Amazon And Hypochondria

I am no economist. Nor am I a stock market guru. But I have a hunch about Amazon.

For 20 years we have been hearing that Amazon isn't profitable because it keeps reinvesting in itself for the long term. It's a lovely story.

Knuckleheads like me have been mentally betting against Amazon for years, and have been consistently wrong. Appetite for shares in Amazon continues to remain high despite its inability to show anything resembling a real profit.

But bad things always happen when you least expect.

The stock market continues to believe that there is a point at which Amazon can seamlessly convert its tremendous sales into profits. I am skeptical. I believe Amazon's strongest market advantage is its willingness to undercut everyone else on price.

I don't think it's as easy to escape from this and get to profitability as it sounds. The minute they decide to change this strategy, two things will happen: First, someone else will come along who will be willing to make no profit in return for high sales. Second, consumers will continue to exercise their love for low online prices.

After 20 years, you'd think Amazon could have found a strategy for investing in their future while still showing a decent profit.

Amazon is a company that has operated on the money of investors rather than profit from operations. The idea that this can go on indefinitely has been questioned for a long time by skeptics like me. And we have been wrong over and over. Nonetheless, I still believe the laws of economics have not been suspended.

I like to think of my skepticism about Amazon as a kind of hypochondria. You're going to be wrong for a long, long time. But in the end, every hypochondriac turns out to be right.