One month ago tomorrow, on Thursday, February 27th, I wrote my first post on the coronavirus. It was interesting for me to read again today. Among other things, in the second to last paragraph, I wrote:
“I sold all of my stocks on the market’s open on Monday (2/24) because I do unfortunately think that the panic if not the reality of the situation will get worse before it gets better. Hopefully I will be wrong, but I would rather be wrong and miss out on whatever market fluctuations may occur between now and when it all blows over than to keep my money in the market for the ride, especially when people have predicted a significant downturn that has yet to come every year for the last few years.“
That turned out to be a good move.
Today I have made another move, for the first time since I liquidated my portfolio dipping one cautious toe back into the rapids-like water that is this unprecedentedly volatile stock market. I bought just one share of Amazon, just as I wrote that I would in my post titled Appreciating Amazon last week.
I did not buy stock today because I believe the market has bottomed. Quite the contrary, I strongly believe that the market has a lot further to fall. The S&P 500 as I write this is trading in the high 2,500’s which is higher than it was just over a year ago on the first day of trading in 2019. I do not have a fancy model of the macro-economy to show you but my gut is that the S&P 500 will bottom somewhere in the wide range between 1,500 and 2,200. That said, I do not believe Amazon will fall very far with it, and it may in fact rise alongside it with negative correlation.
If Amazon does fall by x%, I would probably buy 2 more shares, and if it falls by another x% from there, I would probably buy another 2-4 more. I took a similar approach with Tesla in the last couple of years as I think it works well when the short-term is very difficult to predict but the long-term conviction is clear. I am not going to predetermine what x% is but it would probably be somewhere between 15-20%, or maybe a little bit less than that. Two 20% drops from the price I bought it at $1,907 would be $1,526 and $1,220 respectively. I will not be very surprised if it hits that first drop but will be extremely surprised to see it hit the second. On the upside, there is 15% to gain if Amazon simply rises back its all-time high from just a little over a month ago. I do not know whether that will take a few days, weeks, months, or years, but I have very high conviction that it will hit that high again at some point. That is the baseline for my investment and that is why I will buy more at certain points if it goes down. Complimentary to this all-time high theory, I believe Amazon is the most valuable American company in the world and, coincidentally, its market capitalization (public valuation) is just a little more than that same 15% away from the current valuations of Microsoft and Apple above it. For a variety of reasons, I am very confident that Amazon’s value has yet to hit its all-time high for, let’s just say, the next few years, a period for which I would be willing to hold my investment if need be in order to realize that gain. To be clear, in my mind, having to hold Amazon for a few years to recognize a 15% gain is more or less a worst case scenario. I believe it will happen a lot sooner than that, and that the potential upside is much much greater than 15%.
Today, Amazon is trading at about the same level as it was a year and a half ago. In the year before that it doubled after having already doubled over the two years before that. I do not think it would be unreasonable for one to expect it to break out of stagnation and double again in the next couple of years as well.
In the past, I justified investments in Amazon in the mid to high 1,000’s with this same all-time high theory and a supporting hypothesis that the most likely catalyst to a near-term market crash would be the fall of retail and that Amazon would at least benefit from if it did not in fact cause that crash, making it somewhat crash-resistant and a sensible investment for good times or bad. I had absolutely zero idea that the catalyst for that catalyst would be the global pandemic the world is now facing, but the theory stands sound, and that is also a part of why I am investing in Amazon again today.
Amazon’s e-commerce businesses and AWS businesses both are the market leaders in their respective rapidly-growing spaces and even with Wal-Mart (domestically) and Alibaba (internationally) battling them in the former and Microsoft and Google battling them in the latter, they seem like the horse to beat in both races. Last week, they announced the hiring of over 100,000 new employees to meet increased demand from the ongoing pandemic and they are now firmly considered a business that we almost if not literally could not live without. I like the way Jeff Bezos makes big decisions and I am in awe of all he has been able to accomplish thus far. The company has done nothing but exceed most people’s expectations to date and I have no reason to believe they will not continue to do so in the near-term, when the world will likely need Amazon more than ever. I could go down a laundry list of reasons why I believe in the company and why I believe it is undervalued. If you are looking for a more formal analysis, I liked this one that came out just yesterday from Oleh Kombaiev. Still, none of that is as important to me as my fundamental logic and reasoning for the investment. The bottom line is that I view Amazon as a disproportionately low-risk investment for a probable high reward which I have a great deal of conviction in. I acknowledge that the price at which I bought it may go down but I am prepared to invest more if it does, and possibly even if it does not. I would be very hesitant to buy shares in most publicly traded companies today, but the one I feel most confident about is Amazon. That is why I bought a share of Amazon today.