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Tesla Model 3 Reservations Hit 276,000; Musk Considers Options

Loading the player…   Tesla Motors ( TSLA ) CEO Elon Musk tweeted Sunday afternoon “276k Model 3 orders by end of Sat.” The electric car was unveiled Thursday night after reservations for it opened around the world that morning. The pre-order count is far more than expected and Musk said Friday “definitely going to need to rethink production planning.” “All efforts focused on accelerating the ramp,” he added Saturday on Twitter ( TWTR ). Musk gives frequent updates as @ElonMusk there. He continued: “Token of appreciation for those who lined up coming via mail. Thought maybe 20-30 people per store would line up, not 800. Gifts on order.” 276k Model 3 orders by end of Sat — Elon Musk (@elonmusk) April 3, 2016 Will all those who forked over $1,000 for a Model 3 reservation pony up when it comes time to put in an actual order? “In-person store checks indicate huge optimism, but modest lack of conviction of actual purchase,” Pacific Crest Securities analyst Brad Erickson said in a research note written Friday and distributed late Sunday. “While there was clearly a lot of excitement and optimism around both the car and the company, roughly one-third of the respondents we talked to sounded undecided on whether they would actually purchase when the option came up in two years.” Erickson said that the “urgent need to reserve a place in line” seemed to stem most often from the view that the government tax credit “might expire before the customer would be able to take delivery.” Google CEO Weighs In The strong reception for Tesla’s Model 3 spurred a congratulatory tweet to the electric car maker’s CEO Friday night from Sundar Pichai, CEO of tech giant Google, a unit of Alphabet ( GOOGL ). He replied to Musk’s update on Model 3 reservations with: “congrats, exciting times!” . @elonmusk congrats, exciting times! — sundarpichai (@sundarpichai) April 2, 2016 The Model 3, like Tesla’s Model S and Model X, will have some Autopilot self-driving capabilities. Google famously has its Google Self-Driving Car in development, expected to be more a people transporter than a car that a human would drive some of the time. Musk said on Twitter that reservations expectations were “maybe 1/4 to 1/2 of what happened. No one at Tesla thought it would be this high before part 2 of the unveil.” @34thrain Maybe 1/4 to 1/2 of what happened. No one at Tesla thought it would be this high before part 2 of the unveil. — Elon Musk (@elonmusk) April 2, 2016 Musk plans another reservations update on Wednesday tallying the first week’s count. Model 3 Launch Event And Test Rides Tesla stock rose on Friday after Thursday night’s Model 3 launch party in Los Angeles tallied ramped-up reservations and revealed a good-looking design with glass on the back half of the roof clear all the way to the trunk. A reservations odometer actually spun at times during the event, moving past 134,000 while the afterparty was still going strong, outpacing the estimates of Tesla analysts. At $35,000 per car, that would amount to almost $4.7 billion in potential revenue when the Model 3 is actually delivered. The deposits are $1,000 a pop and said to be fully refundable. “According to management, reservation orders surpassed 150K during the evening (and presumably still growing beyond our two incremental reservations early this morning),” Stifel auto analyst James Albertine said in an overnight research note. That “is roughly 10x the 15-20K we expected in the first days of the launch and 50% greater than the 50-100K we expected by the end of this year.” He added: “Thoughts. We are simply awestruck by the demand surfacing for the Model 3.” CEO Musk tweeted out in early afternoon that reservations had nearly hit 200,000. Thought it would slow way down today, but Model 3 order count is now at 198k. Recommend ordering soon, as the wait time is growing rapidly. — Elon Musk (@elonmusk) April 1, 2016 Musk’s comment about the wait time is key. Model 3 production will take time to ramp up. Even if the deliveries begin in late 2017, as scheduled, it could be well into 2018 or beyond before people reserving today actually get their Model 3. Shares rose as high as 247.90 on the stock market   Friday, the best since early October. But gains cooled, with Tesla stock closing at 237.59, up 3.4%. Tesla is not currently highly ranked by IBD, with a Composite Rating of just 34 out of a possible 99, factoring in its earnings growth record, stock market performance and other metrics. The Model 3 pre-order window opened around the world Thursday at Tesla stores. “Orders for the Model 3 in the last 24 hours have just passed 115,000,” Musk announced at the 8:30 p.m. Pacific Time launch on Thursday. Lines at some Tesla stores had stretched far. The rest of the Thursday reservations were racked up during the event, where a bevy of Tesla Model S, Model X and Roadster owners conversed over the din of a DJ. “Orders for the Model 3 in the last 24 hours have just passed 115,000,” Tesla CEO Elon Musk just said. $TSLA #Model3 pic.twitter.com/ZWWb9LmhGj — Donna Howell (@IBD_DHowell) April 1, 2016 Several people IBD spoke with who already own at least one Tesla also ordered a Model 3 at the launch party. PCs were set up to take reservations online, with the general window for online reservations opening shortly before Musk took the stage to introduce the new car. Sleek, fast (we took a test ride) and smaller than its siblings, the  Model 3 is slated to roll off the assembly line in late 2017. It’s seen competing with the BMW 3 Series and similarly priced entry-to-midrange luxury vehicles from Volkswagen ‘s ( VLKAY ) Audi,  Daimler ‘s ( DDAIF ) Mercedes-Benz and Toyota ‘s ( TM ) Lexus, as well as electrics like the General Motors ( GM ) Chevrolet Bolt and a variety of hybrids. Tesla’s challenge now is ramping up production to meet the better-than-expected demand on time, and pushing down battery costs enough to profit with a car half the price of its last two models. About half of the current Tesla owners that IBD spoke with at the launch event expect the Model 3 to come out on schedule. The others wouldn’t bet on it. Tesla’s last model unveiling, also at its design facility in Los Angeles, was the Model X crossover in February 2012. After delays, that finally started going to reservation-holders at the end of September 2015. Bob and Linda Ashmore of San Carlos, Calif., have a Roadster and a Model S, and just put in a reservation for a Model 3. “We ordered one today here, so we’re looking forward to seeing what it’s actually going to look like,” Bob Ashmore told IBD as the launch party was getting started. He expects it to be built on time, and he and Linda have visited the factory several times. “They’ve got plenty of capacity,” Bob Ashmore said. “This has been a dream and vision of Tesla from the beginning,” Linda Ashmore said. “To get an affordable car for the masses.” Tesla isn’t highly rated by IBD at moment, though it has been in the past. The company currently gets a Composite Rating of just 34 out of a possible 99, factoring in its earnings and loss history, stock price performance and a raft of other factors. The stock has been finding support around its 200-day line lately, and hit its highest point since October on Friday. RELATED:  Tesla Motors Model 3 Revealed . This Is What It’s Like To Ride In A Tesla Model 3

Investment Strategy: When To Sell A Stock?

By Rupert Hargreaves Deciding when to sell a stock is often a more complicated process than buying it in the first place. Indeed, holding onto a loser for too long can severely curtail long-term returns. The same can be said if you hold onto a winner for longer than needs be as a sudden shift in market sentiment might see the majority of your gains erased. With this being the case, refining your selling process is a vital part of developing your investment strategy. This is a topic the February 29 issue of Value Investor Insight looks at in an interview with Danny Bubis, Ben Ellis, Jay Hedstrom and Amar Pandya of Tetrem Capital Management , which has produced an annualized return for investors of 8.9% since 1997, vs. 7.1% for the S&P 500. When To Sell A Stock? Investment strategy: When To Sell A Stock? Tetrem seeks out companies using a value approach: beaten-down stocks reflecting an unwarranted pessimism over the persistence and sustainability of their businesses. Of course, the selling process starts when the fund first buys an investment and research on each company is focused on modelling each potential investment’s fair value on the basis of normalised earnings in the base case, bull case, and bear case and the justified multiple for earnings in each of those scenarios. When these scenarios have been calculated, the fund’s analysts assign probability weightings to each case, and then use this probability weighting to calculate the potential upside the security. Generally speaking, the fund is looking for $3 of upside for every $1 of downside. Why does Tetrem Capital use a probability-weighted fair value calculation? Well, according to Danny Bubis this approach helps the fund better frame things in terms of risk versus reward and results in better investment decisions. When it comes to selling, Tetrem’s team has decided to refine their selling process after observing that many of the fund’s missteps have involved sticking with losers too long or not letting winners run long enough. To counter these mistakes, the fund’s team is making a more concerted effort to have high conviction buys push out more marginal ideas. The key test here: if the stock in question fell 10% to 20%, would the fund step in and aggressively buy more? If the answer is no, then there could be better ideas out there. Another rule the fund has introduced is that when something happens, which puts the original investment thesis at risk, the weighting in the fund is immediately reduced to 1.5%, a normal weight the fund is around 3% – no matter what the stock price does. These two parts of the firm’s investment strategy help Tetrem manage the downside; when it comes to the upside, the fund also has a rule in place to ensure that it does not get caught out by letting a winner run too long. Upside management technique Tetrem’s upside management or profit taking method is based on its fair value probability calculation. In the interview with Value Investor Insight, one of the fund’s current positions, Microsoft (NASDAQ: MSFT ) is used as an example. Originally, Tetrem acquired Microsoft when it was a beaten down by the market due to its entrenched management, reliance on PC and weakness in consumer markets. However, over the past two years, the company has transformed itself and successfully adapted to a mobile-first, cloud-first world. The stock is up 100% in five years, excluding dividends and Tetrem’s probability fair value estimate has increased alongside the stock price, as the company has grown and developed with the market, the probability of the bull case is higher, and the probability of the bear case is lower. This floating fair value probability estimate helps Tetrem’s team stick with compounders longer than it might have done without the floating calculation. Disclosure: Rupert may hold positions in one or more of the companies mentioned in this article.

How Long Should I Give An Investment Plan?

Even the most brilliantly crafted investment plan has to be given time to work. The markets are inherently volatile but also inherently profitable. And when you start investing in the markets, you are very likely to see many highs and lows as the market gyrates before you see permanent gains. And since asset allocation involves crafting a portfolio out of many sectors which have low correlation, one component of your portfolio certainly will experience an early loss. Diversification means you will always have something to complain about. Perhaps the most important part of implementing an investment plan is the wisdom to know when one category doing poorly means you should do something and when it means nothing. We know from behavioral finance that many people give up on a brilliant investment philosophy too soon. They chase returns rather than rebalancing. And we know from studies on mutual fund flows that investors underperform the very mutual funds they are invested in because they buy funds after they have gone up and they sell funds after they have gone down. We don’t want to be the foolish investor who sells at the bottom only to reinvest at the top of the next bubble. Here is the primary question to help you discriminate between a brilliant investing strategy and a mistake: Do you have sufficient data to justify the long-term mean returns you want? It is a mistake to select an investment sector based on recent returns. In order to get meaningful statistics, you need to use the longest time horizon possible. Even 30 years is not long enough to judge which investment will have a higher mean return for the next 30 years. For example, we recently had a 30-year time period where long-term bond returns beat the return for stocks . Periodically, it is wise to reevaluate your investment selection to see if you made a mistake. You may have been enamored by the ability of a fund manager to select stocks . You may have thought a fund was worth higher fees and expenses. You may not even have understood what you were investing in. You may have invested in something that has a low or even negative mean return. Or you may have invested in an illiquid asset. If you do find a mistake, it is always a good time to sell a bad investment. There is no reason to “wait for a rebound,” because a better investment will on average rebound better for you. During the portfolio construction process, look for sectors with a high expected return, a low volatility, and a low correlation with other components of your portfolio. Then, when you experience the volatility, ask yourself if it behaved as you expected. Imagine that you have invested in a fund tracking the S&P 500 Index and it quickly experienced over two years a -19% annualized loss. Wondering if you made a mistake, you ask yourself, did your experience fit what your data expected? To answer this question, you look at the range of returns experienced by the S&P 500 Index since 1928 (all the data we have). The mean return (not including dividends) is about 7%. In the graph below, you can see this as the graph funnels around a 7% return the longer the number of years. The thick bars are 1-standard deviation from that mean; the thin bars are two standard deviations. Click to enlarge Returns within one or two standard deviations are commonplace returns. The data doesn’t just expect these, it predicts them. Within one standard deviation of the mean are approximately two out of every three returns experienced. Meanwhile, approximately 22 out of every 23 returns are within two standard deviations. As you can see, it depends on the number of years how wide the range of predicted annualized returns. Over a one-year time period, one standard deviation from the mean is from -13.00% to 28.07%. Meanwhile, over a thirty-year time period, one standard deviation from the mean is 5.45% to 8.53%. Two standard deviations for one-year time periods is -33.53% to 48.06%, and for thirty-year time periods, it is 3.91% to 10.08%. When you look at two-year time periods, the two-standard-deviation set of returns is from -21.81% to 34.56%. The return you experienced, -19%, falls in this time period, making it commonplace. Your data not only expected it, your data predicted it. Despite one-, two-, and three-year time periods all having moderate annualized losses within one-standard deviation, for the S&P 500 Index at a 7-year holding period, the bottom of the one-standard deviation range (2 out of every 3 returns experienced) rises above zero to a positive 0.02%. The bottom of the two-standard deviation range (22 out of every 23 returns) rises above zero after a 19-year period. Even good indexes which are part of a carefully crafted portfolio on the efficient frontier have a bad decade. Get rid of them at the low and you are liable to miss the recovery as the index returns revert to the mean and have some greater than average growth. And while individual stocks can go to zero, broad indexes cannot. To ensure this fact, your funds should be comprised of a large number of holdings. There is no such thing as over diversification. A large number of holdings helps ensure that the category is worth a place in your asset allocation for the long term even when returns are below average for a period of time. There are reasons to remove a sector from your asset allocation, but not simply for returns that are below average. The opposite is true, however. When a category experiences rapid appreciation, investors piling in may cause the price to rise faster than the expected earnings. A higher than normal forward P/E ratio can be an indicator of lower than expected future returns. Dynamic asset allocation would suggest trimming the allocation to sectors with a higher forward P/E ratio so that when the sector reverts to the mean, you have less experiencing the fall. Sometimes even a good investment can drop precipitously. Approximately 1 out of every 23 times the stock market will experience returns greater than two standard deviations from the mean. The markets are more abnormal than a normal Gaussian bell curve. This non-Gaussian mathematics is called Power Laws and forms the basis for fractals. Stock returns experience 4 or more standard deviations greater than normal statistics would predict. Gaussian statistics experience greater than 3 standard deviations approximately 0.2% of the time whereas the stock market experiences greater than 3 standard deviations approximately 0.56% of the time . When returns are outside of two standard deviations, the same analysis applies, but the hype from the financial news media is terrifying. The worst 12-month return for the S&P 500 was -70.13% (a 4-standard deviation loss) and ended June 30, 1932. The best 12-month return ended just 12 months later and was 146.28% (a 7-standard deviation gain). I take comfort in the fact that unusually large drops are often followed by unusually large gains. A similar pairing happened during the crash of 2008. The 12 months prior to 2/28/2009 experienced a -44.76% drop (a 3-standard deviation loss). The next 12 months appreciated 50.25% (a 3-standard deviation gain). For the most part, short-term returns should not ruin a brilliant long-term investment strategy. Normally, it is best to rebalance your portfolio selling what has gone up and buying what has gone down. If you can’t stomach rebalancing your portfolio, at least don’t lose heart and abandon the plan.