Can you imagine what it’s like to lose nearly $3 billion in a day? Neither can we. But the subject of this week’s Update did just that last week. Or did he?
We suppose one doesn’t really “lose” unless one sells, which he apparently didn’t.
For long term investors like us at JL Davis, there is beauty in the workings of the markets. The swift rebukes of company missteps are one of those. Watching to see if companies recover from those same missteps can be a beautiful thing as well.
We think you’ll enjoy the read about one of the true modern innovators and his company.
Best always,
Lee and Jeremy
P.S. Lee’s brother’s services take place in California later this week. Thanks to the many friends and clients who have expressed their sympathies. L&J
This Week’s Quote:
“What's dangerous is not to evolve.”
― Jeff Bezos
JL Davis Thoughts This Week:
As investors, we know our portfolios will fluctuate in value. But when the billionaire creator of Amazon, Jeff Bezos, lost $2.8 billion (with a “B”) last week, we’re thinking it stung a bit. Thankfully for him, he lost it “on paper.” We make the assumption he doesn’t intend to sell any of his stake in the company just now. Or ever, for that matter.
Last Friday, Amazon learned a harsh truth from the market: Uncertainty hurts. When the company vaguely announced that they could either potentially post a $455 million dollar loss for the quarter or a $55 million gain, investors reacted swiftly by selling shares, reducing the share price by nearly 10% -- in one day. Ouch.
Time will tell whether Amazon posts a gain or a loss for the quarter. Just as time will tell whether potential innovations such as drones delivering packages or an exponential increase in Amazon Prime’s video content will result in (even more) explosive growth from the technology giant. For the record, last quarter the company had revenues of nearly $20 billion, up more than 23% from a year ago. Earnings were up some 20% year over year as well. Taken together, that should have been a recipe for growth, but because of the uncertainty of company pronouncements, exactly the opposite occurred.
Mr. Bezos owns 18% of Amazon shares. According to Forbes, Bezos’ value in Amazon has fallen from $34 billion to $25 billion—a loss of $9 billion—so far this year. Amazon’s share price drop isn’t alone among technology giants of late. The sector as a whole has seen a steep decline recently. Some see it as a buying opportunity; others are more cautious just now.
As for Amazon, we believe they will continue to be a remarkable positive story in the sector. In our view, the amazing innovation they have brought to shopping over the internet isn’t going away. Far from it, we see it increasing and the company expanding further.
The beauty of efficient markets like those in the United States is that investors vote with their money daily. When companies misjudge the public’s need for precise and clear information (“guidance” in financial parlance), they do so at their peril, as Amazon discovered Friday.**
Lee and Jeremy
http://www.biography.com/people/jeff-bezos-9542209#awesm=~oCHXVUNgSXyTrI
http://www.forbes.com/fdc/welcome_mjx.shtml
Market Week: April 28, 2014
The Markets
After a mostly positive week, investors went into Friday seemingly determined to take some money off the table over a weekend when the Ukrainian conflict seemed to promise fresh sanctions against Russia. The small caps of the Russell 2000 took the brunt of the selling with a 1.9% loss on Friday alone, while the S&P
500 was left essentially flat.
Last Week's Headlines
• New home sales plummeted 14.5% in March; according to the Commerce Department, that's the lowest level since July and more than 13% below March 2013. It's the first time since September 2011 that year-over-year sales have dropped. The figures raised questions about how much of the recent slump was attributable to winter weather. However, the $290,000 median sales price was 12.6% higher than a year earlier.
• Sales of existing homes also slipped in March, but by only 0.2%, according to the National Association of Realtors®. That left them 7.5% below March 2013. Tight inventories continued to help push prices up; the NAR said the $198,500 median sales price was nearly 8% higher than in March 2013.
• Orders for big-ticket items such as aircraft and electronics surged 2.6% in March, following a 2.1% increase in February. The Commerce Department said the volatile transportation sector was up 4%, while non-transportation items also rose 2%, led by a 5.7% jump in computers and electronics and a nearly 8% increase in orders for communications equipment. Business orders for capital goods rose more than 7%.
• In the wake of an appeals court ruling that struck down so-called "net neutrality" regulations, the Federal Communications Commission proposed new rules that would allow broadband Internet service providers to charge content providers higher fees for speedier Internet connections as long as they did so in a "commercially reasonable" manner. The rules will be subject to public comment before going before the full commission for a vote, possibly later in the year.
Key Dates/Data Releases
4/29: Home prices
4/30: Federal Open Market Committee announcement, Q1 GDP initial estimate
5/1: Personal income/outlays, ISM manufacturing survey
5/2: Unemployment/payrolls, factory orders
Eye on the Week Ahead
Markets will have no shortage of potential influences next week. In addition to tension over Ukraine, the Federal Reserve will meet, though little change in its current tapering is expected. April unemployment figures and the first estimate of Q1 gross domestic product will be released, as will consumer spending and manufacturing data.
Data sources: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: U.S. Treasury (Treasury yields); WSJ Market Data Center (equities); Federal Reserve Board (Fed Funds target rate); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold, NY close); Oanda/FX Street (currency exchange rates). Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.
Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2014
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