This is not a suggestion to buy a stock nor is it financial advice this is an article that I use to polish my own thought process and serves as a reference for me in the future. I do not suggest you follow my investments without doing your own research. I am not a financial adviser, or an attorney make your own decision and understand the previous performance is not an indicator of future performance, and you can make or LOSE money as long as you are investing in anything. I may or may not hold positions in the stock or stocks mentioned.

Emotions lose money… Ignorance loses more.

Earlier in the month, I took a position in TSLA due to an itchy trigger finger and my respect for Mr. Musk, which was promptly sold due to my risk tolerance of <2.5% (I bought way too high). The position today, would have earned a cool eight percent if I sold at open, the lowest point in trading today. This was following an earnings report where TSLA is still losing money, but has higher revenue than projected… and Mr. Musk apologizing for his past criticisms of short sellers, question askers on conference calls, and one diver who was called a ‘pedophile’. This is a series of apologies that earned him 1.8B on his 19% share of TSLA.

What I knew

TSLA is a stock price that almost directly reflects the amount of confidence that investors have in Mr. Musk. The company currently trades at a 153.3 P/E ratio. Compared to AAPL’s 18.79, GOOGL’s 52.55, and FB’s 29.2, it is clear TSLA is drastically overvalued in regards to current earnings.

TSLA had been burning cash in order to keep running, shipping, and scaling production. However, should TSLA’s ideal’s be fulfilled, it has potential to completely take over this relatively new market that it had helped to popularize. Add up the future growth of the company, current brand ‘luxury status’ and throw in a (dare I say) charismatic leader, that has a respectable track record, and it is easy to see how the price of the stock is valued far above its earnings and assets.

When people enter into positions, whether in investing or argument, they are extremely defensive even if they are wrong, and will cling onto any shred of evidence for their position. Hence, should any good news come from TSLA the bulls will drive the prices up fast.

Where I was ignorant

In a stock built on sentiment, a weak stomach for risk means lost money. Just because there is potential for good news on the earnings report (weeks away from when I entered my position) does not mean no bad news will occur before then. Not changing my tolerance for loss when entering such a volatile stock results in a quick loss of money. losing 3% after just 24 hours in the stock, and not seeing my original plan to fruition is what lost me 3% of my capital and 16% of upside in the markets today.

Even in an established company, one with a proven record of consistent earnings and consistent appreciation of prices a fall of 3% is relatively common. In a more volatile stock like TSLA a stop loss should have been either a larger percentage, a flat sum of money that I would be willing to lose, or held until a clear downtrend is present for longer than a month (or any other moderately long period of time).

Next time

I will refrain from entering TSLA which is just starting to hit previous highs, or refrain until the uptrend is clear and present for at least ten trading days, and a correction occurs. Looking back, it was clear that the price was always headed toward 300, a previous support level, or even lower at 280. Buying when the hourly chart reached a oversold position is only justifiable for very very short positions and/or sideways markets. Assuming that TSLA tests its previous high at 358 and does not break it, and does not fall below 300 on the correction, I will try to buy in around 305 and hold to 350, there I will exit the position and wait until the stock breaks the previous high, or once again falls.