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By MrArbitrage
November 22, 2002

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When will we run out of suckers? Traditionally � the idea of investing has had a relationship with the legitimate prospects for a business but more importantly, a correlation to those prospects and timeframe. Let's break the concept of business down to the fundamentals. Let us examine the small business i.e. mom and pops stores. Let us pretend that a hypothetical mom and pop wants to be in business. Why would they want to do that?? Because they aspire to make more money than they can by working for someone else as an employee. What would it take for them to accomplish that feat? They would have to either start a business from scratch or buy an existing business. What would be the reason for buying an existing business? It is already established and therefore should theoretically have a head start on clientele and even profits.

Let us suppose the company had no profits but is believed to be able to generate some in the not too distant future. Would it be prudent for mom and pops to pay over 100 times the theoretical profits that the company is hoping to earn in the next year for the first time in its history? Not likely to happen. No lending institution in the world would likely front the money for such a highly speculative venture unless this company had something so esoteric and revolutionary, something with patent protection that would prevent anyone from entering that business.

It might take them 100 years to earn the money they paid for the company if they ever earned anything at all.

My point is that a private market is a rational market. Ultimately, that's where lies the mean. Greater fool theory only holds up a stock for so long. There will be a reversion to the mean.

I've had people at this page repeat the same insipid defenses, as did the gamblers at every page at which I have posted. I have always stood my ground and I have always been correct. There is no limit to hype and gullibility therefore I am never surprised; however I am quite confident this occasion will end no differently then it did in my past selections. I tried to warn people in my usual dogmatic way... people take offense because I "call a spade a spade" ... because humans are contumacious by nature, they rebelliously bid the stocks to even more ludicrous prices while telling me that "I shouldn't fight the tape" and how I'm wrong because "the market isn't rational" and all of those other Wall Street platitudes that destine the average investor to a life of poverty... those people go from having big profits to seeing their glamour stock gap down precipitously and face big losses. It doesn't end there. While they're crying in their beer, I come back and say I told you so (because I promise to during the rancorous disquisitions) and everyone starts telling me about "hindsight being 20/20".

As of TODAY I am no longer on the sidelines. As I see this highly speculative bubble trading at close to a $10 BILLION dollar market cap, I went from being a pundit to being a "SHORT". I will not be squeezed. I have bought the LEAPS and my strike is as long as it is high. I make no pretensions. I expect this ponzi to go higher before the gamblers face reality. Let them build their castles in the air. The risk is on the long side. Common sense rests with the few of us on the short side. The moral to the story is that those who live by the sword die by the sword. As I wrote a year and a half ago when AOL, INTC and GM were at there highs, in my opinion, it's not a matter of if but only WHEN. Guess what folks $10 billion dollars is still a significant chunk of change.

Sears, Roebuck & Co. PRICE 25.24 Market Cap 7.9 Billion, p/e 6.64 yield 3.65% BOOK Value $20.74

Wendys Corp Market Cap 3,173.61

Barnes & Noble Corp Market Cap $1,594.78
Is Amzn worth that much more than Barnes and Noble?

Toys R Us Mkt. Cap. $314.11 MILLION
Now there's a company that has a similar intrinsic value to AMZN.

I totally understand the trite thinking that is driving this. Part of it similar to the old buy Toys R Us before the holidays and sell after the holidays. How ingenious!

The rest of the rationale is the same credulity that drove the bubble the first time around. People never learn. They are enchanted by the INTERNET.

It's only a matter of months before the great revenue growth no longer satiates the poor speculators and people start to realize that revenue growth is "a dime a dozen".

People will suddenly become enlightened to the fact that no matter what AMZN does, the product has to somehow get to the customers and UNTIL AMZN gets a patent on teleportation, they have nothing new. Sears and J.C. Penney have collectively been in the mail order business for hundreds of combined years. There is a REASON why they are brick and mortar stores. U.S. Mail, FedEx and UPS have been in existence for quite some time, if it were more profitable to go that route, Wal-Mart, Target and the like would close down all of their stores and do the same damned thing.

What is a dead giveaway to the fact that this is nothing more than irrational exuberance? Every day Amazon is spoon-feeding the sheep another press release of something NEW that they will be selling. This is no different than what AOL was doing as I pointed out on a daily basis (as it was driven to its new highs by the naive). Amzn announces it's going to sell GAP clothing � stock runs... etc. This is a joke. There is a long string of press releases of dubious relevance that co-insides with Jeff Bezzo's million share a month sales.

There are so many retailers that are selling by store AND catalog who DON'T hype it up every time they decide to sell a new products.

Let me make a prophetic statement on HOW the net will eventually revolutionize retail.
Eventually, in the future, I believe that the PRODUCERS will re-structure their distribution in such a way that consumers can ELIMINATE middlemen on the internet like AMAZON and build an infrastructure that will make it effective for them to ship directly to the consumer. Once they get this together with the help of consultants who can efficiently build this distribution chain for them, manufacturers will be able to sell at higher profits and still give the consumer a better deal. There will still of course be some demand for the brick and mortar retailers because some people want to buy it NOW, but the enlightenment will be the fact that the AMZN's of the world bring very little value to the table once such means for distribution is in place. This will create a boom for consultants who can come into such companies and build the infrastructure for them to efficiently do this. The evolution will ultimately lead to this. MOST of what AMZN sells can be sold directly by the manufacturers and publishers � even clothing - if the people want it through the mail. When done properly, this will fulfill the natural tendency of capitalism; to sell the best possible product for the best price.

The bottom line is that the price of this stock is asinine and this company has done nothing to merit such a price with its negative profit margins, negative book value and exorbitant debt load. If you like revenue growth, you longs must have made a @%^&* load of money on the revenue growth of the Planet Hollywoods and Rainforest Caf�'s of the world. OF COURSE AMAZON WILL HAVE GREAT SALES GROWTH OVER THE HOLIDAYS AND WILL GROW MARKETSHARE. OF COURSE AMZN WILL CONTINUE AMZN WILL MAKE BEZOS RICHER BY HYPING IT UP EVERY DAY THAT THEY ARE SELLING SOMETHING ELSE - LIKE EVERYONE ELSE IS! BUT THE BOTTOM LINE IS THAT IT WILL TRANSLATE TO NOTHING BUT MEDIOCRE PROFITS BECAUSE SOMEONE HAS TO PAY THE FREIGHT. THE FACT IS THAT AMZN IS WORTH NO MORE THAN K-MART.

Now, it's been said that I have an axe to grind and that I'm a bit antagonistic. That's basically because I get tired of waiting for my money. I get tired of having to wait for the bubbles to break when I know it's just a matter of a few months!

It's just like:
Watch how in every case, I bring my commonsense and business sense to the table, the people drive it up even higher as they defend their decisions and I come back a couple months later proving to be quite right.

The world is a stage and each of us must play our parts so show me how wrong I am and throw your good money after bad. I'll be back down the road � as usual � to say I told you so.

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