Jan 5, 2000 at 12:00AM
There you had a man who inaugurated the Roman Empire (27 BC). And later in the report, I briefly mentioned Marcus Aurelius, who just so happened to be the Roman emperor at a time when the empire was declining, besieged by Germans and Parthians, partly falling apart.
So in that one report we had a man who in a sense built Rome and another who watched it crumble -- which seems to get across my point about Moderation best of all.
(On a side note, my editor, Bob Bobala, linked in Marcus Aurelius's Meditations at the end of our report yesterday, and today lo and behold I find that it is suddenly -- as of this writing -- the #252 bestseller and still climbing across all books sold on Amazon.com in the past 24 hours! So to the heirs of the estate of Mr. Aurelius, I say -- you're very welcome! Come to think of it, hey, I need to get my copy before they're all out....)
But let's get back to Moderation. Because Moderation is an eternally relevant subject for the Rule Breaker investor.
As I wrote on this subject two months ago, "A fan of the stock market will know that the daily percentage moves of the overall market are, by comparison, Fred Astaire to our Michael Jackson."
But that article was entitled "Volatility." That's an observation. Yesterday's article, and today's continued meditation, pertains to Moderation, which is not an observation but an answer. Volatility is the question, and Moderation is our answer.
Moderation couldn't be more necessary than for a long-term investor in Amazon.com stock. Amazon shareholders were dealt a rude blow today, watching our shares drop 15% to $69 3/4. This came just two days after Amazon.com rose 17% into the $80's. I speak of Moderation (which I'll continue to capitalize throughout this report), but could the market's treatment of this stock be any more immoderate?!
Check out this chart over the past year. Jeepers. The stock zoomed from $50 to $100, then jumped from $100 to $42, then $42 to $110, then $110 to $45. OK, so that was all in just the first six months. From there, it was $45 to $72, back to $42, to $90, then to $60, back to $110 (this in December), and now here we are at $70.
Now take that same chart and just add in the S&P 500 over the same period, and you're left with a very clear picture of just how immoderate bulls and bears are in their assessment of the company. The S&P 500 was certainly not flat last year, but by comparison, it's practically a flat line.
But how about just the last three days? Monday, Amazon shares skyrocket as an Ernst & Young survey reveals that it was the top online holiday shopping destination for 42% of Americans, more than twice the share of the next highest vote-getter. Boom: stock up 17%. Tuesday, market sells off, Amazon down 8%. And today, Wednesday, the company pre-releases some first-quarter numbers showing sales were $650 million, but that this huge increase in sales (way ahead of the most bullish estimates) did not narrow the company's net losses.
And boom, bango, bingo, down 15%. And none of the "news," the developments this week, are particularly surprising.
Volatility, thy name is Amazon. Review the summary we just did of 1999, and you'll please note that even this three-day sort of movement should not be thought atypical for Amazon shares.
These sorts of stocks are not for most people. This particular stock is certainly not, as it remains a "seeing-eye bet" on electronic commerce as a profitable entity and (further) on Jeffrey Bezos & Co.'s ability to capitalize on their #1 poll position with consumers. Do I think they can do it? Of course I do, or else I wouldn't continue to hold the shares. Does that mean they will definitely do it? No way. No way to know for sure. Every investment we make is done without guarantee, and our rewards will more often than not match our risks. And the risks we take will sometimes fail, spectacularly.
Why is this happening? What we're watching here is a revolutionary technology combine with a completely unproven business model -- in an industry that spans the world and has a gigantic immediate growth rate. That is Amazon.com 2000, just as it was Amazon.com 1997 when we first bought the stock. And it's all unprecedented.
These sorts of situations are exactly what we like to find, even knowing that (say) one in two of them won't pan out. The ones that don't, as I wrote yesterday? Pfffffft. The ones that do, nice. The few that really, really do -- as is the case with America Online and Amazon.com so far -- make you so many times your initial investment that you honestly don't lose any sleep over all those times things didn't pan out.
And for all that, what is needed? Moderation.
As I read our Amazon message board, on days like today, completely dominated by a combination of negative commentary both rational and irrational, I occasionally come across posts like this one, from investors reacting to those immoderate swings. And I am reminded of Kipling's own take on Moderation (in his somewhat characteristically macho talk):
If you can keep your head while all about you
Are losing theirs and blaming it on you....
You'll be a Man, my son.
Or: a Foolish investor.
All told, the Rule Breaker Portfolio lost a solid 5% today -- another bad one. That was well below our new benchmark -- the Motley Fool Now 50 Index -- which registered a 0.26% decline. The S&P 500 scored a 2.69% gain while the Nasdaq fell 0.62%.
Three final notes. First, how much did our Foolanthropy holiday campaign raise this year? It was $120K in 1997, over $200K in 1998... and it was just over $400K during the final week of 1999. Did we hit $500,000? Click in and find out.
Second, if losing weight has any meaning for you or someone you know in your life, you simply must read this recent Motley Fool Post of the Day for some extremely Foolish advice.
And third and final, on this week's Motley Fool Radio Show, we're gonna give you an opportunity to share your financial triumph with the world. What was your best financial decision of the 20th century? Did you buy Microsoft at the initial public offering? How about Coke at its IPO? On the other hand, did you sell Planet Hollywood at the IPO? Did you pay off that plastic? Our Fool Radio producer, Mac Greer, wants to hear from you. If you're interested in participating on this week's show, please email MacG@fool.com with your best financial decision and a daytime phone number.
For now, Fool on.
David Gardner, January 5, 2000
Fool News, 1/5/00: Amazon.com Pays the Price for Happy Holidays
- Jan 5, 2000 at 12:00AM
- Special Announcement: The Motley Fool Unveils Ultimate “Organic Intelligence” Breakthrough
- What Is "Financial Wellness," and What Does a Lack of It Mean?
- The Psychology of a Rule Breaker in Good Markets and Bad
- Rule Breaker Psychology: When Markets Dip, Remember This
- Fixed Income Is Boring, But Safe.