Tesla Stock Bears Are Going to Cry?
Tesla Motors Inc (NASDAQ:TSLA) is probably the most contentious company on the stock market. Some investors would gladly sign over their paychecks to TSLA stock, but others are betting heavily on its downfall. Which way will Tesla stock bend?
No one can say for sure. But in my opinion, it has everything to do with time horizons. I wouldn’t care to own TSLA stock for a one-month—or even three-month—period because there is too much volatility in the share price. For a variety of reasons, Tesla stock inspires true dissent. The market just can’t seem to settle on a price.
I see that as an opportunity. By simply extending my time horizon to two (or three or five) years, I can insulate myself from the short-term fluctuations in Tesla stock. It doesn’t mean I have to actually hold the shares of TSLA stock that entire time; I could sell as soon as the returns got big enough. But I won’t need to feel a sense of panic every time the market gives Tesla stock a beating.
Extending the time horizon is an age-old investing aphorism. We keep using it because it works. With that in mind, the current downtrend in Tesla stock looks like a stellar opportunity to pick up a quality stock while it’s trading at a discount.
The upswing from this particular downtrend could be huge. Why, you ask? Simple: more than one-quarter of all of Tesla’s shares are currently sold short.
Bearish investors are betting heavily that TSLA stock will continue to fall, but personally, I think they’ve set themselves up for a disaster.
A Short Squeeze on TSLA Stock?
Short-selling is like dynamite. Use it properly and there’s a chance you’ll stumble on a goldmine. If you don’t use it properly, it might be the last thing you ever do. Short-selling is just as dangerous to your financial health. Here’s why.
Investors borrow shares in a company and then sell them. If the price starts to fall, they buy back the shares (at the lowered price), pocket the difference, and return the shares to the lender. It seems like a piece of cake, right? Wrong.
A falling share price is the short-seller’s dream scenario. It’s what they want to happen, but life doesn’t always obey our wishes. For whatever reason, the price could go up. At that point, the short-sellers would have to start covering their positions. That means they’d have to buy TSLA stock before the losses become unbearable.
After all, short-sellers still have to return the same number of borrowed shares, regardless of the price. Tesla stock could reach $1,000.00 per share and they would have to suffer the losses. That risk makes them sensitive to an uptick. So if TSLA stock starts edging upwards, short-sellers start scrambling for the exits.
Here’s the irony: in trying to cover their short positions, these clowns end up raising the price of Tesla stock even further. That’s how short squeezes can drive huge gains for existing shareholders.
Short-selling gets even more dangerous when it becomes popular. If too many people are on the short side of the trade, the sensitivity to a rise in Tesla stock becomes even more pronounced.
With that in mind, check out this statistic. As of August 15, 2016, Tesla’s short interest percentage was 29.65%. (Source: “Tesla Motors, Inc. (TSLA),” Yahoo! Finance, last accessed September 12, 2016.) Nearly 30% of TSLA stock passed through the hands of investors who wanted the share price to decline. All it would take to start a short squeeze is a moderate amount of optimism on Tesla.
For example, if the company meets a delivery target, secures better-than-expected borrowing costs, or brings down battery costs, Tesla stock could be sent sky-high on the back of a massive short squeeze.
Most people don’t know that Elon Musk is facing the same sort of skepticism that was once leveled at Henry Ford. Both are great inventors and entrepreneurs. Ford made his shareholders into millionaires, and my guess is that Musk is following him down that path, and is going mint new millionaires in America. To find out how you can become one of them, click here.