If some stock is overvalued, an investor pays more to own a share than company's fundamentals would suggest.
But: it's still supply & demand! If there's many buyers willing to pay more than fundamentals suggest is wise or 'fair', so be it. As long as demand for those shares stays up, investors can sell their share(s) for same overvalued price they bought it for.
Also there may be buyers expecting company to become wildly profitable at some point. Call that a gamble (maybe an educated gamble?). Maybe shareholder just wants to financially support whatever 'cause' that company is pursuing.
Worst case, those shares are hot potatoes & someone will be holding the bag some day. Should I care? Should you? Imho: as long as the 'gamblers' footing the bill when things go south, and the people profiting while things go a-okay, are 1 and the same: let 'm have fun.
Problem is when rewards are in one place, while risk is held by others (negative externalities, 'too big to fail', taxpayer funded bailouts & the like).
If an investment relies on new investors to pay previous investors and exaggerates the underlying value of the investment, that is known as a Ponzi scheme. I don't think we should legalise Ponzi schemes as long as they're fun for those involved, though I suppose coming up with exactly how to deal with them would be something professional regulators would have more experience in and could almost certainly do better than I would.
> A higher RG value indicates a larger gap between market valuation and the estimated fundamental base — meaning the market is pricing the company at a significant multiple of what the fundamentals alone would support.
A lower RG value suggests that the market price is closer to being covered by the fundamental base.
This is dumb. They’ve decided that their estimate of the true value is the correct one, and then calculate the difference from that. But of course, the fundamental issue is everyone has a different estimate. There’s no reason to believe their estimate is better than anyone else’s
Jokes aside, my previous role was with a Mag 7 company covering the Asian automotive sector, and the speed of innovation, manufacturing yield increase and cost optimization due to extreme competition across the Chinese EV ecosystem, including battery leaders like CATL, was genuinely eye-opening.
Based on what I saw, and how visibly non-Chinese automakers are struggling to keep pace while looking over their rear view mirrors at the Chinese EV industry, my view is that the broader auto industry is heading for a major structural reset. Protectionism will slow it somewhat, but the broader unit economics will no longer support the current number of auto companies.
My prediction is that over the next 5 to 10 years, Mobility-as-a-Service, whether on-demand or subscription-based, will become the default model in dense urban markets. Private EV ownership will persist, but increasingly in suburban, rural, or less densely populated areas where shared mobility is less practical.
I have exited all my auto positions. And yes, Tesla should probably trade closer to a 30x P/E at most. A 300x-plus multiple is indeed disconnected from reality.
On the other hand, I'm keenly watching Waymo (and to a lesser extent Uber and Zoox), as potential future MaaS players perfect their autonomous vehicles/driver-less tech.
None. The point is not Tesla specifically. Tesla is just a convenient stress case because expectations, narrative, and fundamentals are unusually far apart.
They define a new metric that they call the “fundamental base”. It includes value of assets, trailing revenue, goodwill, and likely more. They claim in a couple places that it is not intended as a valuation, although I think the main way it would be useful is it if is a valuation. It also claims to be an “estimate” — but an estimate of what?
Somebody who seriously works in finance will have a more enlightened view than me, but it seems to me that they defined a heuristic by combining existing heuristics. I don’t think that’s necessarily wrong, but there’s also no reason I can see that it should be right. And because it’s complicated, i think it obscures some of the confusing bits that you’d directly face if you used traditional metrics
Agreed. This is not useful for seed-stage startups.
It becomes interesting for public companies that already have mature-company fundamentals, but are still priced on a startup-like narrative. Then you can at least make the implied future assumptions explicit.
Simplistic view:
If some stock is overvalued, an investor pays more to own a share than company's fundamentals would suggest.
But: it's still supply & demand! If there's many buyers willing to pay more than fundamentals suggest is wise or 'fair', so be it. As long as demand for those shares stays up, investors can sell their share(s) for same overvalued price they bought it for.
Also there may be buyers expecting company to become wildly profitable at some point. Call that a gamble (maybe an educated gamble?). Maybe shareholder just wants to financially support whatever 'cause' that company is pursuing.
Worst case, those shares are hot potatoes & someone will be holding the bag some day. Should I care? Should you? Imho: as long as the 'gamblers' footing the bill when things go south, and the people profiting while things go a-okay, are 1 and the same: let 'm have fun.
Problem is when rewards are in one place, while risk is held by others (negative externalities, 'too big to fail', taxpayer funded bailouts & the like).
If an investment relies on new investors to pay previous investors and exaggerates the underlying value of the investment, that is known as a Ponzi scheme. I don't think we should legalise Ponzi schemes as long as they're fun for those involved, though I suppose coming up with exactly how to deal with them would be something professional regulators would have more experience in and could almost certainly do better than I would.
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From [1]:
> A higher RG value indicates a larger gap between market valuation and the estimated fundamental base — meaning the market is pricing the company at a significant multiple of what the fundamentals alone would support. A lower RG value suggests that the market price is closer to being covered by the fundamental base.
This is dumb. They’ve decided that their estimate of the true value is the correct one, and then calculate the difference from that. But of course, the fundamental issue is everyone has a different estimate. There’s no reason to believe their estimate is better than anyone else’s
[1] https://hstre.github.io/Reality-Gap/methodology/
How large is your Tesla position?
Funny enough, about 10% of my net worth is in an inverse position on Tesla [1]!
[1] https://bagelpour.wordpress.com/2025/11/30/taking-an-inverse...
Jokes aside, my previous role was with a Mag 7 company covering the Asian automotive sector, and the speed of innovation, manufacturing yield increase and cost optimization due to extreme competition across the Chinese EV ecosystem, including battery leaders like CATL, was genuinely eye-opening.
Based on what I saw, and how visibly non-Chinese automakers are struggling to keep pace while looking over their rear view mirrors at the Chinese EV industry, my view is that the broader auto industry is heading for a major structural reset. Protectionism will slow it somewhat, but the broader unit economics will no longer support the current number of auto companies.
My prediction is that over the next 5 to 10 years, Mobility-as-a-Service, whether on-demand or subscription-based, will become the default model in dense urban markets. Private EV ownership will persist, but increasingly in suburban, rural, or less densely populated areas where shared mobility is less practical.
I have exited all my auto positions. And yes, Tesla should probably trade closer to a 30x P/E at most. A 300x-plus multiple is indeed disconnected from reality.
On the other hand, I'm keenly watching Waymo (and to a lesser extent Uber and Zoox), as potential future MaaS players perfect their autonomous vehicles/driver-less tech.
None. The point is not Tesla specifically. Tesla is just a convenient stress case because expectations, narrative, and fundamentals are unusually far apart.
They’re just using the typical historic valuation based on fundamentals yes?
They define a new metric that they call the “fundamental base”. It includes value of assets, trailing revenue, goodwill, and likely more. They claim in a couple places that it is not intended as a valuation, although I think the main way it would be useful is it if is a valuation. It also claims to be an “estimate” — but an estimate of what?
Somebody who seriously works in finance will have a more enlightened view than me, but it seems to me that they defined a heuristic by combining existing heuristics. I don’t think that’s necessarily wrong, but there’s also no reason I can see that it should be right. And because it’s complicated, i think it obscures some of the confusing bits that you’d directly face if you used traditional metrics
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For mature companies in mature markets, I guess. It's kind of odd to see this sort of thing on a site so closely associated with startups.
Agreed. This is not useful for seed-stage startups.
It becomes interesting for public companies that already have mature-company fundamentals, but are still priced on a startup-like narrative. Then you can at least make the implied future assumptions explicit.
No prize for guessing the most unreal stock in Nasdaq.
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