BAA II

Bad Asset Allocation: more tech.

Amazon is one of the few original dot-com companies that actually became a viable business. That being said, this stock is massively overvalued. Trading at 112X trailing earnings, this stock is priced like a small cap hyper-growth stock. The only problem is at this size, it can't grow like a hyper-growth stock, leaving it with a PEG of 7.While I do love Amazon (I buy pretty much all of my books there), this valuation cannot last. They have less than $1B earnings propping up a $100B market cap - absurd, and their forecast for Q4 earnings is -$200M to $250M.

Historically, shorts in this stock have been crused. I am still unsure when to put on my short, but am looking for a good entry point. I will let you know when I find one.

Disclosure: I am not presently short AMZN, but may initiate a position in the next 72 hours.

Bad Asset Allocation (BAA) I

I have been critical of the valuations attached to the .com 2.0 firms since Groupon turned down $6 billion from Google. I said it then, and I’ll say it again Groupon/Google will prove to be the next Yahoo/Microsoft.

 Let’s have a look at the biggest name to IPO before markets crashed in August.

This clearly isn’t pets.com (there are real earnings there) but I can’t countenance that P/E. They’re priced for better than perfection.

I’ve heard all of the bull cases:

• They’re going to grow exponentially forever! 
• Investors are willing to pay a premium for high-growth companies in low-growth environments!
• They are revolutionizing the head-hunting industry!
• Think of all the advertising dollars they can rake in!

Sorry, not interested. Not at that valuation. If you’re willing to consider though, I have a bridge to sell you.