I strongly recommend NOT shorting common stocks. That is a game for the well-connected in the
canyons of Wall Street. Rather, if one
is convinced about the poor prospects for a company, buy “puts” on its
stock. The only problem here is that the
longer-out are the terms for such puts … the more expensive they become. So benefiting from the poor outlook for a
company becomes a very tricky game of timing.
However, there are some stocks that I am convinced whose longer-term
prospects are quite dim and would short them if I had unlimited risk capital and
unlimited time.
They are:
Amazon – With a capitalization of $133.1 billion, Amazon is
deemed to be worth more than FedEx plus United Parcel or the combination of
both General Motors and Ford. The
bald-headed Jeff Bezos has mesmerized Wall Street investors for over fifteen
years even though he has yet to bring any significant profits to the bottom
line of this Internet giant. He has done this with a stream-lined order-processing
and shipping operation which is the envy of most. However, he has also
benefited greatly from the lax sales-tax rules in the many states in which he
has no bricks-and-mortar operations.
This advantage is disappearing with recent legislative proposals … and
so will some of the panache that this company has enjoyed. To counter this revenue and profit impact,
Amazon has instituted a $79 annual membership fee in exchange for free shipping
and some other media perks. My wife refuses
to participate in this semi-scam and so, to follow Peter Lynch’s advice, listen
carefully to your wife when making investment decisions.
Also Bezos’s personal purchase of the Washington Post for
$250 million suggests to me that he is losing his mojo. Such a sidebar is bound to reduce his focus
on improving Amazon’s prospects ... and so, I suspect that the apogee of this
company has indeed occurred. But be
careful … it may take some time for investors to realize this.
Afterward: See: Wall Street Journal Article
Tesla. – With a capitalization of $16.9 billion, Tesla, as a
company, is worth more than Harley Davidson or the combination of both Jetblue and
Southwest Airlines. CEO, Elon
Musk has done a crackerjack job of creating a great-looking and well-engineered
all-electric auto … which was named 2013’s Car of the Year by Motor Trend
magazine. As such, he has captured the imagination of wealthy greenies who are
looking for eco-bragging rights. However excellent this auto is, it still
suffers from a driver’s anxiety about running out of power … say in the middle
of the Holland Tunnel. Supposedly this
car has a range, when fully recharged, of 250 miles, but speed, ambient
temperature, traffic density, and darkness can adversely affect this
number. And, if a recharging station is
not handy, things can get quite dicey.
Even, if such a station is available, waiting up to an hour for some
more electrons to get one to one’s destination might be a real downer. I suspect getting around these engineering
and physics limitations will eventually become a serious gating factor for this
company’s longer-term outlook.
Also, I think Elon Musk’s recent touting of the pie-in-the-sky Hyperloop technology
is an unnecessary distraction for this visionary … see:
Spacex Story.
Afterward: See: CNBC Story and for another option in a fancy golf carts see: BMW i3.
Facebook --
currently enjoys an unrealistic market valuation of $89.3 billion (in my
opinion) … more than three times the market value of the CBS television network
(another big advertising platform). This
is marginally near the value Facebook was awarded at its initial public
offering last fall ($104.2 billion).
This is because investors now believe that the company may have solved the
problem of monetizing its huge installed user base (possible close to a billion
users)… particularly on cell phones.
This may or may not be the case but there is no question that the user-hype
surrounding social networking is the reason for the high price on this stock …
more than doubled from its low of $17.55 last fall to $36.88 currently. One can reasonably assume that the analytic sophistication
of this type of investor lemming is not the greatest.
Facebook founder and CEO, Mark Zuckerberg, has recently been
immersing himself in the immigration reform brouhaha … see:
Daily Mail Story. This, to me, can be nothing but a distraction
for this 29-year old entrepreneur ... and I doubt that too many of Facebook's H1B visa recipients are coming from Mexico. I am also sure that the challenges facing Facebook’s establishing the kind of revenue and
profitability that would justify its current market value will be huge and
not-easily solved. The smirking
Zuckerberg might well be advised to give these challenges his full-time
attention.