Today's daily dispatch from Casey Research shared few perspectives on the market crash that started with the Shanghai sellout. For the uninitiated on the topic, China’s stock market sank 8.5% lower. It was the largest single-day loss for Chinese stocks since 2007!
Let's look at the trend of the HANG SENG INDEX for some perspective.
BTW, the above plot can be generated using R with the following code:
require("quantmod") getSymbols("^HSI") chartSeries(HSI)
My favorite lines (from personal experience) are below (and yeah! I really went short on AMZN a long time back! and got burned!)
Chris Wood agrees that Amazon and Netflix are expensive…
But that doesn’t mean you should bet against them.
Chris says you shouldn’t short a stock just because it’s expensive:
Amazon and Netflix are overvalued based on traditional metrics…
Amazon’s sales have been growing like wild, but it doesn’t make any money. Amazon has lost $200 million over the past four quarters. It doesn’t have any earnings so Amazon doesn’t have a price-earnings (P/E) ratio.
Unlike Amazon, Netflix actually makes a profit. But it’s still wildly expensive. Netflix has a P/E ratio over 200.
However, I learned long ago to never short a stock based on valuation alone. An expensive stock can keep getting more expensive for months or even years.
The bottom line: don’t short a stock just because it’s expensive. Only short a stock if you know of something that could trigger a sell-off.
And yeah! Here is Amazon's stock trend just for some perspective! It went one way! UP!