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Comment by simonsarris | Hacker News Reader

Shares already recovering, loss was "better" than expectations, a lot of their spending is on important business stuff (warehouses, kindle, web properties) that will yield returns later.

In other words, revenue is nearly identical and there's no profit, presumably because of these new things.

Amazon is one of the few very large companies that has extremely high potential for growth. I made an OK amount of money buying them after post-earnings panic and selling 1 day to 60 days later this year and last.

If it ever goes back down to 190 I might throw some % of my long term money their way.

(100% of my long term money, which is about $1000 every two weeks, is currently just going to TGT, another long term big company that already has a dividend but still has plenty growth potential)

((90% of my short term money, on the other hand, was buying 10K shares of OCZ at 4.90. Now its at 1.36. Ouch!))

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Dumb question, as I literally know nothing about stock or savings: isn't it generally a bad idea to put 100% of your long term money in any one place?

Sorry, I'm only referring to new money: every 2 weeks I put $1000 into my brokerage account to buy whatever long term stocks/funds on my watchlist look good that week.

Lately that's been nothing but Target, but it might switch to nothing but Amazon next month, or 50% AMZN 50% something else, and so on. So it's just the new money coming into the account getting divvied up, but doesn't reflect the actual holdings of long term account as a whole (which might only be 20% TGT and 80% other stuff)

You might want to consider buying 2000$ every 4 weeks depending on your transaction fees.

$2,000 is better but even that's rough. Consider you have $7 commission. With each $1,000 purchase, you have to earn 0.70% just to earn back that $7. If you sell that $1,000 purchase, it'll cost another 0.70%, totaling 1.4% in fees.

Based on your strategy you're probably incrementally purchasing and the selling in bulk so the sell commission isn't as damaging but losing 0.70% of an investment right off the bat makes it hard to be profitable. Even half that amount, if you increase your lots to $2,000, is painful.

That's a smart question. I hope simonsarris means 100% of his incremental dollars (new savings), and that he already has other other 'long-term dollars' in a broader range of investments.

Yes, it's a horrible idea. That's basically playing a lottery, since unexpected things happen all the time, successful companies go out of business (Yahoo, and AOL looked pretty damn good 10 years ago).

It's a good idea if and only if you believe your personal access to information and ability to perform analysis is greater than the aggregate capability of the market as a whole.

Yahoo! and AOL did not look good 10 years ago. They were selling at insane P/E ratios and had absolutely no way of making good on those numbers. If you invested in them - you'd be a moron.

Unexpected things really don't happen very often and black swan risk is way overblown. When things blow up - they're a long time coming - you just didn't see the data.

Isn't it stupid to just to have one job, one car, be a citizen of one country, have one house and one family. I mean really - one must diversify. What would you do if you lost any one of those?

No, it's not stupid to concentrate wealth. Problems only arise when you do it stupidly, like buying too big a house, being part of the wrong family, living in the wrong country or buying an unsafe car.

Diversification does not reduce risk but it cuts your returns in half. All correlations go to one in a crisis and you can't hedge the end of the world.

Note: To all downvoters - putting all your eggs in multiple baskets does not protect you from an asteroid impact any more than a person with all eggs in one basket.

People who think diversification makes them safe are frankly wrong.

> Isn't it stupid to just to have one job, one car,

Indeed people who own a job, a car or a house are well advised to have insurance. And insurance is a form of diversification.

For countries the analogy is flimsy, but if you live in a country that has had any of: wars, dictators, property confiscation or high rate of violent crime in the recent past (which describes most of the non-developed world, including emerging countries), it's a good idea to have a passport and a way to move elsewhere.

Then buy insurance - put out a costless collar if you are that worried.

If you want to diversify you need to actually buy reverse correlated assets. So go ahead - hedge with options, hedge with futures, hedge with shorting the indices.

But don't think buying disparate companies protects you - it doesn't.

There are degrees of protection. No protection is perfect, but you're a lot less likely to be totally wiped out with a diversified portfolio. 100% of my wealth is in company A, and it goes bankrupt, I have nothing. If I have it in two companies, unless they are perfectly interdependent, I lower my likelihood of being completely wiped out from 100% to <100%. Concentrating wealth in a single company increases the variance in your outcome, which is something most people consider bad in financial planning. It also requires active management, because even most temporarily successful companies do eventually go bankrupt.

This is basic personal finance. TBH, I'm really surprised your comments aren't all at the lightest shade of gray already.

> basic personal finance

I fully understand the arguments for diversification. Just like I fully understand CAPM, modern portfolio theory and the assumption that var=risk.

But it's all bullshit. Why are you investing in companies that have that risk? If you understand which companies return higher returns - why aren't you all in on them?

It's bloody hard to find good companies and when you do - why on earth would you diversify into their worse off counterparts? You need to have heavy concentration in great companies where you are perfectly fine having a 10 year hold on at the right price.

> basic investing

Either I'm misunderstanding your argument or you are missing a fundamental tenant of finance (and indeed, most things in life). Higher returns typically comes with higher risk. A brand new startup is high risk with high reward if it pays out. The same thing applies to financial investments in high risk companies.

People take risks because they want to try and beat the historical growth in their portfolio. By taking on that risk, they know that they may lose money instead of grow their money.

Diversifying allows them to adjust how much risk they want to take above the standard market growth.

"Great Companies" is such a bad guide star for investing. Sears looked like a "great company" 10 years ago. Kodak? Any big box retailer?

Anyway, there are perfectly sound investing theories that say investing in the worst companies can result in higher returns than any "great company" investment portfolio. Value investing at it's most extreme. You just need a few of the losers to become mediocre to make huge gains, while trying to get great companies to grow past their high stock price is extremely hard.

I agree with your long-term strategy...but I don't see any reason to hold long-term stakes in individual companies. Why not just hold long term on index funds?

Risk and return are not correlated. There are risks and there are returns. See AAA bonds during GFC. Great businesses are great companies at reasonable prices not overvalued growth stocks.

Most of modern economic and finance theory is based on fundamentally broken models of risk and return.

Define "great company".

Known risks and future returns are certainly correlated. Unknown risks (financial crisis meltdown) are obviously uncorrelated because they are unknown. You can't control for those, which is why you diversify.

What are you going to do when your "great company" has a horrible CEO scandal and sinks the company? That's an unknown risk that would be prevented by diversifying your investments.

Known risks (such as "can this company execute it's vision well enough to be profitable at 500m revenue/year?") are what you weigh against the return ("I personally think so, but the market doesn't, so I'm getting a discount on the stock price when it eventually succeeds").

Diversification reduces risk, it does not eliminate it.

Concentrating wealth in stock is a particularly dumb idea, because even public companies are relatively opaque. Enron looked like a pretty good deal to an outsider, right?

Using things like citizenship, cars, households and families is a straw man and not related to financial investment at all.

Enron didn't look like a good idea. They ran a commodity business at insane valuations with huge revenue run up during a bubble.

Stating that Enron was a good idea was like stating Groupon was a good idea. Commodity companies that buy revenue (includes WorldCom and MCI) are always bad investments. Once again - had you invested in them you would be a moron.

It'd be fair to state that diversification protects against stupidity.

However, it does not reduce risk in the way people assume.

Put it this way, from the outside they looked a lot better than they really were. Looking as bad as Groupon and actually going as sour as Enron did are two wildly different things.

I fully expect Groupon to go bankrupt.

I wouldn't say Enron merely went bankrupt...

Man with that 20/20 hindsight you'd be a perfect historian. Can't say it does you much credit as a stock analyst though.

Well here's my forward looking projection - Groupon, Zynga and Pandora will go bankrupt within the next 3 years.

It really isn't that bloody hard to see shit for what it was - if you aren't making any money, if you are buying revenue, and if your service is commodity then you will be both a bad investment and eventually go bankrupt. Enron, WorldCom, MCI, Zynga, Groupon, Pandora fit these cases and hence will fail.

It irritates me saying "Ohh who could've predicted the GFC, or Enron or WorldCom or the DotCom bubble or whatever". Just because you don't see the asteroid coming before it crashes - it does not follow that it was a black swan. Grab a telescope and you'd have seen it coming 30 years out.

If you aren't making money and your business model is neither defensible nor proprietary - you will go out of business.

I assume you don't bother to back up your data either.

Diversification only works if your assets are independent. Buying multiple stocks is the same as buying a call on the world - it only reduces localised risk.

But then again - why are you investing in companies that you believe have localised risk of bankruptcy and a low chance of attaining future profits.

Diversification does reduce the risk of losing it all, as it changes the probability distribution (https://en.wikipedia.org/wiki/Probability_distribution). It also reduces the probability of winning a lot, but people like stability.

Only if the assets are uncorrelated and independent.

Otherwise diversification often gives a false sense of security with higher systemic risk (see GFC).

Not "Only if the assets are uncorrelated and independent", but "As soon as the assets are not 100% correlated".

That is a huge difference. The dot com bust affected (almost) all tech stocks, but they didn't all go bankrupt.

>a lot of their spending is on important business stuff (warehouses, kindle, web properties) that will yield returns later

This has been the Amazon story basically since founding. At some point, a company needs to yield real returns on their investments.

Wal Mart's profit margins are only a few percentage points, maybe 5% if they're lucky. That's the nature of retail. There definitely seems to be some utility and efficiency gains being made by Amazon. I doubt investors are seeking the kind of explosive growth or profits seen in tech companies like Apple, but rather a steady gain in market share from companies like Wal Mart, Best Buy, and whatever else you can deliver to a home.

Hmmm I wouldn't normally say a P/E of 272.63 is a bet on slow steady growth.

I agree, but it seems to be a fundamentally different scenario than other companies with sky high P/Es such as LNKD and FB. While LNKD and FB have yet to figure out how to monetize their product, AMZN has a relatively simple (and demonstrated) growth plan. I think many investors are simply betting that Amazon will be able to capture significantly more of the retail market, and/or new revenue streams from places like cloud services.

Are you writing this comment from 2008? Both LNKD and FB have robust revenue streams that are growing; they have figured out how to monetize their products and they are doing it quite well.

Why, because of the large amount of reinvestment that makes E trend towards zero? How does P/E signal anything about a growth strategy?

Not quite, their operating income steadily grew until 2010, when it was about 5x higher than in 2003. That said, it makes sense. Amazon has very lofty but realistic goals, which are an intriguing combination. These goals would be impossible without all that investment.

Back during the dot.com days Yahoo Finance had a game where you could "play the market." (take note entrepreneurs this could be a lifestyle business :-) For each group you got $100,000 to invest and you were in competition with other people in your group for best return. I lost about $75,000 on Amazon stock :-).

However, my actual portfolio has done ok with Amazon so I'm not complaining.

I did something similar to this in high school a few years ago. I ended up losing to another team in the class that bought Gamestop and other related stocks. I stuck with stocks like Intel and GE. If the game had ended even a two weeks later, I would have won.

These games teach high school students very little about investing, especially long term. The other team's strategy was simply "I play video games and I like Gamestop, so let's buy Gamestop!".

For non-professional investors, the "so let's buy Gamestop" strategy isn't necessarily a bad strategy. Assuming you are putting the bulk of your investments in low cost index and mutual funds, using a little bit of you savings to play the market by investing in companies that you are familiar with can be productive. I've had some big hits and some big misses, but overall, my picks have matched the pace of my index/mutual funds.

Our school once had this competition as well. Given the short time period of these competitions, you have to buy high beta stocks in order to do well, or very low beta if the market is falling overall.

In order to win this a friend and I decided to team up and split the winnings. Basically what we did was to get one of us to buy the riskiest investments that we could (penny stocks, other low cap stocks, risky derivatives etc.) and the other would short them. This way over the course of the few weeks one of us would be dead last, and the other far ahead.

Worked like a charm.

They're also building up their human capital. They've recently been hiring quite a lot of engineers, which will certainly yield later returns. I'm basing this on my own experience with them, as I got a job offer, spoke with several recruiters, and toured their campus, and now live in Seattle.

Oh man! I lost a bunch on OCZ too. :\

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