Welcome to Investing for Beginners podcast this is episode 65. Tonight Andrew and I are going to answer some readers’ questions, we’ve gotten some fantastic questions over the last few weeks and Andrew and I wanted to take a few minutes to go ahead and answer those.
I’m going to go ahead and start off with the first one so bear with me reading this so I have.
I stumbled across yours and Dave’s podcast of the search for the ultimate truth and knowledge of investing. I have dabbled in investing, more gambling with Forex and options with a couple of stocks not good ones just losers.
The thing I’m finding is there is so much info out there or leading you this way in that so the question I have for you is now that you’ve been investing for a while I’m probably still learning along the way if you had to start again or start your daughter if she was of age for investing of her own like fill town and his daughter where would you start and what steps would you suggest?
I understand the concepts of Valle investing I believe by a good company for less than what it’s worth for a margin of safety and look for good businesses that I can understand.
I’ve just finished listening to the value investor from Graham but the issue I seem to run into is it valuation of businesses or should I start looking somewhere else.
I know you’ve both put out good info for stocks but how do you go about finding those I forgot to say thank you for both of you from probably every new investor for trying to help people realize that there is a way to have money for retirement.
Well Tom you’re welcome this is why we do what we do we love helping people and that’s a lot of fun to talk about this and Andrew and I get to geek out on air.
Let’s see let me take some of these questions for you. so if I had to start we’ve talked a little bit about this but I’ll go back and talk a little bit about this again if I had to start again or start my daughter when she was of age oh I feel town on his daughter if you guys have not checked out that’s Invested fill town and his daughter Danielle talked a lot about investing Daniella is a newbie and fill town is a value investor and of the like that we talked about and it’s kind of a great interplay between he and his daughter is their he’s trying to teach her all about Wall Street and everything. so it’s kind of a it’s a cool podcast if you want to check it out.
If I wanted to start Sadie off with investing I would just basically sit her down and talk about buying companies and so many people look at investing as buying a stock as a piece of paper or a ticker symbol on their computer or their iPad or their phone. And I would talk more about what you’re actually buying you’re actually buying a piece of the business and go about talking about how the business makes money and teacher the ways of businessman.
Warren Buffett always says that he’s a great investor because he’s a great businessman he talks a lot about and kind of vice versa he’s a great businessman because his investor and they really go lockstep hand-in-hand with each other the more you learn about business and how they operate and how they make money you become much a better investor because as I’ve said before our we’re buying businesses.
I would start with that and learning more about how businesses make money and where their revenue comes from and just learning the ins and outs of the business. And I’m not necessarily talking about learning how to read a 10k that I think would be overwhelming and kind of boring and I think that would put people off.
But if you really started off with looking at things that you go and buy on a regular basis like Starbucks and have a conversation about how the store makes money and where they get their customers from and where do they buy their coffee from and the cups and how much they pay their employees.
And all this different stuff they can go into it could be in hours long conversation and I think once you really start to delve into those kinds of aspects you’ll really start to get a better aspect and a better feel for what really goes on with each so it doesn’t have to be Starbucks it could be Verizon it could be your local tire company it could be McDonald’s it could be there were other restaurants that you go to it’s just it could be anything.
But I think really kind of delving into the basics of business in cash flows and really how a business handles all those things. All that stuff will really make you a much better investment.
The next question that he asked is looking for good businesses and kind of is it evaluations or should you look somewhere else and when you’re really talking about value investing you’re really talking about the art of valuation and Andrew and I talked a lot about numbers and where you get those numbers and how you find answers for all those things.
But the really the thing is it’s an art and yes using formulas and using numbers that’s really the easy part the art of it comes into the mental state of what you are doing and having the fortitude to believe in your decisions and so when you sit down and you think okay I’m going to buy Company A for these reasons.
A great practice to do that is to write it down as to either have a notepad that you can write all your ideas on or whether it’s you have a Google Docs or a Microsoft Word doc and write down your idea of why you wanted to buy Company A. And then whenever you start to notice that things are maybe going a little south with the company not necessarily that the operations are going bad but let’s say for whatever reason it’s fallen out of favor in the stock market.
And the price starts to go down you can go back and look at those notes and go okay is the reason I bought the company’s still valid is it still a good company are they still making money are they still doing the same things that they were doing before they brought them success.
If you can answer all those questions and A+ then it’s still a great investment but if it’s not then that’s maybe when you want to start thinking about maybe getting out of the investment. so those are some of the things that you can look at and it really kind of comes down to you’re your state of mind and looking at your evaluations and re-evaluating them every year and you only have to do it every quarter every six months every year it’s not something you have to follow every single day.
Andrew and I are a big baseball geeks and yes I love looking at stats every single day but you don’t have to do that for the stock market and if it’s a matter of fact it’s a lot of times better if you don’t because then you won’t drive yourself crazy.
And I think the last question is how do we go about finding good info on stocks or how do you go about finding good companies well it’s about turning over rocks is looking in as many different places that you possibly can I have this routine that I started a long time ago using the metrics that I got from Andrews book screening for stocks and I do it every week and that’s one way that I go about doing it there’s also the different podcasts that I listen to the different letters that I get and Andrew’s eletter he has great ideas as well so you can get ideas from anywhere you drive down the street and you look at something you see him I wonder what that’s all about and you can find out if they’re publicly traded and if they are then that could be a possibility for an investment so there’s all kinds of different ways that you can go about trying to find these things and it’s not just one set specific way.
Monish Pabrai talks a lot about looking at companies that are on their 52-week low and seeing who’s at that number or below and there’s lists that you can screen for those and you can find those ideas and those are that’s a great way to find companies that are on the down-and-out in the stock market and some of those are going to be passes they’re going to be hard passes because they’re losing money they’re doing poorly and there’s a reason why the stock as price is really low.
But you could find some gems in there as well too you could find a company like Southwest Airlines for example recently was came up and one of my screeners about a year or so ago and I noticed that he bought the company. But not too long after that because it was out of favor and Wall Street it doesn’t mean that all the metrics it doesn’t pay a dividend so that’s why I passed on it but it you can find different ideas in different ways.
So those are I guess my answers for all those things and I hope that helps answer your question Tom I know Andrew had some thoughts on this as well.
Andrew: I mean you pretty much covered it but I would just say because this is something I recently stumbled across and I think it’s a great resource we haven’t talked about that before in the podcast this is book called the Little Book of Value Investing that’s by Christopher H Brown.
so if I was if I had to start all over again if I had to give myself one book in the previous life or whatever that’s the book I would probably do it has a lot of what the intelligent investor had in a much more bite-sized. I wouldn’t say it’s like an all-encompassing thing I think the Intelligent Investor from Benjamin Graham’s much better for that.
But I think it’s a good entry point and a good kind of cliff notes on everything about value investing really and then it’s a great place to start and then the only other thing.
I would say a lot of the idea of the 52 we closed for stock ideas and they’ve also mentioned the stock screener so we cover that extensively we covered a whole episode on that so it’s episode 22 where we talked about finding a reliable stock screener.
Just checking other archives in general I know we covered a lot of stuff on valuation and there’s a lot it’s a never-ending topic. But it’s something you always want to try to learn more and more about and that stuff definitely something that we’ve tried to cover and we’ll continue to try the cover but it’s not something that you can really cliff notes if that makes sense.
So the next question is actually two separate questions but they’re asking very similar things so I’ll read them both of an answer first one’s from.
Dan she says Andrew I know that you have discussed not putting stop losses on our stock picks I understand that we are investing in value companies and that they should be able to withstand the drop in the market.
What if there is a large market correction are we still better off not putting the trailing stop loss on our picks at 25 percent just curious.
And then the second email is hi Andrew thanks for answering my email I only invest in Indian stocks I read in your blog that whenever stock drops by 25% we need to exit from the stock does this rule apply to investors who buy the stock for a long term? five four years sorry more than five years if your answer is yes then please explain the reason for it because a fundamentally strong stock can drop in price by 25% before it makes a move on the upside please clarify.
And he says thank you for selflessly sharing your knowledge and experience thanks Aaron.
So this is a little bit difficult for me to talk about in a sense. This is one of those topics I know we’ve talked about a lot in the past about trailing stop losses and it’s something that as I’ve learned more gained more experience try to research as much as I can and just in general pick up as much you want to get a lot a big variety of ideas in the stock market and with investing and your investing strategies.
And so everybody’s going to kind of have a strong opinion on everything when it comes to trailing stops definitely good resources out there that recommend trailing stops. I certainly followed it for quite a while up until recently.
One of the things that I realized when it comes to guys like Warren Buffett Charlie Munger the guys who really buy stocks in the way that Dave and I talked about on the podcast. Where we’re talking about getting them part ownership of a business there’s a lot of value investing out there that frankly is geared towards a lot of short-term buys and if you think about it that actually conflicts with a lot of the stuff we talked about with dividend reinvestment.
Because instead of trying to just buy stock when it’s undervalued let the stock appreciate to where it’s at its true value and then liquidating the position. Having a long-term business kind of owner mindset says that getting that intrinsic value payback is more like a added bonus it’s a cherry on top but what we really want is the long-term growth.
So I did use trailing stops for a while I’ve since continued discontinued doing that. If you remember before I had my portfolio separated into two separate. I always had the kind of business minded business owner portion of the portfolio that was the dividend Fortresses I had the like all regular positions and those are ones I attached to a trailing stop.
I started to realize and this is something it might not necessarily be true for everybody especially if you’re structuring your portfolio on this kind of dual headed approach. But I started to realize that the value trap indicator that I use tends to self-select itself out of a lot of high growth stocks and so one of the big reasons why trailing stops work so effectively and the place I got that idea from.
There are some value musters to use it but there’s also it’s a huge tactic used in technical analysis guys who follow the trend and they buy on the trend and then they could be in and out of a position in a day a week a month or could be years five ten years depends on how the price is moving.
And so what I realize is that a lot of those position of those strategies really depend on having these super high twenty positions the way that they find success is they pick one big Ram winner and then they have like 19 because 19 losers but because they have a trailing stop attached they’re really minimizing that downside. And then the one big winner pays for all of the losses all the all the short little cuts if you will and also provides a nice profit.
Now we’re buying that huge gainer often means buy another big valuation and obviously that’s something that value investors tend to stay away from it’s something that I stay away from at the body shop indicator.
I had this idea that I would kind of mix the two and it did work for a time but when you start to look at what the Great’s do when it comes to portfolio turnover guys like Buffett and Munger they turn over their positions maybe I think it was like a 10% turnover per year.
I’ll give you some context right the average investor tends to have a turnover ratio of about eighty percent the average fund manager is out like a hundred percent and Buffett and Munger at like ten percent.
I realized so to explain that real quick that means if you have a turnover ratio of 100 percent that means you’re buying so if you’re buying 12 stocks let’s like we like to talk about dollar cost averaging buying twelve stocks a year then that means you’re buying and selling each of those once per year.
One of ten percent would mean maybe you’re buying you have ten buys in the year and you have one sell in the year that’s a turnover that’s a turnover of ten percent and so as we all know the fund managers tend to underperform the average investor tend to underperform and Buffett and Munger have definitely outperformed it in a very fantastic way.
I found when I was using trailing stops I was separating a portfolio into two different portions that I had a turnover a ratio of about 50% so I was somewhere in the middle. But it was still something where I realized like what Aron was saying I’m sorry if I mispronounced your name he says there could be a drop in price by more than 25 percent before it makes the move on the upside.
And that’s exactly what I saw as well so I saw that for multiple positions and so that kind of explains why I have moved away from the trailing stop loss and it’s just one of those things you’re going to have to evaluate for yourself and look are you buying the sort the sorts of stocks where you’re going to get basically are you buying the stocks that will do well with a trailing stop loss. or are you buying the type of stocks that might need a longer time period might need to go under more potential downside moves in order to see an upside in the future and so that’s something to kind of try to figure out for yourself look at the types of stocks are buying and apply it to your strategy.
We’re going to split up this next question into two parts I wanted to tackle the first part here so we have a question from Duncan D.
He says hi Andrew thanks for doing the podcast with Dave it has been a great learning tool for me my 2018 year goal was to be financially responsible and you have both been a great help. I have a couple of questions.
The first part fractional shares and dividends I’ve recently got my first set of dividends which I have reinvested in my IRA. How do these work on future dividends do fractional shares also give out dividends to?
For example I have a 1 share in a company that has a yield of 10% I reinvest and now I have 1.1 shares if everything remains exactly the same next dividend ex-state how many shares will I have 1.2 or one point two point one.
I’ll answer the question and then give you exactly how it works for me so if you were doing a getting a dividend from a fractional share it would mean that you would have so for his example he says a yield of 10% right so when you reinvest a yield of 10% you’re going to get a say the stocks at $10 you read you have a yield of 10% that’s $1 so when you reinvest now he has 1.1 shares so you’re going to get a do with in from now only that 1 share but the point 1 share.
And so we asked we get 1.2 shares at 1 point 2 1 you’ll have 1 point to 1 and I’ve seen this happen I’m imagining it’s going to depend on your broker. but I’ll give you a specific example so I have a stock and I’m not going to give away the ticker because this is one that was just a recent recommendation and it’s still at a good value right now.
but it’s a exactly a stock where I had exactly one share this is in the eletter real money portfolio under $50 a month was only able to buy one share now the dividend for that for 2018 if you look at their dividend history. The dividend was supposed to payout 37 cents per share but this is a stock I’ve held for at least a year I think maybe two years so I had some fractional shares at it on.
When I got dividends this year for 2018 instead of getting those 37 cents that they reported I actually got 38 cents each time they paid that dividend so obviously it doesn’t sound like a lot right but as we always talked about over and over again when it comes to compound interest.
Those fractional shares will add up over time and in this in this one case we’re talking about we’re talking about one share thing but this all if you’re having it across all your positions and you’re starting to invest hundreds of dollars and becomes thousands of dollars and becomes tens of thousands of dollars then you’ll really see huge just ballooning of compound interest from the fractional shares in addition to the reinvested shares.
And so that’s where the magic comes in so yes absolutely I think you should be getting dividends from your fractional shares if you’re not change Ally like I have and I know that they do it for the stocks I have.
It won’t always round right it’s going to depend on what the dividend is like if it’s a company with a small dividend yield or depending on what number of shares you have all these sorts of things right how big your position size is. But from what I’ve seen Ally does do it so if that’s something you’re interested in and your broker is not then check that out. And Dave I’ll let you take the second half of this because I feel like I’ve been talking a lot.
Dave: okay no problem all right so the second part of the question is the emergency fund / safety net pretty much everywhere everyone recommends saving up a good safety net before investing just so you’re prepared if something bad happens would you recommend investing this safety net at all or keeping it liquid in a high-interest savings account for example.
I’ve had conflicting advice on the subject and I’m interested in what both of you would recommend I actually hadn’t even heard of IRAs before listening to your podcast. I was really financially illiterate thanks for the talk about them and getting me started with them being in the Aussie expat living in the US the single biggest appeal for me for a Roth IRA which seems understated everywhere is the lower / no penalty for early withdrawal for someone who may not be living in the USA in ten years time visa depending the ability to access this money is a huge advantage for me thanks again for your great podcast Duncan.
All right so let’s tackle this emergency fund / safety net so here are my thoughts or let me read I guess tell you what I have done.
I have I’ve done two things one is I have a savings account so I bank with and Ally bank and as you guys all know I used to work for Wells Fargo and when I left the bank I left the bank.
I bank with Ally and part of the reason why I do that is because their savings account interest rate has just gone up to one point six two percent which may not like sound like huge but for somebody like me who was looking for any extra money that I can make it’s a lot of money.
And considering when I was working with Wells they were paying wait for it point zero three percent for a savings account so it’s just not even pennies for the money that you could make just putrid.
I did that so I I have a every paycheck I have fifty dollars go into my savings account every single month and I’ve been doing that for years and I do that because of this very reason.
I’m trying to save up an emergency fund so that I have a backup if tire blade blows out which happened to me recently and or if something goes wrong on the car which happened to my wife’s car just recently and so instead of having to dip into my investment money I use that to pay for those things.
And so I think that’s an absolutely fantastic way to do it is to find the highest yield savings account that you can possibly find and put money into it.
Now there’s another train of thought and this is something that I experimented with and it worked out well for me. But I think you would probably want to talk to an accountant to make sure that you could minimize is the tax effect on this. I open an account with Betterment who was an online investor and they have kind of easy plans that you can use to basically it’s like kind of like a 401k you have all kinds of different ETFs in mutual funds that you can invest in and they have different portfolios to base based on your risk profile.
And you can invest money in that and it’s free if you invest $100 a month. So they won’t charge you any fees and there’s no risk involved I mean there’s risk involved because you’re investing the money.
I did that for about two years and it didn’t do so great the first year the second the second year it actually did a lot better and I ended up taking all the money out because I just thought maybe this was maybe not the best way to do this.
And it worked out okay I think over the course of two years I made $60 which is not huge return by any stretch of the imagination but it was sixty more bucks than I would have had it if I had left it at Wells Fargo.
All in all it was a good experiment and it was good it was a good situation but one of the things why I took it out was because your very question about the liquid part of it.
I personally would keep it in a savings account so that it is liquid and it’s safe and secure. the problem with investing it is if let’s say that you have five thousand dollars in an account and something comes up and you desperately need that five thousand dollars if the stock market takes a hit two weeks before you really need that money and it drops down to thirty eight hundred dollars you’re in a bad spot.
So if you’re in a savings account then you can access that money at any time with no possible loss of your funds because they’re FDIC insured.
I’ve heard people talk about CDs I’m not a fan of CDs because yes there is a penalty for withdrawing the money from a CD depending on what where you bank it can be upwards of twenty five percent of the balance it could also be whatever interest you’ve earned over the course of the year or whatever cycle it is depending on how long the CD is.
And typically in most brick-and-mortar banks right now the interest rates would be pretty pathetic so we would not really be worth of the tying up of your funds for doing something like that and you also can’t contribute to it as an ongoing basis as well.
So if you’re going to be doing it on a regular basis like I’m doing and like I would suggest you do remember one of our rules in our finance class was paying yourself first and this is part of how I do it. Part of it is I save a little bit of money to go towards a fund which I’ve been doing for a while and then also part of it is you using for my investing which is a bigger chunk of money.
Those are the two ways that I would recommend doing it would be curious to see what Andrew thinks about that?
Andrew: no I’m right there with a 100%.
Dave: okay that’s easy okay all right so next question I will take a stab at.
Hi Andrew just a quick question on dollar cost averaging can you buy a portion of a share say one-third of a share if for example you decide to invest $500 a month and you want to buy into a company that’s trading at $1,500 for ease of math. Do you need to wait until you have 1500 ready to invest or can you in fact buy $500 worth of company each month for three months?
similarly if a share is trading at $200 can you buy two point five shares for your 500 our monthly investment or do you have to buy a whole shares thanks Stephen.
In a word easy answer you have to buy full shares it doesn’t allow you to buy fractional shares it’s a little frustrating yes I know I know that when I was using Tradeking it did allow me to do that but I think Ally invest does not allow you to do that so unfortunately you have to buy whole shares so if you’re looking to buy let’s say Amazon at $1,500 a month or $15 hundred dollars a share you’re going to have to save up for to buy that one share. So that’s a quick and easy answer.
Andrew: the next two questions are dealing with the Value Trap Indicator so obviously I’ll answer those hi Andrew just wondering if I can use a VTI for small cap / younger companies I am trying to diversify. Would you recommend buying the premium package VTI so that I can use it and input data for all shares can I use the VTI with ETFs are index funds regards.
So yes you can absolutely use it for small cap companies I tend to recommend trying to get a company that has a market cap of at least two billion dollars or more once you get below that you start to run into risks where a company could be so small that one little thing can really throw things off.
When the company has two billion in market cap it tends to be a little bit more secure than just the business world in general kind of in where it falls in the marketplace and its industry those sorts of things. I have dipped into and recommended some that have been in the kind of 11.5 billion dollar range but I’ve never gone below 1 billion for sure and kind of recommend that people who are trying to use VTI I use that as well I did do like a youtube video when I was talking about micro cap stocks and I talked about one of the stocks I bought just kind of as like a fun money thing that just turned out really poorly and it being such a small size had a lot to do with that.
The second part you can ask what about younger companies so the thing with the vibe indicator is you need 5 years of earnings data in order to get a value return and get a score for the Value Trap Indicator so I did that intentionally when I look at growth I want to look at not just your over year growth but I like to look at three-year averages and I like to see longer track records and so that’s why I do then at least five years of earnings data.
it just goes back to sometimes it’s just boring and consistent track record is just so underappreciated in the market and it’s really a great way to go and then not saying it’s a guarantee nothing’s a guarantee but it’s a great way to invest Buffett has preached it and done it for decades and it’s kind of like Newton’s law things in motion tend to stay in motion.
Businesses that have consistent results tend to continue to get consistent results it just makes sense and the data has proven that. the last part of his question can use a VTI with ETFs are index funds you cannot so it has to be an individual stock it has to be used on a business because you need financial data you need to know business’s earnings whether they’re sales whether it was a cash and so you don’t get that data with ETF or index fund so the one works for individual stocks.
This next questions from Ian he says.
Hi Andrew I’m Ian living in the UK I read your emails with interest and I’ve noted that you say that the VTI will work for the LSE and by the way sign no guys that is for the UK exchange I think it’s called the London Stock Exchange so he says I like to know how the VTI works for a stock that pays no dividend I realized that many people say not to buy this type of stock but some big players like Amazon have given me some great returns.
So this was actually a topic that got brought up in the VTI secret Facebook group that we have which you get added to once you become a VTI client but basically the gist of it was yes you can use so for one like when a stock doesn’t pay a dividend the VTI was designed to automatically not score the VTI is a strong buy like it’s mathematically impossible for a stock to be a strong buy if it doesn’t pay a dividend.
And that obviously was intentional because I have a zero tolerance policy of a stock needs to pay it there then we’ve talked about that countless times in a lot of our discussions on dividend reinvestment and drip.
What we did kind of come up with in the group what I showed is you can run a hypothetical. There’s a way and I showed I like uploaded a spreadsheet with an example of how you can run a VTI on the stock that pays no dividend and just kind of ignore the dividend portion so you’re essentially running a VTI on the six out of the seven categories that I use.
So might be helpful for you I obviously I’m not going to say I recommend buying stocks that way but if it’s something you want to do yes it is possible that you can use it on the stock that pays no dividend you just have to use the workaround that we discuss in the Facebook group and that’s really all I got to say about that did you want to take a last one Dave?
Dave: yes sir all right so the last one Andrew I was going over your October podcast on buying Tesla stock do you still feel the same now no assets negative earnings losing money on every car manufactured the buffer will inevitably pop operating on investors money thank you.
In a word yes are you kidding me uh-huh yeah our thoughts my thoughts on Tesla have not changed one iota view.
I’ve been reading a lot about this in not intentionally going out trying to find information about Tesla I’m not obsessed about it it just happens that a lot of the people that I read and follow on a daily weekly monthly basis have been writing a lot about the company lately.
And it’s just been in the news a lot and not for good reasons and one of the big things that Warren Buffett talks a lot about when he talks about management is he’s always looking for companies that are invested that are looking out for the shareholders best interests.
I would argue that Mr. Tusk is not that ilk and I’ll just give you a few examples of some things recently that have come up that would indicate that it’s all about him it’s not necessarily about the company and the car and the reason why I say that is because.
Nobody can argue that he’s not a brilliant man and I will certainly say that he’s a brilliant man but it’s all about it’s all about the publicity that he gathers about Elon Musk it’s not about Tesla that’s not a lot of people working at the company it’s not about the cars and the people that buy the cars and there’s just so many things wrong with what’s going on with a company and the fact that the price of the company has been driven up so much.
Is just a stark realization and illustration of how sometimes the stock market can be a really screwy place because there is no place on earth in the world that a company that is failing as miserably as this company is failing in producing the one thing that they have to do is which is make a freaking car.
They suck at it do they make great cars probably if you could get your hands on one and I’ll just throw out a story that I read recently.
One of the guys that I follow I’ve talked about him before his name is Vitaliy Kantsenlson and he’s a fund manager that he writes a great blog called the contrarian edge and he’s a great writer very smart guy is what written a lot of great books and he recently he lives in Denver Colorado he recently went to a Tesla dealership because he was interested in buying one of the entry-level vehicles he wanted to drop about 50 thousand bucks and that’s what he said in his in his letter.
He wanted to be what he wanted to go in and buy a car so he went in there they had no cars on the show floor for him to test drive to look at to see to sit in to feel nothing none of them. All they had were the really expensive ones which he had zero interest in so then he tried talking to the gentleman the guys that work there about the cars they knew nothing about him nothing not a zip zilch.
Now he’s like okay well can you least like show me pictures of it because he’s he wants to at least look at it I mean here’s somebody willing to draw 50,000 K he’s probably got cash on him to buy the car and they go to the Tesla website he can’t find they can’t find pictures of the car I mean this is how screwed up and incompetent the company is on so many different levels of things that they can’t even show him a picture of the car.
He has to go to like Carfax to find a thing on his own because the poor guy that he’s working with it the dealership had no idea what he was doing and it’s just it’s just a comedy of errors along the way. so imagine going into Ford and wanting to buy a car and not having one on the dealership anything going to happen you go to GM you go to Christ where you go to BMW you go to Volvo I mean if you can with any of them that’s not going to happen.
But with Tesla not a surprise so then you got so you got that whole kind of charade of things going on and of course he got a lot of negative comments about his post because people were bad you’re saying he was bashing Tesla he wasn’t trying to bash to us like he wanted to buy the car he wanted to spend money to do it and they didn’t even have a car on a lot to show to people to be able to buy that’s just how messed up it is.
I know I’ve talked before about how you have to actually kind of buy the cars is I’m using air quotes here as I’d talk you have to I had a I had a customer come into Wells one day wanted to buy a Tesla it was going to cost him a hundred thousand dollars.
They wanted to borrow then they wanted us the bank to loan him money to buy this car now this deal was above my borrowing limit so I had to go work with a different banker than a higher limit than I did and it was just kind of a comical whole situation because as we did dug more into what this guy was trying to do.
he wanted to buy a Tesla which is great he wanted to drop a hundred thousand dollars okay fine but here’s the kicker he was going to have to wait three or more years to get the car.
So he’s going to have to start paying on the loan today but he wasn’t going to get the car for at least three years if not longer before he could drive the thing. So he was going to buy get a five or six year loan which is max that we would pay so you would almost have the car paid off before you get the thing his hands and you could drive it.
I mean talk about a joke I mean who would do that so I’ve read recently that their subscription rates if you would call it have been falling dramatically because they’ve gotten so far behind and in producing the cars.
Now there’s been all this stuff on the internet and the Twitterverse and everything about they one of their plants they actually built a tent to produce the cars because they didn’t have enough room in the plant to produce the cars quick enough and so they had a very unsafe work environment people actually lost a limbs working in the plant because they are using forklift drivers instead of assembly line.
They’re using forklift drivers to drive the parts from different parts of the tent to get the cars made no I suppose you could give them points for an ingenuity but it was really unsafe I mean if you’re losing an arm while you’re at work because you’re working in an unsafe environment that’s just that’s just terrible.
But so there’s just a litany of things going along with this now then of course there was the famous investor call every quarter analysts get together and talk to CEOs presidents of the companies that they follow so these are people that are their job is to write about Tesla and for the most part most of these people are pro the company.
They’re looking to find good things to talk about the companies so that they can write with an angle to sell the company that’s sell-side analysts that’s what their job is to do is to try to find companies that are good.
Anyway so these so this most recent call during the call Elon Musk got so upset with one of the gentleman’s answers that he called him boring and he started insulting him and he basically ended the call early.
Without taking any more questions I mean it’s just an absolute joke and it’s again it’s all about him and I took that as yes it was a joke and yes it was kind of irresponsible for him to behave that way it’s childish. I mean the guy was asking him a hard question he was asking him about cash flow and how they’re going to get through this and because as we’ve talked about in the past and as the the gentleman mentioned an email they’re hemorrhaging money and you can only do that for so long and things will catch up.
I think that and this is just my speculation this is just me talking out of the air is I think that he’s feeling the pressure now. that there’s so much negativity about the company out there people trying to short the company and he’s making all these bold claims about all this crazy stuff and I think it’s because the pressure is getting to him. I think it’s because he realizes that it’s starting to become time to put up or shut up and I will never say that what he’s trying to do is not a good thing.
I think electric cars are an amazing thing and I give him props for really starting the revolution for your car makers to go down that path and they it’s a compliment to him that all these other huge automakers like Ford and Chrysler and BMW and you name it Fiat everybody is trying to produce an electric car. Google is trying to make a car Apples trying to make a car everybody’s trying to make an electric car and because they see the promise and they see that this is where it needs to go.
But he says not the guy like guy to take a company and he’s an inventor that’s his thing is being creative and coming up with crazy ideas and making them happen. But running a business and it’s not his thing and it’s obvious just by the way things have happened and whatnot. he’s obviously in a gifted orator because he’s been able to raise all this money for all this time to keep the company going and that’s really the there’s question about it Robert running on investor money that’s really what’s keeping it going is people the fanboys buying into Tesla buying into Tesla believing his his message but the proof is in the pudding and the pudding is pretty sour right now.
And I could just go on and on and on about all the different things and I don’t want to bore everybody to death. but it is it’s you absolutely cannot buy a company that’s losing money as long and as badly it is and it’s performing so badly.
I mean it’s kind of sad really when people were super excited when Tesla actually for one week hit its mark of making 5000 cars and in a week I mean that’s just it’s pathetic and it it’s a sad and I feel bad for the people that work for the company they’re all busting our butts trying to make it happen and I get that.
But he’s over-promising and under-delivering and how many times have you guys heard that from CEOs investors and whenever it becomes all about two CEO of the company run far run fast do not invent the invest a single cent in it because you will lose the money.
Yes it may go up and it may do great for a short time maybe another year or two it may do great maybe for the next five years it could do great but it will fall if it does not make money it will eventually fall it will happen guarantee it if it turns it around he makes money great I got my face I’m the dumb-dumb that didn’t buy the company and I was negative about it.
But I’m not wrong and it’s going to go south so anyway those are my thoughts.
All right folks well that is going to wrap up our Q & A for the night I hope you enjoyed our conversations and hope you got some value out of the answers that we gave as Andrew said before if one person takes the time to write in a question there are seven to ten other people out there thinking the same thing.
So please send us your questions we love to talk about this stuff on air and help you guys in any way that we can so I hope you guys have a great week go ahead and invest with a margin of safety emphasis on the safety and we’ll see you guys next week.
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