Milestones galore for soaring Amazon

It's one milestone after another for Amazon shareholders these days.

Its soaring stock price means chief executive Jeff Bezos last week surpassed Warren Buffett as the world's second-richest man, with an estimated net worth of $75 billion.

Last Tuesday, Amazon also celebrated its 5,000th trading day as a public company. Shares have risen by more than 35,000 per cent since 1997's market debut, according to Michael Batnick of Ritholtz Wealth Management. Much more is apparently on the way; many analysts predict shares – now around $875 – will soon top $1,000.

Barclays says a much bigger milestone – becoming a trillion-dollar company – is "just a question of when, and not if". StockTake would suggest it remains very much a question of if, not when. After all, Amazon is worth $425 billion – there's another $575 billion to go.

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Of course, Amazon might well get there, but don’t expect a smooth ride. Shares have fallen into bear markets in 16 of the last 20 years. These included the shattering 94 per cent collapse in 2000-01; an eye-watering 66 per cent decline during 2007-09; and losses of more than 30 per cent in early 2014 and again in early 2016.

Bezos is probably the only shareholder to have secured the aforementioned 35,000 per cent gain. Don’t be fooled by the headline gains; investing is a painful business.

Frothy sentiment may get frothier

Investor sentiment is frothy but don’t bail out just yet.

Merrill Lynch’s Bull & Bear indicator, which measures sentiment by looking at investor positioning, equity flows and other market metrics, has hit seven – its highest reading in almost three years. A reading of eight would trigger a sell signal as it indicates investor euphoria, says Merrill.

The bank suggests staying long stocks until then, although some investors might think: why wait? Isn’t it safer to sell now?

The problem, as separate Merrill research shows, is that the best returns typically come as bull markets climax. Gains average 25 per cent in a bull market’s final 12 months, and by 16 per cent over the final six months.

Investors often worry about waiting too long, missing the top and getting eaten by the bears. However, being too early – even by a few months – can be similarly stressful. For now, the data suggests it’s best to hold tough.

Consumer joy no cause for celebration

The S&P 500 enjoyed a nice bounce last Tuesday, following data showing US consumer confidence has hit 16-year highs. But is that actually a good thing?

Consumers account for 70 per cent of the US economy, so rising confidence seems like a cause for celebration. However, consumer confidence hit an all-time high in January 2000, two months before the dotcom bubble burst. All-time lows were recorded in February 2009, one month before stocks bottomed and went on an ongoing eight-year bull run.

Consumer confidence is a lagging rather than a leading indicator, rising after periods of economic and stock market strength and falling after troubled periods. That’s why, presumably, ordinary investors are finally embracing the bull – the percentage expecting gains over the next 12 months has hit its highest level since January 2000, according to a Conference Board survey.

This doesn’t mean a top is nigh. However, strong consumer data is correlated with underperformance over three-, six- and 12-month periods – hardly a cause for market celebration.

Bill Ackman says sorry

Pershing Square hedge fund manager Bill Ackman last week apologised to investors, saying he was "deeply and profoundly sorry" for losing some $4 billion on fallen pharma giant Valeant.

“My approach to mistakes is that I personally assume 100 per cent of the responsibility on behalf of the firm,” said Ackman. “We deeply regret this mistake, which has cost all of us a tremendous amount.”

Well, that’s only half-true. Although Valeant’s collapse resulted in the fund losing a bundle in 2015 and 2016, Pershing collected an estimated $700 million in fees.

Heads I win, tails you lose. It’s a nice business, the hedge fund game.

Hedge funds: fooled by fancy names

A question: people buy into hedge funds because (a) they’re sophisticated investors looking for sophisticated investments or (b) because they have fancy names.

The latter, according to a new study which finds more money flows into hedge funds whose names exhibit “gravitas”. That’s defined as “a combination of words from geopolitics and economics, or suggesting power”, words that convey “seriousness, respect, know-how in politics, exercise of power as well as globalism”.

Hilariously, this nonsense works. On average, adding one more word with gravitas to the name of a fund results in an extra $227,120 in inflows; a one standard deviation increase in gravitas results in an extra $759,967 in annual inflows.

Proving that a fool and his money are easily parted, the researchers found that funds with more name gravitas charged higher fees, delivered lower returns, more volatility, higher drawdowns and had “higher probabilities of extinction”.

See https://goo.gl/5ZVMg8.