Post of the Day
May 15, 1998

From our
Amazon.com Board


Subject: No concept of risk
Author: Rimpinths

From tonight's Fool Portfolio Report:

"So bears: dispense with the "no profit" argument for now. It's downright lame. If more leading Internet companies aren't making a profit in three to five years, then the Internet economy as a whole will have proven to be much more challenging than anyone thought, and then the bears will have a valid argument to stand on. But until "then" happens, bears need to find a different argument, because none of these companies are even trying to make a profit."

The way I interpret the above is that the investors should assume the best before the worst. It's pretty much repeating what Castanza said:

"Umm...I dunno about you guys, but I am willing to give them the benefit of the doubt. And I think you should do the same until they give you a reason not to."

In other words, we should assume that Amazon is worth more than $2 billion (because the flawless market tells us so) until it proves that it isn't. Although Amazon has never earned a dime, we can assume that it will earn enough money in the future to justify today's stock price. It's essentially betting on the future, which is a very dangerous approach to investing.
  It's essentially betting on the future, which is a very dangerous approach to investing.
There's only two reasons you make a bet. The first is that you think you're going to win.

This is the longs' motivation for betting. There's a million reasons why you can think a bet is going to pay off. But you don't put money down unless you think you're going to win. When people start betting on stocks, prices tend to go up because everyone thinks they are going to win. You don't make a bet that you think you're going to lose.

What has happened so far with AMZN is that one card has been turned over and it's an ace. We have no idea what the other four cards will be. Since the first is an ace, we can assume the best for the other four cards until we turn them over. However, AMZN investors are too impatient to wait for the rest of the cards. They're placing bets as if all five cards have been turned over and they're sure they're going to win. This is what gamblers do.

With an ace showing, I might be willing to put a few chips down on the chance that the other cards will be good. However, I don't put the big chips down until I've seen a few more cards. AMZN investors are putting the big chips down too soon. (Although the upcoming split will deceitfully make them think it's only little chips again.) I think the point that every bear is trying to make is that it's too early to be making bets using the big chips. Maybe one day the AMZN hand will merit the big chips, but there's still a lot of cards to turn over.
You always need to consider the unknown -- that is, risk -- when making your bet. If you don't, then you've had too many free drinks since you've stepped into the casino.  
Make your bet based on the information you have: one card. Every card counts, but a single card doesn't make a hand. As more cards are turned over, you can increase the size of your bet. If I have an ace, I'll put up $10 to see the rest of the cards. If some Fool sees my ace, likes it, and wants to give me a $100 to take over my hand, I wouldn't hesistant a minute let them buy it. With a great hand, I'd expect to make $100 at best, so why not take it now and avoid the risk of the other four cards? I don't even have a pair yet. I have ace high and that rarely wins. You always need to consider the unknown -- that is, risk -- when making your bet. If you don't, then you've had too many free drinks since you've stepped into the casino.

The other reasong for making a bet? You're bluffing. That's what the "analysts" are doing. Of course, you won't know that they're bluffing until all the cards are turned over, but you know they're bluffing because they say that all the hands are going to win. It's extremely rare for them to tell you to hold, and they never tell you to fold, even though sometimes the high stakes merit it. They're recommending that the bet be raised on nearly every hand out there. They all can't win -- they must be bluffing on some of the hands, and AMZN is one of the easiest hands to bluffs with. If four cards were showing, it would be nearly impossible to bluff. With one card showing, it's easy to be Fooled.

Rimpinths


Go To Amazon.com Board

The Post of the Day may be edited for readability or length, but never for content. The opinions expressed in the Posts are those of their authors, and not necessarily The Motley Fool. We make no claim or warranty as to the veracity or accuracy of any post, and present this feature only as an example of what may be found on our message boards. Don't take the Post of the Day, or anything else here, as gospel and, as our seventh grade English teacher, Mrs. Peacock, used to say, do your own homework, and avoid run-on sentences.