From: Andrew R. Sujdak (arsujdak@midway.uchicago.edu)
Date: Wed Dec 29 1999 - 11:54:19 MST
I've been reading Mike's articles for a few years now. He's one of the better
analysts out there, but his articles tend to gravitate towards explaining how the
"market" justifies some valuation.
The failure in this approach is that he does not take market microstructure effects
into account. It's simply not valid to take such an approach with these companies.
For instance, Bezos has claimed AMZN's book business will be profitable in 2q2000.
Aside from his word, the average investor does not have much else to go on. Some
investors have greater access to AMZN's financial data, however (call it illegal
all you want, it's still true) and KNOW whether or not this is the case. The only
way the average investor has of assessing the truth in the book business's ultimate
profitability is to use the prior price history of the stock as a signalling
mechanism.
The VAST disparity in information sets across investors has forced those with
smaller information sets to pursue momentum strategies. No other industry is
anywhere close to as plagued with these problems.
Networking effects can only take you so far. Also, I'm sure you're all aware that
Mike is sell-side. He has a natural motivation to kiss the butt of the bigger cos.
because that gives CSFB bigger deals. And lastly this is coming from a VERY
academic analyst who was trying to tell us last year that you could justify AMZN's
market cap by looking at its portfolio of real options as being worth 85% of the
company.
Just take this stuff with a grain of salt. It's like watching an infomercial.
The quant from Banque Paris gives us the quote of the day:
> > financial analysts' wisdom has any relevance. Chaos theory and fractals
> > would be very appropriate in valuing Internet stocks because they're
> > priced on psychology and the feedback information you get from other
> > people trading them."
I've been lurking for a few weeks now. Since the WIRED article, actually. My
roommate gets it and it was the first I've heard of you guys. Aside from being
overly optimistic about how soon the changes are going to happen, I'm in pretty
thorough agreement.
a
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