A big part of Amazon’s success came from not being taken seriously by its competition. But now, fear of Amazon has reached paranoia levels. The laws of economics, however, still apply to Amazon’s announced health care venture.
Don’t let this wave of stock-market volatility go to your head. The value of the companies in your portfolio doesn’t change by a positive or negative 5% three times a day.
Path dependency is a very important concept. It’s something we constantly think about, and thus, we’ll take a small detour to explore it.
Acquisitions have the elements of a zero sum game. Both buyer and seller need to feel that they are getting a good deal. The seller has to convince his board and shareholders that they are selling at high (unfairly good) price. The buyer needs to convince his constituents that they are getting a bargain. Remember, both are talking about the same asset.
We look at options “insurance” the same way we look at any asset: It can make sense at one price but make no sense at another. As you will see, at today’s price they make a lot of sense.
Just as the well-meaning economists of the Soviet Union didn’t know the correct price of sugar, nor do the good-intentioned economists of our global central banks know where interest rates should be. Even more important, they can’t predict the consequences of their actions.
My biggest problem with “The stock market will do this” headlines is that they turn investors into degenerate gamblers.
This is no different than the Beanie Baby mania of the late 90s. Beanie Babies were released in a limited quantity (the key word), and thus the price kept going up.
As a shareholder, you do well to place more emphasis on risk than on reward. Corporate management usually does the opposite, and this is why most large acquisitions fail.
Tesla is an uninvestable stock, not just because of its high valuation but also because it fails a fairly basic quality test, which I shamelessly borrowed from Warren Buffett.