re People trying to tie traditional valuations to buying early
growth stocks are living in the past!
I picked up a copy of "The Art of Speculation", which was
written in 1930. It was fascinating. I noticed a passage about
what happens at the ends of bull markets. (And they knew
what they were talking about, cause they were just sobering
up from a doozy.) He said that traditional valuations of companies
are ignored and stocks are bought on the basis of possible
earnings many years in the future.
The other scary thing about the book was the author's assumption
that the market decline in late 29 and early 30 had brought the
market back to a rational level. Actually it continued to decline for
several years more, and finally bottomed in '32 or '33, at 10 cents
on the '29 peak dollar. It's almost like the author was writing in
mid '98 or '99 and saying, "Gosh it's good we got that correction
behind us!"
As far as contrarian investing, pick up any book. Short sellers
are generally thought to be more astute than the general public.
The reason that this thread is dominated by negative comments
is that (sad to say) the average poster to SI is more astute than
the average individual stock buyer. There are about twice as
many shares "owned" as short in AMZN, (i.e. 6MM and 3MM),
so that means that there are plenty of shorters out there. But
most people who think AMZN is a bad deal aren't short it. For instance, I don't have a position right now.
It's a fact that bad publicity increases the interest in a stock,
and this has a certain amount of a positive effect on the stock
price. In other words, I believe that if really bad news came out
about a stock one week, and then a week later it turned out that
the really bad news had to be retracted, the overall effect of the
cancelling news reports would be to leave the stock higher. The
reason is that bulls always, always, always vastly outnumber
bears. Every bear has to have a bull to sell short to, but not
vice-versa. Consequently, neutral news is bullish for stocks.
It brings it to the attention of an investing community (amatuer
and professional) that is almost entirely long. (Short interest in
'29 during the crash was .12%, i.e. 800 times smaller than the
long interest.) Therefore, when you find a stock with a huge
short interest, it means that it is one that a whole lot of very
astute people are certain is going to the toilet, and are willing
to bet hard money on it. But shorters are not the herd. They
are less than one percent of the investing community. If you
define less than 1% of the investing community as the herd for
the purpose of investing contrary to them, then you are in for
a nasty surprise. The annals of investing are filled with stocks
like AMZN that the shorters shorted, got squeezed badly in,
and eventually were proved right on. The question is how
long it takes. I don't think the time has come yet, but I will
keep an eye on this dog, cause it doesn't appear to hunt.
Any fool can lose money in a business, and gain market share
by selling under his costs. No, the miracle growth would have
been AMZN able to fund its growth from its cash flow. Look at
return on equity in order to determine if a company can grow
at a decent rate without returning to the market for more money.
-- Carl |
