Could Amazon go to 700 given that it is already overvalued by a factor of at least 10x? Sure. Will I be short the stock if it does? No. Thats one reason why I chose Amazon - there is little chance the thing will double in one day, so I will have a chance to cover if things are getting out of hand. But I did not short it on valuation alone, though that was the biggest factor. The timing seems exactly right for the top.
1) as you said, the book retailing business SUCKS for 11 months out of the year - after Christmas seems perfect.
2) Manias like this tend to peak at year ends - when the holders who have been waiting a few weeks to defer their tax bill another year all sell at once
3) The almost vertical momentum has at the very least paused. If it takes off again, I would probably cover at about 450 no matter what the valuation - I'm not stupid.
BTW, I think Barnes & Noble looks like another good short right now if you don't want to do AMZN. A LOT of hedge funds are long BKS and short AMZN. When AMZN breaks down, they will do two things. Buy (i.e. cover) AMZN and sell BKS. Maybe my strategy is to short AMZN and if I get 100 points or so and BKS hasn't broken down yet, then switch to this related play with lower risk of a major whipsaw.
And on this thread, I like to set an example by relating it to Buffett somehow - I agree, Mike, this one's a stretch. But anybody who thinks BKS is a Buffett play...its not. This is a low margin business where even the leader will generate mediocre returns at best. It is also a great example of what we have been discussing - a business at very high risk due to the internet. BKS trading at 5 or 6 times book value is just not sustainable. One of my red flags of investing is Avoid Retailers Where Wall Street Portfolio Managers Shop. These are very unlikely to be undervalued. K-Mart or Walmart or Dollar General you might have a shot, but not now.
JJC |
