What's up guys and welcome to wall street millennial over the past five years, tesla stock has increased more than 12-fold for any hedge fund unfortunate enough to have shorted tesla. This position has taken them to near bankruptcy. On this channel, we've covered some of the biggest hedge fund managers who shorted tesla, including green light capitals, david einhorn and kinecos jim chainers, while their tesla short positions have undeniably been painful. Both of these short sellers continue to manage billions of dollars and are still well respected on wall street.

In this video we're going to go over a hedge fund manager, whose tesla's short position has been so disastrous that his reputation on wall street has been completely ruined and his hedge fund has been reduced to managing just a few million dollars. If you haven't guessed, it already we're talking about the world's saddest short seller. Mark spiegel in this video we'll go over spiegel's rationale for shorting tesla why he was dead wrong and what the implications were for his hedge fund before we get into the video i'd like to thank our channel members for their support. Members get access to our non-time sensitive videos one day in advance and get to vote on.

Some of our video topics. Mark spiegel is the founder and managing member of stanford capital. A new york based longshore equity hedge fund. He started his career working in the commercial real estate industry and later on, worked as an investment banker at piper sandler for six years.

In 2011 he left piper to start his own hedge fund stanford capital as a self-proclaimed deep value investor. He long stocks trading at very cheap valuations in short stocks that he thinks are over hyped and therefore overvalued. He is also a macro investor. This means that he positions his portfolio based on his outlook for the global economy.

Spiegel is an og tesla short seller who first started shorting the stock as far back as 2013.. At the time, tesla stock was valued at 26 dollars per share. Adjusting for the recent stock split. He explained his tesla bear case in a seeking alpha article.

At the time, tesla's only car was a model s which had a high price point of 80 000, so it competed mainly with luxury brands. Spiegel saw increasing competition from the legacy automakers and thought that tesla would quickly lose market share. For example, porsche was about to release its hybrid electric panamera car. The panamera was a plug-in hybrid and had a battery range of 24 miles, after which it would run on gasoline spiegel reasoned.

That 24 miles of range is enough for most people to get to work and back so the panamera would be a viable alternative to fully electric model s as it turned out. Forward-Minded consumers wanted fully electric vehicles not hybrids, despite the increasing supply of hybrid vehicles. On the market, the tesla model s continued to grow strongly throughout 2014 and 2015.. It stopped growing in 2016, but this is only due to a temporary supply bottleneck stemming from the ramp up of model x and eventually model 3 production.

The great decrease in demand that spiegel 4 saw never materialized. The tesla short was one of spiegel's highest conviction plays from 2014 to 2018. He published dozens of articles on seeking alpha explaining why the company is overvalued. In 2018, stanford started to significantly underperform the broader market.

They lost 17.7 percent for the year, while the s p 500 was only down 4.4 percent. At the time the fed was winding down its post-recession money. Printing policies and spiegel foresaw a massive market crash that never materialized this, along with some deep value. Penny stock place causes funds under performance.

His tesla's short position didn't hurt him that much in 2018, as the stock was only up a few percentage points, but he was in it for the long haul and had no intention of covering his short until tesla reached his price target of zero dollars per share. He reiterated his bare thesis on the company with three main points. Firstly, tesla has no mo, and the legacy automakers will eventually take share from them. Their losses will soon explode and they will run out of money.

And, lastly, elon musk is untrustworthy, always over-promising and under-delivering. Shorting tesla was his highest conviction idea and he doubled down on the short position, thinking that it would save stanford from its recent abysmal performance in may of 2018. He gave a presentation at the case-learning short-selling conference explaining his thesis. I mean think about this.

A lot of people buy tesla's to sort of show off at the country club right now, i'm driving my electric tesla. You pull up in your tesla, and this guy pulls up next to you in the new electric porsche. You feel like a total schmuck the next weekend, you're at the dealer. Get me out of this thing.

Get me one of those. That's what's going to happen two years after that porsche is building a crossover based on the mission e um, so that'll be out in, like 2020. mercedes, its first electric suv comes out next year, called the ecq they've been winter testing it by the way. None of these are vaporware cars.

You can go on youtube and find hundreds of these being driven in like winter testing on the nuremberg racetrack all this stuff i mean these are all real mercedes is then going to launch an electric version of the s-class. I mean look at the interior of an s-class compared to a tesla right. If you had that choice and you want an electric car, i mean this becomes a no-brainer right. This is out in two years mercedes wheels out electric car road map, car and battery factories.

Everywhere i mean this is daimler. A real company spending real money all over the world to build electric cars i mean they alone would crush. Tesla tesla was the trailblazer for electric vehicles, but by 2018 the legacy automakers were finally starting to pull their heads out of the sand and roll out evs of their own luxury brands like porsche were making cars to compete with a tesla model s mass market brands, Like hyundai were also starting to make low price point evs to compete with the model 3.. Of course, his prediction turned out to be dead wrong.

As of the first half of 2020, tesla still has more than 80 market share in the u.s, and the top three ev models are all teslas. Another factor spiegel failed to consider is that evs still represent a tiny percentage of total vehicle sales in 2019. Evs only represented 2.5 of global new vehicle sales, so even if tesla did lose some market share within evs, there is still massive room for growth as the world switches to electric being. The first mover in electric vehicles tesla built up an extremely dominant brand and is now practically synonymous with innovation and green technology and with the model 3 starting price being under 40 000.

It is still very competitive with other ev options. The rise in electrification over the past five years isn't an ev revolution, but a tesla revolution, even citron's andrew left understands this and as a short seller. The most important thing you have to do is check your thesis all the time and see when things change and when they started with model 3 and the launch and the production and the numbers and how they were eating from the top and the bottom. And i realized it wasn't an eevee revolution in this country.

It was a tesla revolution that people want to own the teslas. He often pointed out that tesla was losing money and the losses appeared to be accelerating, but this was merely the result of the company investing for growth that will pay dividends in the future and in 2019, these investments finally paid off with four consecutive quarters of positive Free cash flow in late 2019, things really started to get bad for stanford. From october of 2019 to february of 2020, the stock increased more than 260 percent as model 3 deliveries continued to outperform expectations and retail investors were increasingly piling into the stock. The violent rise in share price was especially bad for stand phil because, in addition to being short shares of tesla, there were also short call options.

In december of 2019, stanford was down 11.4 percent, while the s p 500 was up 3, mostly resulting from his tesla short for the full year of 2019. The fund was down 6.5 marking its third consecutive year of negative performance in light of the heavy losses he reduced, the fund's equity short position down to 10 of the total portfolio in the past. The tesla short has been in excess of 20 of the portfolio, which is an extremely concentrated position for a short. He also stepped up his verbal attacks against elon musk's company, calling it a major league fraud.

Importantly, he also maintained his short call position. He added a fourth item to his tesla bear points you can tell. The losses were really causing him pain because he lashed out at elon musk directly calling him a fraud committing pathological liar in the third quarter of 2018. Tesla unexpectedly turned a 153 million dollar profit, while spiegel was expecting a 300 million loss instead of giving them credit for the quarter.

Spiegel said that the profit was engineered via accounting games. Specifically, he says that tesla was under reserving their warranty provisions when a car is sold. The automaker generally provides a warranty if there are any mechanical defects in the car within a set amount of time. The automaker has to pay for the repairs, for example, if the automaker estimates that 10 percent of vehicles sold will at some point initiate a warranty claim and on average each claim costs ten thousand dollars to repair.

They have to set aside a one thousand dollar warranty reserve for each car sold. This counts as an expense and reduces net profit. Short sellers, like spiegel point out that tesla sets aside less warranty reserves than other automakers which, in their view, artificially inflates their profit and amounts to accounting fraud. However, it turns out that teslas break down far less frequently than other cars.

An analysis by warranty week shows that in 2018, tesla's warranty claims amounted to 1.1 percent of sales, while ford's warranty claims were more than three percent of sales. In a lot of ways. Electric vehicles are simpler than internal combustion engine vehicles and therefore are less likely to have mechanical issues. Tesla's relatively low warranty provisions simply reflect this reality.

In fact, tesla's auditor pwc actually brought in warranty accounting experts to look at this very issue. The experts found that the company's warranty reserve calculations were appropriate, given their estimation of future claims in january of 2020, tesla stock really started to go parabolic more than doubling in the span of less than two months in january, of 2020 stanford was down more than 10, While the s p, 500 was about flat about half of this negative performance can be attributed to 2021 690 strike. Tesla calls that he was short at the beginning of the month. They were valued at 14, as tesla stock started to soar, the call skyrocketed and he covered the position between 25 and 30 dollars, leading to a roughly 100 loss.

He also reduced his tesla equity short position to around 5 of the portfolio. He laments that before he started, shorting tesla stanford had a long track record of out performance and he wants to reclaim that track record. He plans to shift his focus away from shorting and take stanford back to his roots of finding deep value penny stock, long positions. He closed out all of his other short positions except for tesla.

In the letter he repeats the same tired tesla bear thesis and claims that tesla is now the biggest single stock bubble in the whole market, but stanford's trouble were only just getting started. From january 31st to august 31st, tesla stock increased more than 240 percent as their deliveries continued to outperform. Despite the pandemic, they announced the 5 for 1 stock split in august, which inexplicably sent shares soaring even further. For the month of august alone, sample was down more than 15, almost completely attributable to his short positions on tesla and the qqq year.

To date, stanford was down 21, while the s p 500 was up almost 10 percent. This is a more than 30 percent under performance. The recent performance was so bad that it almost completely wiped out the gains the fund made in its early days since inception, stanford has compounded at just 2.2 percent, while the s p 500 compounded more than 13. If you had invested in stanford at its inception in 2011, you would have made a 21.7 total return by august of 2020 compared to a 215.5 return.

Has you invested in the s p in the investor letter he points out that the s p 500's forward price to earnings ratio is around where it was at the height of the dot-com bubble, implying an overvalued market, foreseeing a market crash. He continues to hold significant short positions. Despite the fund's awful recent performance, he continued to be short shares of tesla, as he views it being more overvalued now than ever after. The announcement of a 5 for 1 stock split the stock soared adding 230 billion dollars to the market cap, despite no other meaningful news being announced.

At the same time, over the second half of 2020, he actually made somewhat of a comeback and finished down 11.5 percent. This is still a massive underperformance compared to the s p 500, which increased 18.4 percent in the same period. His long positions were actually up a lot in 2020, but the underperformance of his shorts, namely tesla and the qqq, caused his negative return. He still thinks that the stock market is in a giant bubble and once people are vaccinated and actually start spending money, the fed's money printing will finally cause a massive increase in inflation.

He points to record high stock market valuations as evidence that markets are overvalued. Spiegel has been calling the stock market a bubble for the better part of the past four years, but during this time the market pretty much only went up from inception to the end of 2020 stanfield's. Compounded annual return has been just 3.3 percent. The lack of performance has made it very difficult for spiegel to raise capital from investors, and he now manages just 7.4 million dollars at most, which is tiny for a hedge fund.

The sad part about mark spiegel's story is that he's actually a pretty good stock picker. Most of his penny stock long positions have outperformed the market. For example, one of his major holdings in 2020 was avian networks, which increased more than 400 percent. If he was a long-only investor, he would have made millions of dollars for his investors and he could have become a legendary hedge fund manager on wall street.

Instead, he made the unpardonable mistake of bidding against elon musk and his career paid the ultimate price, alright, guys that wraps it up for this video make sure to check out our second channel wsm research, where we post dd videos on high growth, tech stocks. If you like, this content, make sure to hit the like and subscribe buttons as always. Thank you. So much for watching and we'll see you in the next one wall, street millennial signing out.