After reviewing Tesla’s earnings this week (and watching the market’s reaction), I decided to travel back in time and re-read our Q4 2019 letter, in which we detailed our thesis on Tesla and why we held strong—even when it was (arguably) the most hated stock in the universe that year. (Full disclosure: It should come as no surprise to regular readers that myself and our fund’s Partnership are long the stock.) Speaking with Arne this morning for our daily debrief, we reflected on what a journey it’s been—and, while it’s frustrating that many investors can be short-sighted, it’s actually necessary to create opportunity for ourselves as long-term investors. While I promise not to make a habit of self-referencing our own material, I thought I’d (re)share the 2019 year-end letter, in which we discuss our views of exponential growth in a post-Internet era, the short-sighted research that plagues Wall Street—and the specific elements to our Tesla thesis that made it “the best investment opportunity in the market today.” (Our Q3 2021 letter also gives some updated thoughts on current positions and outlook.)
“I anticipate massive industrial upheaval will begin to play out over the next 1-3 years. Years from now, I anticipate we will look back at the early 2020s as the industrial pivot-point of the 21st century: a time when storied, legacy incumbents began to stumble and fall—and a time when savvy, technological upstarts captured immense market share at an accelerated rate. That may sound like hyperbole, but I do not think it is. The most consequential of the possible disruptions, and the one I will discuss at length below, is in the automotive industry. It is my strong belief that we are moving to a fully electric transportation system, and Tesla, a core holding, is leading the vanguard. Over the last couple of years, Tesla has become a polarizing investment name on Wall Street. (It has also become one of the most shorted stocks, leading to an avalanche of what we believe to be misinformation—at best—put out by certain elements of the investment community). None of this, however, shocks me. For many years, I watched from a distance as investment analysts and short sellers crowed about Amazon, until many finally capitulated. All the while, I accumulated stock in AMZN—just as we have done with TSLA.”
***
Can “a culture of writing” make companies more innovative?
This week, I came across Brie Wolfson’s post, “Writing In Public, Inside Your Company.” The central thesis to the essay is that some of the most innovative, disruptive firms have a culture built around writing. “I’ve come to believe that Stripe’s culture of writing is one of the organization’s greatest superpowers,” she writes. As I’ve personally experienced, writing publicly forces you to clarify your thoughts, and it ultimately challenges you to have better insights.
“People say the same about many of the great companies. Books have been written about Amazon’s writing culture. There’s an entire section in their 2017 Shareholder Letter dedicated to espousing the benefits of the Six-Page Narrative. Bill Gates already had his finger on this pulse in 1999 when he published The Speed of Thought: Using a Digital Nervous System. The entire essay is worth reading but the gist on his take on why writing is important is this: a collaborative culture, reinforced by information flow, makes it possible for smart people all over a company to be in touch with each other. When you get a critical mass of high-IQ people working in concert, the energy level shoots way up. Knowledge management is a fancy term for a simple idea. You’re managing data, documents and people’s efforts. Your aim should be to enhance the way people work together, share ideas, sometimes wrangle and build on one another’s ideas–and then act in concert for a common purpose.”
***
Challenging the herd mentality of the endowment investment approach
Charles Skorina, an executive recruiter who works on behalf of endowments and large foundations, published a provocative essay last month about the herd mentality that drives behavior at some of the world’s largest institutional investors. “Let’s be honest here,” he writes. “If the David Swenson of 1985 had applied for the CIO position at Yale today he would not have made it past the first round of interviews.” There’s plenty of groupthink among stock pickers, so it’s fascinating to see how that same behavior goes up the chain to those picking the stock pickers.
“With a few notable exceptions, the biggest, scrappiest, contrarian carnivores on Wall Street turn into risk-adverse consensus-huggers when they take a seat on college boards. Most board members accept the position because they love the institution and its mission, but the reputational risks of sitting on a nonprofit board outweighs the rewards. Board members never get credit for good performance but always take the heat for any blowup. As a consequence they seek consensus and institutional cover. The first question most board members ask when presented with something new and different – a candidate or investment opportunity – is, ‘who did the other school hire?’ Or ‘who else is doing this?’ They all hire the same recruiter, interview the same ten candidates, and ask for the same set of referrals from their buddies on other boards.”
“Put Gas on Standby finds that more than a fifth of European gas-fired power plants and nearly a third of US units are loss-making, and surging fuel prices risk sending many more into the red. Both new onshore wind and solar investment options are already cheaper than the costs associated with the continued operation of existing gas plants in the US, and we project the costs for both renewable technologies will fall to levels less than half the LRMC for gas by 2030.”
“This week, Spotify began a broad rollout of video podcasts on its service, adding a range of new, high-profile video podcasts, as well as opening the option to publish video podcasts to smaller podcasters. The effort may help the company chip away at YouTube, whose 17-year domination of video streaming is buttressed by a wide array of popular video podcasts.”
This information should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the investments or strategies referenced were or will be profitable, or that investment recommendations or decisions we make in the future will be profitable. This article contains links to 3rd party websites and is used for informational purposes only. This does not constitute as an endorsement of any kind. While Nightview uses sources it considers to be reliable, no guarantee is made regarding the accuracy of information or data provided by third-party sources. Nightview Capital Management, LLC (Nightview Capital) is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Nightview Capital including our investment strategies and objectives can be found in our ADV Part 2, which is available upon request.
Reflection doesn’t come naturally to me, but writing—especially for others—makes it non-negotiable. These aren’t just lessons. They’re pieces of a year that shaped me.
