Here is a puzzle for you. Over the last year Amazon.com Stock has gone from $552 a share to $851 a share. Over the last five years the stock has climbed from $179 a share to its current price, a 5 fold increase. Sales are up. Earnings are up. Cash flow is increasing. Nevertheless a billion dollars of Amazon.com stock was sold by hedge funds in the last quarter of 2016. Perhaps these folks looked at disappointing sales in bricks and mortar stores and believed that there would be a spill over. But Amazon.com is the main reason that brick and mortar stores are in trouble or already out of business. We got this tidbit from The Motley Fool who wrote about well-known stocks that billionaires sold heavily last quarter.
Arguably one of the biggest surprises from the release of 13Fs was that e-commerce giant Amazon.com (NASDAQ:AMZN) was the most heavily sold stock in Q4, with an aggregate of $1.022 billion of its shares being evicted from hedge fund portfolios, according to S&P Global Market Intelligence’s Hedge Fund Tracker.
Some of you might be wondering why on Earth some of the smartest money managers on the planet were selling the king of e-commerce.
The writer speculates about why one would sell Amazon.com. Our opinion is that they were selling to show a profit in their funds in order to impress clients. This sort of reshuffling is common in managed funds and not necessarily in the best interest of investors. That having been said why might one sell Amazon.com?
You Need the Money
Successful investors tend to keep their money in stocks instead of in the bank. They sell shares when it is time to buy a new home, invest in real estate or a business or to pay college tuition. These are good reasons that you might sell Amazon.com stock. This argument only applies to the hedge funds if they had a lot of money withdrawn and needed cash.
There Is a Better Investment
A good solid investment is stock in 3M. This well diversified multinational has grown from $15 a share in the late 1980’s to $186 a share today. But if you had sold your 3M shares in 1986 and bought Microsoft you would have done better. While your 3M share grew 12 fold over the years Microsoft has grown about 700 fold. If the hedge fund managers have spotted the next Microsoft it was a smart move to sell Amazon.com. Unfortunately there is no evidence that these folks have spotted the next stock market home run!
The Stock Is Overpriced
This may be the reason that a lot of smart folks unloaded shares of Amazon.com. The Los Angeles Times about how the market has climbed to record highs despite uncertainty about Trump.
But warning lights are flashing about the market’s ability to sustain the trend, even setting aside the possibility of an unexpected move by the White House or a global event that could rattle investors, some analysts said.
For instance, stocks are getting increasingly rich by historical standards relative to the underlying companies’ profits. The market also inevitably will need to pull back, or “correct” itself as traders take profits.
And the recent growth of the market is disproportionally loaded into stocks like Amazon.com, Apple and Microsoft as they seem the most secure. But investors seeking security in their investments have bid these stocks up into insecure territory. The old saying go that you don’t have profit until you take a profit. That may be the best reason to see a little of your Amazon.com stock.
