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My least favorite stocks have NOT been doing well

My least favorite stocks have NOT been doing well

How have my least favorite stocks been performing?

It’s been about five months since I shared my two favorite stocks to short, $TSLA and $SNAP, and it’s high time for a checkin to see how my favorite shorts are doing. For those of you who didn’t read the original posts, here’s a quick summary of why I felt these stocks were headed for a fall.

My thinking on Telsa from May 26th

“If everything goes as planned, Tesla will make it through the year just fine. The problem is that there are so many things that could go wrong. They could have a massive recall due to production issues in the Model 3. They could have battery supply issues leading to a significant deficit in deliveries. They could have increased competition significantly hamper their ability to meet growth targets. “

What I got right

So far, there hasn’t been a recall, but otherwise I have been fairly accurate. The competition (Mercedes, Porsche, BMW) have all been stepping up their game. Production hell has intensified, and they are way below their goals for Model 3 deliveries.

What I missed

I completely missed the potential for another negative factor on this stock: Elon Musk. It’s hard to believe, but he may be nearly as uncontrollable as the President on Twitter, even going so far as to publicly announce that the financing was secured to take Tesla private. That didn’t pan out, of course, and has led to a significant fine from the SEC, along with forcing Elon to give up the board chairmanship.

It’s not all bad, however. Elon did secure additional funding from the Saudi’s to hold Tesla over for a little longer.

How did the short perform (in theory)

As I noted in my previous post, I didn’t actually short Tesla (and I did not advise anyone to do so themselves). However, the stock has gyrated up and down fairly aggressively and ended slightly up from the time I made the call. It went from $278 on May 25 to $264 on September 30 (as I am writing this). So, if I would have shorted Tesla I would have been up about 5-6%. Not bad, but not great.

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My thinking on Snap from May 19th

“…the success of the business is predicated on one single metric that I believe is about to turn dangerously south: monthly average users. Like all social media giants, the high valuation of the business is justified by continued and accelerating growth. For SNAP, the pace of growth is not anywhere near as impressive as it once was. The moment that number turns flat or negative is the moment Snap loses 50% of its value in a single day. On 5/1 when they reported Q1 numbers that were lower than expected (but still positive), the stock dropped 20% in a day. I think that (significant) blip is a sign of things to come. “

What I got right

SNAP has continued to post disappointing numbers, with MAU actually falling in Q2. As expected, that has had a negative affect on the stock price.

What I missed

The conversation around the stock has largely centered around profitability and revenue, which have both continued to slide. This is not surprising given their failure to attract additional users, or even retain their current ones. Their head of revenue also recently left.

How did the short perform (in theory)

As I noted in my previous post, I didn’t actually short SNAP, and I did not and do not advise that anyone does. However, this call has been a decent one. Although the stock has fluctuated since May, it’s now at $8.48 (as of writing on Sep 30) which represents close to a 20% loss from it’s price of $10.58 when I made the call in May.

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So where does that leave me? Where are they going now?

As my summaries above have shown, I really have no idea where these stocks are going. I don’t believe that anything has fundamentally changed about either of them, although with Elon Musks mania and $SNAPs continued user base issues, I would say they are definitely stocks to shy away from.

On the plus side, had I equally invested in both of these shorts, I would be up around 15% since May. That isn’t fantastic by any means, but it is better than being negative. I am still glad I didn’t make the call to actually short them, however, because it’s just too risky! Generally, stocks go up. Betting against a stock is a firm and unequivocal decision that often depends on something happening in the short term that will negatively affect the price. Even with dogs like $SNAP and $TSLA, I cant guarantee that will happen.

So… I’ll keep on watching, but I have no plans to actually short these two.

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