Friday File: A Little More Arbitrage, Plus Berkshire, Shopify, Starbucks and other Updates

By Travis Johnson, Stock Gumshoe, December 14, 2018



Thanks so much to the new folks who’ve joined us as Irregulars this week — we’re midway through our annual charitable membership drive, and it’s looking pretty good… I’m hoping we can get our totals up to last year’s numbers, and we’re almost halfway there with a donation pile of close to $6,000 now. That’s reason for some holiday cheer, so thank you.

If you’re new here, I write to the Irregulars once a week in what we call the Friday File — usually it’s largely about my Real Money Portfolio, which you can view here, but I also often cover teaser ads or share whatever big picture thoughts come to mind.

So… what do I have to share with you this week?

As we’re all more prone to realize when the market starts to look unfriendly, the price you pay for an investment matters. The “story” and the feeling that something “can’t miss” is exciting, and that’s what drives a lot of people to invest in particular stocks or trends… but the price you pay to be part of that story is important.

As an example: One of my constant temptations is to short Tesla (TSLA), which I think has become a well-intended fraud with an absurd valuation. It’s crazy to value this company at $60-70 billion, and the behavior of CEO Elon Musk as a public steward of investor capital is terrifying. But shorting the stock would be very expensive and risky — partly because the actual cost of shorting or buying puts is absurdly high (since the ridiculousness of Tesla’s share price is well known), partly because there are enough enthusiastic individual investors who love the story that the shares could also rise 30% in any given week if Musk tweets something exciting.

So I’ve never invested in Tesla, short or long… even though it’s one of the stocks I’m most certain about being likely to suffer a serious decline of at least 50% over the next several years. The cost is just too high to justify the risk and the potential reward. Betting that Tesla will decline by 50% in the next year, for example would cost almost $20 a share. If you want to extend that out another year and give yourself until January 2021 to be right, it would be closer to $30 a share — and ...

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