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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 19 years and also launched www.thinkfn.com in 2004. Thinkfn (Think Finance) carries... More
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Arquiconsult
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  • 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
  • There's An App For That

    Indeed, there seems to be an app for that. Which makes sense, using the Apple (NASDAQ:AAPL) iPad's gyro and a dedicated app as well as maps, a good programmer could easily set up a pretty nice targeting system for that crude mortar ...

    (click to enlarge)

    Original here.

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

    Tags: AAPL
    Sep 16 1:46 PM | Link | 4 Comments
  • Fire Drives Flash Memory Makers Upwards

    The market has these imponderables. Sandisk (NASDAQ:SNDK) had been slowly sliding down recently while Micron (NASDAQ:MU) had been rather steady, yet today news of a fire at a Hynix facility in Wuxi, China, is bound to drive shares higher.

    This facility had recently prioritized NAND flash over DRAM. Traditionally such might help Sandisk more than Micron, but with NAND flash now comprising more than 1/3rd of Micron's revenues the stock is bound to react favorably as well.

    Recent trends

    DRAM memory prices have been sliding recently, as we can gather from dramexchange.com's DXI index.

    On the other hand, NAND prices, even before this fire, had been stable or increasing. Indeed, SNDK's earnings estimates have been going higher due to this (Source: dramexchange.com; Yahoo Finance).

    (click to enlarge)

    Conclusion

    While data is still scarce, the fire on the Hynix facility is bound to make an already tight market for NAND even tighter. This might be compounded by the arrival of the iPhone 5C, a cheaper iPhone that's likely to lead to increased volumes and place higher demands on NAND producers. At the very least this development is short-term positive for Micron and Sandisk.

    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.

    Tags: MU, SNDK, long-ideas
    Sep 04 8:34 AM | Link | 1 Comment
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