Randy - thanks for your message.
>>I suspect that within ten years, Amazon will be the
>>largest internet retailer, bar none. And that they
>>can convert their revenues (perhaps by then $500B?)
>>into profits which justify today's valuation.
On what are you basing this belief? I would say that there is some chance of Amazon being the largest internet retail ten years from now, but I would say that there is a greater chance that they will not be. When you say that you suspect that Amazon will be the largest internet retailer, I can only assume that you mean something like "Amazon will be the Wal-Mart of the net, leading in multiple retail categories." My view is that it will be difficult for Amazon, not to mention any company, to capture and lead in multiple retail categories on the net. Sure Amazon was first, and they are leading in some areas, but as they extend into multiple retail categories, they risk diluting their brand and spreading themselves too thin. And with the intense price competition that the net allows, it will be very difficult for Amazon to lead in multiple categories. Saying that Amazon will be a $500 billion company in 10 years is, in my view, the best case scenario - and I feel an investment should not be valued on the best case scenario - because, in truth, best case scenarios rarely happen.
>>Maybe you'd agree, that competing with them is
>>difficult at best; their competitors are up a
>>creek in some ways.
I haven't seen evidence of this. As far as I know, Barnesandnoble.com is doing well - and Barnes & Noble bookstores (the bricks and mortar company) announced good results this week. And Wal-Mart also recently announced great results as well. I can't speak for how Etoys is doing. But do you have evidence that Amazon's competitors are not doing well?
>>Are you short these stocks?
No - not now. I did a lot of shorting of EBAY, AMZN, YHOO, PCLN and CMGI from late July up until about a week and a half ago (and made quite a bit of money doing so). When it became apparent that nets were going to recover after the release of the PPI number, I stopped going short.
>>Do you think that perhaps all of the three big ones
>>can justify their market caps within the next
>>five years?
It's very difficult to predict - but my inclination is No. Actually, I would guess that Amazon might actually have a better chance of making more profit than YHOO or EBAY. I think both Yahoo and Ebay are both way-overvalued. I'm not certain how Yahoo plans to make it in the long term - it seems that they are mostly reliant on advertising.
>>"Roughing It" is in my shopping cart;
>>I'll be ordering it soon.
I would also recommend "Devil Take the Hindmost" by Edward Chancellor - it's an excellent historical review of economic bubbles, their causes and effects.
>>Some people who understand the business meant to buy
>>for that reason, but missed the opportunity because
>>they were guessing it could go lower.
As I've mentioned previously, I think many investors are overly optimistic about the future. Don't get me wrong - I think the internet is an incredible technological innovation that is and will continue to have a tremendous impact on our lives. I just believe that investors are overly optimistic about the profits that some of these companies are going to be able to make and sustain on the internet. It easy to have such optimism when there are no facts or evidence to counter it. And in the absence of facts to the contrary, optimism prevails. The phenomenon of investor optimism over technological innovations is not new - investors were overly optimistic about the South Sea Company in 1720, South American mines in the 1820s, railroads in England in the 1840s, gold and silver in the 1850s and 1860s. You can see the pattern repeated time and again throughout history.
>>These effects are background noise for the ten
>>year investor.
The problem is that if you read historical accounts of past economic bubbles, you will read about companies that literally disappear. When a company disappears, even a ten year investment approach doesn't work. I would never consider any of the internet stocks as "long term hold" stocks - they are too speculative, their future too uncertain. A ten year investor only succeeds if he/she picks the right stock - or the right basket of stocks.
>>FWIW, 32% of my IRA is YHOO+EBAY
You enjoy a high level of risk.
I wish you the best in your investments. And as always, welcome your comments.
-Eric Wells |
