Peloton and National Vision Holdings; TSLA and GM

I'm not entirely sure why only now I have joined Value Investing Club (as an observer). I must have read about that before, but for some reason did not take a closer look.

I started to correct this error, by reading through earlier ideas.

I have heard about Peloton some time ago already, perhaps via the hilarious tweets. It seemed like a bubble, but I was not paying much attention. After reading VIC short pitch I put a few sell orders between 31.99 and 34.79. We'll see how it goes.

The other idea I read through and decided to act on was National Vision Holdings (EYE). While the short pitch was focused on potentially losing the Walmart business, I decided to put sell orders based on valuation and poor margins. Starting from 33.20, couple of them executed and I initiated a small short position.

This makes it my fourth potential and third actual short, with SPY and TSLA being the other ones.

The size of my SPY has grown larger than I expected (to 21% of net account value) and paying out the dividend is mentally painful, this and the TSLA short allowed me to almost completely go into neutral position, with only 12% margin left. I continue to expect a market-wide correction that will allow me to close this short, but if the market will continue flat or up, I won't complain, since I'm still 112% long.

My TSLA short is quite a different story, as it grew to 44% of my net account value and has 31% paper loss attached to it today after averaging up, so represents a 11% paper loss on the account and goes well beyond my previous wins on TSLA.

Since I started shorting a bit over $200, my average price is $323, so I need 24% decrease to break even on this leg.

TSLA volatility of course makes it crazy to try to predict the near term, but after possibly a decent read of Q4 deliveries and maybe also Q4 financials, I think the Q1 is set to disappoint everywhere but in China. Europe will see a wave of mandated EVs from ICE makers and US will hit the usual demand cliff after Q4 incentive expiration. Given the demand, capital and manufacturing constraints, I see model Y being almost a zero sum game with model 3, with Fremont gradually switching to the former as model 3 demand dries up.

It's hard to predict if/what the catalyst would be for TSLA to eventually drop, but apart from the short squeeze I see no good reasons for further advancements from current levels.


One catalyst I'd hope for in 2020 is GM/Cruise to actually deploy AVs at noticeable scale, and therefore for the TSLA FSD narrative to break down. But hope is not a strategy, so my large GM bet (57% of net account value!) is based on the valuation of the core business. An interesting write-up focused on GM's truck business was published 1 year ago at VIC, and it's as bullish as I am.

Long Uber, Short Tesla

To burn or not to burn?

Being even remotely close to the investing world, it is hard not to be aware of the story of Uber. Burning through tons of money, while building prevalent, but controversial service is a great way to polarize investing community.

While Amazon or Netflix bears focus on sky-high PEs, the cash-burning enterprises such as Tesla, Uber or WeWork attract different kind of criticism.

Amazon or Netflix I never would have shorted, given the opportunity in front of these companies and irrationality of the markets. As for Tesla I always felt differently - my qualitative call was that the challenging auto business won't allow Tesla to become a big player with their inefficient operations, lack of durable moat and rationality of the majority of car buyers. I saw the worst case (for a bear) as them growing to the size of Toyota/GM/BMW/VW, with similar profitability profile. So hardly more than a $100B company. The energy/generation story was always not credible, given the commodity nature of these products.

Uber's advantage

On Uber, I had mixed feeling for a long time. On one hand the cash burning was despicable and buying market share that way felt wrong - a new player could always enter the market, undercut them and easily steal market share. And sure they did, adding to the common cash furnace.

On the other hand, there are several types and levels of scale advantages:
- brand (country and global level)
- aggregation of demand and supply (mostly at city/metro level)
- aggregation of supply by having various services (rides, eats, groceries, same-day delivery, courier services)
- aggregation of demand for mobility (cars/carpool/personal mobility/shuttle/public transport/), perhaps also longer travel a'la BlaBlaCar
- cross-selling of products
- ability to seamlessly integrate autonomous means of transport (AVs, drones) into the network

While it remains to be seen whether Uber will succeed it is hard to imagine a different player who could build all of this. As Buffett said about BNSF, "No one is going to build a new rail network across the US".

The secular trend to abandon car ownership and focus less on things and more on experiences also provides a sustainable tailwind.

And I have no doubt that such an aggregating entity will come to be - it is inherently more efficient to share many of these resources and move people/goods in a manner that has less footprint than people going in cars. And while in China it might very well be Didi Chuxing (which Uber has equity in...) in the western world and few other markets Uber is best positioned to be the winner.

Self driving cars

The major concern I have are autonomous vehicles. I see two potential technological winners in the AV game: Waymo and Cruis. Even with Waymo's headstart and Google's ML prowess I like the long-term potential of Cruise/GM more - to scale the service a lot of vehicles are needed and integration between AV development and car manufacturing will be key for best systems and manufacturing efficiency and cost.

GM/Cruise wants to start with their own service, perhaps in San Francisco. It's hard for me to tell whether they can be successful without human backup (not for oversight of AV, but to cover routes that are not mapped).

A hybrid network of autonomous drivers and AVs can have much faster response times in cases AV can't handle themselves - an idle, nearby driver can be summoned to AV which is in a challenging, non-driving-related situation (e.g. being in an accident with another vehicle not at their fault). Also it's hard to foresee in the short term use cases like eats, groceries, same day delivery or courier services operating solely via AVs.

With that assumption, Waymo and Cruise have only two potential partners to work with in US: Uber and Lyft. Alphabet has stakes in both, while GM has a stake in Lyft. Other Cruise owner (Softbank) also has stakes in both.

But even if first AVs would first be deployed via Lyft, I think that technological head-start will be no longer than 24 months - in that timeframe other players such as Ford/Argo will have their AVs ready and I have no doubt that some of them will want to tap into Uber's demand. There's also of course Uber's own ATG group.

Valuation

With this assumption that Uber won't go to zero, it's a question of value of this money-burning company. I've enjoyed reading several valuation from Aswath Damodoran and read several bullish and bearish stories. My simplistic model, based on Uber benefitting from operational leverage and continued, but slowing revenue growth implies 'adjusted profitability' in 2024 and current value per share of $34. Given management's guidance of (adjusted...) profitability in 2021 I think that's rather conservative. 

Speaking of which, I like the recent focus of management on costs and exiting markets with no profitability in sight.

Purchasing plan

With Q3 results behind us and lockup period expiring today it's a good time to evaluate taking a position in Uber. I continue to like my gradual purchase/gradual sell approach. For Uber, I've modelled to start buying at $28 and build full position by the time it hits ~$18 (or ~$30B market cap).

For a company that in a few years can easily spot a few hundred billion market cap it will be a very reasonable price to pay.

At the time of writing this I had a few orders already executed, but I do hope that it will go down a lot today to build up a sizeable position at reasonable price.

And to support the company I now own, I'll probably switch to use Uber from now on... Not rational but gives opportunity to experience the service level.

Szlak Orlich Gniazd - Ultra

(I wrote this in Polish, so passing without changes). Na bieg Szlak Orlich Gniazd (SOG) nastawiałem się od kilku miesięcy. Przemek opowiedział mi o tym kiedyś jako o “pielgrzymce na Jasną Górę” do zrobienia na luzie na koniec sezonu, ale nie brzmiało to wtedy dla mnie zbyt interesująco - nie w górach i z kłopotliwą logistyką powrotu a cel sam w sobie niezbyt atrakcyjny. Gdy potem natknąłem się na parametry biegu jakoś bardziej on do mnie przemówił - 100 mil to naturalny kolejny etap po 100 kilometrowych biegach, a płaskość trasy dawała realne szanse na ukończenie w rozsądnym czasie. Zapisałem się więc i klamka zapadła. Nie trenowałem jednak specjalnie pod ten bieg - głównym biegiem sezonu miało być 7 dolin. Jedyne dwa treningi pod kątem SOG to 30 km pętla do zabierzowa o podobnym profilu oraz 30 km rekonesansu po trasie, tam gdzie spodziewałem się problemów nawigacyjnych (Kosmołów - Jaroszowiec).

Bliżej startu, przeżywałem duże dylematy logistyczne - czy zrobić sobie po drodze depozyt, jaki plecak zabrać, ile mieć wody, itp. Konieczność zabrania kurtki p. deszczowej eliminowała zabranie wyłącznie pasa biodrowego Naked, wariantu który dobrze sprawdził mi się na biegu 7 dolin. Nie lubię biegać z plecakiem, a jeśli muszę to staram się minimalizować jego wagę (na 6 dniowy trek po alpach mój plecak ważył bez wody 4 kg). Zdecydowałem się na 5L plecak Kalenji na jedzenie, kurtkę i wyposażenie obowiązkowe, a wodę zdecydowałem się zabrać w wyżej wspomnianym pasie Naked w dwóch soft flaskach 500mL. Odciążało to plecy i ułatwiało napełnianie na punktach. Nietypową cechą tego plecaka jest to, że jest ładowany tylko od góry i dlatego sięgałem do niego zaledwie 3 razy - 2 aby przełożyć żele i bułki do kieszeni z przodu, a raz aby oddać niepotrzebne rzeczy Przemkowi, który skończył bieg na 84 km z powodu kontuzji.

Na nogach miałem inov-8 Trailtalon 270 wraz ze świeżo kupionymi stoptutami. Nota bene około 40 km zauważyłem, że jeden nie jest w pełni zaczepiony - okazało się, że nit pękł... Do tego wysokie skarpety, getry, spodnie, koszulka z długim i z krótkim rękawem - okazał się to dobry zestaw na temperatury spadające do 2 stopni nad ranem. Dopełnieniem były rękawiczki - na rękach od około 6 rano i komin założony pod koniec, gdy deszcz i temperatura mocno już wyziębiały. Do jedzenia planowałem żele SIS i Aptonia, 3 batony i 3 bułki - pamiętny jak te ostatnie były jedynym co dobrze przyswajałem w trakcie 7 dolin.

Na starcie pojawiliśmy się z Przemkiem tuż przed 19. Był tam też już jego kolega Łukasz. Po odebraniu minimalistycznego pakietu (numer + mapa) wrzuciliśmy bagaże do przewiezienia na metę do busa. Porozmawiałem chwilę z biegaczem z Roztocza (pozdrawiam!) i poszliśmy na start.



Było 12 minut do startu, które częściowo urozmaicił nam pijany przechodzień próbując nawiązać kontakt z naszą nietypową grupą. W końcu jego dwie towarzyszki go odciągneły i po kilku minutach wystartowaliśmy za organizatorem a po 1.5km był start ostry i ruszyliśmy samodzielnie. Przez pierwszy kilometr trzymałem się za Przemkiem i Łukaszem, ale wiedziałem, że to tempo nie będzie dla mnie dobre i zostałem w tyle, zgodnie z planem przechodząc do marszu na podejściach. Do Ojcowa podążałem sam, z dwoma biegaczami widocznymi z przodu i jednym z tyłu. Zbiegając w lesie źle zinterpretowałem oznaczenia szlaku i trafiłem aż do asfaltu. Strata nie była wielka, ale demotywująca, bo w międzyczasie kilka osób mnie wyprzedziło.



Po powrocie pod górę, kontynuowałem wśród kilku osób aż do Pieskowej Skały. Planowałem tam zjeść jedno ciastko, uzupełnić wodę i biec dalej. Niestety pokusiłem się na 4 ciastka i obiło się to źle na moim żołądku. Około 1.5h mocno mi doskwierał, musiałem mocno się mobilizować aby iść do przodu i miałem też odruch wymiotny. Później zacząłem ostrożnie pić wodę z maltodekstryną, zjadłem żel i odrobinę bułki. Sytuacja zaczęła się poprawiać i w okolicach Kosmolowa było już dobrze. Tuż przed nim przegapiłem jednak zejście szlaku w prawo, co zauważyłem tylko poprzez track - na trasie nie widziałem żadnego oznaczenia i rekonesans na StreetView także nie pokazuje żadnych znaków.

Od 41km zaczął się odcinek znany mi z rekonesansu - dodał sił i nawigacyjnie poszedł bardzo dobrze. Za Jaroszowcem zbiegałem w czterosobowej grupie i wybiegliśmy na asfalt trochę za bardzo w prawo. Po chwili zorientowaliśmy się, gdzie jesteśmy i zbiegaliśmy już dalej.



Kolejna pomyłka nawigacyjna to przeoczenie odbicia szlaku, na szczęście nie trwało długo zanim się zorientowałem i powrót na północ był szybki:

Na trasie do Podzamcza spotkałem Przemka - spowolnionego przez kontuzję. Z bolącym kolanem nie był wiele wolniejszy niż ja, co pokazuje rozdźwięk naszych normalnych możliwości. Przemek zaproponował, że da mi swoje żele i zabierze niepotrzebne rzeczy. Zbiegając do Podzamcza zapakowałem je w worek strunowy, a już po 3 minutach Przemek też dotarł. Rozstaliśmy się - On na autobus a ja w dalszą drogę.

Na kolejnym odcinku rozmawiałem chwilę z Wojtkiem (pozdrawiam!). Gdy jednak trasa się wyprostowała, postanowił biec, a ja pozostałem przy moim ‘nordic walkingu’. Z trasy zapamiętałem podejście i zejście z Góry Zborów - strome i kamieniste oraz długie przeloty po asfalcie. Na punkcie na 104 km wolontariusze poratowali mnie własną bułką (Dziękuję!) - słodyczy i bakalii bałem się tykać, a moja 3 bułka właśnie się kończyła.

W Olsztynie na rynku nie mogłem dojrzeć znaków, a gdy zamajaczyły mi po przeciwnej stronie rynku, okazały się czymś zupełnie innym. Zajęło mi chwilę, zanim spojrzałem na mapę, a deszcz nie uprzyjemniał zadania. Zameldowałem się na punkcie, uzupełniłem wodę i leciałem dalej.

W Kusiętach były dwa miejsca wymagające więcej uwagi, ale na szczęście szybko trafiłem na dobrą trasę.

Trudniejszym momentem była Zielona Góra tuż przed Częstochową. O ile podejście było bezproblemowe, to już zejście w deszczu, przy bardzo wyblakłym świetle wyczerpanej czołówki i po kamienistej trasie było męczące i fizycznie i psychicznie.

Później miało już być łatwo i blisko, lecz zostało jeszcze 9 km, a celując w złamanie 24h trzeba było je pokonać szybko. Po wyjściu na asfalt przy zakładach przemysłowych zobaczyłem z tyłu światła. Starałem się utrzymać tempo, dalej idąc szybko, ale nawet nie myślałem o biegnięciu. Okazało się, że jest to Wojtek. Zmobilizował mnie do biegu - wedle moich wyliczeń mieliśmy jeszcze około 3 km do końca szlaku i kilka minut zapasu, ale okazało się, że odległość była nieco większa. Na koniec czerwonego szlaku dotarliśmy punkt o godz. 20.00:

Zajęło nam kilka minut zlokalizowanie i dotarcie do Szkoły, w której była meta. Wynik: 9te miejsce ex aequo. Czasu na świętowanie nie było dużo - ostatni transport w tym dniu do Krakowa to pociąg 20.53 - zdążyłem przebrać koszulkę i buty, zabrać plecaki i słodką bułkę i wyszliśmy w drogę na dworzec PKP. Piechotą byłyby słabe perspektywy dotarcia na czas w naszym stanie, lecz w pobliżu była taksówka i w kilka minut byliśmy na dworcu. Tam jeszcze 15 minut oczekiwania na pociąg i już siedzieliśmy w środku. W Krakowie Wojtek łapał busa do Myślenic a ja podreptałem na Pawią i do domu.

Z biegu zapamiętam na pewno bardzo fajną, kameralną atmosferę oraz “prostą logicznie” trasę - tylko czerwony szlak. Druga nauczka aby nie eksperymentować z jedzeniem i przemyśleć kilka razy zestaw zabranych rzeczy. Problem z żołądkiem wyeliminował mnie z biegania fragmentu już drugi raz.

Covering Tesla

While the Tesla drama is as entertaining as ever, there are cracks in Tesla's story - at least if judged by the share price.

I had listened/watched a good chunk of 'autonomy day' presentation and earnings call. While the 'robotaxis' is a pipe dream, there are certainly good things about Tesla - increased financial discipline (from a low start), improved efficiency in S/X causing large range improvement and seemingly some cost optimizations. Even overhyped autonomy and custom chip could have some real value. I'd especially find it promising if it would be deployed as a shadow mode, where it helps correct human errors (especially inattention) rather than overpromising and inevitably causing people to reduce their concentration and ability to correct machine's behavior.

But in my judgement, all this optionality embedded in Tesla is still overshadowed by liabilities - while the value of the company is positive (thanks to aforementioned optionality) the value of equity, in my view, is zero.

So all of this changed little in my view on Tesla's fundamental value.
But based on my predefined orders and price levels my short position just closed.

I can't rule out a takeover or successful equity raise. It also seems to me that with some more financial discipline and China factory kicking in, the story might be going on even for years to come, with no imminent bankruptcy in sight.

So I can't tell if the price will steadily move towards zero (where it belongs) or will bounce back. In the first case, I will not earn money on Tesla anymore, but I can live with this. Should it bounce higher, I'd be happy to reestablish my short position - but more aggressively this time.

End of quarter update

Not much happened in my portfolio (except from a recovery from end-of-year correction), so this update is going to be short:

GM & TSLA thoughts

I continue to be puzzled about GM's stock performance - it's finding new and new lows and market seems to only look for bad things, while ignoring the good.

It is true that light vehicle sales are plateauing and China might start to be a challenge. There might be no grow in core GM business, but at current valuation it is still a steal and Cruise alone, based on $10B+ valuation, reduces GM P/E to a value close to 5. They continue to be prudent capital allocators and the execution is top-notch. The plant closings is in my opinion forward-looking action.

I'm trying to moderately increase the position on dips and will be slower to sell in an upswing.



I've been bearish with regards to Tesla for a few years now, but my initial approach with buying long-dated, deep out of money puts was costly. After switching to straight shorting and selling the highs and buying back the lows I'm firm in the black for this position, but I'm heavily biased against buying options. I've sold a few calls for TSLA, and might do so again, but lately I was staying away from buying puts, given that for a few years I was thinking that bankruptcy is imminent, but nothing happened.

These days, I'm inclined to predict that severe drop in TSLA stock prices will finally happen in a matter of a few months - at least that the valuation will drop like a rock, due to busted growth story, if not streight insolvency.

I do hope that the delivery numbers will surprise to the upside and I'll be able to substantially increase my short position. On Thursday, chances are that some radical step like large fine or Musk not being CEO will kick off the valuation ball downhill.

End of year update

2018 was a very interesting year, both for me personally, but also from the investment perspective - which is my primary focus in this blog.

During the stock declines in December I decided to trim a few positions and focus on a few core positions, which I consider core to my portfolio. Specifically, I sold BRK, VER, BYC, Tencent and EPOL, each for a slightly different reason:

• I still consider Berkshire somehow undervalued, but not as much as the core positions, so I decided to focus 100% there.
• VEREIT is cheap, but also not as cheap as core names and the growth outlook (organic or not) is rather dim. The yield is still reasonably attractive, but with e.g. GM having not much lower yield and excellent positioning as both profitable vehicle producer and as TaaS leader, the choice is easy.
• With BYC and Tencent I decided to move on, since the general outlook for both companies deteriorated rather than improved in last several months (for Tencent it was the reduced game-related revenue after Chinese authorities started to scrutinize the games much more, while for BYC it is the more challenging perspective of getting to US electric vehicle market, given the tariffs, as well as the possible slowdown in Chinese economy in general. It helped that I was roughly at break even with both investments.

What should naturally follow is reassessment of the core portfolio that I intend to hold (at least under current or lower prices):

AAPL is a powerhouse that is not going anywhere and the value of the ecosystem will continue to grow. Even if unit volume is only steady, the services devision will likely continue to add value. I'm also very bullish on Apple's positioning in wearables, starting from Watch, but also beyond. The ECG app and all such features can lead to, plus Apple's positioning in privacy, is an example of competitive advantage that will be very hard for others to match. The valuation is attractive, and with the massive buyback and cashflow its a no-brainer to keep this as a defensive position, with still a substantial upside, even though it's a megacap.

BHC is executing flawlessly on their turnaround plan, paying off debt and making the best use of their assets. With ongoing deleveraging the value of equity will keep rising rapidly and it no longer seems like going after drug companies is no longer the focus in US. And of course BHC is not a typical drug company, with large divisions that are in more general healthcare businesses.

FB had a rough year, and it will certainly have some effect in slowing it down. But it was a good value in $200+ range, and it's a screaming buy now. It doesn't seem like people will move their social activity to any other platform and if anything, it can fuel Instagram's growth rather than e.g. Snap's.

GM continues to impress me with disciplined execution - the recent trimming of US factories is yet another example of that. It seems like their focus is return on equity instead of chasing growth (or even sustaining the (not profitable enough) volume. I wish I had more visibility into actual autonomous capabilities of Cruise, but based on valuation and positioning of GM in the vehicle market I consider this a very safe bet.

GOOG continues to be well positioned and executes nicely. With multiple strong businesses it's hard to see it go away anytime soon and the synergies between various offerings are significant. I wish Cloud, Hardware, Waymo and some other businesses would get to scale more quickly, but importantly they are growing nevertheless.

I'm keeping a minor position in KHC after it's very steep decline. I don't want to liquidate it at substantial loss, and the current yield makes it easier to hold onto it.

Finally, I've reduced the TSLA short by more than half at avg. prices around $315 and started to reestablish the short at $335. If the Q4 delivery update causes a rally I'm prepared to slightly add to the short, but will most likely not go as much short as before, given TSLA's potential to turn on a profit in the short term. I expect Q1 to be challenging, with reduced FIT credit in US and all the extra costs (shipping, tailoring to EU requirements and right-hand-side drive) causing model 3 to be rather expensive in Europe and not very profitable. It's exciting to see a number of new EVs becoming available, but still with current prices and limitations this is a niche market that cannot support Tesla's valuation, especially vis a vis valuations of other car manufacturers.