Amazon shares - risk to reward ratio?

Steve182

dunstonh said:

Just to explain my dejavu comment as someone messaged me...
20 years ago, tech stocks boomed way above the average PE Ratio and saw a boom similar to the current one.       
Then what happened is the media stoked it saying how good the returns are.   There was a famous Daily Mail article that encouraged pensioners to reduce their fixed interest securities (corp bonds, gilts etc) and go into tech funds.  That was at 90% of the peak point.
So you saw people who would not normally invest in such a high risk nature start to put the bulk or even all of their money in that area.   
Suddenly, people who did not know much about investments were telling others to invest in tech funds as they couldn't lose money and tech was the way.
Then the tech stocks dropped up to 90% of their values and took 18 years to recover after spending nearly a decade stagnating.

History does not always repeat itself but, generally, when you see people who are not experienced or knowledgeable investors piling their money into high risk areas that they know little about because of past performance then it is often an indication of an out-of-control boom.

Yes, I'm old enough to remember what happened. About a year after the .com bubble burst I remember receiving a pension statement (it was an occupational scheme run by L & G) and I looked at the total pot value vs total contributions. They were practically identical. I remember thinking I could have just put the money under the mattress and had the same outcome. That scheme had started about 10 years earlier so I basically lost 10 years growth.

I'm very conscious of exaggerated valuations and P/E ratios.  If any of my holdings start looking anything like Tesla does right now I will just sell them and take profits, and maybe keep some dry powder ready for the next dip. 

Malthusian

Steve182 said:

Yes, I'm old enough to remember what happened. About a year after the .com bubble burst I remember receiving a pension statement (it was an occupational scheme run by L & G) and I looked at the total pot value vs total contributions. They were practically identical. I remember thinking I could have just put the money under the mattress and had the same outcome.

Except the money under the mattress would always have been worth what was put in, whereas the money in the pension had a return of +0% for only that single moment after the lost decade. Then it went up again and has never been at +0% ever again, whereas the money under the mattress will always be at zero.

I'm very conscious of exaggerated valuations and P/E ratios.  If any of my holdings start looking anything like Tesla does right now I will just sell them and take profits, and maybe keep some dry powder ready for the next dip.

Tesla doesn't make any money (notwithstanding recent positive quarterly results) so P/E ratios are irrelevant to it. Are you saying that you'll sell Amazon if it suddenly starts losing money?

kinger101

Malthusian said:
Are you saying that you'll sell Amazon if it suddenly starts losing money? 

Will OP step in?

Jonbvn

It is difficult to imagine how much more pervasive Amazon could be in 10 years time. I would guess hostile take-overs may be a possibility. However, the major risk to such companies will inevitably come from government regulation.
Overall, I guess the upside probably outweighs the downside but I certainly would never go all-in.

Bobziz

Malthusian said:

Steve182 said:

Yes, I'm old enough to remember what happened. About a year after the .com bubble burst I remember receiving a pension statement (it was an occupational scheme run by L & G) and I looked at the total pot value vs total contributions. They were practically identical. I remember thinking I could have just put the money under the mattress and had the same outcome.

Except the money under the mattress would always have been worth what was put in, whereas the money in the pension had a return of +0% for only that single moment after the lost decade. Then it went up again and has never been at +0% ever again, whereas the money under the mattress will always be at zero.

I'm very conscious of exaggerated valuations and P/E ratios.  If any of my holdings start looking anything like Tesla does right now I will just sell them and take profits, and maybe keep some dry powder ready for the next dip.

Tesla doesn't make any money (notwithstanding recent positive quarterly results) so P/E ratios are irrelevant to it. Are you saying that you'll sell Amazon if it suddenly starts losing money?

Is it reasonable to look at earnings expectations over the next few periods ? I believe this gives a p/e of around 125.

itwasntme001

Amazon stock has been going up in line with the increase in its free cash flow.  Whilst its earnings have remained pretty low given it reinvests its CF back into the business in order to generate more CF.  At some point it will move the levers such that it does not need to reinvest so much back into the business and from that point earnings should rise considerably and, assuming the stock price remains flat, it's PE will fall in lock-step.

I have not looked at Tesla myself (although do own it via SMT), but I imagine its FCF has not done much in relation to the rapid stock price increase?  I might be wrong.

itwasntme001

Steve182 said:

george4064 said:

@Steve182 are your Amazon shares held within a globally diversified portfolio? Because if not, you are really excluding yourself from exposure to many other companies that may well perform better than Amazon over the long-term. So why restrict yourself to one company?

Amzn is my largest individual holding by some margin, but I also own the following -

Alibaba
Alphabet
BATS
Burford Capital
Cara Therapeutics
DGOC
DS Smith
Fundsmith
Imperial Brands
JD.com
Lindsell Train IT
Lindsell Train global equity
Microsoft
MJ Gleeson
Northern VCT
Persimmon
RDSB
SMT
Smithson IT
Sylvania Platinum
Tencent Holdings
Universal Display

Interestingly I own about 9 stocks/funds out of your list.  Despite the recent poor performances, I do continue to like tobacco stocks and hold both BATS and IMB.

Steve182

kinger101 said:

Malthusian said:
Are you saying that you'll sell Amazon if it suddenly starts losing money? 

Will OP step in?

Bezos ploughs almost everything back into the business so it's never made much money in terms of profit or EPS. If the business model or future prospects start looking unfavourable I may sell, but by the time that's happened everyone else will see it too so the SP will have dropped significantly. It's part of the risk.

Steve182

Malthusian said:

Steve182 said:

Yes, I'm old enough to remember what happened. About a year after the .com bubble burst I remember receiving a pension statement (it was an occupational scheme run by L & G) and I looked at the total pot value vs total contributions. They were practically identical. I remember thinking I could have just put the money under the mattress and had the same outcome.

Except the money under the mattress would always have been worth what was put in, whereas the money in the pension had a return of +0% for only that single moment after the lost decade. Then it went up again and has never been at +0% ever again, whereas the money under the mattress will always be at zero.

I'm very conscious of exaggerated valuations and P/E ratios.  If any of my holdings start looking anything like Tesla does right now I will just sell them and take profits, and maybe keep some dry powder ready for the next dip.

Tesla doesn't make any money (notwithstanding recent positive quarterly results) so P/E ratios are irrelevant to it. Are you saying that you'll sell Amazon if it suddenly starts losing money?

I know P/E ratios are not relevant to Tesla, when I said valuations I should probably have said fair value instead. That's one reason I never bought Tesla. I don't understand how to value it. I wish I did/had. What I can now see is that at +800% or whatever it has increased in 1 year it's hard to see any short-med term upside 

Steve182

Steve182 said:

Malthusian said:

Steve182 said:

Yes, I'm old enough to remember what happened. About a year after the .com bubble burst I remember receiving a pension statement (it was an occupational scheme run by L & G) and I looked at the total pot value vs total contributions. They were practically identical. I remember thinking I could have just put the money under the mattress and had the same outcome.

Except the money under the mattress would always have been worth what was put in, whereas the money in the pension had a return of +0% for only that single moment after the lost decade. Then it went up again and has never been at +0% ever again, whereas the money under the mattress will always be at zero.

Very true. I think given my current investment portfolio (for all its faults) it's clear I worked that out some time ago!