August 30, 2018


All you need is sufficient cash-flow to support your existence.
The difficult part is obtaining the means to the end.
For my money, the most obvious solution is cash-producing financial instruments.


Initially, the allure of fast-money that only trading can bring seems appealing.
Success with leverage can delude one to think that’s the answer.
However, with time comes defeat. A gambler rarely persists.


Margin, futures, options, derivatives: They have their place but are too easily misused and abused.
They are not the solution and in my experience bring far much more trouble than success.


It’s hard to get lost on a well-traveled trail. Sticking with what you know for sure works may not be as glamorous as going out on a limb. The well-worn path probably is going to take you longer to get to the destination than going for the shortcut, but it’s also a hell of a lot less likely to get you killed.


The capital gain game, doesn’t make a lot of sense. This is because market movements are completely irrational. Humans have a knack for justification. It’s possible to find ways to justify everything you do. Life is strange in that nobody really knows anything. There’s no one true universal definition of truth. Everything is subjective to your own personal existence. Nobody knows what it’s like to live a life that is not your own.


There is risk in everything, but excessive risk when an investment entirely depends on the subjective valuation of others.


People love real-estate. Many have gotten rich through rent-seeking.
Real-estate is it’s own universe but it plainly distills the essence of wealth creation.


Assets and the return those assets bring.


There are constraints in life. We live in societies. People are average, normal for a reason. Evolutionary this makes sense. The further away from the norm you stray, the greater risk of ruin you face. We’re social animals, herds on the Savannah. Safety blending in. Those who stray face hyenas.


Risk is deadly.
Consistent cash-flow. That’s what we want.


My solution is a very diversified portfolio of high-yielding dividend paying stocks.


More on this later..

Tesla had earnings last week showing record losses. With a rotten balance sheet and cash-incinerating income statement, Tesla is sprinting towards bankruptcy.

As proof that the market trades on fairy dust, TSLA promptly surged $50, obliterating short-sellers, skeptics, and anybody who wants to believe that there is any sort of rational basis to make sense of stock valuation.
As clearly that wasn’t enough, just 3 days later, during market hours, in an unprecedented and likely illegal[1] move of brash self-indulgent stupidity Elon Musk tweeted a remark stating that he had plans to take Tesla private at $420/share and that funding was secured.

The stock rallied, was halted, opened, and then rallied even further as algorithms and fan boys rejoiced without a thought to the truth and viability of the asinine statement.

I’m going to lay this out for you right now. If I am proven wrong so be it but this is the truth as I see it.
No rational entity would make a bid to take TSLA private at $420/share.

Tesla is not in the business of manufacturing losses. Tesla is a car manufacturer, perhaps the shittiest car manufacture of all time. Tesla makes shotty cars that literally burst into flames out of the blue.[2] Thanks to an overhyped ‘autopilot’ functionality, crashes are frequent and as a result, the Tesla Model S is the most expensive car in the market to insure.[3]  Tesla makes cars whose panels misalign[4] and wheels fall off.

Terrible consumer reviews, ridiculous delays, tent shaded manufacturing lines, repair shops booked solid for months. Tesla made cars are dogshit, but let’s be honest; nobody is valuing TSLA stock based on TSLA cars. People are valuing TSLA stock based on a widespread disillusionment that Elon Musk is some sort of demi-god sent from the heavens to save humanity. Unfortunately for the true-believers out there, not only is this notion false, Elon Musk will assuredly go down among the biggest charlatan, soothsayers, and con-men in history. 

Elon is an eccentric and perhaps it’s no shock. The apple rarely falls far from the tree and Elons father Errol is a peculiar man. At 72 years old Errol Musk recently had a child with his 30 year old step daughter, claiming it was ‘God plan.’[5] It’s this lineage that gave rise to the paranoid schizophrenic Elon, a man who claims we are ‘almost definitely’ living in a Matrix-style simulation. 

Looking at the valuation of Tesla stock, it’s hard to dispute Musk. In what rational world do cognizant people value a cash-incineration flamethrower that has never turned a profit at $60B? This quirk must be a glitch in the Matrix. Perhaps Elon is the overseer reprogramming the simulation as he sees best… Or maybe... just maybe... he’s a fraud no better than Bernie Madoff.

That little tweet of his (among countless others) has launched a full-scale investigation from the SEC that may well lead to criminal charges.[6]

However, before Elon gets arrested and rots away on the tennis courts and tiki bars of the finest white-collar prisons money can buy let’s examine the viability of taking Tesla private of examining the financial condition of the operation.

Tesla is hurtling themselves towards bankruptcy at an accelerating pace. The Altman’s Z-Score is a bankruptcy prediction model initially found to be 72% accurate in predicting bankruptcy two years before the event. In a series of subsequent tests over the next 31 years (up until 1999), the model was found to be approximately 80%-90% accurate in predicting bankruptcy one year before the event.

​You don’t need to be a CFA to look at the financials and see that Tesla is effectively insolvent. 

​Clearly, the broad market doesn’t give a fuck about tangible numbers.  Alas, the retardation of algorithms and mouth-foaming fan-boys does not necessarily extend to large private equity players.

Private Equity focuses on cash-flow. Generally private equity companies like to find healthy, cash-flow positive operations with low debt. These investors then use immense leverage to effectively buy out the old-guard owners and pay down the debt with operational cash-flow from the acquired company.

Are you seeing any problems here? Terms such as “Cash-Flow Positive”, “Low Debt”, and “Healthy” are all terms that do not apply to Tesla and should immediately strike investors eyes as burning red-flags.

It will be interesting to see how this saga unfolds. Tesla is a stock for the history books. Much like the QE Bubble, the logic defying euphoric exuberance continues to burn strong in the hearts of the true-believers. Just like every bubble throughout history as the drums march onward, there is no end in sight. Just like every bubble in history, the end will be tragic and obvious in hindsight.

​When will this aberration end? When will fundamentals matter again? I have no idea..  

​[1] James. "Did Elon Musk Violate Securities Laws With Tweet About Taking Tesla Private?" The New York Times. August 08, 2018. Accessed August 10, 2018. https://www.nytimes.com/2018/08/08/business/elon-musk-tesla-sec.html.
[2] Washington Post. (2018). [online] Available at: https://www.washingtonpost.com/news/innovations/wp/2018/06/18/video-shows-tesla-bursting-into-flames-on-la-street-out-of-the-blue/?noredirect=on&utm_term=.4715c5eaf9ab [Accessed 10 Aug. 2018].
[3] Usatoday.com. (2018). [online] Available at: https://www.usatoday.com/story/money/personalfinance/budget-and-spending/2018/05/25/25-most-expensive-cars-to-insure/35234533/ [Accessed 10 Aug. 2018].
[4] Ray, T. (2018). Tesla: What Do a Failed Touch Screen and Misaligned Panels Add Up to?. [online] Barrons.com. Available at: https://www.barrons.com/articles/tesla-what-do-a-failed-touch-screen-and-misaligned-panels-add-up-1520598253 [Accessed 10 Aug. 2018].
[5] Rob Crilly (2018). Elon Musk's father has baby with step-daughter he has known since she was four. [online] The Telegraph. Available at: https://www.telegraph.co.uk/news/2018/03/25/elon-musks-father-has-baby-step-daughter-has-known-since-four/ [Accessed 10 Aug. 2018].
[6] Robinson, M., Bain, B. and Hull, D. (2018). The SEC Is Intensifying Its Probe of Tesla. [online] Bloomberg.com. Available at: https://www.bloomberg.com/news/articles/2018-08-09/tesla-is-said-to-face-broader-sec-scrutiny-over-musk-statements [Accessed 10 Aug. 2018].

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