A Renaissance Stock
Wednesday, March 18, 1998
by David Gardner (DavidG@fool.com)

ALEXANDRIA, VA (March 18, 1998) -- With a gain of 0.62%, the Fool Portfolio beat the market narrowly Wednesday, largely on the strength of a bold move by Amazon.com. The Internet bookseller muscled ahead $5 11/16 on the bid, stiff-arming the market indices today and carrying the Foolish warriors on to victory.

As a reader who has himself ordered hundreds of dollars of books from Amazon (where in point of fact I buy all my books these days), it's been great fun and very gratifying to see such success in an investment in something I love. Yeah, yeah, I know... "Never fall in love with your stocks." While there's some truth there, and one must keep everything properly balanced, in our book You Have More Than You Think we express some contrarian reservations regarding this old saw. We suggest to readers that many good parallels exist between long-term investing and long-term hitching: buy something you love, with which you are intimately familiar, and hope that it's "till death do us part." If you make the right choice when you buy, you'll never get divorced, and indeed, that'll be the most rewarding investment of all. Et cetera.

Anyway, getting back to the point, I was flipping through one of my favorite recent reads, a book that was in fact purchased at Amazon for me as a gift by my favorite Renaissance literature professor from the University of North Carolina, Darryl Gless. (And by the way, it bears stating right now in the midst of March Madness: Go Heels.) The book is Worldly Goods by Lisa Jardine. Its premise is that we tend to couch the European Renaissance in terms of being an explosive period of artistic, literary, and cultural advances. Which it was. However, her book focuses instead on the incredible mercantilism and acquisitiveness that also characterized the era; the gorgeous fabrics and jewels that bedecked the Virgin Mary in so many paintings sent worldly signals as exotic, materialistic tokens of status to Renaissance viewers.

Geez, in school it always seemed we just studied such paintings for the unity they established between loftiness of subject and loftiness of spirit. But I find Jardine's viewpoint at least as interesting.

Elsewhere in her book, she writes (p.128): "Nowhere is the interrelatedness of cultural innovation and shrewd financial exploitation of a new market opportunity more strikingly illustrated than in the emerging book trade."

Sound familiar?!

Nowhere is the interrelatedness of cultural innovation (brought on by the Internet) and shrewd financial exploitation of a new market opportunity (capitalistic pioneers) more strikingly illustrated than in our own new emerging book trade. It's as true of our own cultural revolution today as it was five centuries ago.

And thus few stocks are more interesting today than Amazon.com (and indeed, few stocks have been more profitable over the past 12 months).

Whether you're an Amazon bull, an Amazon bear, or something possibly very confused in between, you have to be riveted following this company. It's the little $2 billion market cap engine that could. Amazon has less than $200 million in sales and no profits, enjoying a valuation that proves most perplexing to many people. In order to understand how AMZN might trade at more than 10 times sales, however, one must recognize that the market never looks anywhere but forward. And what it obviously sees at present are strong long-term cash flows from a branded e-commerce outfit that will derive transaction revenues from multiple product lines (the announcement of CD availability in Amazon may be just the tip of the iceberg) alongside high-margin advertising revenues. Those ad revenues don't even exist today, making Amazon perhaps the only one of the top 50 commercial sites on the Internet NOT to have advertising. So it doesn't take a a visionary or a seer to recognize the inevitability of this business for AMZN. The market certainly sees it, even if the bears continue not to.

Good investing, just as the creation of good Renaissance art, often requires imagination.

I'm as happily surprised by the short-term performance of Amazon.com stock as anyone else, as we never have any idea how Wall Street will treat our stocks in the short term. We certainly didn't think we'd be showing a 123% gain after six months, though we always expected volatility. We continue to expect volatility, just as commercial prices could change radically in the Renaissance based on just the latest report of a sudden product glut at a distant seaport.

Let me close by making the most important point of all: This stock is just one piece of glass in our Foolish mosaic. It's a rather racy shade of orange, far more eye-grabbing and controversial than the duller greens and blues of DuPont and AT&T. As fascinating as AMZN is to watch (as a stock and a business), we thank our lucky stars that every piece of glass in our window isn't that orange. The Foolish investor keeps a very well-balanced mosaic, as rich in variety as it is in color. And indeed, if you put the right portfolio together, it'll appreciate wildly in value over time, just as have the paintings that fill the pages of Jardine's wonderful book.

And even if one day this piece (or any other) is shattered, it's just one piece of the overall picture. It can be repaired or replaced. Make sure you keep your own portfolio in the same condition.

Elsewhere tonight, Exxon rose $1 3/4 and International Paper lost $1 3/4 -- our only other dollar-plus movers. And it must be noted that the adventitious Lucent Technologies rose $7/8 into new-high territory, surpassing the $120 mark for the first time. That stock will be splitting on April 1st... can you imagine anything more Foolish?!

We'll close with a bit more Jardine:

"The seeds of our own exuberant multiculturalism and bravura consumerism were planted in the European Renaissance."

Fool on!

-- David Gardner, March 18, 1998

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Stock Change Bid ---------------- AMZN +5 11/16 85.31 AOL - 1/2 63.50 T - 1/2 65.13 DD + 7/8 66.81 DJT - 1/8 9.81 XON +1 3/4 64.63 INVX - 1/4 21.38 IP -1 3/4 50.00 IOM - 1/8 7.25 KLAC - 5/16 35.88 LU + 7/8 120.56 COMS - 9/16 33.44 TDFX + 1/4 28.94 SPY + 13/32 108.97
Day Month Year History FOOL +0.62% 2.89% 9.00% 265.82% S&P: +0.47% 3.45% 11.86% 136.81% NASDAQ: +0.50% 1.00% 13.88% 148.31% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 63.50 1646.21% 5/17/95 1960 Iomega Cor 1.28 7.25 466.23% 10/1/96 42 LucentTech 47.62 120.56 153.20% 9/9/97 290 Amazon.com 38.22 85.31 123.21% 8/12/96 130 AT&T 39.58 65.13 64.55% 1/8/98 115 S&P Depos. 95.91 108.97 13.62% 1/8/98 425 3Dfx 25.67 28.94 12.74% 2/20/98 215 DuPont 59.83 66.81 11.66% 2/20/98 270 Int'l Pape 47.69 50.00 4.84% 2/20/98 200 Exxon 64.09 64.63 0.83% 4/30/97 -1170*Trump* 8.47 9.81 -15.87% 8/24/95 130 KLA-Tencor 44.71 35.88 -19.76% 6/26/97 325 Innovex 27.71 21.38 -22.86% 8/13/96 250 3Com Corp. 46.86 33.44 -28.65% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 45085.00 $42503.13 9/9/97 290 Amazon.com 11084.24 24740.63 $13656.39 5/17/95 1960 Iomega Cor 2509.60 14210.00 $11700.40 8/12/96 130 AT&T 5145.11 8466.25 $3321.14 10/1/96 42 LucentTech 1999.88 5063.63 $3063.75 1/8/98 115 S&P Depos. 11029.25 12531.41 $1502.16 2/20/98 215 DuPont 12864.25 14364.69 $1500.44 1/8/98 425 3Dfx 10908.63 12298.44 $1389.81 2/20/98 270 Int'l Pape 12876.75 13500.00 $623.25 2/20/98 200 Exxon 12818.00 12925.00 $107.00 8/24/95 130 KLA-Tencor 5812.49 4663.75 -$1148.74 4/30/97 -1170*Trump* -9908.50 -11480.63 -$1572.13 6/26/97 325 Innovex 9005.62 6946.88 -$2058.75 8/13/96 250 3Com Corp. 11715.99 8359.38 -$3356.62 CASH $11233.54 TOTAL $182907.95