Professional Documents
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Action in August:
First some commentary on what happened in August.
Tesla:
As you already know the Fund had a large short position in Tesla,
(TSLA). As much as we viewed Tesla to be an overvalued security, we
were drawn to it as a short candidate because we viewed it as a credit
troubled company that faced imminent competitive pressures and major
operational, leadership, and execution issues. We identified a series of
“credit fuses” set to go off in the near term that would be the catalyst
for a significantly lower stock price. These challenged credit conditions
also suggest that Tesla is a candidate for a debt restructuring through a
bankruptcy reorganization, conditions not reflected currently in the stock
price. On August 7, Tesla’s CEO Elon Musk engaged in what I believe to be
the most egregious, and fraudulent act of securities manipulation by
tweeting that Tesla would be going private in a $420/share bid that was
fully financed. There was no bona fide deal nor was there any financing
for this reckless statement but these facts only emerged two weeks after
the stock had exploded upward causing significant short term losses to
our Fund. Tesla’s stock has subsequently retreated and Elon Musk is now
the subject of multiple SEC investigations as well as a criminal probe by
the US Justice Department which in our opinion not only seals the fate of
Elon Musk, but also the fate of Tesla itself, as these investigations
virtually close all remaining access both public and private for
desperately needed fresh capital for a heavily indebted money losing
company. Below is a link to an interview with an analyst Gordon Johnson
which we urge you to view. Mr. Johnson is not an analyst we have spoken
to or worked with, but we concur with his analysis of Tesla’s
extraordinary circumstances including the potential that the company is
2https://www.zerohedge.com/news/2018-09-25/Europe-unveils-special-purpose-vehicle-
bypass-swift-jeopardizing-dollars-reserve
This recent period has been bar none the most challenging and
frustrating one I have ever endured in nearly 4 decades of investment
history, and I have been through my fair share of investment battles.
Defeat and failure are not part of my investment vocabulary. When I
encounter an investment setback I double down in both my thought
process and critical thinking as well as in my stamina. We are all in this to
John Scurci
Partner and Portfolio Manager
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contains forward looking statements, as defined by SEC Regulation D, and the Investment Act
of 1940, which are the original ideas and best judgments of the authors. The conclusions
expressed herein are not guaranteed, and past performance is not predictive of future results.
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