The True Tech Believers and Their Amazon.com Love Affair

Despite the dot-com meltdown seven years ago, there is a sizable percentage of the investing public who “still believe” that technology companies are the way to riches in investing.

And why not? Look at Google. It IPOs around $85 and is currently trading over $500. Not a bad return for only a couple of years.

But you can’t say the same for Microsoft, Dell, Oracle, Cisco and others (though with a few of them, you at least have made money if you bought it during the bust years.)

Many of the tech companies are solid companies with great earnings (ex: Microsoft.)

But what is the obsession with companies like Amazon.com? Barron’s talked about this this week. (Finally- a financial publication telling it like it is.) Once the darling of the dot-com boom (remember when analysts were calling for $600 a share?)- it was crushed during the tech bust. But there it was last week, like a rising Phoenix, shooting up over 20% in one trading session simply because it had pretty good earnings during the last quarter and beat estimates.

Let us remember- Amazon.com is nothing but a retailer. Sorry for all you “believers” out there- but it’s true.

They sell music and books (and a host of other things.) They are like Wal-Mart, only slightly more glamorous. There is no moat to someone entering in that business. Anyone can start up an on-line retailer (and examples abound such as footwear seller Zappos.)

Where is their pricing power then? There isn’t any.

The stock is now trading above 50 times earnings both this year and next. On what planet does that make any sense? It doesn’t.

Yet there are analysts saying that Exxon is overvalued because it’s trading at 15 times earnings. But I digress.

Why is Wall Street so clueless? I often wonder.

But you shouldn’t be. Don’t buy overpriced tech stocks because they seem glamorous. The largest stock market fortunes were made by buying insurance companies (see Warren Buffett and Geico.) No, it’s not glamorous in the least. But everyone needs insurance, right?

Boring isn’t necessarily bad. And yet some glamour stocks ARE good. But don’t be blinded by “belief” in the superiority of tech.