Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Amazon.com, Inc. (AMZN) -- Ignore unavailable to you. Want to Upgrade?

To: Eric Wells who wrote (110479)	10/14/2000 2:27:05 PM
From: GST	Read Replies (1) \| Respond to of 164684

Eric: Oh why does it have to be me to say this -- but -- new technologies and companies are rarely profitable during their initial growth stage. So we have three issues -- ultimate viability of the business model, size of the market, and barriers to entry. Business models mutate fairly rapidly so it is always hard to say how they will fare in the long run. The size of the various markets is also very difficult to determine with any certainty. And barriers to entry, which can be brand or technology or something else like preemptive market dominance are impossible to project far into the future. In other words, the ventures discussed in places like this forum are highly unknowable in terms of their business prospects. There is nothing, absolutely nothing, strange about any of these things -- that is just the way things are when technologies and industries are new and evolving at a rapid pace. Now here is the strange part: The rational thing to do is to discount future events to the extent to which you perceive them as uncertain. That means that all the uncertainty surrounding dot.com, or B2B, or whatever, should cause these stocks to trade at a discount to their expected potential -- given that these expectations are probably best reflected as a probability range (which means the rational thing to do is to price down to the low end of the range and then maybe even discount that a little bit). The irrational thing to do is to award a premium for the perceived uncertainty -- the irrational thing to do is to the price in at the high end of the range of expectations for growth and profitability. This we would call being "highly optimistic". But wait -- it gets much stranger than that. Why settle for highly optimistic? Why not just keep going after that because maybe we were wrong about just how good it can get -- maybe it will be even better than the best case scenario. Maybe it will be ten times bigger or more profitable than the most wild-eyed projections. Lets not be content with life on earth, lets price in "the afterlife". So what do you see out there -- rational pricing of stocks? Optimistic pricing of stocks? Or irrational pricing of stocks? I think we have come down from irrational to optimistic -- csco is now optimistically priced as is yhoo, to just take two examples. I believe the bulls are very optimistic at the least, and in many cases still have highly irrational expectations. I believe this is what Greenspan meant by "irrational exuberance" -- which is exactly what it was and is to this day. Now ask yourself this: What pricing strategy fits the current economic environment? Heaven help us if the economy does slow down and "rational pricing" takes hold. I don't want to see it happen, but it is pretty weird to think that "rational pricing" is too extreme to consider as a possible outcome of a downturn in the market. What people like Danny are saying, in effect, is that the economy cannot and will not slow down, and investors will never be less than optimistic.

To: Eric Wells who wrote (110479)	10/18/2000 10:52:12 PM
From: Randy Ellingson	Read Replies (2) \| Respond to of 164684

Randy - long time no talk - hope you are well. Thank you, Eric. I am, and likewise hope that you are well. I just returned from Atlanta -- visiting (earlier today) the CNN lobby / indoor plaza during the airing of the live "Talk Back" was pretty interesting, and I also saw briefly the Centennial Olympic Park as well as the Van Gogh special at the High Museum. As for the question of unprofitable businesses going away, they probably always do [ what's the record for the longest streak of existence for a consistently money-losing company ? ;-) ]. As for companies that are growing sales strongly and are evident leaders in their industry, there are not many failure examples that come to mind. I'm not so sure I would call PCLN's business an industry, but I would call diversified online retailing an industry (though arguably a subcategory of the general retailing industry -- I think we must see how things turn out before we can say the industry offers unique financial opportunities). Any chance AMZN is undervalued today (based on future profitability of course)? Randy