just in case the barron's police have not yet posted
1. oh details, details -- defensible positions -- bahhhh declining margins -- hmbug
First, he stays miles away from any company that lacks a defensible
competitive advantage. That's why he hasn't put any Internet stocks into Core
Equity's $225 million portfolio. He argues that online customers are supremely
price-conscious. "If I can get a book for $5 less at Barnes & Noble's Website
than I can at Amazon, I'm going to Barnes & Noble," he maintains.
In addition, it usually costs nothing to switch from
one Website to another to transact business. That
means that most Web-based products and services are commodities and
easily substituted, which spells bad news for some online outfits. "At least
when you make the switch from Coke to Pepsi, you have to be willing to
accept a different cola taste," he says.
Even though he's turned up his nose at the dot-coms of the world, Bickerstaff
had a 49.2% return last year, trouncing the S&P 500's 28.6%. That kind of
index-walloping result is nothing new. In fact, he's beaten the S&P in 10 of the
past 11 years, bringing joy to his investors -- a group that's been limited by his
fund's insistence on a $250,000 minimum investment. However, next month,
that will change; Core Equity will be available to anyone who can pony up
$2,500.
2. amzn defender of the weak
And striving to distill reason from their venom, these nasty negativists dusted
off the tired, old argument that the Internet companies were ridiculously
overpriced because they had no earnings. Nothing, of course, is more
revelatory of how out of it this curious crowd really is than the importance it
attaches to profits.
As the market reiterated so resoundingly in Thursday's sensational recovery
by the online contingent, old-fashioned yardsticks like profits are hopelessly
inadequate when measuring the value of an Internet enterprise. Dwarfing
profits in significance, for example, is creativity.
Case in point: Amazon.com, the by-now-famous bookseller. As noted in this
space a few weeks ago, the company not only has successfully avoided
earning money right from the start, but has a great shot at doing so forever.
Stocks like Amazon, pure and simple, should be judged not by P/E but by
P/C (price times creativity). On that score, there can be no dispute that it
merits an exceedingly rich multiple, if only for its ingenuity in enhancing
revenue, fresh evidence of which emerged just last week.
Specifically, the New York Times discovered that the company has been
putting the arm on publishers for the privilege of having their books included in
its highly popular recommended reading list. Actually, there are two lists, one
called "Destined for Greatness" and the other consisting, obviously, of books
not destined for greatness and bearing the less resonant heading of "New and
Notable."
In keeping with its renowned concern for its customers, Amazon refrained
from burdening them with knowledge of the arrangement, lest it dilute their
appreciation of the recommendations. They might even have resisted buying
the recommended books, which obviously would have been a tragic
disservice to literature.
Inevitably, cynics ascribed this lack of disclosure to all manner of dark motive.
But even they must have been swayed by the chairman's compelling
explanation that unlike a conventional retailer, "We're a buying cooperative on
behalf of our 6.2 million customers," and squeezing the publishers enables it to
lower prices. We found that description powerfully persuasive, if only because
Amazon, as a nonprofit organization, admirably meets the acid test of a
co-op.
Besides the creativity of the America Onlines, Amazons, Yahoos, Lycoses et
al., what eludes those inveterate bad-mouthers of the online stocks is the
dynamic impact of the Internet investors. They're a new breed, distinguished
from traditional stock buyers by their eager embrace of risk and their lightning
reflexes, qualities that add a wholly different dimension to the centuries-old
business of investing.
3. Don't worry Joe, despite the shock of white hair, you'll never be confused with einstein
Next: Wal-Mart-zon?
To the Editor
Amazon.com (Up & Down Wall Street, January 25) obviously could be
profitable if it didn't plow its cash back into its business.
Most people view Amazon as merely an online bookseller. But, in my view,
the company is positioning itself to be the Wal-Mart of the Internet. In fact,
some Wal-Mart talent has been slowly but surely migrating to Amazon. I'll tell
you this: Amazon would be a great acquisition for Wal-Mart, given that
Amazon has the e-tailing platform and Wal-Mart sells everything under the
sun.
Only fools believe that Amazon's current valuation is based on book and
music sales. As Amazon grows, it will be compared with Sears, Kmart et al.
The sky's the limit here.
JOSEPH CIANCI
White Plains, New York |
