steep fall taking your portfolio with it?
Well, imagine you're the money manager making one of the biggest bets on the online retailer among large-cap growth funds. Imagine that the troubled stock makes up nearly 3.3% of your portfolio and that your fund is taking a big hit as a result.
What do you do?
TSC Message Boards.
Or at least sit tight. That's the word from
Transamerica Premier Aggressive Growth's Chris Bonavico, who remains a big fan of Amazon.com, despite its
warning Wednesday that huge fourth-quarter revenue gains fell short of Wall Street expectations and won't narrow losses.
Bonavico thinks the reason the stock is getting whacked in the short term is the reason it will be a winner in the long term: namely, management's clear commitment to invest in the future. Bonavico says there's no contest in books and music: "They've won. It's over." And he calls the holiday sales "pretty amazing."
He advises investors to keep their eyes not on tomorrow's bottom line, but on profits a couple of years down the line. "Do you want them to stop investing and limit market size just to show earnings per share?" he asks.
Wall Street today is saying, "Yes!" But Bonavico isn't worried about the slide in the company's shares, which were down about 10 points at midday to around 70. "It isn't doing that bad," he says.
His red-hot, nearly $200 million fund has been near the top of its category since it opened its doors two years ago. (Bonavico was co-manager before taking over the fund's reins this summer.) The fund bought Amazon at its initial public offering and has paid, on average, about $20 a share for its stake in the company.
The metric to watch going forward is not so much sales or revenue, but the cost of customer acquisition, Bonavico says. "They acquired these customers, served them well. Now what do you do with them? You have to have faith this management is good enough to leverage the customer relationship."
And Bonavico has plenty of faith here in Jeff Bezos & Co. "Not many managers could have done what they've done," asserts Bonavico, adding that his fund has never invested in Amazon.com's second-tier or third-tier competitors. "This is just a short-term issue. Management is much more interested in building the customer relationship."
And if investors, at least for now, seem more interested in the stock's stunning plunge, the large-cap growth fund with the biggest stake in Amazon.com isn't swerving.
Brenda Buttner's column, Under the Hood, appears Thursdays. At time of publication, Buttner held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks or funds. While she cannot provide investment advice or recommendations, Buttner appreciates your feedback at