1) I understand if you ignore most marketing e-mails – I do too! – but I wanted to draw your attention to one you received recently from us with an offer for the Empire Financial Partnership, which I hope you’ll take the time to read.
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2) A 10-bagger in investing is extremely rare, but a 100-bagger is almost unheard of.
You only need one or two of these in a lifetime to ensure a fabulous long-term record (and a comfortable retirement!), even if you make a lot of other mistakes.
It’s really hard to identify a stock that goes up by 100 times – but even if you do, that’s only the first (and, I’d argue, easier) step to actually making 100 times your money. The even harder second step is to have the discipline and patience to hold that stock through all of the ups and downs, the recessions and market panics, crazy stuff like COVID-19 – and, of course, the inevitable attacks by the naysayers and short sellers as the stock goes up 10 times… and then another 10 times!
For example, I owned Apple (AAPL) and Amazon (AMZN) well more than 100-baggers ago, as well as Netflix (NFLX) and Ross Stores (ROST) (yes, Ross Stores!) 50- to 100-baggers ago, but in each case, I got stupid and sold way, way, way too early!
With this background, I wanted to share the story of my analyst Kevin DeCamp’s 100-bagger with Tesla (TSLA) (as of today, it’s “only” a 94-bagger). But before doing so, let me tell you about him…
He’s not some high-flying Harvard MBA. In fact, Kevin comes from a very modest background, and he’s a CAT scan technologist for various hospitals on Long Island. He invests in his spare time and is entirely self-taught. Other than working for me part-time over the past five years, he’s never worked a day in the industry nor taken any investing classes or had any mentoring.
We met in March 2015 at Jackson Hole in Wyoming. I was skiing with two friends, and as three of us got on the four-person chairlift, a snowboarder (Kevin) came up the singles line and sat next to me. As we rode up the lift, my friends and I were talking stocks.
About halfway up, Kevin said, “Excuse me, but are you Whitney Tilson?”
I almost fell off the lift. My friends hadn’t said my name, and I was wearing a helmet, goggles, and facemask, so even my mother couldn’t have recognized me.
I said, “How the hell did you know that?!”
He replied, “I recognize your voice from CNBC!”
So he joined the conversation. Given his youth and the fact that he must watch a lot of CNBC, I figured he must be some day-trading fool, but then he told me he owned Berkshire Hathaway (BRK-B), which really impressed me. (He was clever enough not to tell me he also owned Tesla!)
He skied a couple of runs with us, and we took this picture:
Then, as we were splitting up, he asked for my e-mail address. I gave it to him, but never expected to hear from him again. But not long after our encounter, I did. He wrote and offered to do any work I wanted – for free. So I gave him a few little projects, which he did well, and the rest is history…
I only wish I’d been smart enough to listen to him regarding Tesla! He first bought TSLA shares in late 2012, when they were trading for around $35 ($7, adjusted for the recent 5:1 split), and has held the stock ever since. He’s traded around it a bit and recently took some profits in his retirement account, but remains bullish on the company and stock (I’ll share his current thinking in a future e-mail).
Further below is the e-mail he sent nearly two years ago (on March 25, 2019) to me and a dozen guys who had taken one of my seminars. Even though Tesla at the time was up 8 times from where he had bought it, we now know it still had another 12 times to go!
Alright, the time has come for me to come out of the closet as a Tesla bull (even though Whitney pretty much pulled me out, ha ha). I strategically kept this to myself with this group until now, as I figured any scrap of respect that I may have earned from any of you over the last year would be lost if you found out I owned this stock.
The point of this e-mail is not to try to convince you of the bull case, but to explain how it is even possible to have a full set of chromosomes and actually believe in it! And also, I think it is a pretty good story of how it came to be.
When I met Whitney on the ski lift one of the first things that I told him was that I had owned Berkshire for 10 years (now almost 15) in order to try to prove that I wasn’t a typical retail investor. When I first got involved with the market, I was sucked into all the hype during the tech bubble in 1999 and started reading up on it. I sensed that something wasn’t right, so I bought Caterpillar (CAT) and ExxonMobil (XOM).
And then my friend pretty much told me I was an idiot for buying these boring, Old Economy stocks, and that I should instead buy tech stocks if I actually wanted to make money. That was my first experience as a value investor, being called an idiot. Within a year, the tech bubble peaked and then crashed – and I was hooked on value investing for life.
However, I am a sucker for certain high-risk growth stocks and over the years I have allocated a small percentage of money to them. I really just can’t resist. But I size them small enough where if I lose it all (which actually only happened once when I followed a hedge fund manager into Sun Edison), I will barely feel it and I’ll just think of it as a tuition payment. And, over time, if I gain more confidence in the company, I will actually add to the position.
Because of this I was a subscriber to the Motley Fool Rule Breakers and Hidden Gems newsletters for many years. Before I met Whitney, it wasn’t as easy to get my hands on good research and these two newsletters were pretty good to me and I learned a lot.
One of the recommendations in Rule Breakers was Tesla, so I bought a small position in late 2012 (less than 1% of my portfolio). Buying a small position like this really motivates me to learn more because I have skin in the game.
A few months later I learned that there was a Tesla store in the Roosevelt Field Mall near my home, so I went to check it out. There was a very nice saleslady and a Model S in the middle of the store and that was about it. The store was pretty much dead, so she had plenty of time to chat with me. She told me her job was to educate people not only about Tesla cars, but electric vehicles (“EVs”) in general.
I was very impressed by the design of the car as well as the similarity to the Apple store. I had bought Apple shares during the 2008 recession and had come to respect the importance of the seamless integration of hardware and software – that [Apple co-founder Steve] Jobs obsessed over – and the resulting success of the iPhone, and couldn’t help but see parallels with Tesla, which motivated me to do more research.
And by “research” I mostly mean watching YouTube videos. I found one in particular that really helped me start to understand the Tesla “story”. At the end of the day, this is a “story stock” and I think it is one of the best story stocks of all time (for the record, I am keenly aware of the dangers of getting caught up in such “story stocks”). I highly recommend watching this National Geographic “megafactories” documentary for those who are interested in Tesla.
It is interesting for me to watch it now and realize both how naive I was at the time – and also how far the company has come. This documentary, as well as a Bloomberg video profile of Elon Musk, helped me better understand the Tesla story, and I doubled my small position.
The stock had been trading in the mid-$30s for a long while and a few months later it broke out for the first time into the $40s in early 2013 (all prices pre-5:1 split). I had read The Complete Turtle Trader by Michael Covel the previous year and began to believe that “trend following” was one of the only technical trading strategies that actually made sense. One of the main tenets of trend following is to buy strength, especially in the case of a major breakout like this, under the assumption that “the market” knows something.
So I blindly doubled my position again, not knowing how close Tesla was to bankruptcy. We later learned that Musk had approached Google co-founder Larry Page for a potential buyout to save the company around that time.
Over the next weeks and months the stock went from the low $40s rapidly to above $100 as sales of the new Model S soared and Tesla posted a surprise profit. The stock then doubled to around $200 in one of the most epic short squeezes of all time.
I sold a bit of my position in the $120s, but continued to hold most of it because I had become confident (in hindsight, probably overconfident) of my ability to recognize this “story” before those smart finance guys due to my understanding of physics and my experience investing in Apple.
Over the course of the next few months I learned a lot about the superior technology of EVs such as the efficiencies of electric motors compared to gas engines (90% vs. 30% at best). I also spent more time learning about Musk’s background and goals, and the history of electric cars. Another documentary that I recommend is Who Killed the Electric Car, about the history of General Motors’ (GM) EV1 program – it’s a fascinating story. In short, GM would not allow the many happy EV1 owners to buy out their leases and instead took the cars back and destroyed them all.
After watching this, the Tesla “story” started to morph into something much bigger. This is a key point: the Tesla story is much more than an EV/sustainability revolution story. It is also a story of a war against special interests, crony capitalism (e.g., some states, at the request of auto dealers, ban Tesla showrooms, and Texas’ recent attempt to ban the company from even servicing its cars), and corporate greed (see the VW Dieselgate scandal). To me, it also represents a David vs. Goliath battle (everyone loves an underdog story, no?), and American ingenuity and the role that immigrants have played in this.
Of course, Musk plays a central role in all of this and I think his success as a leader (cult leader if you prefer) has to do with his ability to tell stories. See the book Sapiens: A Brief History of Mankind to understand the importance of storytelling in human history. (I think Donald Trump is also good at this and it’s one of the reasons he also has a cult-like following. It’s not necessarily important if the stories are true! What’s important is that they are told in a simple way that resonates with people.)
Musk has told the “story” that the only reason Tesla was created was because GM destroyed the EV1 (maybe with the oil companies and corrupt politicians… COLLUSION!). I have no idea if this is even true, but it resonates with people and this enables Musk to solidify his base and create new followers. One could surmise that this is what drives Musk – he actually believes his own stories. He told the New Yorker that as an “undersized and picked upon smart-aleck,” he turned to reading fantasy and science fiction. “The heroes of the books I read, The Lord of the Rings and the Foundation series, always felt a duty to save the world.”
So, yup, by mid-2013 I was a Musk fan. I have no shame admitting this especially after seeing so many smart investors fall for that drunk Michael Pearson [the former CEO of Valeant] and lose billions in the process. After witnessing that, is it really so bad to admire a guy like Musk?
You can imagine what Tesla’s big stock move did for my ego – especially given that I’m just a CT tech who teaches physics on the side. I was riding high for many months in 2013, but it didn’t last long as a few Model S cars caught fire after running over relatively small objects. Not surprisingly, the stock traded lower. As I’d already sold a portion of the position earlier, I held on for the ride as it went from the $180s to below $120.
The speed at which Tesla fixed this problem, however, was impressive – they added a three-layer barrier of aluminum and titanium that greatly reduced the probability of a fire while only affecting range by 0.1%. I actually added to the position at this point after seeing how fast they were able to react, and NHTSA closed their investigation a few months later.
I bring up this example because it was the first of many instances in which the company went through an existential crisis yet managed to get through it (remember I wasn’t aware of the near-bankruptcy earlier that same year and then I also learned of an even closer near-death experience during 2008).
I would say the next major incident was when Tesla started producing in volume the over-designed Model X. Customers were having major issues with the falcon-wing doors among other things, but the company got through it. Then, the mishaps (and deaths) associated with the autopilot (which Tesla built from scratch after ending the partnership with Mobileye), the Solarcity acquisition drama, and – I think the biggest of them all – the Model 3 production debacle.
But Tesla managed to get through all these crises. Later on, after reading Nassim Taleb’s Antifragile: Things That Gain From Disorder, I came to believe that there is no better example of an “antifragile” company than Tesla.
So to continue my “research,” I decided to test drive the car in 2014 just to see what all the hype was about. I set up the appointment online, went to the same Roosevelt Field Mall store, and that same woman, Yvonne (who still works for the company), took me for the test drive. She told me that interest in the company had picked up a lot since last year, but she must not have had too many test drives set up that day because she let me drive for at least a half hour all the way down to the south shore of Long Island and back.
The experience was amazing! The instant torque was like nothing I ever experienced and I remember feeling as if the car did exactly what I wanted it to do – instantly. I had absolutely no intention of wasting money on such an expensive car – I figured I would wait for the cheaper Model 3 that was due out in a few years (I didn’t think a whole five years!). But after that test drive, there was no turning back.
A few months later, I put in my order for a black Model S 85 and received it four months later in August of 2014… and the rest is history. I just passed the 100,000-mark the other day. I still love the car and view it as the best investment I ever made (as ridiculous as that may sound, I mean it).
About seven months later, I decided to go on my first solo trip our West, where I met Whitney on the chairlift. That day, he told me about the Tesla short and I actually had no idea until that moment that he was one of the guys shorting the stock! Can you blame me for not telling him at the time that I was long TSLA and owned a Model S?! I’m pretty sure he would have never replied to my e-mails…
About a year later, I went on a 6,000 mile snowboarding road trip to the Rockies in the middle of the winter, which was the most epic trip I have ever been on (here are some pics).
A few months later I reached out to a former sell-side analyst who covered Tesla, Andrea James, who was making a career change and became a career coach. She offered a free 20-minute conversation to see if what she offered would be of value. Although I’d never even heard of a career coach before that point, I figured it was a good way to make a new connection in the industry (since I only had one at that point!). Long story short, I hired her for a few months, she helped me write the proposal e-mail I sent to Whitney for getting an analyst job (she was an editor in the past) and it worked!
The next year she ended up working for Tesla part-time in investors relations and invited Whitney and me to a tour of the Tesla gigafactory in early 2017. Whitney was all over it because he was tempted to short the stock again after Mark Spiegel’s first “Tesla is a Zero” presentation at the Robin Hood Conference in 2016. But after touring the gigafactory, he decided not to and wrote an e-mail explaining why. Excerpt:
Overall, I was quite impressed and have decided not to short the stock – though with some feelings of regret because I think there’s a decent chance it works on the short side, but this is offset by my feeling that there’s maybe a 20% chance that Musk and J.B. Straubel pull another inside straight and the stock spikes upward.
At the time, the stock was around $210 (up from ~$180 when Spiegel presented his short case), so this was a smart decision as the stock rallied to as high as $380 that summer (it’s basically been in a trading range between $250 and $380 ever since). Of course I was happy that Whitney didn’t go short and that I might have had a little to do with that.
As 2018 rolled around, it seemed to me that the probability of bankruptcy had gone way up due to the Model 3 production debacle, so for the first time in five years I sold some stock (and this was before the whole “funding secured” Twitter choke). I also considered upgrading my Model S, but decided not to because I didn’t want to end up a double bag holder. But as time went on, Model 3 production picked up and things seemed to stabilize, so I added to my position.
I didn’t write this e-mail to convince you of the bull case. But I do think that there is a decent chance (40-50%) that the bears are wrong about demand and the SEC investigation won’t result in anything major, in which case we’ll get another rip-your-face-off rally in the next 6-12 months precisely because the shorts are really piling on and so many people think the story is over.
I don’t think it’s even close to over, and am willing to stick my neck out because if I’m right I’ll get a lot of respect from you guys and if I’m wrong, you’ll forgive me because, after all, I’m just a CT tech. 😉