Big Market Drop – Risk, Coronavirus, and Levered Hedge Funds (Ep. 40)


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This video was recorded on the morning of Feb 27, 2020. The DOW ended up closing the day at 25,774.64, down 1190 points for the day.

My videos typically are streams of consciousness. And especially when I give thoughts on current events, the info and views can be outdated very quickly. Any thoughts, projections, and info shared are of personal opinion at the time of publishing the video, and should not be taken as financial advice. Please do your own research and due diligence, and most importantly make your own decisions.

1. Viewing risk

I typically prefer a long-term perspective that allows me to focus on the business prospects of a company. This allows me to analyze growth, revenue, margins, profits and to give a multiple on the company.

Stock ticker is more a reflection of current sentiment toward that company’s valuation and can fluctuate greatly.

Macroeconomic concerns can also weigh on how investors think about the markets and stocks.

There’s always risk. Some risk is apparent like execution risk or competition.

However, some other risk is not visible. They can be unexpected like a pandemic or a catastrophic event.

It’s difficult for most people to hold these two things in one hand: optimism for the future and sober view of risk.

Oftentimes things that are true are not one-sided, but rather have a deeper complexity.

2. Coronavirus

I give a snapshot view on my thoughts on the Coronavirus with a warning that my thoughts will be outdated in a matter of days. This is only to show how I’m processing today’s events and assessing risk.

The probabilities that the Coronavirus will expand is increasing.

Probabilities are tough to assess because things are always changing and there’s so much unknown.

3. Levered hedge funds

This past week Warren Buffett talked about how interest rates are so low and how that is encouraging borrowing and the use of leverage in investments by various people.

Chamath Palihapitiya was also on CNBC this week talking about the use of leverage with hedge funds and how this could cause a “force” exiting of sorts if the stock market declines further.

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Disclaimer: All content on this channel is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor. No guarantee is given regarding the accuracy of information on this channel. Author is long TSLA at time of original video publish date.

Tags: Tesla, Elon Musk, Model 3, Model Y, Cybertruck, Investing, China, TSLA Shorts
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26 replies
  1. Michael D
    Michael D says:

    You always "analyze" the past and NEVER answer my questions when it comes to "educated" guesses. I.e. is this a good time to buy a lot more of TESLA or wait until after the Q1 report????

    Reply
  2. Pwc-doctor Your Personal Watercraft Store
    Pwc-doctor Your Personal Watercraft Store says:

    Real simple when you see volatility rise get ready… VIX VXX 2 great indicators. I bough last week. Went all in yesterday cuz today was easy red Friday. Dont get me wrong im mostly a Bear but dosnt feel good to make $$ off of of a probability of people loosing lives and jobs. I dont want that. If you have a lot of $$ in stock you have to have insurance and those 2 stated above is that insurance. You have life, health, auto, and other insurances so if you dont have it on your stock your crazy!!! another 100% today! Also this is all panic. Hence why volatility isnt so high as is should be with a 12% pull back. I stated last week we need a easy 10% pull back and if over 20% its a correction. Stock has been on a 12 year bull run dont panic. Still high. But go with the flow even though its mostly dumb money….. Good Luck to all! Wash your hand and drink water if your sick stay home and call a doctor dont go in PERIOD!

    Reply
  3. MrFourkinghell
    MrFourkinghell says:

    Tesla bull here. Tesla could fall to 200 or less if this thing rolls on for a few months. Their whole model is based on making increasing sales, especially inside china. That market could evaporate. Based on the Tesla model of making cars according to orders, no orders or order cancellations means no or heavily reduced production.Tons of staff to pay.
    They can't make cars and stockpile them due to financing issues. Tesla is a massive risk stock now.

    Reply
  4. R D
    R D says:

    The Media is playing a huge role in how people perceive events, the coronavirus is about the same as the seasonal flu yet the coverage is an hysteria circus that is causing the panic, its the same as covering a Tesla fire without saying that ICE cars have way more fires and Tesla has a lot less, he who controls the media can tilt the table in their favor.

    Reply
  5. Duncan Ashworth
    Duncan Ashworth says:

    Does the coronavirus affect the price performance improvement in battery technology? Do leveraged hedge funds slow the price performance of neural nets, or the cost of transcribing data to the BSV blockchain? No. Then why even talk about them? They are going to have zero impact on stocks like Tesla in 5 to 10 years and that's what really matters.

    Reply
  6. Jae Task
    Jae Task says:

    Hi Dave. I've been thinking about this a lot recently and have come to the conclusion that fear is good for us. I am using this opportunity to load up on Disney which I believe has excellent long term prospects, especially with the growth of Disney+ and the content they are creating for that. I have realised that for every $10 that a company drops, It reduces my 10X figure by $100, this has only just started to click, but in the case of Tesla, if it drops $300, that's a $3000 reduction in its 10X target.

    Reply
  7. Peter Cheng
    Peter Cheng says:

    Hi Dave, do u have information of where the US Tesla material or parts supply come from? If it’s come from china, i worry Tesla US might at some point face some difficulty or slow down of getting supply since many of the supply chain company get affected/ indirectly hit due to coronavirus outbreak.. just to share my thought here..

    Reply
  8. Jeremy Wright
    Jeremy Wright says:

    In Australia, we have no local epidemic, yet. However, the virus has already had severe effects on a lot of industries: Mining (closed factories don't buy raw materials), Tourism, Construction (supply chain disruption), Education. Australia is 100% headed for a recession. 100% and we won't be alone. This is not the same market anymore.

    Reply

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