Over the last few years, I posted a set of occasional blogs on what I felt were the excesses of the capital markets during a period of very lax fiscal and monetary policy. Not everything went crazy during this time, but fads developed for certain stocks - electronic vehicles, especially electronic trucks, for example - which looked totally nuts, and I said so.
Now, during a period of tightening monetary policy, we have a chance to see what rational investors think of these investments, and it's not pretty. Let's revisit!
Nikola Corp. (the name Tesla was already taken) promised to make hydrogen powered long-haul trucks to replace all of the eighteen-wheelers which we have on the road today. The company built elaborate mock-ups of these vehicles and rolled them down inclines to make it look as if the trucks actually drove. At its peak in 2020, the stock touched $66, with a valuation of $28 billion, roughly equivalent to Volvo, Hyundai or Kia. The founder, Trevor Milton, became a billionaire without creating a working product.
Today, the stock is at $6, and Milton is under a federal indictment for securities fraud. If he doesn't go to jail, it will be a miracle.
I'm confused as to how Nikola stock has any value at all. They have never built a truck. Yet investors buy shares every day. Shareholders in Nikola will eventually lose everything.
The same future awaits shareholders of Lordstown Motors, and several other electronic truck companies which don't have a snowball's chance in hell of building a working product, let alone of making a profit.
One of my EV favorites is Arcimoto, based in Eugene, Oregon. They apply existing technology to build working vehicles which make sense for certain niche markets. They have a specialized truck for making videos. They have a power-assist adult tricycle with tilt suspension which looks amazing. If only I could figure out who would buy such a thing. From my office, I occasionally see an Arcimoto drive by, often driven by a greying old man wearing a Kaiser Wilhelm helmet and a foolish grin on his face.
The Arcimoto FUV
Everyone at Arcimoto is having fun except for shareholders. Despite great, creative engineering, they still can't make a penny. The company lost $50 million last year and cash is running low. The stock price has fallen from $30 to $3. OK, the $30 was absurd. But I wouldn't touch this stock with a ten-foot pole. I think you may expect a new CEO, a diluting new round of equity sales to shore up the company balance sheet, and/or an outright sale at a bargain basement price, within a year or so.
Nikola and the other truck companies, not to mention Arcimoto, all share an expansive vision of the future - call it a dream - which so greatly exceeds reality, that it's not funny. In Arcimoto's case, the product is possible, but not at a price which allows them to make money. To the extent that shareholders also get swept away by the dream, they will lose most or all of their money. We have emerged from a period in which a tsunami of excess optimism pushed rational calculi of growth aside.
Which leads to an interesting observation: optimism and easy money go together. Pessimism and tight money: the same. Isn't that weird? If you ever want to perform a gut check on whether your expectations for an investment are reasonable, look at interest rates first. Look at yourself second. Have you been overly influenced by what others are saying and doing? (The correct level of such influence is 0.) Study the actual investment third.
It's hard to do because you need to gather information from somewhere, and every investment demands that you predict the future. Your gut has the strength to override your common sense. The best investors apply a cold, calculating standard, as free from emotion and the influence of others as possible, to everything which they buy.
Moving on, GameStop is back down to $38 (post split), after briefly hitting $81 on a tide of buying from the followers of #WallStreetBets at Reddit.com. Give GameStop credit. They have $6 billion in revenue and operate 3,000 stores across the country. It's a real business. But GameStop loses $470 million per year, and shows no sign of reversing that trend. GameStop took advantage of the spike in the stock price to sell shares and raise $1.7 billion - a smart move. The extra cash will buy a few more years of life. But the ravings of the #WallStreetBets crowd represent herd behavior in the extreme. A rational analysis says that GameStop is heading for the same dumpster where many of its game consoles already rest.
Should we mention Bitcoin here? One Bitcoin is back to $23,000, having touched $68,000. In fairness, I first spoke against Bitcoin when it was at $2,000, so I can hardly claim vindication or do a victory dance. I begin to wonder if Bitcoin will not crash back to $0, as I originally thought, but rather fade away as an interesting historical anomaly, like tulip bulbs. In the Netherlands, a few die-hards still deal in tulips (example), and they trade at a price above $0. But no one pretends that they're investments anymore, much less currency.
With Bitcoin, I think that governments will take over. I appreciate the manner in which countries compete to have the strongest, most stable currency. As in all areas of trade, competition among currencies is good for everyone. But it's bananas to have zillions of free-lance currencies floating about with no transparency, where anything could happen. Who would place faith in that? I see it as one reason why crypto-currencies never took off as coinage, only as instruments of speculation and superbly useful tools for drug dealers and extortionists. In the future, we may have a Bitdollar, Bityen, a Biteuro and a Bitruble, each tightly managed and supported by its own country. We're not far from that today. Perhaps this is wishful thinking on my part, but I think (hope) that Bitmania is finished.
Footnote: Neither I nor my clients hold shares in any of the companies mentioned in this post, with the exception that one client holds 10 shares of Arcimoto, with a value of about $30.