Why You Need People to Insult You

by Chris on April 11, 2016

If you’re going to invest in stocks AND expect to get big results then you absolutely must be attacked by insults. Here’s an article I published for the Globe and Mail a little over two years ago. The message is evergreen. It will never become old. Read this and learn this.

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When you invest in exciting long term growth ideas, one way to gauge the upside potential is by how many people think you’re stupid or crazy. If people aren’t willing to argue with you about a call, there probably isn’t much upside. On the other hand, if you want to buy stocks that have huge upside potential I think it’s an absolute requirement that you’ll be called every name possible.

Look no further than the comments section in the online version of any article I write about stocks such as Netflix, Facebook, or Tesla Motors. I’ve seen people call me all kinds of names, or even suggest that publishing my opinions the way I do should be illegal. But guess what? If all of the comments were sunshine and roses it would be a sign that the upside I think exists doesn’t really exist at all.

Stocks go up when people think that business prospects have improved compared to their prior expectations. It’s that simple. Sure, you can get a lot more complex by looking at short term trading psychology where traders are trying to predict what other traders will do in the near future. But once we move past the short term noise a stock will move up or down based on how investors feel about its future. If people feel better about a stock because of an actual improvement in the business, the stock goes higher and stays higher. If people get fooled into believing a business has stronger prospects when it really doesn’t, then the gains are short lived since the truth is eventually understood by the market.

When it comes to long term investing I look for stocks that are making big differences in how an industry operates. And if you’re planning on doing the same with a portion of your investing dollars I suggest you get used to the idea of being called stupid or crazy.

Assuming that I’m right on any particular call, it is the folks who currently think I’m crazy who are responsible for my future upside in a stock. I can only make oversized returns if I end up being right against a lot of people who don’t buy into my way of thinking about future earnings potential of a business. The more names I’m called the more I see it as a sign that the payoff will be quite large.

In the late 2000s I published a sell recommendation on a small Canadian company manufacturer of fibre optic components for the telecom industry. In my opinion, investors had been sold a story that could never pan out. Since I knew the industry better than most of the investors, and I had a strong network of professionals to help me with my due diligence. I was very confident. That didn’t stop one client of our firm, who was a big shareholder, from calling me up and yelling at me. He’d done his own digging too, and his PhD contacts were smarter than mine, so he thought. He was wrong, and the stock soon came crashing down – and stayed down. If I hadn’t understood that I needed people to disagree with me to have a worthwhile call on a stock, I might have been bothered by what happened.

Today I’m invested in Facebook despite crowds of people who feel that it’s bound to fail as teens abandon the social network. But we know people are social creatures, and there is no meaningful competition for Facebook today. I’m invested in Netflix because I believe online delivery of video will be the primary way people watch TV in the future. Yet there are scores of people who think cable TV will never die. Most of the growth-oriented technology stocks I invest in are ripe with controversy. Without controversy, there is no opportunity. In a theoretical world where everyone shared my opinion these stocks would already trade much higher.
I’m certainly not always right. I’ve made plenty of incorrect investing decisions over the years. Each time, whether I was right or wrong, there were crowds of people who disagreed with me, and it used to bother me. But as soon as I truly realized the market is built on conflicting opinions I stopped worrying about what anyone else said.

If you’re going to invest in stocks, not only do I recommend you adopt a long term focus, but start to expect people to strongly disagree with you and look forward to it. You can safely ignore the amateurs who hurl insults and instead focus on the business rationale behind an argument. By expecting people to disagree with you and sidestepping emotion to only focus on the merits of an argument, you’ll become a better investor.

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I’ve been kinda busy lately. I haven’t posted anything here since January! That’s just crazy. So when I got an email last week asking me how the Tesla Model S faired during the deep freeze of February 2015 (the one we all thought might NEVER end), I figured it was time for an update.

In January I wrote this post explaining why the Tesla Model S is the best winter car I’ve ever owned. It’s the best car I’ve ever owned for any situation, but it was cold at the time and I was focused on winter performance.

Then February came. We had some insane number of wicked cold days in the Toronto area. I’m talking the kind of cold that makes you just want to LIVE beside your fireplace and go nowhere.

Tesla performance? About the same as the January post I described. Go read it if you want the long version. But the short version is that range anxiety only exists when you are doing a bunch of short-haul trips that add up to more than 200km in a single day. If you do all of the driving at once (i.e road trip), you won’t have much of a problem because the car battery will heat up, as will the cabin, and you’ll probably do something like 250 Wh/km (energy consumption per km) compared to about 175 Wh/hm during the summer. You take a hit, but it’s not completely insane. But drive a bunch of short haul trips where your battery is constantly fighting to heat up (using resistive heating) and your energy consumption will easily move closer to 400 Wh/km, which seems scary bad until you realize it does NOT matter during the kind of short haul trips that cause this inefficiency.

If I had to do this all over again here’s what I’d do:

1) Buy the all-wheel-drive version (it was not available when I purchased)
2) Buy the winter tires in advance instead of buying them later
3) Nothing else different. This is still the best car I’ve ever owned. I LOVE visiting a gas station pretty much only to buy a few litres for my lawn mower once or twice per summer.

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Here’s Why My Tesla is the Best Winter Car I’ve Ever Owned

by Chris January 8, 2015

Since taking delivery of a Tesla Model S this past June, I’ve enjoyed plenty of summer driving with the car. But now, up here in Ontario, we are in the thick of winter. Yesterday we drove the car in temperatures ranging between -17 and -23 Celcius. That day was the coldest day I’ve ever stepped […]

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Sorry … No, Electric Cars Will Not Cripple the Electric Grid

by Chris September 6, 2014

I spend a lot of time reading about Tesla, electric cars, etc. My wife things I’m obsessed with the topic. I think she’s right. Anyway, today I came acrsoss a typical bearish comment where a person wrote, “What I want know is where are the generating stations going to be built to supply the power […]

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Tesla probably should do another financing

by Chris August 11, 2014

This week I’m up at the cottage in vacation. Like any good tech investor my leisure reading included the latest Tesla 10Q filing. I know. I should expand my sources of literature I’m aware some bears think that Tesla is burning cash and therefore must raise more money through an issue. This view is justified, […]

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Getting Fired: 3.5 years later

by Chris July 17, 2014

Three and a half years ago I was working at TD Securities as an equity analyst. I had been working on Bay Street as an equity analyst covering tech stocks for almost 11 years at that point. I enjoyed it tremendously for most of those years. But when I had my first daughter in 2004 […]

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Tesla: The Self-Marketing Car

by Chris July 4, 2014

After driving the Tesla Model S for about 3 weeks I’ve noticed that it attracts a lot of attention, and mostly when I’m parked. I’ve gotten used to the idea that when I get in or out of the car there are likley to be people staring at it, walking up close to it, commenting […]

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Cars are going electric. There is no stopping it.

by Chris June 24, 2014

Last week I picked up my Tesla Model S. I’m the first to admit this is an expensive car, and most people aren’t going to buy one. And I realize that it will be at least a couple of years before their Gen 3 car (expected at $35k) is going to arrive.  In the mean […]

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Is it wrong that Morgan Stanley upgraded Tesla Motors in advance of underwriting their convertible debt offering?

by Chris February 27, 2014

Ever since Tesla Motors announced its $1.6 billion convertible debt offering yesterday afternoon, market watchers have been crying foul. Why?  Because Morgan Stanley is one of the underwriters on the deal. Their analyst, Adam Jonas, put out a very bullish report and raised his target price on Tesla just a few days before the deal […]

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Long Term: Can Microsoft Stay in the Consumer Business?

by Chris January 27, 2014

I admit that I was wrong about Microsoft … at least in the short term. In late 2012 I was very bearish on Microsoft just as I started participating in the Globe and Mail’s “Strategy Lab” project. I wrote a few articles explaining why I preferred to own Google and Apple rather than Microsoft. Turns […]

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