I Didn't Shoot the Lion
A Creative Marketing Scheme
Tesla Motors (TSLA)
Things I Didn’t Do Last Week
I didn’t shoot the lion.
I didn’t destroy my smartphone.
I didn’t declare my candidacy for President.
In short, having sidestepped three major minefields (all of which, you might say, stem from an excess of hubris), I succeeded in notching another successful week in life’s journey to the great unknown that lies ahead.
And what might that bring—aside from continued news about bad behavior both domestically and internationally, interspersed with warnings about weather, poverty, sickness and violence?
In general, I think the future is pretty bright. By all measures, the world’s population today is better-nourished, better-educated and less violent than at any time in history. The long-term trends for the world as a whole look good.
And if you’re going to be a successful investor, it truly helps to have a long-term perspective—to be able to imagine the possibility of holding onto a stock for ten years or more.
Admittedly, that’s hard to do, with the media’s focus on the short term. And in the year ahead it may get even more difficult, as the noise from the current record-setting G.O.P. Presidential field—and indeed, all the election-oriented activity of the next fifteen months—serves as a constant distraction from the task/pleasure of managing your own money.
Nevertheless, it’s worth reviewing a few major reasons for being a long-term investor.
- The power of compound growth.
- The power of the unforeseeable and the incalculable.
- The ability to postpone—even escape—taxation.
Compound growth (generated by leaving profits invested so they can generate profits too) has been called the eighth wonder of the world, but unless a student heads into business/finance in college, it’s unlikely he’ll ever encounter the concept. And that’s a shame. If you can manage an annual return of 19%, compound growth can turn a thousand dollars into a million dollars in 40 years.
Most people don’t know how to dream constructively, Sure, they know how to fantasize (“What I’ll buy when I win the lottery.”), but few people know how to look ahead and speculate on what companies like Google and Facebook (and Fitbit and Mobileye!) will be doing a few years down the road. Yet it’s the ability to wager intelligently on such future activities that determines who the big winners will be in the years ahead.
One of the greatest values of good financial planners is their ability to remind their clients of the long-term value of tax delaying (by holding a profitable stock) or tax avoiding (by holding a stock and dying). Whatever Uncle Sam doesn’t get, you or your heirs get to keep!
Bottom line: don’t get too caught up in the short-term action of the market or today’s news. Keep your eye on the long term.
A Creative Marketing Scheme
General Motors, Ford and Fiat Chrysler each spent billions of dollars last year advertising their cars.
And what did Tesla Motors spend? Nothing.
So far, Tesla has been fortunate that demand for its cars has exceeded supply.
The electric car company has sold nearly 100,000 cars (31,655 last year) without spending a penny on traditional advertising.
But it does have marketing costs, mainly for stores and personnel. Marketing costs were $48.9 million in 2014, or roughly $1,500 for each vehicle sold.
And now CEO Elon Musk is working to reduce that cost by using current owners to refer new buyers.
And the incentives are interesting!
Not only will every purchaser who comes from a referral get a $1,000 discount on his new car, but the referrer will get a $1,000 credit from Tesla (to be used in service, accessories or the purchase of a new Model S).
Plus, anyone who brings in five successful referrals will get an invitation to attend the opening ceremony of Tesla’s new Gigafactory in Nevada next year (Musk says April; experience says it could be later).
Lastly, the first person who brings in ten successful referrals will get a free Model X.
The referral initiative has already achieved one goal; it’s got Tesla more free press, and there’s no question that translates into sales.
But it’s also—tangentially—one more blow against the automotive traditions that Tesla is working to demolish.
So far, Tesla has rewritten the rules on these aspects of the traditional automotive experience:
- Fuel source. Tesla’s cars run solely on batteries; there’s no fossil fuel involved.
- Dealerships. Traditional automotive dealerships have put up a legal wall between auto buyers and auto manufacturers, and Tesla is working to break that wall, so it can continue selling directly to the people.
- Pricing. Teslas are all sold at list price, as configured by the customer. There’s no haggling with a salesman.
- Service. Tesla’s service centers are not designed to make a profit; they’re designed to make customers happy.
- Model years. While traditional dealers make a big deal of modifying their vehicles from one year to the next (the automotive “year” is now way out of sync with the calendar year), Tesla just keeps making its cars better, day by day. A car built now will be more advanced than one built last month.
- Superchargers. Tesla owners can recharge for free—fairly rapidly—at a growing network of Superchargers. Today there are 2,742 individual chargers at 487 of these stations throughout the U.S, Europe, China, Japan and Australia. (I’ve used chargers at 31 of these stations. It’s great fun.)
Tesla is a perfect example of a company that’s worth thinking about from a long-term perspective, because it has the potential to change the world in a major way.
And even if you can’t answer these questions exactly (Where is the price of gas going? Where are the EPA’s fuel economy requirements going? What about Toyota’s bet on hydrogen? Will Apple and/or Google build a self-driving car?), the exercise will help you see the long-term potential of the investment versus, say, an investment in ExxonMobil (XOM).
Note: If you’re interested in ordering a Tesla, feel free to use my link.
As for the stock, here’s what I see today.
TSLA remains in a long-term uptrend, but the short-term is suspect, not least because the general market is not on a firm footing.
The stock topped 280 at the start of July, and repeated the feat in mid-July—and now it’s down at 260, leaving those peaks as a short-term double top—a bit of a negative sign.
Plus, TSLA first topped 280 way back at the start of last September, so that’s a long-term double top, which can be more ominous.
On the other hand, 260 is right at the stock’s 50-day moving average, and that’s a short-term positive. Many times, a stock will bounce off its 50-day moving average to retrace half its previous decline.
So, you could simply jump into TSLA right here and try to capitalize on a quick bounce.
But even better would be to become a regular reader of Cabot Stock of the Month, where every week I update my readers on the latest news and chart action from TSLA.
Readers who’ve been with me since late 2011 bought the stock at 29 and are now holding profits of 797%. To join them, simply click here.
Yours in pursuit of wisdom and wealth,
Chief Analyst, Cabot Stock of the Month