Expert Article- Tesla

Tesla: The ‘Short Squeeze’ of the Century

How You Can Make Bank off of the $10 Billion Bet Against Elon Musk

A ‘short,’ in regard to the stock market, is when an investor bets on a company to decreasein value over time. A short squeezehappens when those investors are wrong about their pessimistic bets against a company and thus lose their money when the stock increases. This is where the ‘squeeze’ comes in: these investors have lost somuch money betting against the stock that they decide to fully close their short positions. In doing so, the stock’s buying volume spikes and the price is driven up. This has happened many times in the past, most notably in 2008 when a Volkswagen short squeeze temporarily drove its share price up from €210.85 to over €1000 in under two days. This briefly made Volkswagen the most valuable company in the world. Needless to say, investors who owned shares of Volkswagen got super rich. Tesla is currently the most heavily ‘shorted’ company in the world.

Short squeezes are rare opportunities for patient and savvy investors. The stock market is hectic, and it can swing heavily in either direction at any time, so it is extremely beneficial to have a fundamental set of rules to follow throughout the turbulence. I will share with you my set of rules on how to take advantage of Tesla in the same way that investors took advantage of Volkswagen in 2008. That being said, you should never invest any amount of money that you aren’t willing to lose. There are risks in every investment, and this happens to be an opportunity with potential for abnormally high rewards. 

Rule #1: Buy the Dips

It is unwise to pour all of your money into a stock at one time. No matter how confident you are in a stock, there will always be unexpected events that cause short-term decreases in a stock’s value. You can use this to your advantage by, for example, using 50% of your intended dollar amount as the initial investment, and saving the other 50% as a cash reserve. Cash reserves are essential for lowering your cost basis in a stock, which is the fundamental way to increase your returns over a long period of time. This will help protect your portfolio from experiencing extremely volatile swings, something every investor should be seeking. You are essentially lowering your risk, and that will undoubtedly serve you well in the long run. 

This method is very important for Tesla because it is one of the most volatile stocks in the market. Much of Tesla’s value comes from the present value of itsfuturecash flow; in other words, the company’s potential for growth in the future. This is what gives Tesla the most potential of just about any stock, but also gives it significant risk. Buying the dips (purchasing more shares of the stock after a short-term decrease) will lower your cost basis over time and help you achieve higher returns, which is every investor’s goal. 

Rule #2: Know What Matters, Know What Doesn’t

In the age of social media, it is becoming increasingly difficult for investors to separate real news from fake news. Media outlets have one goal, and that is to attract the most viewers to their content. In other words, they are trying to get you to click on their articles by any means. For them, clicks equals cash. This has led to a huge decrease in the quality of news in today’s world, making it harder for investors to know which information to take into consideration when making an investment. 

For example, one of Tesla’s most innovative features in its cars is the self-driving feature. This technology is still a work in progress, but it is undoubtedly leading to a safer future. Car accidents are currently the leading cause of deaths for Americans under the age of 44. Anyone who thinks that cars are currently safe and do not need improvements for a safer future are simply oblivious. The self-driving feature in Teslas are already available in a number of its cars, and inevitably, there have been a few accidents. Whenever an accident happens, every media outlet wastes no time publishing articles about the accidents, often criticizing Tesla for being unsafe. Anyone with a long-term mindset should understand that accidents were always going to be a part of the process of creating a safer future. That being said, these accidents are a wonderful time to use your cash reserves to purchase more of Tesla’s stock. While this isn’t necessarily fakenews, it is news that you can use to your advantage when other Tesla investors are panicking. In late March 2018, Tesla’s stock dropped 8% on news of a fatal accident. If you would’ve purchased a share of Tesla on this news, that share would be upabout 40% as of June 18. Needless to say, taking advantage of unmeaningful news can lead to huge rewards. 

Rule #3: Trust Your Gut and Eliminate Emotions

It is inexplicably important to refrain from letting your emotions get the best of you. Investing is a very thrilling game, and seeing your investments swing heavily in either direction can result in unavoidable emotions of either extreme happiness or extreme disappointment. When you see one of your stocks drop heavily, it is natural to lose hope and consider selling the stock to avoid more losses. On the flipside, seeing one of your stocks rise heavily can lead to unreasonable optimism and make you want to buy more. Trusting your gut means remembering what your plan was before you initially purchased the stock and sticking to that plan. Things do not always go as planned, so eliminating emotions will help you stay calm throughout unexpected turbulence in the market. This is NOT a game of emotions; it is a game of numbers, having a strategy, and executing the strategy. If you tend to let your emotions get the best of you, I recommend that you refrain from investing until you have better control of them. 

These rules apply to anystock you may consider investing in, but Tesla is the company that will make you the most money if you play the game correctly. It has gone through a long-term uptrend over the course of its eight-year history with numerous downswings along the way, and those downswings were the perfect opportunities to get in the game. Once you experience significant gains in your Tesla investment and gain confidence, apply these principles to any other stock you feel confidently about and watch your net worth skyrocket.