Three Short Ideas Just Aren't Playing Out

 | May 09, 2013 | 12:38 PM EDT
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The action in Tesla Motors (TSLA), Green Mountain Coffee Roasters (GMCR) and Barnes & Noble (BKS) strikes at the core of the dichotomy in this market. These three stocks represent what I call "intellectual shorts," meaning that the intelligentsia in this market truly despises these stocks.

Take Tesla. Here's an $8 billion company that is going to make 21,000 cars that many of the intelligentsia set thinks are worthless. The party line on Tesla is that Chairman and CEO Elon Musk is a blowhard who is not to be trusted. They don't believe that the company is actually profitable, as Musk claims it is. They don't believe the financing numbers. They don't believe the guarantees.

But in the end, it doesn't matter what the intelligentsia believes, because the public likes the Tesla car, Consumer Reports just gave it its highest rating in years, and unless the Securities and Exchange Commission steps in to challenge the numbers, the short-sellers could remain wrong for some time. That is, if they are ever right.

I am bombarded with notes from people urging me to knock Tesla. I have no idea how to value this stock. It is a cult stock involving a cult car, and Elon Musk says that 25% of the people who take a test drive buy it. If that is true, then the company can sell every car it makes from now until kingdom come as long as the quality is high. So the stock can keep percolating higher.

Speaking of percolation, if you look at Green Mountain today, you can see what happens when the intelligentsia gets it right, but it doesn't matter one bit. The rap on Green Mountain was that sales are slowing for the Keurig coffee-making unit, and that, plus the competition from the likes of Nespresso, means that Green Mountain could be a terminal short. Of course, there were also whispers that Starbucks (SBUX) was going to take aim at Green Mountain, and nobody can withstand an enemy like Starbucks. Instead, the two companies announced a five-year partnership that put an end to the notion that these two will be warring anytime soon. The deal also includes the possibility that Starbucks will sell Keurig machines, so there goes a principal leg of the negative thesis.

So it's a good short gone wrong.

Finally, what can be said about Barnes & Noble? You have a billion-dollar company that might be getting a billion dollars from Microsoft(MSFT) for a product that's been crushing the company, even as it is regarded as technologically superior to Amazon (AMZN). But a newly invigorated Microsoft, which has an investment in the device already, seems to want the whole device, as long as it isn't stuck with the bookstore chain.

I know Borders was a loser. I know the book business has never been tougher, courtesy Amazon and the Kindle. But is Barnes & Noble worthless?

Hard to believe.

All three of these are crowded shorts, meaning that so many people have a group-think against them that they are being gang-tackled. But all three have been elusive and have broken away from the tackling and now are off to the goal line.

I know many short-sellers are telling me "just you wait" to see what happens to these companies. I come back and say, "Wait for what? It's already happened."

That's the tough thing about being intellectually right and practically wrong. It's never easy to admit you are wrong, especially when you think you are the smartest investor in the valley. But it has been known to occur many times since this bull market began. Still, these extremes are a little frightening to watch, and you know, in the end, that those who are fighting these moves became cannon fodder for the moves themselves, as they have to bring in their shorts, if only to give back what's left of the money they are investing from people who thought that these managers were really smart.

They were. By half.

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