As the new year approached, AMZN kept rising and so did my anxiety. Coincidentally I was reading Moby Dick at the time and AMZN became my white whale. It was somehow comforting to know that I wasn’t the only one heading inexorably for disaster. Its funny to think, when feeling the pain of these situations, how easy it would be to end that pain with a few mouse clicks. It would be easy if the losses were assured. But when the often vain hopes of a miraculous reversal lurk in the background, things are harder. Especially when those hopes rest on seemingly sound foundations. The valuation of AMZN was crazy, I knew it was crazy, and I was right. I had visions of a crash right after I through in the towel. These tormented me as much as the losses and would be fulfilled.
I made it through the each of 1998 hoping that people would begin to take profits when the new tax year began. I was in for a rude surprise. AMZN kept rising and I began to get margin calls. I closed part of my position after the 3-1 split on January 5th. Then on the 8th, AMZN rocketed 39 points to an intraday high of 199 (597 pre-split!). I had had enough. I bought in the high 190s. Then the final agony: AMZN promptly did an about face, closing about flat for the day and falling almost 50% over the next month.
The AMZN short destroyed 35% of my investment capital in a month. It took a large psychological toll. I tried to console myself that even smart people like the LTCM guys had done worse things, but it didn’t help. Fearful that I would be further shorn of any gains, I sold E-Trade in the 70s. Not bad considering I had bought at 10, but I missed the climb to 200. I did some more fitful shorting. YHOO worked, but Earthweb didn’t. Even though I never got anywhere near the loss I had on AMZN, nor had any margin calls, the debacle had left me too psychologically bruised to hold what would have been a good short.
Even now, whenever a short position turns bad, the AMZN experience lurks in the back of my head. It was an expensive lesson. I’d like to say valuable too, but I’m not sure. In markets with fat tails, it is not inconceivable that I short a company of that market cap (I’d never take that exposure with a small-cap company) and see it triple in a month. But it’s a probably at most a two or three in a lifetime thing. I guess I probably wouldn’t be so fixed in my convictions, so maybe it was valuable. But I try to make sure I didn’t learn the lesson too well and get too skittish.
