Musk’s zig-zag trajectory
The company founded by the boykie from Pretoria is nothing if not confusing. Should we short it or enjoy the ride?
SA investors have learnt recently — rather painfully — the joys of shorting stocks, or betting the price will go down over a certain period. So, apart from Steinhoff and Resilient, what else is out there that could be a profitable negative investment?
What about a company run by a former South African, in the middle of terrible production problems, with a shocking balance sheet, that is vastly overvalued and also currently the most shorted major stock in the world?
The company is, of course, Tesla, and the short sellers have exploded recently following a testy conference call with investors in which company founder and CEO Elon Musk refused to answer some analysts’ queries on the basis they were “bonehead” questions.
It turns out that tactically that was a bit of a bonehead move itself. Ever since Musk made his “boring, bonehead questions are not cool” comment on May 2, the number of short sellers of Tesla stock has jumped.
According to data provided by S&P’S Capital IQ, short sellers jumped from an already astounding 19% of the register to 23%. It’s an incredible proportion; almost one in four shareholders thinks the stock is going to tank.
But for Tesla, this is more or less par for the course, though over the past two years it has been able to shake out many of the shorts.
For almost two years until 2014, the proportion of short sellers was higher at around 28% of the stock.
The problem for the huge mass of Tesla short sellers is that the price just refuses to collapse, and consequently they have lost a lot of money over the years.
That, however, might be changing; the stock has fallen around 15% from its typical trading range of about US$330 to $280 currently.
Pieter Hundersmarck, portfolio manager for boutique investment house Titan, a joint venture with Old Mutual, says he understands the attraction of shorting Tesla but he is not entirely sold on the idea.