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Amazon Isn't Worth Half its Current Price

NEW YORK (TheStreet) -- Amazon (AMZN) changed the way businesses market products and the way people buy products. Amazon's shadow casts long and wide on contemporary retail marketing. AMZN ChartAMZN data by YCharts

Caught in Amazon's perilously fatal wake is an incessant list of prominent names including Circuit City, Ultimate Electronics, Borders and others large and small. Instead of endeavoring to compete against Amazon, legions of online retailers now sell through Amazon's ordering system.

Amazon's self-publishing structure has changed the face of publishing and Amazon's Web Services is helping to shape cloud computing. Even Netflix (NFLX) delivers digital content through AWS.

What Amazon hasn't changed is the need for a reasonable return from investment capital. There is simply no point in investing in stock if a risk adjusted return doesn't exist. Sure, buying lotto tickets may bring a windfall return; however, it's the expected return after inclusion of risk (your ticket may not win) that generally keeps smart money from buying lotto tickets.

"Dumb money" doesn't mean an investor is "dumb." Quite the contrary, dumb money is often from many of the smartest people. Doctors, lawyers, accountants, business owners and successful people make up most of the dumb money.

What dumb money refers to is someone who is relatively inexperienced or not as knowledgeable as other market participants. If you are the 10th best poker player in the world, and you sit down at a table where everyone else at the table is ranked in the top 10, you're likely going to lose money.

At the same time, if you're only average and everyone else at the table is less skillful as you, you're likely going to win. Two poker players, one better than the other, yet the better person is expected to lose. The situation is the same in the stock market.

We all recently received a front row ticket to the spectacle of dumb money driving the price of a stock higher. Facebook (FB) is burned into the minds of many as a bad IPO.

The fact is the IPO was (absent the Nasdaq Stock Market (NDAQ) follies) incredibly successful. The purpose of an IPO is to raise capital and allow current investors to cash out. If you believe Mark Zuckerberg and others who sold stock at $38 are thinking the IPO was a flop, you're not paying attention.

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