Bad news for Rivian: the electric Ford F-150 is at least pretty good

From November: What edge does Rivian have in the truck or EV market? (market cap: $127 billion)

From January: How is Rivian still worth $78 billion?

The market cap today is $18 billion, an 85 percent loss for those who bought the stock at the time of my November post (or a massive profit for those who went short!).

Today’s Car and Driver review of the F-150 Lightning:

Though this truck has many parlor tricks—a big frunk that can swallow 400 pounds, an optional tongue-weight scale, and BlueCruise hands-free driving—none are as impressive as how quick it builds speed from a standstill, thanks to 775 pound-feet of instant torque. Mat the accelerator and the front tires spin. Actually, the fronts will spin if you floor the accelerator at any speed below 50 mph or so. The effect is amplified as you load the truck closer to its 2235-pound max payload capacity.

It even drives and feels a lot like an F-150. A 50/50 weight balance contributes to very good road manners. … A low center of gravity keeps the truck relatively flat through corners, too.

The base vinyl-lined Pro model starts at $41,769 and comes with the 98.0-kWh battery that’s good for an EPA range of 230 miles, while the upgraded extended-range battery brings 131.0 kilowatts-hours of storage and 320 miles of range. … On the not-so-good front, the Lightning can tow up to 10,000 pounds when spec’d with the Max Trailer Tow package, but it can’t do so for very long between charges. We pulled an 8300-pound boat and trailer at about 65 mph, and the on-board trip computer indicated we were getting less than one mile per kilowatt-hour. This puts the highway range with a trailer of decent size and mass somewhere around 100 miles.

[A friend has a reservation for the F-150 Lightning and they won’t let him order the base model, so the $41.7k price is maybe just a theoretical one. The real price is at least $60k.]

So the Ford product is at least pretty good, is backed by a company from which people have been buying trucks for more than 100 years, and is much cheaper than what Rivian charges for a similar capability.

Ford even shows a great place to run out of battery power:

If this vehicle had dog mode, it would certainly be a better value than anything from Tesla!

Circling back to Rivian… after they run out of Silicon Valley enthusiasts, who is going to pay $100,000 for a non-Ford, non-GM, non-Toyota pickup truck? And what is the stock/company worth?

Rivian stock versus the S&P 500 starting on the date of my first post:

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S&P 500 down at least 6 percent since Joe Biden took office

Not a great time for us buy-and-hold index investors….

Since Joe Biden took office, the S&P 500 is down at least 6 percent in real terms (up 3.9 percent nominal, but up is the new down in a high-inflation environment).

Who wants to get bragging rights by calling the bottom on this market slide? I’m going to say that the correct value is 3,200 (pre-coronapanic value) plus 0 percent growth for 2020 when Americans cowered in place and 8 percent growth for 2021. Then add 20 percent for the inflation rate that is experienced by people with enough money to buy stock. So today’s correct nominal value is 4,096. Markets tend to overshoot, though, so let’s take 5 percent off that for the bottom: 3,891.

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How is Berkshire Hathaway an example of investment genius if it holds cash while inflation rages?

Berkshire Hathaway has been holding roughly $140 billion during a period of raging inflation (source):

This is about 20 percent of the company’s market cap (about $700 billion). The standard explanation for this is that it gives Berkshire Hathaway the ability to pounce on great deals, but Elon Musk is managing to buy Twitter without having had to let inflation erode a substantial percentage of his portfolio for 2+ years. The company’s annualized operating earnings right now are about $22 billion (CNBC). Inflation has been 8.5 percent. So the company is losing $12 billion to inflation annually, more than half as much as its headline “earnings”.

Admittedly the S&P 500 is flat compared to a year ago as well, so if Warren Buffett had done the obvious thing of parking money in the S&P it wouldn’t have done significantly better. Gold didn’t rise smoothly as the dollar fell in purchasing power. Bitcoin is about 32 percent lower today in nominal dollars than it was a year ago. But isn’t there something better to do with all $140 billion rather than leave it for exposed to the depredations of the government’s money-printing operation?

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Revisiting my investment question regarding Twitter

From 2013, Should we short Twitter?

Folks: It has come to my attention that Twitter has gone public at a valuation of $18 billion. The company has modest revenue (about $600 million per year) and no profit. Is it a short?

What is the explanation for how this service can make enough profit ($1 billion per year?) to justify an $18 billion valuation? It doesn’t seem like a natural advertising medium. Given the possibility of distributing information for free via Facebook or Google+, Twitter does not seem to offer a unique capability to users.

Generally I am a believer in the efficient-market hypothesis but I can’t understand this one.

What if one had shorted Twitter to buy the S&P 500? The following chart isn’t complete because the S&P 500 pays a dividend while Twitter did not. If we use Yahoo! Finance to create a custom chart starting on the date of my post,

The S&P has gone up 134 percent (and paid a dividend of 2 percent per year?) while Twitter is worth 20 percent more than on November 6, 2013. Note the lift in 2020 after the government made most non-screen-based activities illegal, but even that wasn’t enough to bring Twitter’s performance even with the S&P 500.

(I’m wondering if the market cap number I cited in my blog post was inaccurate. Elon Musk is paying $44 billion for the company and the stock price is only barely higher. Either the $18 billion number was wrong (maybe it was the initial pre-bounce IPO target price?) or Twitter has issued a ton more shares since November 2013 (acquisitions? to enrich executives and board members?).)

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How does Twitter earn $44 billion before Elon Musk dies?

Twitter will soon be owned by African American entrepreneur and investor Elon Musk, who is paying $44 billion for a company that lost $493 million in 2021 on revenue of $5 billion (press release). The company would have earned something like $273 million if it hadn’t had to pay out on a big shareholder lawsuit. So if we look at things in the best possible light, and forget the fact that the government gave all of these screen-based companies a big lift in 2020 and 2021 by making non-screen-based activities illegal (except “essential” marijuana shopping in Maskachusetts and California), it will take 161 years for Twitter to earn $44 billion in profit. Unless the Silicon Valley life extension enthusiasts can deliver, Elon Musk will have died of old age before the Twitter investment pays back.

What could Elon Musk possibly do to make this platform worth $44 billion (other than wait for a few years when $44 billion could be the price of a Diet Coke)? Is the answer that Twitter can become as addictive as Facebook and therefore as profitable, on a percentage basis? Meta earned something like 30 percent profit after taxes. If Twitter could do the same it would earn $1.5 billion per year and Elon Musk would have paid 29X earnings for a company that is slowly growing (in other words, if everything goes perfect at Twitter it still isn’t an obviously good buy at $44 billion). Can we add this to the long list of things about the stock market that baffle me? (Remember that I’ve been skeptical of Tesla stock and Bitcoin for about 10 years, which is nothing to brag about in the investment world.)

Let’s look at some fun stuff from Twitter regarding Twitter….

Jeff Bezos says that it is good when a billionaire owns Atlantic magazine (Laurene Powell Jobs, who made money by marrying Steve Jobs, and promotes low-skill migration) and it is, presumably, good when a billionaire owns the Washington Post (Jeff Bezos himself). But it is bad when a billionaire owns Twitter:

Here’s a look at the likely thoughts of the Twitter Thought Police:

Here’s a chart of enthusiasm for censorship by party affiliation:

A summary of the situation:

Suppose that Elon Musk cancels the cancelers who work at Twitter. The folks who permanently suspended Donald Trump, for example, would have to look for other work. What if they re-formed as an independent company that took the entire Twitter feed and bowdlerized it by filtering out anything from the New York Post, vaporizing anything that says something positive about Donald Trump, etc. This would become a cherished safe space for Joe Biden voters. What to name the site? How about SafeTwit?

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Is it time to buy stock in Zoom?

Here’s a challenge for those of us afflicted by a belief in the Efficient Market Hypothesis:

Adjusted for inflation, Zoom is cheaper today than in June 2019, when the only lockdowns were for convicted criminals and any non-felon could work, socialize, and study in person to his/her/zir/their heart’s content. The P/E ratio is only 25. Compare this to the sexual orientation and gender identity educators at Disney with a P/E ratio of 78, and the Microsoft behemoth at 32 (though Apple, Tesla, and Microsoft have all proved that having an enormous market cap actually helps with growth since investments can be financed for almost nothing).

I had a Microsoft Teams meeting the other day that was an echo-plagued disaster unless I kept my microphone on mute. Then, using the same PC with the same webcam and speakers, it worked fine today. Zoom definitely seems to work better and the revenue is still growing (up 21 percent in nominal dollars compared to a year ago so a boost of about 10 percent in real terms).

What’s the major risk for Zoom? That Apple will crush them by bumping the FaceTime group max from 32 to 3200? That Webex and Teams will somehow wipe them out? That Google Meet won’t be canceled like everything else (except for ads) that Google has ever offered? If these aren’t huge risks, why can’t Zoom gradually increase its margins and more than justify a current P/E ratio of 25?

Warning: All of my previous investment ideas have been disastrous!

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How did SNOW do versus the S&P 500?

Happy April Fools’ Day! Today we can celebrate fools who buy stocks (or continue to hold, which amounts to the same thing) at near-historic-peak valuations:

(the insane spike to a P/E ratio of over 100 was in 2009 when corporate earnings went down even more dramatically than stock prices)

Let’s look at my foolish question from a year ago: Short Snowflake? I asked “How can a startup data warehousing company be worth a substantial fraction of Oracle’s $200 billion market cap?”

SNOW was worth $62 billion then. How would that idea have worked out? More importantly, how did SNOW do against the S&P 500? (since we assume that an investor would have taken the proceeds from shorting SNOW and put it into a default investment such as the S&P 500) The chart from yesterday:

Let’s remember that the S&P would have paid roughly 2 percent dividend yield during this time. If we assume that the inflation rate for anyone with enough money to buy stocks is 15 percent (includes the cost of a house in a decent neighborhood, for example), SNOW was down 11 percent in real terms while the S&P was up by 2 percent (the dividend yield). It would definitely have made sense to sell SNOW and buy the S&P. Shorting SNOW, on the other hand, might not have worked due to the various costs of borrowing the required shares.

Despite SNOW having gone down a bit, I continue to be mystified by its market cap. The company has revenue right now of $360 million per quarter or $1.4 billion per year. The accounting is tough to understand, but it looks as though they’re losing money. Why is a money-losing company, albeit one with growing revenue, worth $70+ billion? That’s 50X revenue and would correspond to a 200X P/E ratio if we created a fantasy world in which the company was as profitable as Oracle (25 percent, which very few companies achieve!). Presumably the answer is “growth” and the example of a company that loses money persistently and then finally becomes profitable is Amazon. But even Amazon, despite the U.S. government ordering its bricks and mortar competitors to shut down (#StopTheSpread), had an operating income of only about 5 percent of revenue in 2021.

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Bubble in the Sun book: even those with the best information can’t predict a crash

Bubble in the Sun: The Florida Boom of the 1920s and How It Brought on the Great Depression (Christopher Knowlton) explains how Miami Beach was essentially the vision of a single individual, Carl Fisher (a pioneer in automobile headlights, highway development, and co-founder of the Indy 500).

Jane believed the project would be an expensive mistake. When Fisher took her to inspect the property by boat, they entered from the bay side, rowing up a channel lined with dense mangroves. “Mosquitos blackened our clothing,” she wrote. “Jungle flies, as large as horse flies, waited for our blood.… Other creatures that made me shudder were lying in wait in the slimy paths or on the branches of overhanging trees. The jungle itself was as hot and steamy as a conservatory.… What on earth could Carl possibly see in such a place?” But Fisher insisted that he knew what he was doing. Standing with her on the soft sand on the ocean side of the long neck, the surf breaking toward them in slow, white rollers, he sketched out his vision for the area. It would be half beach resort and half playground. “In that moment, Carl’s imagination saw Miami Beach in its entirety, blazing like a jewel with hibiscus, oleander, poinsettia, bougainvillea, and orchids, feathered with palms and lifting proud white towers against the sky,” Jane recalled. “But I looked at that rooted and evil-smelling morass and had nothing to say. There was nothing a devoted wife could say.”

As 1919 unfolded, Carl Fisher made two final and critical changes to his business strategy. The first was to switch his target audience, which had always been the elderly and the retired rich, most of whom still favored Palm Beach over Miami, and always would. As he told Business magazine a few years later, “I was on the wrong track. I had been trying to reach the dead ones. I had been going after the old folks. I saw that what I needed to do was go after the live wires. And the live wires don’t want to rest.” He would concede the superrich and the old money to Palm Beach. Instead, Miami Beach would be for the nouveau riche; for men like Fisher himself, especially those from the industrial Midwest; men who were younger, still making their fortunes, and looking for fun ways to spend their new wealth. He would appeal to them with the sort of activities that appealed to him: contests, races, and other events that featured sports celebrities. Henceforth, Miami Beach would become “a youthful city of indeterminate social standing,” in the words of social historian Charlotte Curtis. Fisher’s second change in tactics was equally radical: he raised his land prices by 10 percent, in part to give the appearance that his lots were appreciating rapidly in value. And to further promote that perception, he offered a return guarantee of 6 percent “to any customer in Miami or elsewhere who purchased lots from us and are not well pleased with their investment.” He assured his buyers that, from then on, he would be raising prices by 10 percent every year. Ten percent was an exceptionally attractive rate of return; 10 percent that seemed virtually guaranteed was even more attractive. Fisher, in trying to stoke a small fire, was about to fuel a conflagration. Behind the scenes, other factors had contributed to the marked improvement in sales. Chief among these was the wide proliferation of the automobile. The machines that Fisher had raced, sold, and promoted back in Indiana had evolved into bona fide consumer products, viable and cost-effective substitutes for the horse and buggy. The automobile, more than the railroad, the streetcar, or any other factor, turned the American landscape from raw land into real estate. It did so by making the land accessible and thus developable: its value could be easily established, enhanced, and commodified. Land then became a far more salable product, one that benefited landlords, lenders, contractors, and real estate agents, to say nothing of the purchasers and renters of that property. Nowhere was this truer than in Florida. And nowhere in Florida was it truer than in Miami Beach, where the road built over the Collins Bridge and the new County Causeway (renamed MacArthur Causeway in 1942) at last made the resort developments there commercially viable—by making them accessible to cars. Miami Beach was on its way to becoming the most widely publicized and most famous resort destination in the country. Fisher was now forty-three years old but still full of vitality. “This is only the beginning,” he announced presciently in an ad that appeared in the Miami Metropolis newspaper late in 1919, adding that he planned to further enhance Alton Beach the following year with “a polo club house, a church, theater, schoolhouse, six store buildings, and ten Italian villas ranging from $10,000 to $35,000 each.”

By the mid-1920s, Fisher’s vision was more or less realized:

In her memoirs, Fabulous Hoosier, Carl’s first wife, Jane, captures the surreal nature of the late boom years and how the clientele of their once sleepy resort town had changed: “Pouring into Miami Beach they came, fantastic visitors to a fantastic city. The gold diggers and the sugar daddies, the gigolos, the ‘butter and egg men,’ the playboys and the gilded heiresses, the professional huntresses, the tired businessmen who never grew tired, the gentlemen who preferred blonds. Miami Beach was the playground of millionaires and the happy hunting ground of predatory women.”

Then he tried to do it all over again in Montauk, Long Island and, due to leverage, blew up. The book chronicles the fate of other folks who became billionaires (in today’s debased money) from their efforts in Florida real estate, e.g., George E. Merrick who planned and built Coral Gables and Addison Mizner who is responsible for the Spanish-style architecture that we now see all over Florida. Essentially all of them went bust after staking their fabulous riches on yet more expansion.

What’s the worst that can happen in our current real estate and stock market boom? A retired hedge fund manager friend says that he wouldn’t be shocked to see a 90 percent crash. I think that this is excessive given that Manhattan real estate crashed by only 67 percent from 1929 to 1932 (HBS) and this was much steeper than the nationwide decline.

The book should be an inspiration for more diversification, though 2008 showed how tough that can be to achieve. Here are some $5-12 million houses (Jupiter Inlet Colony) to enjoy while the good times last…

Related:

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March Madness: How has Bitcoin done relative to the S&P 500 and inflation?

For basketball fans, today is the beginning of March Madness. For the rest of us, the primary kind of madness to which we’ve been exposed is the idea that humans can control a respiratory virus with bandanas as PPE. But what about the second maddest form of madness, i.e., the belief that “they’re not making any more bits” and therefore that Bitcoin is inevitably valuable?

What if we’d bought the S&P 500 and reinvested the dividends over the past year? How would that compare to a dividend-free investment (not to say “speculation”!) in Bitcoin? And how have both strategies fared compared to the inflation that we are assured is both minimal and transitory?

Let’s look at the S&P 500. It seems to be up about 6.6 percent. Then add in a dividend yield of just under 2 percent and we get an 8.6 percent bump in nominal terms:

Of course, inflation has been at least 10 percent (if we count the cost of buying a house) and therefore an investor in the S&P 500 has actually lost money over the past year (he/she/ze/they is down about 20 percent measured against the cost of buying a house in South Florida). Bitcoin is an inflation hedge like gold and therefore must surely have done better, right? Yesterday’s chart:

Down 32 percent! What about gold itself? Or, in this case, GLDM:

Up 15 percent, so losing value compared to real estate but perhaps roughly even with most other items.

What if we’d bought tanker trucks full of gasoline? It has gone up from $2.71/gallon to $4.10/gallon (EIA.gov), a 51 percent bump in nominal dollars.

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Six-year anniversary of the SSGA Gender Diversity Index ETF

Happy 6th birthday to the SSGA Gender Diversity Index ETF (symbol: SHE):

Seeks to provide exposure to US companies that demonstrate greater gender diversity within senior leadership than other firms in their sector

Companies in the Index are ranked within each sector by three gender diversity ratios

The Index seeks to minimize variations in sector weights compared to the composition of the index’s broader investment universe by focusing on companies with the highest levels within their sectors of senior leadership gender diversity

There are nearly 200 holdings in the fund out of the roughly 3,500 significant publicly traded U.S. companies (Wilshire 5000, in which 3,500 is the new 5,000). In other words, roughly 5 percent of U.S. public companies do things the correct (gender diverse) way.

To celebrate Dr. Marissa Mayer‘s brave stewardship of Yahoo! (history, which included 30 days of daily new logos in 2013) we should get a custom chart comparing SHE to the Wilshire 5000 over the past 6 years from Yahoo! Finance.

The stocks of companies that failed to enter the gender diversity Olympics were up by roughly 107 percent in nominal dollars (but don’t forget that inflation eroded these gains; a house in our Florida neighborhood has gone up in price by much more than 107 percent in the same period and even the government’s cooked CPI number is up roughly 20 percent). Stocks of companies with people identifying as “not men” in leadership positions were up by 44 percent.

Related:

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