I'm not sure there's a such thing as a pure Amazon.com short.
Amazon bearishness is not commensurate with the short interest. But why?
TheStreet's Doug Kass, who writes for our Real Money and Real Money Pro premium services, gave me a sane, logical and correct answer last week on Twitter: Never ever short valuation, R.
Tough to argue with that, particularly when the wisdom comes from Kass.
That's what the Amazon bears base their pessimism on: Valuation and the belief that there's something wrong with the world beyond their limited view of it. The market is irrational. Investors who continue to not only support, but bid up Amazon stock are idiots.
It's the classic case of building a wall around a stubborn opinion and repeating it over and over again, with this sense that destiny owes you a new result sooner rather than later.
Amazon's trailing 12-month price-to-earnings ratio of around 3,000 is all some people need to get bearish. I'll admit. That's pretty incredible — 3,000! That's just off of the charts in any day and age.
Amazon bears refuse to put valuation in its proper context though. They do not situate it historically or think of it in conjunction with the massive long-term opportunity Jeff Bezos confidently chases at the expense of the bottom line. Not at all. They see the number. They're bears. Simplistic and straightforward.
So, I ask again, why don't they short the stock?
Kass gives us part of the answer, but, with all due respect to that small, yet vocal peanut gallery of Amazon bears, I'm not sure they're smart enough to adhere to such disciplined logic. Or maybe they're just not "dumb" enough to actually put their money where their mouth is.
Folks who shorted Netflix as it ran to $300 in 2011 absolutely did not do it on the basis of valuation and valuation alone. In fact, for the shorts who made the most compelling cases, it rarely came back to valuation. It came down to the business model, a doomed international expansion, uncertain market opportunity and the low likelihood that Netflix could leverage it without missteps.
It was much easier to talk the talk and walk the walk with Netflix because you had factors other than valuation — such as incompetent management and tons of competent competition — driving the core of the short case.
I personally know several folks who were short Netflix as it moved on air to $300. Some hedged. A few panicked. A couple couldn't take it and covered, but, by and large, these cats stood pat or added to the position. They became more bearish, more certain of their conviction the higher Netflix went. You can say the same about the Amazon bear's sentiment, however — and this is key — you can't say they're locked into short positions.
I don't think the folks doing the mouthing off are short. I bet plenty of those short shares are held by big money folks who are net long Amazon.
Maybe the vocal Amazon bear chorus buys put options.
However, given the way the stock has moved — up 7.7 percent over the last month, flat the last three months, up 17 percent the last six months, up 40 percent year-to-date, up 28 percent over the last 365 days and up 42 percent over the last two years — they better have puts without expiration dates. Or maybe alongside their suspended, and, in some cases, 13-year old opinions of Amazon, the concept of time decay ceases to be a factor in their fantasyland options trades.
Unless you're a really nimble trader, shorting Amazon stock is a bit like keeping a credit card balance. You dig yourself deeper into trouble the longer you let your balance run without paying it off (covering) and that (margin) interest just eats away at what little material value or potential that balance could hope to hold.
Unless you're an insider and you know something the rest of us don't, I would not take this as a challenge to get short. In fact, I intend it as the opposite. For your own safety and the safety of those around you, do not short Amazon.
Record mobile and online sales over the Black Friday/Cyber Monday weekend should send a signal that stops you in your tracks if you're thinking of putting on an Amazon short. While consumers might not be making many holiday purchases on Kindles, they're likely spending plenty of time with the Amazon shopping app and mobile Web site on their Apple iPads.
—By TheStreet.com's Rocco Pendola
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