Dear Mr. Chanos,
First off I want to say I am a big fan. I like what you do.
Anyone who knows anything about you knows that you are the most successful short seller of all time. I read about your Enron and Baldwin-United short sells with awe, asking myself if I would have ever uncovered what you did.
It takes some serious skill to do what you have been able to do so successfully, for so long.
But with all due respect, I think you may be losing your touch. At least in terms of your take on Tesla. And I really think you could use some advice on this one.
What you have to understand, Jim, is that there’s a new guard in town. A new generation of investors that believes this kind of next-generation technology that Tesla produces is necessary to fuel the innovation we need to take this country out of its desperate state of complacency.
I’m not sure I get why you can’t understand this very basic reality. Perhaps you’re just too old or too out of touch to wrap your head around this stuff. Perhaps you’re so focused on the mazes of technicals that you lose sight of the bigger picture.
Don’t be upset by this, though. You wouldn’t be first person to do such a thing.
Back in 1903, the president of the Michigan Savings Bank told Henry Ford’s lawyer, Horace Rackham, “The horse is here to stay, but the automobile is only a novelty – a fad.”
It’s a good thing he didn’t listen because Rackham later sold his $5,000 worth of Ford stock for $12.5 million.
Mr. Chanos, do you think the electric car is only a novelty? A fad?
And if so, is this an indication of the early stages of your downfall? Of your descent into mediocrity?
You know, I looked over your past few short positions, and it’s starting to look as if you may be losing your touch.
You have held a four-year position betting against Tesla and Elon Musk. And every year since, while disparaging the company on the news, you’ve stuck to your point that Tesla is overvalued and is not going to live up to its production numbers. To be honest, I’ve never seen anyone who wants a company to fail more than you want Tesla to fail. Meanwhile, you continue to lose money by betting against Elon Musk.
Aren’t you tired of that?
Aren’t you tired of losing all that money? Or better yet, tired of telling your followers to short the company?
Let’s face it: A guy like you can probably afford to lose a few million. But most people can’t.
Your feud with Tesla, to be quite honest, has become tiresome. It’s as if your short position has become a personal vendetta against Elon Musk. And therein lies your shortfall.
You think you’re only betting against Musk, but you’re also betting against the millions of people who believe in this company. Perhaps it is a cult stock, as you have said. But so what? That doesn’t make it any less valuable.
So many young people see Tesla as the future. Probably in the same way people in your generation saw fire, crop rotation, or the bow and arrow as the future. And these young people buy stock and follow the company because they want to see it succeed, and they want to be a part of that success. You cannot find that with any other publicly-traded automobile company because most of these companies are only now starting to embrace the future of electric mobility. And that was forced upon them by Tesla. Funny how that worked out.
Millennials see the value in Tesla. The intellectual property, the ability to invest in a socially-responsible company, knowing that through this investment they are part of something bigger than themselves.
Tesla investors aren’t just investors – they’re customers and fanatics. They’re loyal as fuck, and those are the types of people that you want loving the company in which you invest.
I’m not sure if you realize this, but according to analysts at Nielsen, 83% of Millennials in this country believe their friends are the most credible sources of information when it comes to getting advice regarding purchases. How do you think LuluLemon and GoPro became so successful? It wasn’t because grumpy old dudes like you were telling us how hep and cool they were. Yeah, that’s right. I said “hep.”
Look. I get it. Tesla’s share price does not directly correlate to its technical value. Looking at it through your point of view, which is based solely on the technicals, you are right, it is incredibly overvalued. But here’s how I see it …
Who gives a shit about that when Tesla supporters, customers, and investors are so incredibly rabid and loyal? That’s not something you can put on a spreadsheet, but you can bet your ass it’s far more valuable than any algorithm you’re using to do your analysis.
You are also betting against the people that truly believe in this company.
So many young people see Tesla as the future. They buy stock and follow the company, not because they necessarily think it’s going to make them insanely wealthy, but because they actually want it to do well.
I like you, Jim. I really do. Not necessarily as a person, because I don’t know you. But I like you as a strategic thinker. You’re clearly a very smart guy, which is why I decided to write you this letter. I want to make sure you continue to make money for yourself and all your loyal followers. Maybe help us sniff out another Enron in the future. But when it comes to next-generation technology, I think your nose and gut feeling on some of these companies are leading you astray.
Don’t think I forgot about all the money you lost on Alibaba.
You railed against the company’s accounting practices. And your observations were completely on-point. But they were also irrelevant. So while you were shorting this thing, the stock was soaring. Alibaba doubled in value around the time you were shorting it. Man, you must’ve lost a ton of money on that one.
I actually remember when you were shorting it, and thinking to myself, “Is Chanos losing his touch? He should definitely not be shorting this stock.”
I think Joe Tsai, the executive vice Chairman of Alibaba hit the nail on the head when he told CNBC that you don’t seem to try to understand the business and understand the power of the digital economy in China.
As a bit of dick move, Tsai also told CNBC that he respected you for “enduring so much pain,” by shorting Alibaba. Man, that must’ve really put a burn in your belly.
But getting back to Tesla, Mr. Chanos, I implore you to take this advice seriously …
Don’t bet against Elon Musk. Because as you’ve already seen, you will lose.
Yours in wealth,
Matthew Brooks
