The Canadian Investor - Episode 11 - Is Tesla's stock in bubble territory?

Episode Date: February 10, 2020

This week on The Canadian Investor Podcast we give our thoughts on Tesla’s incredible run in price in the past few months. We also talk about catching up on your TFSA contribution room and we finish our discussion with another Tip of the D’eh! Tickers of stock mentioned: TSLA--- Send in a voice message: https://anchor.fm/the-canadian-investor/messageSee omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. Live from the great white north, this is the Canadian investor where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. Hey everyone, welcome back to the Canadian Investor. I'm Simon Belanger joined by my co-host Brayden Dennis.

I'm back this week. Big thank you to Brayden for his interview with Barry Schwartz. It was great to listen to and I actually listened to it at the same time as everyone else, so it was pretty fun to listen to when I wasn't part of it. Brayden, how's it going? It's going great, man. I'm glad you're back. Last week was really fun to talk to Barry. He is not only really smart, he's a great guy, and I really appreciate him taking the time out of his day. Yeah, no, it was great. And hopefully I'll get the chance to talk to him.

But of course, I live in Ottawa, so it's not as easy for me. Yeah, so you're in the new house. And I have to roast you on the podcast because you texted me being like, yeah, I'm only 40-minute walk from downtown. I'm like, what does that even mean? Who says they're a 40-minute walk from downtown i'm like what does that even mean who who says they're a 40 minute walk from downtown yeah i mean i walk pretty much everywhere or i use the new ottawa light rail which is essentially a subway which if we have listeners in ottawa there's uh it's been fairly painful for some people since the rollout but i'm pretty lucky i just walk to the station take it

and i'm downtown within 25 minutes or if i want to walk the whole way 40 45 minutes has it just been super delayed or something yeah there's been issues with the trains i think it was a consortium with i think essency lavalier that's uh that built it as well there's been no no controversy there so no exactly that's it uh but no it's been good it's great to be in there the new house and uh the dog is adapting well and we're just kind of close to everything so it's a great little neighborhood that's great so if you want i'll kick it off we have a question from cortez uh one of my premium subscribers great Uh, and he has a question for the podcast. He says, since the TFSA is cumulative since you're 18,

would it be smart to up your contribution amount to make up for lost time and max out the account? Or do you face too much risk that way? Simon, I'm going to let you take this one first and then I'll just basically repeat what I answered Cortez already. Yeah, personally, I don't think you can go wrong with catching up on your contributions for the tax-free savings account. In some of our previous episodes, we went into those registered accounts a bit more into details, so tax-free savings account, RSPs,

and so on. But the TFSA is a great vehicle. You don't get taxed on any gains that you make within the account when you withdraw it, so that's really good. It's also great if you want to use it a little bit as an account, you know, as more of an emergency fund, although I wouldn't use the funds that I have invested in the stock market as an emergency fund, but you do not get the penalty if you start withdrawing your funds, you don't get taxed on them. It's really up to him in terms of if he wants to do a little bit of contribution in a non-registered account, in a RSP in terms of registered account, or fully focus on the TFSA. There's different,

account or fully focus on the TFSA. There's different obviously tax implication involved with whichever approach you take. But if you don't want to do too much homework on it, personally, it's fine to catch up on your contributions. Agreed. My first thought is if you are able to up your contribution limit, you're putting away more money, then go ahead and do it. The TFSA is great and you have that room, you may as well keep contributing. This doesn't mean put in the 60K allotment you have at one chunk. That means dollar cost average it,

which means putting it in at a regular amount over a regular time period. So if that's quarterly, monthly, annually, putting it in at a regular amount over a regular time period. So if that's quarterly, monthly, annually, whatever it may be, be patient and catch up on the TFSA. Ideally, you catch up on it every year. That's what I plan on doing because it is a great account and gains are tax free. If you're young and Cortez, I know you're a young guy, this account is great for you. And yes, just continue to put away as much money as you can and dollar cost, average it into that TFSA. Based on how old you are, you probably have like 65K roughly,

depending on when you turned 18. So that's the quick answer to that let's talk about the craziness that is tesla my god it went up 20 yesterday another 20 today give or take and all these firms are wildly saying that the price targets are like $7,000 and there's been some like $14,000 price targets. This is crazy, man. Stocks should never go up and to the left. All right. We're talking about not just up and to the right.

This is up and to the left. Straight shot up. It looks like craziness in 2002 with dot-com stocks being valued at 500 billion because they had a couple of clicks on the website. This is just nuts. What do you think, Simon? Yeah. So I totally agree. Tesla is kind of an animal of its own species when it comes to stocks. Just to put things in perspective, so when we look at the company value, generally we'll just say the market cap. So it's easy to figure out what the market cap is. You just take the amount of outstanding shares and you multiply it by the share price of one share and then you get the market cap. So to put things in perspective currently tesla the market cap is 160 billion dollars which is more

than volkswagen and general motors combined so and again put things a bit more into perspective volkswagen is producing around 10 million vehicles or i mean selling around 10 million vehicles a year general motor is around eight nine million vehicles vehicles a year and Tesla is at a solid 360,000 or so. So it just gives you a little more perspective how a bit crazy the valuation is for Tesla. Yeah, do you have a few comments on the market cap compared to those other manufacturers? Yeah, well you just hit the nail on the head. $160 billion in market cap for a car company that's not making that many cars in the grand scheme of things when you compare it to their competitors. People are saying, yes, Tesla has got this energy storage

business. They're at the forefront of technology in the car. I get it. I agree. I've driven a Tesla. It is an amazing experience. The product is awesome. The thing drove itself when I was in it. It's like picking you up when you just set its location and it goes and picks you up. The technology in the car is unbelievable. And it really does take test driving one to know that this is a sweet car. And also, electrification is growing. It has to grow. driving one to know that this is a sweet car. And also electrification is growing. You know, it has to grow. We have to reduce emissions and people don't just love electric cars. People love Teslas. They dominate the electric car market.

Like over 90% of sales in North America last year were Teslas and EVs. So given that has a pretty hefty price tag, typically, that is impressive dominance in the market. But let's not, let's not kid ourselves. The other companies are going to be producing electric cars. The Super Bowl, they had, they were showing off all their new electric cars over the Super Bowl. I don't know if you saw that, Simon. And obviously, it's not going to have that kind of market presence or market dominance that they've had in EVs because there's just too many big car manufacturers that are very good at making cars, very good at cutting costs. And this is just insane. The stock's up, what is it, 106% since the beginning of the year and 54% in the last

five days. This is like market mania. It's trading for 887 USD right now. There's two things that I see happening right now in the next six months. We'll talk about this again and maybe at the end of august tesla's either going to be like the bitcoin craze where it trades for like 5 000 usds or it's like gonna crash in a big way i don't see it staying like where it is right now that's just my take though yeah i mean it's you can't really look at tesla and kind of and look at the fundamentals because it doesn't make any sense i just gave a few examples like like i mentioned with the volkswagen gm compared to tesla um tesla when people invest in them they invest for elon musk it's that simple um so they invest he's don't get me wrong he's quite the visionary and he's got spacex going on he's got other

ventures and you said they have a source storage business um they it's you know you can't really you'll have to like the division that he has for humankind as a whole um however in terms of investing in the business to me it gets really risky. There's a lot of warning signs for Tesla. First of all, Elon Musk is not very... It's hard to believe him when he says he gives out numbers for Tesla. I think three out of four times generally his guidance, they don't meet it whatsoever. They often fall very short of it. So you got to take any type of guidance from Elon Musk with a grain of salt. He's usually not that friendly in terms of being a shareholder-friendly business. So you have to keep that in mind. He's very aggressive in terms of what he wants to do

for the business. And obviously, it's worked fairly well for him so far. You can blame him on that, but if you're looking for a prudent capital allocator, that is not Elon Musk. One other thing that kind of baffles me a little bit is there was an analyst on the conference call that was asking him, oh, with the stock being up so high, are you going to use this as an opportunity to issue some new shares some equity so get more money into the business because it makes sense the higher the stock is the better the time is to get more shares out because you won't have to issue as many to get the same type of funding and Elon did say no it wasn't on there is like was not under the radar that they would be mostly cash flow positive for the upcoming year.

There might be small fluctuations. Again, it goes back to Elon not being super reliable when it comes to making prediction for Tesla itself. So that's kind of my take on it. It's very hard to value. And you're really, if you want to invest in Tesla, just be aware it's a super volatile stock. So it's going to be volatile, whether it goes up or down, there's going to be big swings. And you're essentially just betting on Elon Musk if you want to invest in that company. As do-it-yourself investors, we want to keep our fees low. That's

why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more

of your money. Visit questrade.com for details. That is questrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with

Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That is Airbnb.ca forward slash host. Yeah, you bring up a lot of good points. You got to love Elon Musk. lot of good points you gotta love elon musk like his visionary like the things he is doing to make emissions lower put humans out in space potentially and then generate the power for his vehicles cleanly with solar the vision is just amazing and he is an incredible businessman

he likes to have fun with it too if If you follow his Twitter, he is quite hilarious. And apparently he just dropped some new song on Spotify, which is, the guy is just a meme. Like overall, it's hilarious. But he is just the exact opposite of a CEO. Like he's always getting in trouble with the SEC. He doesn't give a shit. It's hilarious.

And I honestly respect him a lot for that. As an investment, this is scary stuff at uh at the valuation that it's trading at when compared to other car manufacturers let's not kid ourselves don't ever get caught up in hype where certain companies are being looked at differently than what they are hint hintint, hint, WeWork. This is not a tech company. This is a real estate company. And investors who made the mistake of thinking that it was a tech company and not a real estate company, well, do I have to even get into the details on what that happened? That is just a nightmare. So I mean, I see some parallels in this kind of analysis yeah and

they're in a market that's highly competitive and they've got competitors with really deep pockets and not only that they are putting a lot of their money into driverless cars the problem with that industry specifically i'm not an expert whatsoever but i know there's different ventures out there there some are back i think by google i believe that volkswagen and ford also have an initiative on their hand uh and i think nvidia would also have one there's like there's definitely some big players out there that do have that and it's not i mean it's not been completed just to be safe on the road so whichever company that kind of comes out first will probably be the one that will cash in the most on that so they're you know they're fighting

against some big players with a lot of deep pockets to get that done there's a ton of big tech companies you know ones that are ring the tune of a billion or sorry a trillion dollar in market cap that are very interested in this space with extremely deep pockets that generate a lot of free cash flow. And they might decide, hey, maybe we shouldn't be buying back $80 billion in stock. And instead, we're going to invest in this space. So Tesla's technology is impressive, but they are in a space where deep pockets in technology could disrupt it. There's just so much more downside. In my opinion, we talk about investing in future returns, right? That's what investing is. You're, you're betting on what's going to happen in the future earnings in the future at 160 billion in market cap, what's my

upside? I don't see it. And if you do see it and you have some insight into the company, well, I mean, you've clearly done very well on the stock. I'm not going to hate on you for that, but I can understand it. And that's the best part about investing. If I don't understand it, I don't have to invest in it. If you understand it, go for it. That's all you. So that's the best part about investing. If I don't understand it, I don't have to invest in it. If you understand it, go for it. That's all, that's, that's all you.

So that's why, that's what I love about investing in general, being able to make those decisions on your own. That's why we're managing our own portfolio in the beginning, right? To be able to have control. And this is, this is a good thing.

Yeah. For me, like if anyone's interested in investing in Tesla, like that's their own decision just be aware i would again i think we've said that before about growth companies just keep it a small portion of your portfolio don't put uh too many eggs in that basket and just be expected uh it's going to be a wild ride whether it goes up or down and i'm not going to try to predict tesla because i probably would have said it would have gone down maybe a year or two ago and look at it where it's at now so I don't think I'm going to

venture to make predictions for them yeah and you've seen shorts just get squeezed like no tomorrow right it was the most shorted stock at like $400 in the entire market. And it's at $780 right now. Sorry, $880 today. Oh my God, I can't keep up. So, I mean, these shorts are getting crushed. And yeah, I wouldn't bet against it because I can't understand it. In market manias like this, Robert Shiller's book on irrational exuberance would ring a lot of bells. And history does not repeat itself exactly, but it sure does rhyme.

And this is very similar in my opinion. Yeah, and just a quick note on shorting. I think people might be hearing that term a bit in the financial market. So shorting, like Brayden said, you're betting against a company. The way to do it is usually what you'll do is an easy example is I say, okay, this stock is $100 a stock. I'm going to go to Brayden who owns this company, and say, hey, Braden, I'm going to essentially borrow these shares from you. I'm going to pay you a premium for that. I'm going to turn around, sell them at $100 each, and then I'm betting that the stock will go down to, say, I'm hoping it'll go down to $50, for example. I'll buy back the shares,

give them back to Braden to make him whole in terms of number of shares. And then I've pocketed the profit in between. Theoretically, and that always annoys me when I hear that they say like, oh, your downside is theoretically like infinite. Well, let's be honest. Yeah, in theory, yes, it could be infinite infinite because the stock would just keep going up and up and up and up and your losses will amount. In reality, I think that's pretty far-fetched. It always annoys me when I hear that. But essentially, what would happen if a company is doing well, you would have a short squeeze, which is the people shorting the stock. When the stock goes up quickly quickly they panic and then they

sell sorry they'll buy those stocks again and because there's so many short seller that would buy those stock again to pay back the people like i said brayden for those shares then it makes the stock go up even more that's where you get the short squeeze. It would be a not fun place to be right now. It would probably be very difficult to sleep right now if you're still holding onto that short. So Simon, do you want to give us the tip of the day? Yeah, definitely. So we talked about it beforehand. We were wondering what we would say and what ties in really well with our discussion on Tesla is don't pay attention on the price targets that are given by analysts that follow a certain stock. I was watching something really interesting on BNN when I was looking up videos of Barry Schwartz before the interview last week. looking up videos of Barry Schwartz before the interview last week.

And one guy who manages a fund, and I apologize, I don't remember his name, but he was talking about this subject and saying that they never pay attention to the price target. However, they'll actually look at the analyst report because oftentimes the analyst will have good insights in the actual business itself. But in terms of the price target, they pay no attention to that. And to keep in mind too, the price targets tend to be really short-term focus. So it could make a stock go up very quickly in a short amount of time, but it doesn't necessarily mean that that's where the stock will go. Um, so it's easy to kind of get excited or panic when there's a price target that either is goes way up or goes way

down for a stock that you own. Don't make decisions just based on that. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly.

Switch for free today and keep more of your money. Visit questrade.com for details. That is questtrade.com. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. Totally agreed. Price targets are questionable in themselves.

And that whole industry is kind of strange to me because, yes, I find a lot of value in what the analysts are saying in the words because they study the business well and they're outlining the upsides and the potential downsides to be aware of. And I think that is the value. However, in terms of their buy or sell or hold recommendation and the price target, I black that stuff out because the amount of buys is at least two to one on sells or holds in the market. So if you go to a company like Tesla, for instance, the amount of analysts are saying buy versus hold, they don't want to be caught looking stupid saying sell stock Um, you know, there's way more upside for them, uh, to not be wrong essentially. So it's, it's a very weird industry and the incentives are not entirely aligned correctly. So look at what they're saying in terms of the upsides and the downsides, but price targets and buy, sell, hold recommendations.

Uh, you can look at it, but don't finalize any decisions based on that alone is my recommendation. Yeah, totally agree. And I personally use it usually just to have a general overview of the company, a better understanding.

And then I'll kind of dig in a bit more into the numbers, into the financial statement if I'm really interested in the company. And that's the extent I use it. And sometimes too, like Brayden just said, is those financial analysts or those analysts that follow a company, they also have relationships that they have to keep with investor relations department of those companies. So if they start selling that a stock is a strong sell, what that can result is them having more difficulty getting information from the company to actually analyze them properly.

So it is something that's kind of weird. And like Brayden said, their interests are definitely not aligned with yours. No, financial incentives are not aligned. This actually pretty much covers the entire financial services industry. Financial incentives are not aligned generally between you and the financial service industry as a whole. I mean, overall, when it comes to fees, when it comes to, you know, the amount of backloaded front loaded fees that you get when you're investing in mutual funds. And then there's incentives for the financial advisor that are not

aligned. All of it is backwards. And the only person that's not making money in that case is you. So I mean, that's why we manage our own portfolio. And that's why you listen to this podcast, hopefully. so go over to getstockmarket.com there's lots of stuff happening there right now in terms of revamping lots of different quality companies that you can look at lots of metrics and i hope you guys are finding lots of value from that and that does it for this one thank you guys so much for listening and we will see you next week. The Canadian investor is not to be taken as investment advice.

Braden or Simone may own securities mentioned on this podcast. Always make sure to do your own research and due diligence before making investment decisions. Thanks for listening to this episode of The Canadian Investor. To get a list of the top Canadian dividend stocks right now and other valuable investing resources, go to GetStockMarket.com.