I’m going to attempt something a little odd today, Fools. Even though Amazon.com, Inc. (NASDAQ:AMZN) is by far the largest of my real-life holdings — at 11.4% of my family’s portfolio — and I’ve said many times that Amazon.com, Inc. (NASDAQ:AMZN) is my highest conviction holding, I’m going to be giving you three reasons to consider selling Amazon.com, Inc. (NASDAQ:AMZN) stock today.
Why am I doing this?
Recently, Nobel Prize winner Daniel Kahneman visited Fool headquarters in Virginia. While visiting, he talked about how a number of different biases can lead us to believe we can predict the future with relative certainty. In reality, he argued, we’re just deluding ourselves.
It got me to thinking about how I don’t write enough about the risks of owning the stocks I own. So although I don’t plan on selling my Amazon.com, Inc. (NASDAQ:AMZN) stock anytime soon, I think it’s healthy for me to practice and model this behavior.
Let’s go over the three points.
1. Minuscule profits, expensive stock
Amazon.com, Inc. (NASDAQ:AMZN) is the undisputed leader of e-commerce, which still has tons of room for growth. In 2012, the company brought in $61 billion in sales. The company can deliver everything from furniture to food to your front door lickety-split, and it pioneered the popularity of e-books.
Yet despite this dominance, Amazon.com, Inc. (NASDAQ:AMZN) actually hasn’t even turned a profit over the past 12 months.
Why is this the case? There are really two reasons.
First, the company offers goods for razor-thin margins to secure its station as the go-to website for e-commerce. Amazon Prime offers an amazing deal to subscribers for shipping purposes, and Amazon loses a bundle of money every year as a result.
Secondly, the company is aggressively spending to build out fulfillment centers and invest in technology that CEO Jeff Bezos believes will lead the company forward.
All of this spending has led Matthew Yglesias at Slate to quip: “Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers.”
Right now, the stock is priced on expectations that eventually, some day, the spending will drop and profits will absolutely soar. That’s a lot to assume, and if it doesn’t turn out that way, Amazon stock will absolutely crash.
2. A single-man empire?
I love the fact that Amazon has some pretty sustainable competitive advantages — both in terms of the network effect it has established, and the build-out of crazy-expensive fulfillment centers to deliver products to customers ASAP.