It was the best of quarters; it was the worst of quarters. It was marked by wisdom; it was marked by foolishness. It validated investor belief; it confirmed investor incredulity. Shareholders are all going direct to Heaven; they are all going direct the other way.
Such was the flurry of commentary after Tesla reported Q1 results last week. There was something to please… and scare… everyone, bull and bear alike.
Production, earnings and margins were on target, domestic demand for the Model S increased, Panasonic signed a Letter of Intent and the company will break ground on the first Gigafactory within a month. The bulls should have been pleased.
On the other hand, there were no substantial upside surprises in revenue, earnings, cash flow or margins. The bearish view was thereby validated and the stock sold off. In fact, during a Bloomberg interview, one bearish fund manager who is short TSLA, compared Elon Musk to PT Barnum. Another commentator drew a parallel between Tesla and Qualcomm in 1999.
Why the intense polarization? Why the hyperbole and caricatures? In psychology we call it Confirmation Bias.
It’s the tendency to interpret the glass as half-empty or half-full according to our prejudices, which always seem self-evident to us. This is a cognitive error that frequently pops upamong investors (and even fund managers), because when it comes to issues of financial security, we all get a bit irrational. Blame it on the human brain.
The brain is hardwired to pay much more attention to bad news than good news. And what we pay attention to naturally appears more important, more real. Watching the fluctuations in one’s stock portfolio on a daily (or hourly) basis could drive you crazy because you will fret over the dips and they will worry you about 2.5 times more than the increases will please you. This creates an emotional deficit that will distort your thinking.
On a practical level, this means most people get too bearish on dips. With respect to the current dip in TSLA, check to see whether you are looking at the stock through fear colored glasses. If so, try to take them off.
= = =
Learn more about Tesla here:
www.teslachronicles.com
