While the short term is uncertain, long-term prospects are still positive
By Alfred Lam, CFA -Senior Vice-President and Chief Investment Officer, Multi-Asset Management
Consumers embrace technology
Despite bouts of volatility in the equity markets, investor confidence remains high and their love for technology companies continues. I love technology companies too, as a consumer. When I shop on Amazon, I am amazed by its service and prices. However, as an investor, it is difficult to justify owning a significant position of Amazon at a price that is equivalent to 250 times annual earnings. An investor will only break even if: 1) the opportunity cost of their money remains low, 2) the investor lives longer than 250 years, or 3) Amazon grows its earnings exponentially. Since central banks are raising interest rates, the opportunity cost of investing in Amazon instead of fixed income is rising. It would be amazing if one could live to 250 to earn Amazon’s annual earnings 250 times. Since no one has done it before, the odds are probably lower than winning the lottery. It is also doubtful that Amazon’s earnings will grow substantially, as they have not been able to do so in the history of the company, despite selling more every day. Consumers love Amazon for its convenience and low prices, which is why the company has not been able to turn sales into large profits.
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