Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

How Much Will Tesla Inflate?

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Tesla stock soared past $1,500 a share today, and talk about whether it’s in a bubble has been reignited. Several analysts have weighed in on the EV maker today, and even some bears are starting to say that the shares could keep rising.

However, one author suggests that Tesla stock is indeed in a bubble — and that it’s bound to pop at some point.

In an opinion piece for MarketWatch, Mark Hulbert said Tesla stock is inflating like a bubble, and those who buy now should prepare for a crash. He noted that he made the same forecast in early February, and the shares plunged 60% in the six weeks following that prediction — alongside the rest of the market.

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Speculative Earnings

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In a clever and useful analysis, Ronen Israel, Kristoffer Laursen, and Scott Richardson of AQR use the residual income approach to break down how the value of a company’s stock depends on three components: its book value, the value of its predictable earnings, and the value of its speculative earnings.  The first component, the book value, can be read off the balance sheet. The second component, the value of predictable earnings, is based on the assumption that the company meets analyst forecasts for the current year and the following year. 

In all future years beyond year two, the earnings are assumed to be equal to year two earnings.  The final component, the speculative value, equals everything else.  The speculative value is calculated by starting with the stock price and subtracting the book value and the value of predictable earnings.  The speculative value incorporates all the growth in earnings that the market expects beyond the first two years.  To summarize,

Stock price = Book value + Predictable earnings value + Speculative value.

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Hedge Funds & the PPP

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Note from Tim: as a reminder, I put together a spreadsheet of Palo Alto firms that got over $150,000 in PPP loans. Check it out here. If you don’t have an AirTable account, it’ll ask you to sign up for free.

I had noted a few months ago that many of these firms getting the PPP loans were not ‘in the spirit’ of the program.

Without any real ‘oversight’ the compliance part of these loans seems – – – questionable — on some.  I am not sure how it all really works, but the American public likely believes these funds should have gone to the ‘small business’, with waiters, waitresses, or bartenders who obviously couldn’t work.  This was the spirit of the PPP program.

And, there are others – the people at the gyms and yoga studios.  At the nail salon and corner barber shops.  There are many, many businesses, and it seems everyone has a hardship story.

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Divest Fossil Fuel Stocks?

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A trend popular at many American universities has been to divest their holding of the stock of companies in businesses related to fossil fuel production. More recently, even the church has become involved.  In reaction to the papal environmental encyclical “Laudato Si,” Catholic Institutions worldwide are considering divesting fossil fuel holdings. Despite its popularity, there are three reasons to conclude that this effort is misguided.

First, from a strictly financial point of view constraining investment opportunities must have a downward impact on investment performance of any fund compared to unconstrained investment portfolios.  After all, an unconstrained investor can always choose to hold a constrained portfolio, but the reverse is not true.  In addition, adding constraints limits portfolio diversification which will negatively impact the risk-return tradeoff.  How important this depends on how broadly the term “fossil fuel companies” is interpreted.  If it means just major producers of fossil fuels, the issue can be largely ignored because they are a small fraction of the global market.  However, if the term is interpreted more broadly, it leads to the second point.

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The Auto Industry & Tesla

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In numerous columns, and years before that, I have been beating one drum.  The stock market is forward looking.  It attempts to figure out which firms will control the future, Amazon for instance, and which companies have dropped the ball, IBM for instance.  There are numerous examples of this dichotomy, but one I have been harping on in numerous columns is the relation between Tesla and the auto industry.  It is time for a retrospective.

Checklist For A Successful Electric Car

Back in December of 2019, I wroteA successful electric car must check four boxes: design (modern tech look), price, range and availability in quantity.  Only the Tesla Model 3 (and potentially the forthcoming Model Y) checks all four boxes.  The Bolt is boring.  The Leaf is ugly.  The Polestar is not available in quantity.  The i3 is getting long in the tooth and still lacks the range.  The Taycan is way too expensive. 

The Jaguar and the Audi are large expensive SUVs comparable to Tesla’s Model X.  There are other competitors like Fisker, but they produce a few high-priced exotics.  Is it any surprise that in the United States the Tesla Model 3 outsells all other electric cars combined? 

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