In this podcast, Motley Fool contributors Jon Quast and Matt Frankel talk about:
- Tesla's latest financial report.
- Bullish stock predictions for two companies that were previously booted from the S&P 500.
- Calendar-related trading patterns such as tax-loss harvesting season, the Santa Claus rally, and the January Barometer.
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A full transcript is below.
This podcast was recorded on Oct. 23, 2025.
Jon Quast: A lot of people are starting to look at their calendars, but is that where long term investors should be focused? This is Motley Fool Money.
Welcome to Motley Fool Money. My name is Jon Quast. I'm joined today just by Matt Frankel, my colleague and contributor. Long time full contributor, and we are looking at several things today. We're looking at some stocks on our radar. We're going to talk some Tesla earnings, but first up, we're going to start hearing some of these calendar terms and investing in coming weeks and months. Matt and I just want to start to cut through some of the noise that you may start to hear, and there are just a lot of people out there who made investment decisions based on the calendar, and we'll talk more about that in just a moment. But we want to start off here by talking about some terms. One of the terms you may start hearing is tax loss harvesting. We're entering into tax loss harvesting season. Matt, what is tax loss harvesting and why do people start talking about it right now?
Matt Frankel: Tax loss harvesting is the thing we're going to talk about that's not really noise. It's a legitimate investment concept. It means selling positions at a loss with the specific goal of using that loss to then lower your tax liability. Now, this can be used to offset a capital gain from a stock you sold or just to lower your taxable income. You can use up to $3,000 of losses per year to offset either rest of your taxable income. But the important thing you to keep in mind, honestly, this is a topic we could spend an entire episode of this on is that it's not a great idea to sell just because you want a tax break if you're still interested in owning the stock otherwise.
Jon Quast: I think that's such a great point to make Matt because one of the things that we understand about stock market investing is if you're invested in an individual stock, what can happen in a single year is, it can be quite volatile. You can be up profoundly or you can be down very despairingly, and we really don't want to judge an investment success or failure based on just a few months. It can be tempting sometimes to buy into a stock we believe in for the long term, be tempted to sell it after just a couple of months of poor performance to get that tax loss. You're saying maybe not the best strategy there, but if you're ready to move on from something.
Matt Frankel: No, if it's a stock that you're on the fence about selling and could use the loss for your taxes, then go for it. But if it's something that you like that just went down, it's not worth selling just to get a tax break.
Jon Quast: Well, thank you for that. Before we move on, there's so many other calendar related things that we can hit. Tax loss harvesting right now, people are thinking about taxes at the end of the year. But there are so many other things we could talk about. We could talk about the January effect, the October effect, the February slump, the year end rally. But I just picked out one more here, the Santa Claus rally and the January barometer. These are some terms people might start hearing in the next six weeks or so, these are other calendar effects. What are these two about?
Matt Frankel: These are just rules of thumb and they work until they don't another one you didn't mention called sell in May and go away. The market tends to have a week or summer than during the busy winter season. But the Santa Claus rally that you're talking about refers to the historically strong performance of the stock market during the last five days of December and the first two days of January of the trading year. Since 1950, the stock market has risen 79% of years in this period and by an average of 1.3%, which is a pretty big move in a seven day period. It's often considered to be a bad sign by investors if the market doesn't produce the Santa Claus rally. Similarly, the January barometer, it's a common belief that if the market gains in January, it's a good indicator that it's going to gain for the full year. I mean, some of this is just the market's upside bias over time, but whether the market rises in January or not has accurately predicted a positive or negative full year return, 85% of the time since 1950. It's only gotten it wrong I think 11 times.
Jon Quast: That's pretty incredible. Santa Claus Rally, 79% accuracy, January barometer, 85% accuracy. I think that if you're looking at this, maybe you're new to investing and you're starting to think, oh, I want to know when is a good time to buy. You start looking at some of these calendar effects, and you start thinking, maybe I can use this to my advantage. But you and I both still believe that the best way to build wealth over the long term is to buy at least 25 high quality businesses, buy their stocks, and hold onto them for at least five years. When you think about a five year holding period, what are we talking about when we're talking about the Santa Claus rally? Yes, it usually happens, but we're talking about a 1% gain, a 1.3% gain on average. The same thing with the January barometer. These are small, usually up, but it's a small gain usually. When we're looking at five years, we're hoping to have invested in something that's multi bagging opportunities. You're thinking about a difference of a percent or two, maybe really not all that consequential over the long term and it can be detrimental to base things solely on this. Because think about 2021, for example. January, the stocks were down 5%. Now, if you're using this as a thing to guide your investing, you would say, I'm not investing in 2021 because the January barometer says not to. In 2021, stocks were up 27% for the year. One of the greatest returns ever. You wouldn't want to have missed that. Matt, I guess my question is, is there any way we can use things like this tax loss harvesting season, Santa Claus rally? Is there any way that long term investors, can we use this foolishly?
Matt Frankel: First of all, as a certified financial planner, I've never suggested clients buy stock a week before the end of the year, and sell the first week of January to take advantage of a Santa Claus rally. I don't do anything like that. You're absolutely right. You hit the nail on the head with that 2021 example is that these are rules of thumb that work until they don't when they don't can miss out on a lot. The sell in May and go away in 2021 didn't really work out very well. If I'm remembering my calendar correctly. But the market has an upward bias over time. If you look at any calendar period, anyone, the first two weeks of September or the last three weeks of October, whatever the calendar period may be, if you look at the market's history, it's more likely than not to go up over any period of time. Because the market has a long term upside bias. That's really the key takeaway here is that none of these percentages, whatever time period are going to below 50%. It's always a good idea to be invested. Whatever time of year it is or whatever you think the market's going to do or whatever some indicator says it's going to do for the rest of the year.
Jon Quast: I love that. Basically, what we're saying here is the historical takeaway is that stocks go up most of the time, so don't worry about the market conditions so much as identifying those high quality businesses that you can buy and hold for the long term. I love it. Thank you, Matt. That's going to end that segment coming up, we're going to talk about some Tesla financial results. You're listening to Motley Fool Money. Tesla just reported yesterday evening, we're taping this on Thursday, October 23rd. Yesterday, the Tesla numbers came out, and Matt, I just want to ask you just simply what stood out to you?
Matt Frankel: The stocks down, spoiler alert after earnings. The headline story is that Tesla returned to growth. It produced 12% revenue growth year over year after two straight quarters of declines. That sounds great on the surface. I wonder how much of this, which clearly a lot of it had to do with the pending expiration of the EB tax credit. Which expired on September 30th. In full disclosure, my wife and I bought our first electric vehicle about three days before that because the tax credits were about to expire. A lot of sales were pulled forward. Besides that, earnings didn't miss expectations, and when you combine an earnings miss with a revenue beat, it generally indicates worse than expected margins, which is the case here. In the earnings call, it's revealed that the full self driving system, I mean, that's one of Tesla's big strengths.
Matt Frankel: Only 12% of customers are paying for it, which is a lot lower than a lot of people expected to hear. They spent most of the call talking about what they're going to do next year. Build the cyber cab, start doing the semi truck. They're releasing their next generational battery storage system. Tesla has a strong history of producing great products. After they say they were going to a year or two late. Investors are less than convinced by these earnings is my big takeaway.
Jon Quast: I want to circle back to something that you just said there regarding the profit margins. Tesla's operating margin has dropped in 10 of the last 11 quarters. I think that's a noteworthy trend at this point. When you think about, why would profit margins be going down? There is one thing that stood out here on the income statement. Through the first three quarters of the year, R&D spending is up 42% year over year for Tesla. That is one expense that's rising in the call, they attributed at least some of it. It had to have been a significant portion of this R&D spend to the people who are working on AI. Tesla is trying to be a leader in artificial intelligence, and it makes sense. It really does need it for the full self driving, it needs it for the optimist robot plans. It definitely wants to be a leader in AI. That spending is up. But also these regulatory credit revenue. This stream is coming down. It was down 44% year over year in the third quarter and looking through the financial report, it says it only expects 877 million in the regulatory credits over the next 12 months. Now, just for perspective, over the last three full years, it's generated credit revenue of 2.8 billion, 1.8 billion, and 1.8 billion in 2024, 2023, 2022, respectively. Expecting less than 1 billion over the next 12 months, that's actually quite a significant downtrend and it's going to continue on. I believe it's 2027. They expect no regulatory credit revenue, and this is basically pure profit, it's consequential to the business.
Matt Frankel: You mentioned that operating margin. A big factor of that too has to do with those EV credits expiring, Tesla's average sale price. Has declined significantly. People are buying the less expensive cars. Because if you're not familiar, the credit was capped by the vehicle price. For an SUV, it couldn't be more than $85,000. For a Sedan, it was a lot less than that. People were buying the cheaper models to take advantage of the credits. Those are the lower margin models. Tesla makes higher margins on a model S or a model X is the big SUV. But a lot of those don't qualify for the credits. I'm really curious to see how things roll out in the fourth quarter when they're unassisted by tax breaks. Especially when so many other automakers, we didn't buy Tesla, we bought a GM vehicle. Many other automakers are rolling out so many new EV models that are very competitive.
Jon Quast: I think that's a really good thing for our listeners to be watching for. How does that business hold up now as the whole credit scene is changing, and that really does change some of the dynamics of electric vehicles. But also, keep an eye on what the company is doing with its newer initiatives because it's definitely ramping up the spending on the R&D to have those payoffs. We'll see how that plays out in coming quarters. After the break, we're going to talk stocks on our radar with a little bit of a twist.
It's Thursday, the Thursday podcast and we usually hit some stocks on our radar. I thought, Matt, this would be fun just to do it a little bit differently. I saw a report that showed that counterintuitively, stocks that were dropped from the S&P 500 actually wind up outperforming the S&P 500 over the next five years. You wouldn't expect that. You would think that a stock that was dropped is on its way down in a decline. But showing that maybe after all the indexes have rebalanced and all that selling pressure is done, these companies actually wind up doing well. I thought it'd be fun you and I would pick one stock that's been dropped in the last 18 months, and say, Hey, this is our pick that's going to outperform over the next five years. I'll go first here. I think Etsy. Etsy was dropped in 2024. I'll tell you what I don't like. I don't like the buyer growth peaked a few years ago. I don't like that revenue is barely climbing right now. But this is a business that still generates over 600 million in free cash flow. It trades at just 14 times its free cash flow, and because it's generating cash and it's cheap, it's actually reduced its share count with stock buybacks by about 20% or by over 20% in the last few years. This is interesting. Shares are already up 40% in 2025. I think it's already bottomed out. The company just integrated with ChatGPT. I think that this may be a way that Etsy can actually start finding some new user growth again. By having that integration with a huge user base at ChatGPT. If this is something that can help accelerate the growth, the revenue growth of the company on top of it already being cheap, and already buying back shares, this is something that I think can boost the stock price in coming years.
Matt Frankel: Speaking of Etsy's stock price, we bought shares of Etsy and my wife's IRA years ago right around when Amazon was launching Amazon handmaid and the stock cratered because everyone thought it was going to die. Our cost space is about $6 a share. It's more than 10 X from there, even after the big slump. My wife gets to claim the title of best stock picker in the house because her Etsy is a 10 bagger. But on the ChatGPT thing, I think that's a really interesting development because they're not the only ones partnering with Open AI to offer AI powered shopping. Shopify is rolling it out to all of their merchants who want it, and that's a big deal. But Etsy is unique in the sense that there's a ton of potential for AI driven shopping for a company whose specialty is unique in handmade goods. People who have absolutely no artistic ability like myself, if I want something custom, AI could be a great way to help me find what I want, and there's just a lot of different implications for that technology with a business like Etsy. Out of all the companies, and it's not just Shopify there are others too, that have announced that they're going to partner with Etsy. I think Walmart might be one of them with Open AI.
Etsy is the one that I'm most excited about and I think has the most potential. But as far as the stock that's on my radar, the list was really interesting, and I had to dig in because some of these have been removed from the S&P 500 because they don't exist. Discover Financial being one of them. It was acquired by Capital 1, so the stock doesn't exist. It can't be in the S&P 500. But one that does exist and was actually moved all the way down from the S&P 500 to the S&P Small Cap 600 because of a dramatic fall on its price was EnPhase Energy, ticker symbol ENPH. I see why it's down. It's a bad time cyclically for solar. The current political and regulatory environments aren't exactly solar friendly. The company's international growth has been impressive. They've made some really smart pivots like moving a lot of their component production to the US, and the company's innovation does remain very strong. There's a big long term opportunity here in solar and for N Phase in general. While this stock could be a roller coaster ride for a while, I think investors who get in here could have a long term winner on their hands.
Jon Quast: Love it. Etsy, EnPhase Energy, some good thoughts here for beating the market over the next five years. But that's all the time that we have for today. You'll want to tune in tomorrow for Travis Hoyam, Lou Witman, and Jason Hall. They'll be talking about the recent Cloud outages, Apple's iPhone growth among some other things. But let's go ahead and hit the disclosure before we close out. As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards, and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks to our producer today, Bart Shannon, for keeping us on schedule for Matt Frankel and myself, thank you so much for listening, and until next time. Fool on.
