Sell the sizzle, not the steak

At Tricio we look at charts in order to gauge investor sentiment and behaviour. The SpaceX IPO is looming this Friday and it seems that every financial firm has a view and a product to help investors get involved. Bullish, bearish or somewhere in the middle. We don’t take views on IPO’s in general, but in this case given the importance of the biggest IPO in US history etc., it is hard to ignore.

In our internal conversations it is clear that the IPO – and the idea of SpaceX as a company in general, is a bet on Elon Musk. The aim to raise $75 bn with a market cap target of $1.77 trillion is on the face of it outlandish for a loss-making firm. The stated $135 IPO share price is a departure from the usual goal of a price range, and the allocation of 30% for retail investors is well above the usual 5% to 10% retail investor allocation. When details of how SpaceX justifies their numbers became known professional analysts were hard pressed to find any real ‘there there’ (apologies to Gertrude Stein).

The chart below shows the Tesla daily chart from their 29^th June 2010 IPO for around a year (adjusted for splits since then). For an investor who participated in the IPO and held it for a year, they did ok with a 50% sort of gain. 

The chart below shows the weekly semi-log Tesla chart with 13 and 50-week moving averages. For investors who held the share from the IPO to now, they have done very, very well.

And that is the bet on Elon. Does Tesla dominate the car industry? Well… does Tesla dominate the global EV market? Well…. Does Tesla make a ton of money to justify the valuation? Well…. Batteries? Robots? AI? Self-driving cars?

One thing that Mr Musk excels at is being able to describe a vision that people want to participate in. Selling the sizzle, not the steak, is a very important skill. One of the reasons that I use charts when looking at financial markets is that I quite often don’t ‘get’ what buyers/sellers are looking at when they make their decisions. Chart analysis is a good way to take the temperature of the broader market. Investors make their views known through actual transactions, not just posts on random social media platforms. Our view on the IPO? We can only wish Mr Musk and his investors the best of luck. If SpaceX manages to achieve their lofty ambitions then humanity could be changed forever. Or it could all end in tears. For a relatively cheap day-pass of $135 those who participate in this ride probably see this as a bet on a potential big upside, but don’t try and figure out the odds.

Just remember, the house always wins in the long run.

Gerry Celaya, Chief Strategist