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So you have shares in Tesla – and you panic.
If that is the case, it is not a surprise. In recent weeks, CEO Elon Musk has taken his reputation for weird and erratic behavior to a whole new level – smoking marijuana live on the air – and your stock has lost a quarter of its value.
With tesla
TSLA, -2.12%
down 2% Tuesday at 279.44, it might be tempting to panic.
But here are 10 practical things to focus on.
1. We have been here before
In terms of percentage, the last dive is not the worst that has known the stock of Tesla since its launch in 2010. It is not even in the top three. On three occasions he lost more than a third of his value. In total, the Tesla stock has experienced nine large dives of 20% or more in the last eight years, as well as many smaller drops but still very unpleasant.
This has always been a very volatile stock. That's what you expect from a company created by a man seen as an erratic genius. MarketWatch analysis shows that on the average day, Tesla increases or decreases by more than 2%. That's more than three times the volatility of the S & P 500. Yet since the IPO in 2010, the stock has gone from $ 17 to $ 275 at the close of Monday.
2. People are banking on the stock
Tesla is not swollen by a dangerous complacency or euphoria on Wall Street. Only seven out of 25 analysts who cover Tesla have outstanding buy recommendations on the stock, reports Thomson Reuters. Nine are categorical sellers. These numbers were about the same 18 months ago, before the last major movement went up.
Meanwhile, many hedge funds and other speculators are already aggressively betting on the stock. The Nasdaq reveals that at last count last month, 33 million shares, about one-sixth of the total, had been sold short – which means speculators had temporarily borrowed shares and have them sold later.
3. Analysts expect Tesla to become profitable
Although Tesla is currently not profitable, analysts are currently waiting for this to change very quickly. And, as is generally the case with growing businesses, success would have a hockey stick style curve. The consensus currently provides earnings per share of $ 2.86 in 2019, $ 8.66 in 2020 and $ 16.83 in 2021. If Tesla met these targets, the current price of $ 275 is 96 times higher than expected. 16 times 2021 winnings.
4. There are long waiting lists for cars
The demand for cars until now seems to withstand, although that may change. Try to order a model 3 online, and Tesla always quotes a delivery of up to four weeks for the $ 49,000 model, up to two months for the "Performance" model at $ 64,000 and between two and four months for the $ 55,000 intermediate model. These figures are substantially similar to those reported early in the summer.
5. Are you an unconditional fan? Take a bowel test.
Financial experts suggest that if you are worried, you should check the stocks. Tesla shareholders should ask "why they bought the shares first," said Ashley Foster, a Houston, Texas financial planner. Are these reasons still true?
"Do they still have confidence in the vision and mission of the company? Do they still believe that Elon Musk is a visionary who will change the world? If that's the case, he says: Do not let the short-term fear hinder long-term goals. "
On the other hand, if your reasoning is no longer true, he says: It is better to limit your losses and find other opportunities for your money. A common sense check is to ask: if you did not already have the stock, would you buy it today at these levels?
6. Emotions are your enemy
Behavioral psychologists say that we usually make bad decisions when we are panicked or worried. Experts note that the irrational things that tend to invade our minds include focusing on what we paid for the stock, and what it did before. Both are irrelevant.
Keeping "until the stock comes back to where it was" is an attractive strategy without any logic. There is no guarantee that Tesla will return to $ 386. Buy more stock simply to reduce your average cost does not make sense either. This does not reduce the cost of the stock you have already purchased. This simply increases your exposure to the stock.
7. The current risk is real
Tesla faces a major fundraiser in about six months, analysts said. "This is a big issue," Rajvindra Gill warns Needham & Co. If the stock is below $ 360 next March, he says, Tesla will have to pay $ 920 million in cash to settle convertible bonds. In the meantime, he says, the company only has about $ 1.2 billion in available cash without restriction.
Thus, Tesla must have a positive effect on cash flow in the coming quarters to avoid a tightening. In contrast, Wall Street analysts expect the company to generate positive cash flow this year: the consensus is earnings before interest, taxes, depreciation and amortization of $ 1.6 billion and cash flow of $ 6.70 per share. action. Until now, the bond market does not panic about debt. While bonds at 2025 fell to 84 cents on the dollar, reflecting longer-term concerns, the 2019 bonds are still trading at face value and bonds at 2021 at near face value.
8. Stock market charts are risky
The 50-day moving average of the stock fell just below the 200-day moving average, an evolution known as the "cross of death." If this remains the case, it could still deteriorate, especially if it becomes a self-fulfilling prophecy.
On the other hand, if you look at the Bollinger Bands, a well known trading fork type that reflects moving averages and typical volatility, FactSet says that the stock is already at the lowest, implying a chance of decent support.
9. This is not the investment that was once upon a time
At the IPO, Tesla was valued at less than $ 2 billion. It was a small speculative bet on a visionary company with big benefits. Today, at $ 275 a share, Tesla shares are valued at $ 47 billion. It's about the same as Ford
F -0.75%
or Honda
HMC -0.46%
, and more than General Motors
GM -0.30%
. (Even though older companies have a lot more debt, their "corporate values" are much larger). The price of the action therefore already assumes a lot of success.
10. Consider reducing your position
If you panic, at least consider harmonizing your position. Investment experts generally advise not to hold more than 15% of your portfolio in risky or speculative positions overall, and not more than 5% in any given stock.
Many people find themselves with too hot stock just by accident: they buy it (thankfully) before making a bigger zoom, and then they do not reduce their holdings. Something that used to be 3% of their portfolio becomes 10% or more. Reducing it to 5%, even at the cost of a taxable gain, is generally considered a smart move. If it calms your nerves, it's a double victory.
The legendary Wall Street investor Jesse Livermore – who was active in the 1920s – told the story of a cotton speculator who was so nervous that he could not sleep. When a friend asked him why, he replied, "I'm wearing so much cotton that I can not sleep thinking about it. He's exhausting me. What can I do? The friend replied, "Sell it to the point of sleep. "
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