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Paulo Santos
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I am a Portuguese independent trader, analyst and algorithmic trading expert, having worked for both sell side (brokerage) and buy side (fund management) institutions. I've been trading professionally for about 16 years and also launched www.thinkfn.com in 2004. Thinkfn (Think Finance) carries... More
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Arquiconsult
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  • No 0km Teslas

    I have just received the following announcement.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: TSLA
    Mar 24 11:34 AM | Link | 2 Comments
  • The Drones Worked

    Reading about Amazon.com's (NASDAQ:AMZN) Prime Air shows how skeptical most of the media was regarding the initiative. Countless arguments were put forward why Prime Air wouldn't work, including:

    • The drones are too expensive thus making them uneconomical;
    • The drones are inefficient, since helicopter flight is inefficient and each drone would carry just a single package;
    • The drones would hit birds;
    • The drones would get attacked by pets;
    • The drones would get attacked by or injure curious children;
    • The drones would get tangled up in wires, trees and other obstacles;
    • People would shoot down the drones for their payload;
    • The drones would be mostly useless in urban settings for lack of a place to drop the merchandise;
    • The drones would be mostly useless outside of urban settings due to the low range and low population density - meaning few people would be within their range;
    • Such light drones can be brought down by random wind gusts;
    • Even 99.9% reliability would still make malfunctions and accidents turn drones into an uneconomical preposition, since the cost of a drone over 1000 or even 10000 deliveries would be prohibitive;
    • The FAA is not likely to change rules enough to allow for millions of drones in the sky;
    • Drones malfunctioning or being involved in accidents would then rain on people and property, leading to a large liability;
    • And countless other reasons.

    This is all logical; it is true that Amazon.com's outlandish idea, which isn't exactly original as 6 months ago Domino's Pizza had a video depicting the exact same thing, faces tremendous hurdles.

    But all of this is besides the point. Because the drones actually worked. Look how I said "worked", not "work" or "will work". The reason is simple. The drones were not designed to put merchandise in your porch. They were, instead, designed to put Amazon.com in the media.

    And for that, they worked. Amazon.com was in every front page with Prime Air. In 2-3-4 years people will have forgotten about the stunt and there will be no drones beyond sporadic demos. But today, in 2013, they worked for their intended purpose. And all of it must have cost Amazon.com little more than a $20000 or $30000 for the drone prototypes and the short movie demo.

    Amazon.com faces a struggle to remain in people's minds. It must either spend significantly in advertising or run the risk of stagnation. With Amazon.com's already challenged low-profit financials, Amazon.com would rather avoid making such expenses, so it has to resort to creative ways to get free publicity. The drones were one such way.

    Impending smartphones, impending gaming consoles, upcoming set-top boxes and tens of other realistic products might well be other ways used by Amazon.com to achieve the same goals, though those are likely to be developed by Amazon.com for real.

    Either way, the drones worked. There won't be an army of drones delivering stuff, but for what they were really conceived, the drones already delivered.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: I have option positions which stand to gain from the bursting of the AMZN bubble.

    Tags: AMZN, short-ideas
    Dec 04 11:20 AM | Link | 1 Comment
  • In Jeff Bezos We Trust

    As I read today's BusinessWeek excerpts from Jeff Bezos biography "Secret Amazon: An explosive new account will change everything you know about Jeff Bezos", something struck me. Amazon.com (NASDAQ:AMZN) has a large problem. A huge problem, in fact. The problem lies in the treatment of Jeff Bezos as a deity, to such an extent that it defies rationality. Perhaps it was to be expected in the sense that it has long seemed believing Amazon.com's valuation requires a big gulp of Kool Aid. But the extent to which this is obvious, and problematic, was never in such transparent display as with this biography.

    Having leaders being treated as unfailing deities is problematic in itself. Our society, and companies such as Amazon.com, relies intensely on specialization to achieve greatness. Deferring to the specialized knowledge in each area is paramount to make the best and most informed decisions. When the leader is a deity and everyone must follow him, it becomes hard to let power flow to those most able to wield it in each circumstance.

    What are the signs?

    It's obvious, throughout the BusinessWeek article, that Amazon.com has deified Jeff Bezos. Recall for instance the behavior asked of the Islamic faithful. They need to do as their Prophet, Muhammad, had done - this is the basis for the beards, the particular clothes, and many of the customs including the "up to 4 wives". Or the ever present "What would Jesus do?". In deifying someone, this is a common thread. But at one particular point it is shown just to what extremes this trend has gone. Take a look at the following pictures (Source: BusinessWeek article, under fair use to illustrate the point)

    (click to enlarge)

    The first photo pictures Jeff Bezos back in 1999. The second pictures a present-day desk at Amazon.com. Now, the first image shows a desk made out of a door to showcase how frugality was at the inception of Amazon.com. But the second picture, does it show the same? That desk is no longer made out of a whole door, yet the manner in which it was constructed goes to great lengths to imitate Jeff Bezos' original desk (take a look at how the hinges are exactly the same!). It turns out to be basically a higher-cost custom desk just to keep up with "doing how Jeff Bezos would have done"!

    Then there are consequences

    The article and book also present an example of Jeff Bezos brilliance. I quote:

    To the amazement and irritation of employees, Bezos's criticisms are almost always on target. Bruce Jones, a former Amazon supply chain vice president, describes leading a five-engineer team figuring out ways to make the movement of workers in fulfillment centers more efficient. The group spent nine months on the task, then presented their work to Bezos. "We had beautiful documents, and everyone was really prepared," Jones says. Bezos read the paper, said, "You're all wrong," stood up, and started writing on the whiteboard.

    "He had no background in control theory, no background in operating systems," Jones says. "He only had minimum experience in the distribution centers and never spent weeks and months out on the line." But Bezos laid out his argument on the whiteboard, and "every stinking thing he put down was correct and true," Jones says. "It would be easier to stomach if we could prove he was wrong, but we couldn't. That was a typical interaction with Jeff. He had this unbelievable ability to be incredibly intelligent about things he had nothing to do with, and he was totally ruthless about communicating it."

    This is shown as something positive, as if the all-seeing Bezos guides the uninformed towards better decisions. But is it? What if Bezos was all wrong - which is the most likely outcome when venturing outside his circle of competency versus highly-specialized workers? Who would have prevailed then? Obviously, it would have been Bezos.

    It's not rare for a leader to try and meddle in things he holds no specialized knowledge in. It's called micromanaging and the results aren't necessarily the best. Perhaps there can be exceptions, perhaps Steve Jobs was an exception - or was he? His biography and other books written on him seem to show a mercurial Steve Jobs, but one which commonly delegated to strong leaders in their areas, such as Jony Ive, Scott Forstall or Hartmut Esslinger.

    What comes across from Jeff Bezos' biography doesn't sound that way. What it does sound is like someone that's strong willed and able to override his specialists. The image that it puts across is not one of Steve Jobs guiding a company towards greatness. If Amazon.com's profits keep heading south, the image that it puts across is more likely to resemble that of Hitler in a bunker moving imaginary armies around to the befuddlement of his generals.

    Conclusion

    While the tone of Jeff Bezos' biography is entirely positive, there's an undertone that can't be missed. There's a treatment of Bezos as a deity which can't be ignored. It shows in little details like the imitation of Bezos' original desk - which originally might have served the purpose of frugality, but where such purpose can no longer be claimed on the present desks. It also shows in pictured events where Bezos has no qualms in overriding specialized knowledge within Amazon.com.

    The tone of the biography is positive, but the risk in this course of events should not be underestimated. As easily as Bezos overrides his staff in things where he might be right, he'll override them in things where he is sure to be wrong. And since we're dealing with specialized knowledge, outside of his circle of competency he'll be wrong more often than he's right (that is, after all, the very purpose of specialized knowledge - to be more right than wrong regarding very specific fields).

    In short, while the biography might be seen as positive and might well support the stock today, the long-term implications of treating Jeff Bezos as a God are deeply negative for Amazon.com.

    Disclosure: I am short AMZN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

    Tags: AMZN, short-ideas
    Oct 10 4:54 PM | Link | 8 Comments
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