Sorry, sometimes life gets in the way of hanging out on e-r.org. Had a nice picnic on Bear Island yesterday and sliced and steamed the pastrami that I smoked the day before. Spectacular stuff!
Sorry to have been obscure. I'll amplify:
The "thing" is speculation that is not grounded in fundamentals. There is no news here; this has been going on far longer than my 50 years in investing. Warren Buffet's mentor and former employer, Ben Graham, discusses the problem in "
Security Analysis," first published in 1934 and in "
The Intelligent Investor," first published in 1949.
The scenario is always pretty much the same: A stock or a class of stock is levitated beyond any financially justifiable price based on speculative enthusiasm. Speculators seem to be of two types; "true believers" are enthused about the business and forget that a good business is not necessarily a good investment, and "traders" who bank on the "Greater Fool Theory." (
https://en.wikipedia.org/wiki/Greater_fool_theory) Here is Graham (in "
The Intelligent Investor") on the problem:
" ... we hope to implant in the reader a tendency to measure or quantify. For 99 issues out of 100 we could say that at some price they are cheap enough to buy and at some other price they would be so dear that they should be sold. The habit of relating what is paid to what is being offered is an invaluable trait in investment. In an article in a women’s magazine many years ago we advised the readers to buy their stocks as they bought their groceries, not as they bought their perfume. The really dreadful losses of the past few years (and on many similar occasions before) were realized in those common-stock issues where the buyer forgot to ask “How much?"
Really, this is very old stuff. Think "tulip bulbs." (The first few chapters of "
Memoirs of Extraordinary Popular Delusions and the Madness of Crowds," published in 1841, are a fun and maybe even a worthwhile read.)
Sometimes speculators do win. That is why I included Amazon in the list. Nobody would play the slots either if they didn't win once in a while.
WADR, this is a classic but fallacious argument that implicitly assumes that a good company is automatically also a good investment. Try this: At $1, would you buy Tesla? I think so. How about at $1,000,000? I doubt it. So between those two there is clearly a price where you would judge that buying Tesla would be unwise. Any speculator who does not recognize this is not thinking clearly or has a "greater fool" strategy. Lots of money has been made by people counting on a greater fool coming along, but there is a always point where no more fools show up and the fun stops.
I don't have any strong opinions on Tesla itself except a sincere admiration for their self-promotional skills. Compared to other players they have nearly zero experience in building cars* and they have nearly zero in distribution and service networks. They are the first movers though and that often counts for something. My guess, though I don't feel very strongly about it, is that the stock will crash for some reason and that the car piece (with its valuable brand) and the battery piece will be sold off separately. A Sword of Damocles hangs over the battery piece, though, where its huge capital investment is vulnerable to being instantly destroyed by a significantly better or alternative energy storage technology.
It's been a long time since I played these games, though, so my opinion really doesn't matter.
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*From a quick internet search: Chevrolet produced about 2 million copies of just the the ill-fated Vega. This is roughly five times' Tesla's total production. Overall GM's
annual production is about 25 times Tesla's
lifetime production.
and can buy you a Tesla is wrong on both counts.
