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Author: Mliaom Big red star, 1000 posts Ticker Guide Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 72  
Subject: Sell Amazon? Date: 9/1/2012 12:35 PM
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Hi Joe,

I think Amazon's value is stretched here, LOL! I know this is not a ground breaking news by any mean, but at an all time high, any macro/micro news will take it down hard, imho.

I love your picks overall, specially the fact that you are very patient and don't trade too much. This is a model portfolio for me since all these picks are also my top holdings.

Maybe sell half here? What do you think? Why not lock in some gains here?

Regards,

Tony

P.S. What do you get if you win this thing? I mean, there has to be something a little more than a hand shake or a pat on the back. No?
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Author: TMFGuardian Three stars, 500 posts Supernova Odyssey 1
Mission Team Member CAPS All Star SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20 of 72
Subject: Re: Sell Amazon? Date: 9/4/2012 4:03 PM
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Hi Tony,

I totally understand your concern and desire to lock in some gains with Amazon. And if it makes you more comfortable to do so, I won't try and talk you out of it. But here's what I'm thinking when it comes to Amazon …

Amazon's valuation does appear stretched when looking at traditional metrics such as trailing P/E and even forward P/E multiples, but it almost always does. It looked expensive when I recommended Amazon to Tier 1 investors back in December, and Amazon has risen about 30% since then. But Amazon also looked expensive when David Gardner recommended it to Stock Advisor members back in 2002, when the stock was trading for 75X the next year's earnings:

http://www.fool.com/investing/general/2012/07/10/investing-l...

That was 1,500% ago.

And I remember that Amazon's stock even looked expensive at the depths of the financial crisis of 2008-2009, when the stock was trading at around $37 per share.

My point is that I've personally never seen a time when Amazon doesn't look expensive, and yet, it's been one the best stocks to own over the last decade.

And I do believe that Amazon's true earnings power and cash flows are being suppressed by the growth expenses and expenditures the company is incurring as it continues to build out its infrastructure. And therein lies our opportunity; I seek out companies and leaders that are unafraid to sacrifice short term earnings as they invest in the future of their business. Amazon and Jeff Bezos have demonstrated the courage to do this time and time again, as well as the ability to earn solid returns on their investments. So while I can't tell you when Amazon will scale back its spending, I do believe that when it does, its earnings and cash flow will explode, and today's stock price will appear much less expensive in hindsight.

And while you're right in that any significantly negative macro/micro news could take Amazon down hard in the short term, my vision for the Tier 1 portfolio is to acquire long-term ownership stakes in the world's most elite businesses. This type of investing requires a commitment to hold our businesses through the inevitable short-term volatility that will arise.

The reason for that is while I do believe it is possible to identify good times to sell a stock, it is often extremely difficult to get back in. For instance, let's say you sell Amazon now at approximately $250 per share, with the idea of buying back in if it falls back to $200. And maybe Amazon does sell off, but shares only go to $210 before surging higher. If the stock is trading over $300 in the next few years, will you be happy that you sold at $250? How about if the stock is trading over $500 in five years time? Would it still have been a good decision to sell? My point is not that I expect Amazon will reach these levels, only that even if we're right to sell in the short term, we can often turn out to be wrong to have sold in the long term.

Having said that, I am not promoting a buy-and-forget form of investing. To the contrary, because Tier 1 is a very concentrated portfolio, I watch our businesses closely for any sign of deterioration in their competitive advantages, growth potential, etc. And in that regard, I see no signs of Amazon losing its competitive edge. In fact, more and more of its competitors – such as BBY, HGG, RSH – are losing ground to Amazon seemingly every day. And Amazon continues to disrupt important, emerging markets such as with its Amazon Web Services business, giving me confidence in its long-term growth potential. So I see no reason to sell Amazon based on fundamental reasons, and our investment thesis appears very much on track.

So Tony, I don't plan on selling Amazon in the Tier 1 portfolio due to valuation concerns, and, in fact, should Amazon experience a significant pullback, I'd probably use the opportunity to add to our position.

Fool on!

Joe T

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Author: TMFGuardian Three stars, 500 posts Supernova Odyssey 1
Mission Team Member CAPS All Star SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 21 of 72
Subject: Re: Sell Amazon? Date: 9/4/2012 5:24 PM
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Hi Tony,

P.S. What do you get if you win this thing? I mean, there has to be something a little more than a hand shake or a pat on the back. No?

The Motley Fool just initiated a small quarterly incentive program for Real-Money Portfolio managers that are beating the market and are in the top 3 in our rankings. But honestly, Tony, that's not why we do this (and the financial incentives weren't even around when I signed up for the program one year ago).

Many of us are here at the Fool because we believe in our mission: To help the world invest. Better. We want to help people achieve financial security and independence. And personally speaking, Tony, it's been really cool having Fools like you take an interest in my portfolio. Tier 1 just completed its first year, and we earned a time-weighted rate of return of 35%. Anyone who invested along with us earned real money that can help them achieve their financial goals. And they substantially beat the market (+17%), so Tier 1 added value as compared to an S&P 500 index fund or ETF. And we did it for a pretty sweet price!

(It's free)

:)

From a professional standpoint, our real-money portfolios give Fool analysts the opportunity to build our track records. In our premium services, analysts make recommendations to our Lead Advisors. Some of our ideas make it into the services' portfolios. Some do not. In our real-money portfolios, each analyst is the portfolio manager and lead advisor. We are responsible for every investment recommendation – a responsibility I do not take lightly. It's exciting and scary at the same time. It's exciting, because if I find an excellent investment opportunity, I can get it in front of members quickly. It's scary, however, because if I'm wrong, I can cost members money – something I try extremely hard to avoid. But overall, it's been an awesome experience, and I've learned a lot by taking part in this initiative.

And to answer the first part of your question, we can't really win this thing because it never ends. I just had a similar conversation with my father, and he said to me, "You had a great year. So what happens now?" I laughed and said that I keep doing what I've been doing, only better. I told him that I was proud of the returns we earned last year, but they were now in the past. If I focused on the past instead of the future, the market would pass me by, and I wouldn't be doing my job. It's funny, by while other investors might look at Tier 1 and see our 35% return, I see what it could have been. I didn't buy UA when it was trading at $65 (pre-split) because I was hoping it would hit my $50 buy price. That would have been nearly a double for Tier 1 investors based on today's prices. I didn't buy SAM when it was trading in the low $70s and DIS in the low $30s because I knew investors I respected thought they were overvalued. Both stocks are up over 40% since then. And recently, I passed up the opportunity to buy UA at about $45 (post-split) because an investor I respect had a short position in the name. That stock is up about 30% since then.

I mention these mistakes to show that I have much to learn, and there is great room for improvement. But are those are some of the reasons why Fool Chief Investment Officer Andy Cross and Buck Hartzell, Director of Analyst Learning, wanted me to take part in the Real-Money Stock Picks program. They knew that one of the best ways to improve as an investor is to manage real money in front of members. And they were right.

So one thing that our successful first year has done is give me the confidence to trust my research and intuition. Not overconfidence, by any means. I still always look for disconfirming evidence as I form and reevaluate an investment thesis. But I've come to understand that it would be pointless to spend countless hours researching businesses, studying economics, accounting, behavioral finance, etc., and learning as much as I can from the investment masters if I'm not going to use the insights I derive from those efforts.

Of course, I will still mistakes; no investor is perfect. But the performance of the Tier 1 portfolio, the performance of my stock picks within Fool premium services, and my CAPS track record have given the confidence to believe that the winners will more than make up for the losers.

Although I still absolutely hate the losers :)

So Tony, those are some of the things I have gained from the time I've spent managing Tier 1. And I really appreciate Fools like you who have taken part in the journey.


Joe T

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Author: Mliaom Big red star, 1000 posts Ticker Guide Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24 of 72
Subject: Re: Sell Amazon? Date: 9/6/2012 5:23 PM
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Hi Joe,

Fine, don't sell. I knew you wouldn't want to sell, I was just testing my theory. :) I can't really argue with your reasoning since I'm thinking just about the same way. I did sell some of my position(only some, thank goodness) before earnings, I just got tired of taking huge hits (MAKO, CMG, BWLD anyone?) I did add to some positions since I subscribe to Tom E way of adding at better value point investing.

In all seriousness, AMZN is one company I want to hold for a very very long time (for me and my 2 year old nephew), I can see Amazon bigger, badder and better in 5-10-15-20 years or more. To me this speaks volumes, I'm not sure if that I can say that even about Apple. Now that's saying something. Yes, I have more conviction in Amazon than Apple.

You are absolutely correct about selling, that is easy, but getting back in is the key. I sold few shares at over $220 so now I hope to get them back below $200 which is quite possible but not guaranteed. This whole getting oput and try to get back in is not my cup of tea, every time I have sold something I regretted, so now I trade only 'around' my core position, never ever I sell all at once or buy for that matter. This is why I like your strategy, yes it looks beautiful to not have any losers in your portfolio, I know it's not realistic to expect that for ever, it sure looks amazing while it lasts.

Question, according to your profile, you only own Apple privately? One stock? If so, kudos! you are da man. That's one gutsy call.

Question number 2, what stocks do you have on your watch list, if you don't mind sharing. I have few on mine, but let's see what you have. I hate to get turned down all over again.(kidding)

Fool On!

Tony

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Author: TMFGuardian Three stars, 500 posts Supernova Odyssey 1
Mission Team Member CAPS All Star SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 25 of 72
Subject: Re: Sell Amazon? Date: 9/7/2012 4:30 PM
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Hi Tony,

I think my next post will answer your first question :)

As for question number 2, here are the stocks on my Tier 1 watch list:

BIDU
BWLD
CMG
DIS
EBAY
FB
INTC
ISRG
LNKD
MA
MCD
PNRA
SAM
UA
V
WFM

I actually look at a lot more stocks than the ones on this list, but these are the businesses that have many of the traits that I look for in a Tier 1 enterprise.

I've also been thinking of introducing some short positions into Tier 1. Here is my watch list of (Bottom Tier?) companies. That's not as catchy as Tier 1 so we'll have to work on that :) But my research into potential shorts is in its very preliminary stages, so please do not short these companies based soley on this simple list:

RSH
ODP
BBY (if the buyout offer fails)

What companies are you watching?

-Joe T

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Author: Mliaom Big red star, 1000 posts Ticker Guide Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 27 of 72
Subject: Re: Sell Amazon? Date: 9/7/2012 5:08 PM
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Hey Joe,

I don't short companies, I just stay as far away as possible. I know it is all part of the fair market, but I just stick with Top notch companies, aka Tier1 which I think have growth and bright future.


These are companies I'm looking to add or start a position.

CMG
BWLD
WFM
AMZN
ISRG
MNST
MCD
IPHS
LULU
GOOG


Just to name a few, I find this interesting that you have almost the same on your watch list. Now, you see why I'm excited about following your moves in Tier 1 Portfolio. :) I guess great minds think alike. ;) I'm kidding, I'm just an amature, I have a very long way to go, so I appreciate your honesty and humble attitude.

These are my top ten personal holdings as of today.

AAPL
CMG
AMZN
BWLD
PCLN
LULU
GOOG
CBI
BIDU
BAC

Bac is a spec play on housing recovery, so far not very good, but I have hopes.

Joe, I appreciate whatever you do for us.

Tony

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Author: TMFGuardian Three stars, 500 posts Supernova Odyssey 1
Mission Team Member CAPS All Star SC1 Red Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 28 of 72
Subject: Re: Sell Amazon? Date: 9/11/2012 12:05 PM
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Joe, I appreciate whatever you do for us.

Thanks Tony! It's my pleasure, my friend.

And you have a lot of great companies on your list of top ten holdings.

I like the way you roll.

:)

Joe T

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