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   Strategies & Market TrendsAMAZON.COM RIDICULOUSLY OVERVALUED BY ANY MODEL (AMZN)


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To: Bilow who wrote (164)8/15/1999 4:45:00 PM
From: Gary Korn
   of 182
 
Another way of putting this is to say that AMZN's growth rate has been decreasing - they are growing slower with each
passing quarter.


Or, in still other words, the law of large numbers is finally starting to kick in.

Gary Korn

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To: Gary Korn who wrote (170)8/15/1999 7:01:00 PM
From: Bilow
   of 182
 
Hi Gary Korn; Yeah, the law of large numbers (which as a mathematician / statistitcs theory type I remember as actually stating that the sum of a bunch of independent random variables tends toward a normal distribution, but here means something different) is starting to kick in.

The herd's problem is that they are concentrating on year over year figures, and will end up detecting the drop in growth rate about 6 to 9 months too late.

Still plenty of time to short this puppy.

-- Carl

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To: Bilow who wrote (171)8/15/1999 7:03:00 PM
From: Gary Korn
   of 182
 
Carl,

Your analyses are superb, you've really done an excellent job. Unfortunately, I tried to short AMZN in the spring of 1997, when I thought it was bloated and overvalued at what is now a split adjusted price of about 13 (it was 60 at the time). I got nailed, of course.

Gary Korn

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To: Gary Korn who wrote (172)8/15/1999 7:15:00 PM
From: Bilow
   of 182
 
Hi Gary Korn; Back in spring of '97, AMZN was still growing like a weed. Of course their growth was slowing, but not enough to worry the herd.

It was also hard to borrow shares, wasn't it? Now it's on the daytrading list as a borrow as much as you want, and take it home stock.

One of the clues that I have noticed that tells when to short over priced story stocks that have high insider ownership (i.e. low float / total shares) is that they tend to peak at about the time that the public float reaches 50%. There must be some sort of theory that says that that is the point where the desire of the insiders to pump the stock price intersects with their desire to get out while the getting is good.

I hope you had a stop loss on that short. Mine right now, is $200, cause if it gets up towards there, I will assume that they may be able to force conversion on their debt, which is what they pretty much have to do, to avoid eventual debtor's prison.

-- Carl

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To: Bilow who wrote (173)8/15/1999 7:43:00 PM
From: Gary Korn
   of 182
 
I hope you had a stop loss on that short. Mine right now, is $200

I had a mental stop loss, and I did get out, but not before significant losses. IRID would have been a safer (and profitable) short.

Gary Korn

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To: Gary Korn who wrote (174)8/15/1999 11:52:00 PM
From: Bilow
   of 182
 
I'm still berating myself for not shorting IRID when one of the technicians I know suggested it as a great bargain. I did manage to talk him out of buying it, though.

The problem is that small investors are always thinking "another Chrysler!" when they see a stock in bankruptcy. In fact, very few investors actually look at the numbers when making an investment. By numbers, I mean growth rates, cash flow &c., not just stock price.

Barron's had a fascinating article on stocks that are available in both voting and non-voting form, and how the prices differ. I may look into arbitraging them in the future, though I guess everybody else is going to too. But I've gotten pretty good at handling low liquidity stock, so that may give me a little bit of an edge.

-- Carl

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To: Bilow who wrote (175)8/16/1999 1:01:00 AM
From: Gary Korn
   of 182
 
Carl,

My scariest story from last year involves an arbitrage of CIEN and TLAB. I shorted TLAB and went long CIEN. One day before the vote on the merger, I got fearful and exited the arbitrage. (Thank you Glenn). The merger vote was called off. Had I still been in the arb position, I would have lost several hundred thousand in an instant.

I successfully shorted a construction company (cant recall its name now) as it fell into bankruptcy several years ago. IRID was similar (and an obvious play), but I was too shaken by the AMZN short and the CIEN/TLAB arb position to make hay on the IRID play. Oh well, there is always another opportunity.

Best,
Gary Korn

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To: Gary Korn who wrote (176)8/16/1999 1:08:00 AM
From: Bilow
   of 182
 
Hi Gary Korn; Regarding that TLAB/CIEN arbitrage. I was on a Nas level-2 workstation when they halted those two, and when they unhalted them an hour or two later. Never have i seen such a mess... No one in the office was in them at the time, but we knew that a lot of our brother daytraders had to have been toasted on that one.

As far as trading goes, I try to limit my risk on any given trade to 2% or less of my total equity. I find that this gives me a lot more huevos for the somewhat dangerous trades. But the TLAB move, in particular, was so big that no one would have thought in advance that they were risking that much on a TLAB long. For my intraday scalps, I assume that I can get out with a loss no larger than one point. If it's a more violent stock, like AMZN, I restrict my size to a very very small number of shares.

If we can just avoid the devil of looking for the trade that will put us into retirement, maybe we can make a living doing this. But the mathematics says that the guys who put too much equity on single trades eventually wind up broke. There's a great mathematical treatment of the problem in the book, "The Mathematics of Money Management."

-- Carl

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To: Bilow who wrote (177)8/16/1999 1:15:00 AM
From: Gary Korn
   of 182
 
Carl,

After all too many shocks, and a lousy return, I finally gave up day trading. I've been accumulating long term positions (and bonds) for the past two months. I found that my returns from investing, at least in the years before I started trading, were better. To each his/her own, right?

Best,
Gary Korn

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To: Bilow who wrote (177)8/16/1999 12:19:00 PM
From: Investor2
   of 182
 
Hi Bilow. There have been many recent news articles about "daytrader" studies. Essentially, the stories imply that only fools day trade, 70% of daytraders lose all of their money, etc.

Are these studies/stories correct?

Best wishes,

I2

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