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Blain’s Morning Porridge – 26 October 2018

Blain’s Morning Porridge  – 26th October 2018

“What is best in life? To crush your enemies. See them driven before you. And to hear the lamentations of their women.”

In the Headlights this morning – see for some of the stories I’m watching:

Mario Draghi: The man warns Italy: “Don’t question the constitutional existential framework of the Euro”.

If the Euro is existential, then I am a Halibut. Fish.

Some mornings the Porridge just writes itself.

On the website you will find stories outlining how Alphabet and Amazon’s respective stock prices collapsed on the back of missed numbers. I reckon it will take me two seconds googling to find a story about lower than expected sales forecasts for the latest Apple “Bright-Shiny-RoseGold-Thing” means its stock price will also collapse into the dust.

Yet these are three of the most profitable companies in the world, have invented new niches for themselves, and reaping the rewards of creating whole new consumer ecosystems in terms of demand and advertising revenue. I’ve read predictions that Google, Facebook and Amazon will take 80% of global ad revenue in just a few years.

Yet their stock prices took a hammering on relatively minor Q3 misses, the poorer outlook for the global economy, and the general market malaise…

Meanwhile… Tesla announced a quarterly profit earlier this week… its third in 8 years! Its shares went stratospheric.

The auto-company managed to produce 27,000 more cars through Q3 than in Q2… (roughly what Ford makes on a quiet sunny afternoon while the foreman is snoozing..) and everyone has suddenly forgiven Musk for hyping the stock and all the other bad stuff he can’t help himself from doing.

Earlier this week I posted a story about Tesla’s manufacturing wobbles and how its finally reinventing its approach to building the cars – guess how? (It’s on the website.) It’s now doing pretty much the same stuff, and taking the same approach to putting the bits together, as all the other major car makers take. Well done Tesla – its learnt what car makers spent the last century learning.

By this stage, Tesla fans – who tend to be evangelical jihadiis about the stock – will be cursing my profanity and screaming I’m a heathen. The “Mega-factory” Sect will be screaming its all about the Battery IP.. “doesn’t he understand Tesla is a capacitance play”! while the “Elon-is-out-saviour” faction will be calling for Faith in Musk’s divine abilities as the Great Innovator. (I wonder if they noticed that SpaceX (which Musk says he wants to spend more time on), is borrowing $500mm from Goldman in the Leveraged Loan market. To be honest.. I have a hankering to own Space X rather than Tesla.) The church of “follow-the-money” Tesla fans will be pointing at Musk’s contract with Tesla which promises him gazillions if he gives stockholders bazillions (which, to be fair, is a smaller number..)

There is much to like about Tesla. My mate swears by his – although I’m not so impressed: last time he picked me up to go sailing we had to go find a charging point and ended up walking miles extra… but). The batteries are the industry leader – and anyone that solves the capacitance storage question (batteries to you and I) will be worth trillions. However, in areas like reliability and its autonomous driving systems, Tesla comes well down the league. Yet, it commands a premium stock price. For what? Inventing/innovating the Electric Car? Consumers are no longer being bribed through tax-credits to buy them, but forced to by legislation… which I think means they get choosy.

One thing that worries me about Tesla is its just a car company – with a very strong following. In a normal world, it would probably be acquired by a major Auto company to drive its entry into the future, which will undoubtedly be hybrid and electric cars. The Germans would probably be the best fit.. but no one is going to pay Telsa’s stock price – its just far too far expensive. It would be silly money.

But what would an alliance/tie up with a major innovative and fashionable Auto company give? Solve the production problems? Untie and free the marketing? Allow Must to focus on further innovation? Perhaps its time to be thinking about a reversal of Tesla into someone else?

At the moment its Tesla’s anticipated and hope for future success and its extraordinary stock price that is actually holding the company and its products back.. People hope that sales will somehow catch up and justify the stock price – or that Musk will do something extraordinary to match the value. The stock price is about hope for the future, but we all know hope is not an investment strategy.

Musk will do something extraordinary.. I just have a felling it won’t be here, but on Mars.

Yesterday we were having a discussion on which stocks to put in the portfolio and concluded the right call most definitely includes Amazon, Alphabet and Apple. I guess we missed the buy opportunity y’day

Out of time, and have a great weekend..