Why I Sold My Uber and Lyft Stock at a Loss

People love to talk about buying winners because sharing your losers sucks. But every investor experiences them. I have with Uber and Lyft. And I’m going to talk about them now.  

Selling a stock can be just as hard as buying one, sometimes harder. That is especially true when we’re losing money. We can get weirdly attached to a stock and resistant to let it go, even if we know it’s the best decision. Doing that would mean we have to admit that we were wrong and other weird psychological phenomena that I won’t get into here. 

Taking a Loss in My Uber and Lyft Stock

Last week I sold my small positions in the ride-hailing companies, Uber and Lyft, at a loss. The latter was the larger position, which also lost more money. I think it was down over 50%, maybe closer to 75%. No matter how you look at it, those numbers are ugly. Uber was much smaller, maybe less than 5%, but still a loser. And the saving grace was that they were smaller positions, meaning I invested a relatively small amount of money in them, making them smaller losers. But, to me, they still felt big. Everyone hates losing money. At least I do.

Why I Sold Them

The reason I sold them wasn’t because I’m masochistic or have some fetish with losing money, no. Rather, I felt like these companies were losing because the industry was going to struggle for the foreseeable future. I’ve held on to losing stocks before. But many of them started to swing positive, eventually. Some took longer than others. But these never did. With the pandemic, I think it will be long before people start using drivers in mass. 

And regulation is coming down. California tried to create a law where these companies’ drivers will be treated as employees, which didn’t ultimately succeed since Uber and Lyft threatened to shut down their California operations. So the state relented, for now. But stricter laws that protect the drivers looks inevitable in California. And it could spread to other states. 

There is still value in Uber and Lyft. People will still use them. People will still drive for them. It is a solid business model. But the scalability, I believe, has lessened. Much of the growth has happened. And the investors who captured most of the most valuable upside were the private ones who bought in before the IPO.

Even With Headwinds, There Is Still Potential

There is still the delivery services, and it appears to be making great headway even with headwinds, replacing the revenue it had in rides, at least for Uber. And that sets up a great scenario where they will potentially have two great revenue sources after the pandemic. And there is a growth story there. 

And Lyft looks like they are offering the same service, but I don’t see how well they are doing in it and if they’ve been able to be as successful in pivoting as Uber has. And that lack of visibility may be the reason its stock has performed more poorly than Uber’s.

Also, Uber does have a great CEO, with Dara Khosrowshahi, who left Expedia to take over after Uber’s co-founder, Travis Kalanick, was ousted. But even the greatest CEO would have difficulty navigating a business where a business model dependent on travel is pitted against a pandemic that has kept people sheltered like hermits. Khosrowshahi is a great business leader, but even he has his limitations. 

In the long long run, I think they will do well. People need rides; they will need to go to the airport. City dwellers will want to live without cars and have the convenience of just tapping on their phone and getting picked up and schlepped to their destination on their steel chariot. That trend is not going away. It will only grow. But it will take time.

But I don’t think it’s worth waiting.

Closing Thoughts About Selling Tech Stocks

Sometimes it’s best to exit an investment, even at a loss, to get into ones that you believe will have a higher degree of success in the short and long term. The keyword in that sentence is “higher.” 

Money is a resource. And if we allocate it in the right vehicle, it can fly to far great heights than you ever imagined it could. That 50% loss can be recovered in less than a year, and you can start having a positive investment soon after that. That is especially true with technology stocks.

Because, often, staying in losing positions makes you lose the opportunity to find winners. See, just because you’re losing doesn’t mean you’ve lost. 

Sometimes, you just have to admit you’re wrong, push through the pain of selling at a loss, and find the winner that can give you bigger gains than you thought you could produce. 

Sometimes, to win, first you’ve got to lose. 

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Changing My Mind About Tesla

It took me two years to change my mind about Tesla.

I didn’t invest in it. And it wasn’t the price going up that kept me from investing. It wasn’t the production delays. It wasn’t the sky-high market value. Not, it was this. 

A story. 

Why I Didn’t Invest in Tesla

A couple of years ago, I thought about investing in Tesla even though I heard about how expensive it was and how there were so many shorters shorting the stock (which means people were betting that Tesla’s stock price would go down). But I didn’t. 

Right around the time I was thinking about the company that makes those sexy electric vehicles rolling that everyone wanted, I heard a podcast that changed everything. I don’t remember the interviewee’s name. But I do remember what he said: He was convinced that Tesla was a fraud and that it would go down and he was certain. 

And you know what it did to me? It scared the crap out me and I didn’t invest. 

The stock has gone up over 800% from just last year. And I missed one of the greatest investment opportunities to bet on one of the most innovative entrepreneurs ever to live.

See, that’s the thing about negative stories: They’re so believable. No one wants to look stupid and buy a loser or make a mistake, and, certainly, everyone hates losing money. And when you see a stock that seems too good to be true, and then you hear an “expert” say that it’s a fraud, that sticks with you. The thing about a story is that they are sticky. 

But eventually, I got unstuck. 

Looking at Tesla Afresh

So, what changed my mind? It was the Gigafactory that came online in Shanghai. I saw a headline on it and it shook something inside of me and made me question my stance against Tesla. And I started to trace the reasons why I didn’t invest in it and I remembered the podcast. 

After I realized how much I let that podcast affect me, 

I started to think and look at Tesla afresh. I saw that it was the premier electric vehicle company, led by one of the greatest entrepreneurs ever. And I feel a little uncomfortable using such superlatives, but I don’t think I’m exaggerating. 

It’s vertically integrated, trying to control the whole production and manufacturing stack. That sets it apart from American auto manufacturers. Tesla can control its quality and destiny for years, decades to come. And that’s not even mentioning that Elon Musk did what most people thought was impossible: He created another American mass-production auto manufacturer, which hasn’t been done in a century.

See, that’s the thing about a company like Tesla, when you talk about its accomplishments, it does sound like exaggerations, a string of superlatives that almost seem too good to be true. 

But that’s because Tesla is superlative. It’s so great, it feels too good to be true. 

The Foolishness in Investing

And that’s the thing about investing: you’ve got to be foolish enough to bet on the it’ s-too-good-to-be-true-investments because that’s where the real growth is. See, it’s tough to be a great investor and be pessimistic. You need to be optimistic to bet on the companies that will innovate and change the world. It’s those moonshot companies that do that thing that everyone says “can’t be done,” because it’s too hard or no one has ever done it or whatever. But they give us the best returns. 

That’s Tesla. They’ve done the impossible. They’ve built the next American automotive manufacturer; they’ve scaled their business; they’ve become profitable. They’re beating the odds. Optimism often wins.

Yes, price matters. You need to invest at the right price. But how do you price a unique item like a rare gem, or a Van Gogh water lily painting, or a company that’s not like any other? That’s the problem here, with Tesla. It’s not like many, or really any, other company. That doesn’t mean it will hold its price or there won’t be volatility or drawdowns. No, there will be. But that doesn’t mean that ten years from now it won’t be more valuable. So I don’t have a great answer for the pricing; it’s a conundrum. 

Closing Thoughts on Tesla

But ten years from now, I do think Tesla, as a company, will be worth far more than it is now. It will possess all of that institutional knowledge, expertise, grit, scale, technologies, and innovative culture. And how much harder will it be for another manufacturer to catch up to them? Sure, one, let’s say a Chinese manufacturer, will have a lot of those qualities, but it’s unlikely they’ll have the quality and the mystique that Tesla has. I doubt they will have the magic. Tesla doesn’t just make cars. They make art on wheels. 

And then it’s not hard to think about the future and wonder who will catch up to Tesla? If it was that hard to create a mass car manufacturer, which no one has done for over a century, how will anyone create one that will compete with Tesla? Because they didn’t just make a company and build a manufacturer that makes good cars; they created one that makes great cars, ones that people die for, lust after, aspire to. Musk didn’t just build the impossible, a new auto manufacturer; he also created a timeless brand. 

So, yeah, I thought to myself about myself, “You’re an idiot for listening to someone else and not investing in one of the most iconic brands that accomplished the impossible and created one of the most desired products ever.”

That’s the story I believe now. 

So I invested. It happened about two weeks ago.

I’m up 3%. 

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Snapchat: The Stock You Should Seriously Look At

Snapchat’s stock (SNAP) is easily overlooked, but shouldn’t be.

It may look like just a silly app, but, really, they mean serious business.

Yes, it’s got these ridiculous videos and filters you can put on your face that make you look like an old person or a bunny or a fire god; and it feels like if you put a circus in app form, you would get Snapchat.

But really, it’s a visual innovation powerhouse that’s worth your attention.

Misunderstanding SNAP Is an Opportunity

Snapchat has struggled these last few years as an investment. After it’s IPO, it dipped, a lot. There are some good reasons for that. It’s not profitable. They made some design changes that got push back from key users. And I think the biggest reason for its lagging price is that many investors just don’t understand it. It’s too silly, too childish, too weird.

But just because you don’t understand something doesn’t make it a poor investment. Often that makes it an opportunity. If you don’t comprehend it, that often means others won’t either. When investors don’t understand a company that is doing innovative work and has a diehard fan base, it’s an opportune investment.

Snapchat’s Users Love It

Yes, it might be like a circus, but young people love circuses. Snapchat’s audience is young, but they love the app. 69% of 13-17 year olds use the app. And teens say it’s the most important social media app they use.

Snapchat has also improved the amount they monetize on their audience from 32 cents in 2016 to about $2 in June 2020. That’s 6X growth in revenue per user in four years.

And maybe you’re hung up on the idea of them being unprofitable. But many great companies had the same issue, for years, like Amazon, Netflix, Google, Facebook, etc. But they turned out pretty ok. And I don’t know if Snapchat will become as big as those companies, but it’s not impossible. It’s not like Snapchat doesn’t have a user base and that it doesn’t have revenue. It has both. But Snapchat is also focused on something else, something more. It’s innovating.

SNAP’s Power of Augmented Reality and Video

They have quietly built one of the greatest augmented reality companies in existence. Those crazy face filters, yeah, that’s AR. They have dozens and dozens of them, hundreds, and they are creating more. And those filters aren’t just for faces of people but the faces of places, for iconic landmarks like the Eiffel Tower. Snapchat is also empowering its users to use AR to create on places everywhere. They are literally changing the way people are engaging the world with their devices.

Not only that, but it’s also building an enormous mobile-first video library that’s entertaining its audience. They don’t just have user-generated content, which is rich and produced by a very engaged user base, where 60% of their users create content, whereas only 10% of Twitter’s users create 80% of the content. Snapchat also has it’s own Snapchat Originals, which is content that the company produces.

The pandemic is making technology like this even more powerful, useful, and essential. Since it’s harder and more dangerous to engage physically, people use digital tools to connect, communicate, and share. Snapchat is at the forefront of that, especially for young people.

And all of that points to one thing: value. Snapchat is becoming more valuable. And it’s getting bigger and more prominent, but it’s within a population of people investors often overlook—kids.

Snapchat and Tencent

But Tencent hasn’t. You might know Tencent by the headlines it’s getting these days for being a Chinese tech giant that the Whitehouse is trying to fight against in its battle with China. Tencent is one of the world’s biggest tech companies and has been making investments in all kinds of companies like Riot Games, Epic Games, and Tesla. As of 2017, it holds a 12% stake in Snapchat. Tencent understands the future is more than just writing posts and posting pictures of our kids on their first day of school on platforms. It will be more creative, digitally rich, and richly integrated between the digital and physical worlds.

Tencent is betting on the Metaverse. The Metaverse is the idea that eventually, technology will become so advanced that we will live in the digital world almost seamlessly with the physical one. We will shop, attend concerts with friends, date, see a doctor all online, virtually or with augmented reality, or some combination. And when we are walking around in the physical world, we will see digital realities, like advertisements or videos or murals and art all over through augmented reality. And this digital world, some believe, will be worth trillions.

Closing Thoughts on Investing in Snapchat

Snapchat is at the tip of this movement. With their deep investing in AR and the user base that is already using their platform to create these realities, they have the makings of not just possessing staying power but changing power. They have the capacity and the eventual makings of being on the cusp of making the future of technology and how humans will interact with it.

They are creating the future today.

Yes, no one really knows what tomorrow will hold. But it’s often a good idea to bet on companies who create the future instead of letting it be created for them.

At least, it’s time to see Snapchat afresh.

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