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Technology Stocks : America On-Line (AOL)
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To: Pruguy who wrote (4479)2/6/1999 12:59:00 PM
From: Chuzzlewit  Read Replies (1) of 41369
 
People who think that stock prices exist in a vacuum are amusing to me. But that kind of "investing" habit is dangerous in the long run. Lots of people lost billions in various fly-by-night "hot" companies that were supported by little more than outrageous expectations of continued upward stock price movements. I' sure you remember companies like Boston Chicken and LEASCO to name only two.

There are several statistically verifiable underpinnings of stock prices: long-term interest rates, perceived long-term growth in free cash flow, and the perceived riskiness of achieving those cash flows. When people "invest" based on timing the market or "momentum" investing they add several layers of noise to the market. You can see that effect with SOES "investors".

I have been repeatedly warning people about AMZN on that basis. If you look at the company's cash flow statement you will see that it continues to experience negative cash flow from operations, and the activity that is supporting cash flow is the sale of its stock. But that kind of obvious, (no -- downright fluorescent!) red flag is invisible to people who pay no heed to a company's fundamentals.

My advice once again: forget earnings -- they are a fiction created by accountants. Watch free cash flow. Ignore free cash flow at your peril.

TTFN,
CTC
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