• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Stocks

How I Knew to Bet Against Tesla, Netflix and Other Stocks

Hint: I did my homework and acted when I felt I had the advantage over other market players.
By JIM COLLINS
Jul 26, 2019 | 03:55 PM EDT
Stocks quotes in this article: TSLA, ILMN, NFLX

If investors should have learned anything from Jeopardy super-champion James Holzhauer's recent incredible run on the quiz show, it's that you should always play your advantage.

Holzhauer possessed such a depth of knowledge that he seemingly had the advantage over his Jeopardy competitors in every category. Thus, his proclivity for sliding in his chips (complete with cheesy hand gesture) and doubling down on "Daily Doubles" was actually a prudent strategy rather than the mark of a cowboy. Just because you're a professional gambler in Las Vegas (as Holzhauer is) doesn't mean you take imprudent risks.

So, I was interested to see a comment on my Thursday Real Money column in which someone called my purchase of puts on Tesla (TSLA) heading into the company's quarterly earnings report "imprudent gambling." Only half that statement is true -- any deployment of capital involves inherent risk -- call it gambling, call it investing, call it what you will.

But it's the accusation of "imprudence" that I take issue with. Frankly, I don't think my move was imprudent at all.

I started following the auto industry as a Lehman Brothers cub analyst at about this time of year in 1992. In the 27 years since then, I've developed a knowledge about car-production economics that's deep and vast.

That's not braggadocio, it's just the residue of having spent many late nights poring over car companies' financial statements. It wasn't always fun, but those late nights, weekends and lack of vitamin D thanks to continuous exposure to artificial light have actually paid off.

That's why I know that Tesla is a big short here. It's not because CEO Elon Musk is so full of himself, is prone to making broad proclamations, was filmed smoking pot with Joe Rogan or does whatever he does when he's not working 100-hour weeks. I don't care about that -- I really don't.

But I do have an advantage when it comes to valuing car companies. I used that to "fade" Tesla stock's pre-earnings run from a $176.99 low on June 3 to $265 just before TSLA's earnings came out after Wednesday's close.

There are a few key indicators that I use to measure profitability for any manufacturer. Unfortunately, my formation of a new venture, Excelsior Capital Partners, means that I have to keep many of those to myself.

But suffice to say the fact that Tesla produced a net loss on record vehicle sales showed me yet again that the company's cars cost more to build than the revenues they produce. In other words, Musk's business model simply doesn't work.

I did share a list of nine stocks that scored poorly on my free-cash-flow valuation matrix in a previous column -- and so far, three of them (Illumina (ILMN) , Netflix (NFLX) and Tesla) have dropped dramatically around earnings news. (ILMN's was a preannouncement; NFLX and TSLA were actual results.)

I've used this phrase in a prior column, but every degenerate gambler in Las Vegas likes to shout: "My system works!" That doesn't mean every gambler is wrong.

That James Holzhauer was seemingly able to carve out a decent living before his Jeopardy windfall by betting primarily on sports, which carry a standard 9.1% "vig" or "juice" (-110 on the gaming sheets) is very, very, very impressive. Obviously, I'm not going to disclose position sizes in this forum, but my firm paid only an $8 commission on my two-way trade on TSLA puts, which netted more than 300% returns over less than two trading days.

Technology and competition among brokerages have produced an infinitesimal vig for stock trading -- a few basis points vs. the 9.1% vig on Vegas sports bets. So, it's easier than ever to gamble on the stock market.

But self-reflection is paramount. Before taking any position, always ask yourself: "Do I really have an advantage on this trade?"

Knowing that Federal Reserve Chairman Jerome Powell and his merry band of men and women are going to prop up the stock market every time it hesitates on its upward glide path isn't an advantage for active traders. It's a boon for buy-and-holders, but it doesn't help you with individual stock trades.

For traders, my success in foreseeing the recent plunges in TSLA, NFLX and ILMN serve as a reminder that there are strategies other than buying and holding that can make you money in this market. If you have an advantage in formulating one of them, by all means use it.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
TAGS: Short-selling | Fundamental Analysis | Investing | Investing basics | Markets | Stocks | Trading | Elon Musk

More from Stocks

It's Big-Cap AI Stocks Vs. Everything Else

James "Rev Shark" DePorre
May 30, 2023 4:35 PM EDT

The biggest problem now is that the big-cap names are not acting as leaders.

Beyond Meat and Peloton: Zombie Stocks Can Turn Portfolios Into the Walking Dead

Brad Ginesin
May 30, 2023 3:30 PM EDT

Don't confuse a stock revival masquerading as a living, breathing business revival.

In Case You Missed It: Apple Just Hit a New 52-Week High

Bruce Kamich
May 30, 2023 2:45 PM EDT

Let's not ignore the strength in AAPL.

Bristol-Myers Squibb Breaks a Key Support Area: What's Next?

Bruce Kamich
May 30, 2023 12:50 PM EDT

Here's what the charts and indicators say.

Here's the Truth About Oil No One Saw, as OPEC+ Takes the Stage

Maleeha Bengali
May 30, 2023 12:32 PM EDT

Let's look at what many observers failed to notice about oil, and what could happen when the oil exporting nations -- including Russia -- meet on June 4.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 09:48 AM EDT CHRIS VERSACE

    Latest AAP Podcast With Portillo's CEO!

    Listen in as we talk with a rising star in the Chi...
  • 03:25 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Don't Just Sit There and 'Hope' for Your Stocks, M...
  • 07:32 AM EDT BOB LANG

    Webinar Thursday After the Close: Option Spread Trading

    Thursday, my good friend and colleague Sam DeMarco...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login