Amazon.ugh July 1, 1998February 5, 2017 From Rodger: “Since you shorted Amazon.com and your reasoning was very sound, I was tempted to do the same. Now that Amazon stock is twice the price that you shorted it, do you think I should do the same or have you changed your mind?” Help! I’m getting shorter by the minute. Especially my ego. I was at least half serious, though, in my warning at the outset of that column: “Full disclosure: I’m short a few shares of amazon.com, the online bookstore. This should be an encouragement to those of you who own it, because stocks almost invariably rise strongly after I short them. Then I short more, and one of two things happens: I’m finally right, and break even, covering too soon on the way down. Or else I’m not right, and wind up with a spectacular tax loss.” Right now, it seems I may be headed for the latter, though if Amazon.com stock keeps doubling every ten weeks, it may be bankruptcy court I’m headed for instead. (Just kidding, Charles.) The thing is now valued about $5 billion, and there are good reasons to be enthusiastic about the company; I just don’t see good reasons to be enthusiastic about the stock. As many of you know, I’ve long boosted the company and linked my columns to its books. And now they sell music as well – a great fit – and I assume computer software won’t be far behind. This gives them more and more heft, and even makes purchasing from Amazon more economical: If you’re buying more than one thing, the shipping charge gets spread over all of them. As a bookseller company alone, the stock market valuation is absurd. But obviously, that’s just the beginning. It may be that one day Amazon.com is selling $50 billion of books, music, software, travel, cars, boats, appliances, gourmet foods – you name it. If they can clear $2 billion in profit after tax, the company could be worth, say, $30 billion – 15 times earnings and six times today’s stock price. It could happen! And that’s just in this country. What about when Amazon.com becomes the chief vendor of books and music and software and appliances and apparel in Europe and Asia and South America, Africa and Australia? So multiply by another six – we are talking here about one of the – perhaps the – largest, most successful companies in the world. But something tells me a lot of other companies will want this business, too, and that the competition could be pretty fierce. Even making $200 million a year after tax may not be the easiest trick in the book (they could start by making $200 million in sales). As for shorting it: so many people have, it may be hard to borrow the shares, and at the top (if there ever is one) it’s often impossible. But even if your broker can find shares to borrow so you can short it, think twice and three times; it truly is a risky, risky game.