Doubt Over Amazon

How one analyst sees AMZN after its 3-year surge...

IF YOU'RE looking to lead a long, healthy life free of pain and anguish, there's only one thing you need to do, writes Greg Guenther in Addison Wiggin's Daily Reckoning.

Never doubt Amazon.

Thanks to a post-earnings pop heading into last Friday's trading, Amazon stock gained 13% and finished the week at new all-time highs. Amazon stock has been so dominant recently that its Friday gains are equal to what the entire company was worthin 2010, Collaborative Fund's Morgan Housel notes.

Amazon now has a market value of almost $470 billion, helping nudge CEO Jeff Bezos ahead of Bill Gates to claim the title of the world's richest person. And Bezos isn't the only one making bank on Amazon's sharp rise...

In just three years, Amazon stock has returned an incredible 280%. Most investors will look back and say these gains were inevitable. Of course Amazon would grow its Prime service into a must-have feature, fracture the entire brick and mortar retail industry, and make aggressive pushes into the grocery and pharmacy businesses.

But hindsight is completely discounting the wall of worry Amazon climbed to get where it is today.

As recently as October 2014, the Amazon story was far from a sure thing for many analysts and investors. Turn back the clock just three years, and you're dealing with a far different outlook for the king of online retail.

In 2014, Amazon's third-quarter earnings were a dumpster fire. The company posted a $437 million loss and told investors that to expect a whiff on fourth-quarter revenue estimates.

The failure of the Fire Phone launch that summer cost the company a cool $170 million. You probably don't even remember the Fire Phone. That's because no one bought it. The device was supposed to compete with Samsung and Apple's offerings. But Amazon couldn't give the damn things away.

The Fire Phone failure wasn't the only problem plaguing Amazon in 2014. The company had also over-hyped its ambitious drone delivery technology on an episode of 60 Minutes just a few months prior. The consensus take was the drone announcement was a publicity stunt meant to justify the $775 million Amazon spent on drone-maker Kiva Systems just a year earlier.

As it turns out, the drone hype marked a short-term top for Amazon, kicking off a year where the stock underperformed the major averages by a wide margin.

After peaking just above $400 in January 2014, Amazon shares had dropped more than 25% by the end of October. By the time Bezos & Co. released the third-quarter earnings dud, the stock had already fallen below $300.

Looking back, it's not hard to see why most investors didn't want anything to do with Amazon stock just as it was about to begin a powerful 3-year rally. I certainly wasn't bullish. In fact, I didn't get bulled-up on Amazon's comeback until the stock finally retook $400 in early 2015...

We talk about the power of fear and greed in the markets almost every single day.

The fear of losing money. Or fear of missing out on a huge rally. There's also the greed that prevents us from selling a trade when we should, or buying when we shouldn't.

But what about doubt?

Doubt is the fuel that has driven Amazon shares since it first started trading 20 years ago.

No one believed an online bookstore could turn into the most powerful retailer in the world. For years, analysts and investors bickered over Amazon's weak earnings, ill-fated investments, and boondoggle products.

Amazon's market-stomping returns over the past 36 months has cast a shadow over the endless obstacles the company overcame to get to where it is today. Like many homerun investments, Amazon was never a "sure thing".

Bezos has publically stated that Amazon will continue to fail big. We'll see a few more boondoggles like the Fire Phone as the company continues to push the envelope and move into new industries. Of course, the doubters will come out of the woodwork after each misstep to write Amazon's epitaph.

Don't be one of them.

For the sake of your portfolio (and sanity), never doubt Amazon...