The Secret Broker: When the Osbourne Effect doesn’t include a Sharon or an Ozzy
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
This week saw the amazing short squeeze in Tesla shares continue and this price spike has potentially pushed the button on the largest bonus issue of shares to ever be awarded to a company executive.
Various milestone steps have to be achieved, with the first one being that the company reaches a $US100bn valuation and the last one being a valuation of $US650bn.
When shareholders approved and voted this through in March 2018, the company had a valuation of $US52bn (@$US317 per share).
This week Tesla’s valuation rocketed past $US132bn, when the share price touched $US735.
Now, what is even more astonishing for me, is that when I wrote an article about shorting shares in May last year, the shorters had sold the shares down to $US189. That’s only nine months ago!
If Tesla does reach a valuation of $US650bn, then Elon could be on his way to collecting $US55.8bn worth of stock.
What with Boris just announcing that the UK will ban all new sales of petrol and diesel cars by 2030, (joining in with Holland, Denmark, Sweden and Ireland) add the effect of short covering and a shift in sentiment (now dates are being set), it’s no wonder the shares have taken off.
Part of the shift in sentiment is down to the Osbourne Effect.
The Osbourne Effect is not named after any of Ozzy Osbourne’s bat-biting antics, which became so infamous a soft toy was created on its 37th anniversary, but after a management decision undertaken in 1983 by a company called The Osbourne Computer Corporation and the knock on effect this action caused.
It’s a term that’s used when people hang back from purchasing technology, as they know they will get a better product for the same (or even better) price in the future. Think of large flat-screen TVs, which started out at $20,000 each and now ALDI have special offers of bigger and better sized ones for $199.
Next week they will be better and cheaper, so why buy them this week unless you really have to.
In 1981, The Osbourne Computer Company was happily selling their flagship ‘Osbourne 1 Personal Computer’. It was extremely popular and exceeded their own internal forecasts.
As we all now know, over time technology gets faster, better and cheaper and by January 1983, the company’s founder enthusiastically started to promote its next flagship computer the ‘Osbourne Executive’.
These were private and confidential pre-market warm-up sessions to the press, as the founder explained all of the latest planned features and how the new Osbourne Executive was going to deliver a faster and better user experience than the Osbourne 1 and at a matching retail price.
Unfortunately, word leaked out about the new model and in anticipation of a better computer arriving for the same price, dealers started to cancel their current orders for the Osbourne 1 and waited in anticipation for the new version to launch.
As the ‘Osbourne Executive’ was currently just a prototype, cashflow started to quickly tank and the company had nothing yet built to fill the gap in sales.
To stem the bleeding, it decided to cut the current price of the Osbourne 1. This had the opposite intended effect, as it made their dealers even more determined to hang out for a now even cheaper, faster and better replacement model.
In just nine months, (what is it about nine months?) The Osbourne Computer Company went from a successful cashflow positive company to declared bankrupt.
If you look at the Osbourne Effect in other situations, you will begin to understand how it all works and why it is not something that can be predicted. It can only be observed after the event.
Apple killed Nokia; Dyson killed vacuum bags. Is Tesla starting to kill petrol/diesel cars?
If I put it another way, you will start to see why the Osbourne Effect is starting a shift in market thinking.
As an electric car only has 20 moving parts and a petrol car has 2,000 moving parts then that’s 1,980 less parts to fall off, seize up, wear out or even need to be manufactured in the first place.
The technology part of the equation is that batteries are getting better and cheaper to produce.
Battery prices have fallen by 90 per cent and now that the UK, together with other countries have set a date of 2030, then what are the buyers going to do?
Even hybrids will be banned.
Most will keep the cars they have or wait a few years for the electric ones to get better and cheaper.
Tesla has 10 years on the old incumbent car manufacturers, which are slowly starting to move towards their own electric versions and adapt to the new order of things.
Tesla is all geared up and ready to go and is even building a plant in Germany, as it wants the coveted engineering badge of ‘Made in Germany’ on its cars.
Ford’s answer to Tesla is to bring out an electric version of a Mustang, the EV Mustang which it seems to be aiming at the female market in an enlightening media campaign.
No macho BBQ under the “Frunk” to cook your Tomahawk Steak here. Rather they have gone with shrimp cocktails with a squeeze of lemon.
The Mustang, for those under 40, was made famous by Steve McQueen in a car chase around the streets of San Francisco. The noise of the engine and the shifting of gears is what makes a Mustang.
Now, if you want to know what an electric one is going to sound like, just mute the sound.
Can you imagine what Jeremy Clarkson is going to say about an electric Mustang?
The Mexican ambassador, Eduardo Medina-Mora Icaza, demanded an apology after Clarkson said this before reviewing a Mexican built sports car: “Mexican cars are just going to be lazy, feckless, flatulent, overweight, leaning against a fence asleep looking at a cactus with a blanket with a hole in the middle on as a coat, type car.”
Can’t wait to see what he has to say about an electric Mustang and its ‘Frunk’ serving prawn cocktails.
As for me, I’m going to hold on to my love of V8s until I die or have to change, whichever comes first. Although Mrs Broker has already chosen the colour of her Tesla and is now waiting for the price to come down and the level of technology to go up, before she makes her Osbourne-inspired move.
The Secret Broker can be found on Twitter here @SecretBrokerAU or on email at firstname.lastname@example.org.
Feel free to contact him with your best stock tips and ideas.
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