A Plea To Amazon Bears, Apple Bulls, And Others

by: Ted Barac

As we enter 2013, I thought I would share a few market pet peeves that I have and resultant requests and notes of caution for 2013.

To Certain Amazon Bears:

Please stop believing that the Amazon (NASDAQ:AMZN) bulls aren't aware of the company's very high price/earnings (P/E) ratio. As a massively followed and scrutinized company, Amazon's P/E ratio is well understood by the market (I am not an Amazon bull, by the way).

The Amazon bull case is simply that Amazon's top-line will continue to grow at its historically rapid pace (as the dominant on-line retailer takes market share from the bricks-and-mortar stores) and margins will eventually expand once top-line eventually slows and resultant growth expenditures are reduced.

Longer-term, they expect that Amazon may have revenues and margins more comparable to a dominant bricks-and-mortar retailer like Wal-mart (NYSE:WMT), which currently has an enterprise value over 120% above that of Amazon. That's where they see the upside potential.

Poke holes in that theory (a theory which seems optimistic to me, too), but enough with the provocative "Amazon trades at a xxx multiple versus an xxx multiple for Acme company" and thinking that it's a ratio discrepancy that everyone else in the market has overlooked.

To Certain Apple Bulls:

Please stop focusing on Apple's (NASDAQ:AAPL) low P/E ratio (ex-cash) and attractive PEG ratio and believing that the bears aren't aware of those attractive ratios. Again, as possibly the most followed and scrutinized company in the world, the market is aware of those ratios.

The bear case is simply that the company's high margins are unsustainable and Apple's high levels of popularity/revenues will also ultimately decline (not merely stabilize). The bears don't necessarily subscribe to the "Revenue and profit growth may slow, but it will always increase" - a theory which they view as similar to that of the housing bulls before the crash in that market.

There are also many valid reasons to argue against the bearish Apple theory (e.g. companies like Microsoft (NASDAQ:MSFT), with strong ecosystems, have consistently grown for very long periods and Apple is a uniquely innovative company), but enough believing that you've discovered a P/E and PEG ratio discrepancy that everyone else has overlooked.

To Certain Retail Investors:

Please stop blaming "market manipulation" whenever a trade goes against you. The "Big guys" aren't that advantaged and they are actually struggling -- as most mutual and hedge funds underperformed the S&P 500 in 2012 and mutual funds have systematically under-performed the index over time (and I suspect the same will be true of hedge funds). Furthermore, we've witnessed just how value-destructive bank prop desks, with their supposed "edge", can be to the capital of their banks.

The bottom line is that the big guys aren't always reaping profits by moving your stock positions against you, so look deeper and find the real reason for the movements.

Caution to Certain Treasury Investors:

I think you should really stop believing that the Government's buying program for Treasuries (PST) essentially guarantees that your investment is protected for a certain period of time and everyone will be able to orderly dump their positions back to the Government (at inflated prices) just before the Government stops buying and yields return to more normal levels. It's not that simple and the timing won't be that clear (e.g. an initial rush to exit may seem more like a dip, at the time).

A very small interest rate movement is required to wipe out a whole year's worth of interest income on long-term Treasuries and there is disproportionate downside versus upside capital growth potential. As a result, I believe that buying Treasuries with the intent of getting out before a sell-off is speculative gambling with the odds against you.

Buying Treasuries now reminds me of the thinking of the many technology investors that thought they could ride the trend and would get out of the market before the tech bubble burst in 2000. It also wasn't that easy and many lost fortunes with that strategy.


Please require some accountability for your guests. I am tired of seeing perma-bears come back on after a market rally and then claim (after the fact) that they actually went long some time back (as they decided that the "short-term trend was going to be positive, despite the negative fundamentals"). If you go by CNBC's guests, it's amazing how rare it is for anyone to make an investment mistake.

Please require that your guests have public funds with verifiable performance data to use to later validate their claims of brilliant trading/investing.

Caution To Certain Gold Investors:

You should really stop believing that gold (NYSEARCA:GLL) can outperform inflation over the very long-term. As with any non-income producing asset, it would be unreasonable to expect gold to provide significant positive real returns (i.e. after inflation) over an indefinite period of time (as gold would ultimately cost billions per ounce, even when adjusting back to today's dollar). So it may be a good short-term trade over certain periods (and it has been an amazing trade over recent years), but it will underperform any asset that provides real returns over the very long time.


Rant over and full disclosure, I also gripe about the potential causes of (what I see as) irrational market movements and hammer on about ratio discrepancies that I don't believe to make sense. It's a natural tendency. Good luck to all in 2013!

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.