I just had to repost this from the Motley Fool forum. it is written by a fellow called Rimpinths, and directed at the founders of the MF who currently hold AMZN im the FOOL portfolio.....it is an excellent analysis:
If the Fools are completely honest, then there's no doubt that they are just plain stupid.
I don't care how big of a Fool you are, you can't say that Amazon is worth $2.3 billion with a straight face. When is the last time you've seen a TMF on this board trying to defend AMZN's valuation? You can't justify it. It's impossible.
At $2.3 billion, Amazon is worth almost as much as Barnes & Noble ($2.6 billion) and Borders ($2.5 billion.) But we don't have to use those tricky numbers to value AMZN. Let's put AMZN's valuation in terms that everyone can understand.
Amazon, with one website and two warehouses, is worth almost as much Barnes & Noble with its one website, seven warehouses, five hundred superstores, and five hundred other stores. I don't care how rosy the Internet future may be, there's no way you can justify these two companies being worth almost the same amount in the present.
Let's put their sales figures in perspective without numbers. Barnes & Noble does more sales in one month than Amazon has done in its entire lifetime. Enough said. Again, how can these two companies be worth nearly the same amount of money?
You can't contribute the market valuation to future growth. Last quarter, Borders had higher sequential growth than Amazon. You would expect Amazon to have at least twice as much growth, considering Borders sells ten times as many books as Amazon. There are a lot of companies competing for Internet sales. Companies with a lot more clout than Amazon. Even if Amazon had the entire Internet book market to itself five years from now, it could not justify its valuation.
This is same trap that investors fell in the late twenties, Quoting from Benjamin Graham again in 1934:
<<Why did the investing public turn its attention from dividends, from asset values, and from earnings, to transfer it almost exclusively to the earnings trend, i.e., to the changes in earnings
expected in the future? [. . .] Rising earnings for a period of five, or four, or even three years only, were regarded as an insurance of uninterrupted future growth and a warrant for projecting the curve of profits indefinitely upward.>>
In Amazon's case, it's only two years and there's no profit to even project "in the foreseeable future" by Amazon's own admission. Don't all of you longs realize that you're investing in the same manner as investors in the 1920's? I know you're thinking that this time it's different -- the economy is great, the Internet is a paradigm shift. You think it's a new era, but that's what they thought in the 1920's
too (again, from 1934):
<<The new-era concepts had their root first of all in the obsolescence of the old-established standards. During the last generation, the tempo of economic change has been speeded up to such a degree that the fact of being long established has ceased to be, as it once was a warranty of stability.>>
It's simply amazing that what Graham wrote about the investors in the late 1920's is such a perfect description of what is occurring today. Amazon is the poster child of the stock market mania that is going on. The Fools are leading the mad crowds. To look at Amazon at $2.3 billion and not try to learn something from it is either extremely stupid or not being honest. I think it's a little of both, honestly.
It's stupid because any idiot with a brain can see $2.3 billion and realize that there's absolutely no way anyone could justify it. It's not being honest to avoid discussing how the price could become so absurd. (If it's not absurd, please justify it.) If the Fools were honest with you, they would say, "Amazon is worth almost as much as Barnes & Noble. We were hoping this could happen in five or ten years. It's happened in less than seven months. It's time to sell this stock and celebrate having doubled our money in a tenth of the time that we expected!!!"
Why would you hold this stock? You've gotten everything you hoped for, what more could you possibly expect? You really can't expect any more big gains from here on out. Are you really that greedy that you need even more money after having more than doubled your money is seven months?
From the buy report:
<<Well, if management can reach its stated goal of $1 billion in revenue around the year 2000, and if the stock trades at 1.7 times sales by then, we'd be looking at a double in stock price -- a double
in little over a couple of years.>>
That goal was met when the stock hit $71. What more can you expect out of this stock? You know that at this point it's riding on air -- absolutely nothing is holding it up -- so why do you continue to hold it? Why not take your much-better-than-expected profits and celebrate? Why risk staying in when you know that the price can deflate at any minute?
It may not be dishonest, but it is certainly not honest to avoid discussing this issue altogether. The Fools know that AMZN is a house of cards and they don't want to admit it. I would like to see either Tom or Dave try to justify Amazon being worth $95 a share sometime over this weekend. They haven't said a word about it since it was trading in the low high fifties / low sixties back in January. If they can't do justify the price, you should sell the stock. It's time to recognize that you're on your own because I haven't seen them around here in months.
They know that no one can justify the price of this stock, but they continue to hold it because it looks so very pretty on paper. It's not being honest to avoid justifying the stock's valuation,or alternatively having an open, honest discussion about how paper profits can become absurd and it's at that point that you need to sell a stock. What good will an honest post mortem analysis do? Will you, AngryCandy, be happy if the Fools admit after they sell AMZN for less than $50 (that's right, I'm making that prediction) that they were stupid not to sell when it was trading at $95? Will that replace the fat bank account you could've had? What have the Fools learned from ATCT and IOM if they repeat the same mistakes again? Isn't that the point of all this Foolishness -- to educate the masses? If you don't sell the stock now, then you haven't learned anything.
As I've mentioned before, I'm not shorting this stock, so I'm not trying to whip AMZN investors into a selling frenzy. In all sincerity, I really feel sorry for all the investors who have placed so much trust in the Fools and who will follow them off a cliff. After this is all over, you'll realize that the Fools weren't being any more honest with you than the Future Superstock Newsletter. They misled you and avoided telling you very relevant information about a stock to keep its price propped up. Like I said, they may not be dishonest, but they are certainly not being honest by not saying anything at all.
Then again, maybe they're just plain stupid.
Rimpinths
P.S. The quotes above come from "Security Analysis", written in 1934 by Benjamin Graham. It is heavily cited in a must read article by William Fleckenstein called "Can it happen again?" Every AMZN investor should read this article. You can find it at:
stocksite.com |
