War, this shelter was a fortress for military equipment and munitions. After the DDR was merged with Germany, the German government inherited this relic and intended to use it for the same purpose of weapons storage. However, due to a law prohibiting the storage of ammunition near a major highway, the German Government soon realized they could not continue with their plans and decided to auction this 76 acre complex. A wealthy investor purchased the entire property, along with all of its improvements, both above and below ground. Vicino says “We are proud to bring this epic project forward in these increasingly dangerous times.”

More here – ForbesLife


One of the great  problems that traders of any size and ilk face is the notion of being taken seriously by friends, family and the community at large. Telling people you are a trader often conjures up all sorts of negativity, this process is not helped by the nonsense things that they read.

This morning I went to my mailbox and collected a copy of your trading edge, which I somehow receive for free. Upon opening it I was greeted by the wonderfully professional and grown up headline – Horse Racing Using Hindu Astrology….WTF? The magazine has many other articles by individuals who are respected in the industry but people seeing the magazine don’t see that, they see this pseudoscientific nonsense dressed up as a  strategy for horse racing. The remaining content of the magazine is irrelevant simply because of this one headline.

Is this the best that can be done?

General Advice Warning

The Trading Game Pty Ltd (ACN: 099 576 253) is an AFSL holder (Licence no: 468163). This information is correct at the time of publishing and may not be reproduced without formal permission. It is of a general nature and does not take into account your objectives, financial situation or needs. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs.