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Circle of Competence Issue #98


"An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative."― Benjamin Graham, The Intelligent Investor


Tesla: Bears, Bulls, and Spectators

I have been wildly amused the past few months watching the Tesla perma-bears lose their minds (and their shirts) over the stock's hyperbolic move upward. More interesting than funny though, has been the number of people asking me "should I buy?" after the move.

The question amuses me for a number of reasons.

Let's start with first principles. Most things in life exhibit fairly substantial price elasticity, meaning that as price goes up, demand for the good goes down, and vice versa.

So the question is, why is the opposite true for stocks?

This question has been central to the centuries long battle between contrarians and momentum investors and between value and growth investors.

But as Charlie Munger has stated many times before, there's really no such thing as 'value' and 'growth' - there is only intelligent investing and unintelligent investing. Intelligent investing is merely determining a likely intrinsic value of an asset and paying less.

And when a stock like Tesla's - rich with passionate bulls and manic bears - takes a U-turn upwards, it is always interesting to take a hard look at the actual numbers and try to determine what that likely intrinsic value actually is.