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Billionaires Just Sold $2 Billion of Inc. Stock

By Anders Bylund - May 28, 2016 at 4:44PM

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Ultra-rich hedge fund managers have different priorities than the rest of us. If they're taking some profits on a winning trade, you shouldn't always do the same.

When billionaires sell shares, they tend to make waves. The Motley Fool would never advise you to follow every step of those market movers; but it doesn't hurt to see where the big money is flowing.

Last quarter, 11 billionaire traders sold off a total of $2.0 billion of their holdings in (AMZN -5.14%). That amounts to just 0.6% of that stock's current market value; but some of these negative trades were very significant in the context of the seller's portfolio.

I'm sitting up to take notice.

These billionaires are jumping ship

In a review of recent Form 13F filings, where hedge-fund owners and other billionaires report their trades on a quarterly basis, several well-known hedge funds were seen reducing their Amazon holdings in a big way. Millennium Management, led by options-trading veteran Israel Englander, sold off 81% of its Amazon shares in the first quarter of 2016. That's a move worth at least $199 million, assuming that Millennium sold its shares at the very bottom-end of Amazon's quarterly price range.

Merger arbitrage specialist Ken Griffin and his Citadel Advisors fund parted ways with 10% of its Amazon holdings, but this is a much-larger stake, and the sale was worth at least $131 million. Citadel still owns Amazon shares worth nearly $1.2 billion.

And then there's Bridgewater Associates, headed by futures trading expert Ray Dalio. The world's largest hedge fund sold more than $1.3 billion in Amazon shares, which works out to 67% of its holdings three months earlier. That's a conviction move if I ever saw one.

Again, these are just some of the largest hedge-fund moves, and not a complete list. We also don't have any information on why these billionaires and their companies are loosening their grips on AMZN shares. But there's no denying that the moves have been made, which means that some successful traders think there are better places to park their outsized investment assets.

Should regular investors, like you and I, follow suit?

Who else is selling Amazon?

If we took Ken Griffin's or Ray Dalio's lead, we wouldn't be alone. The stock has gone through a roller coaster this spring, falling as much as 29% year to date in February. The fourth-quarter report failed to impress Wall Street, and the e-commerce veteran is spending downright uncomfortable amounts of money on growth projects paying off in the far future.

The story changes when you take a longer view. Amazon shares have nearly tripled over the last three years. At the start of 2016, the stock had more than doubled over the previous 52 weeks, rising 119%.

I find it telling that Ray Dalio's Bridgewater reported no Amazon holdings at all in the spring of 2015. The position that was slashed in the first quarter had been built very quickly in the back half of 2015. What we saw in the most-recent quarter was a classic example of profit taking on a grand scale.

That's how Dalio operates, after all. He's known for his reliance on numerical models and quantitative methods. Amazon would fall under Bridgewater's Alpha investments, seeking high returns under very active management. There's still a sizable chunk of Amazon shares left in that portfolio, but share prices are on the rise again, and there's no telling how far Dalio is willing to ride that gravy train.

Image source: Amazon.

What's next?

Bottom line, we just saw an active trader make a big and successful bet on Amazon shares -- and then take a few chips off the table. Bridgewater can do this thanks to the very large scale of its operations; but private shareholders don't have the cushion of a diversified $150 billion hedge fund.

In my view, Amazon is going from strength to strength right now. The company is betting big on cloud computing under the Amazon Web Services banner, which provides a fast-growing and highly profitable side dish to the main e-commerce business. I don't own any Amazon shares at the moment, but the stock is always high on my list of potential investments. The next time I have spare cash sloshing around in my broker accounts, Amazon may very well make its way back into my portfolio.

In other words, I don't see why investors with a long-term focus would be selling any Amazon shares today. This is more of a promising buy-in situation than a big, red "sell" flag.

Taking some profits may make sense to Ray Dalio or Israel Englander at this point. The rest of us have very little reason to follow their lead.

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