Alphabet soup

We’ve talked a lot around here about the advantage we have in playing our own game instead of getting caught up in the game that plays out on CNBC.

To summarize… The best way to create long-term wealth from the stock market is to find good companies and then have patience and try not to do much. But that makes for terrible television, especially with a 24-hour news cycle. So, by necessity, the networks gravitate towards those who are willing to overreact to the normal ebbs and flows.

Way back when during a time of my life when I had to take media training, I was told the number one rule of live television is to keep talking. Even if what you are saying doesn’t make a lot of sense. Most viewers aren’t processing word by word and will assume they misheard if something is really off. But if there is a pause, if there is silence, everyone looks up from what they are doing and focuses on you. And may the gods help you when that happens.

Oddly, the same is true when talking to a reporter. You keep talking. You say something that sounds smart. And you move on.

At the risk of picking on just one example when examples are everywhere, I give you this quote from a Reuters story on why some firms are selling Tesla shares…

We should do some quick disclosures: I don’t know who John is, but I know some of his colleagues at Gabelli and I think the world of them. If you are someone who wants to be in the business, or wants a good option for managed funds, Gabelli would be top of the list for me.

I realize I am making a lot of assumptions here, and I don’t mean to single out John. But the quote makes no sense. Some context: Since the beginning of 2022 (a time when they were buying Tesla shares)…

• Tesla’s revenue is up 76%

• Tesla’s EBITDA is up 43%

• Tesla’s stock has lost half of its value

You put all of that together, and (use these metrics at your own peril) Tesla’s price to earnings has fallen from 240x to 44x, and its price to sales has fallen from 23x to 6x.

And yet, in John’s own words, from point A to point B Tesla’s fundamentals were becoming detached from realty. Implying, I think, in his mind the fundamentals were attached to reality when the numbers were a whole lot rosier. Or were more attached to reality, at least?

I don’t want to even get into the second part of that quote. I am not sure of a time over the past 10 years where I found Tesla’s stock price was justified by “auto company fundamentals.” So, I’ll sit that argument out.

Just a guess, but I’d say the more honest answer is his job as a growth equities stock picker is to ride the momentum. To ride the wave. And Tesla without doubt had a lot more momentum 2.5 years ago than it did now. It would have been weird for him not to have Tesla in his portfolio back then. It is less clear now. So, he did his job and added and subtracted as appropriate.

In the growth-focused market we’ve had, this momentum-based strategy likely generated much better short-term returns than a simpleton like me could produce.

But, of course, you’d want to avoid saying that to a reporter. So instead, you talk about fundamentals and move on to the next question.

Nothing wrong with it. Nothing sinister, nothing that doesn’t happen every day. But important for us, the consumer, to be aware and keep the filter on instead of acting on every word said.

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