AMZN: Sell or Hold the Overvalued Stock?

As my investments add up (now valued at $298k) I’m trying to make smarter moves when it comes to (mostly) holding and yet selling when all signs point to it being time to let go of a stock. In the case of AMZN, this seems to be one of those times.

AMZN — which I have $3897 in at the moment, a nice 89% gain from my initial $2100 investment — yet the stock sticks out in my portfolio list like  sore thumb due to its 835 PE. Given slowing growth I’m fairly confident that the stock will continue to retreat in value for the remainder of 2014. Starbucks is the only other stock anywhere near this and that’s at a 253 PE. Compare this to AAPL at 16 and GOOGL at 30 and one can say that AMZN is probably overvalued right now. Don’t get me wrong, I think Amazon is a great company, but the stock market has been a bit too kind to it. Now, like many holders of AMZN, I’m trying to decide what to do.

In 2014 I already have over $4000 of capital gains due to my selling of more AAPL stock earlier in the year to further diversify. Good problem to have, right? Well, I don’t want to be stuck with a giant tax bill at the end of the year, especially given my unstable job situation.  To sell it, however, will be taking a hit on another $2000 or so in long-terms capital gains taxes, which is a few hundred dollars, not counting California state tax rates.

For someone who understands investing better than I do, I bet they’d do something like short AMZN to hedge their current position versus selling. If only I knew how to do that!  I think for now I’m going to avoid any fancy schmasy investing methods and just decide whether to keep AMZN in my portfolio or sell it before it drops more. I just don’t have many capital losses to offset gains this year, which I guess is a good thing, but then that means much more tax.

Meanwhile, I just ready how if you own a house the first $250,000 of gains are not taxed AT ALL. What? That seems like a really good deal, though theoretically your  house can lose money and if you’re not super wealthy chances are you can’t diversify when you are a homeowner, at least not for many years (probably never in California!) So it’s sort of a put-it-all-on-red move, except you are also living in your home at least.

Now if I ever want to buy property I’ll have to pay a ton of capital gains tax, which really makes my networth a lot less than it is on paper. I wish there were some good educational materials for how the non-1% can find tax loopholes and such to not waste so much money on taxes. $17,500 tax deferred annually on the 401k limit is not at all enough.

So what do you think, should I sell or should I hold onto AMZN?

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11 comments

  1. james says:

    I hope you’re still holding on. I sold amazon today at 342(bought at 314). I’m hoping for another dip, but now may think it’ll run up as the holiday season approaches. Most of my portfolio is in boring dividend stocks too.

    1. James says:

      Hope you held onto your amazon shares.Love this stock. Goes below 300 and then skyrockets to 360. Sold today, but wish bought more below 300. Hope it dips below 320 again.

  2. Even if you sell it and just pick some boring dividend stock that will not really move much but provide some security in your portfolio it may be worth considering. That’s sort of what I’m doing now. Selling off the riskier assets if they make any small runs and parking the money somewhere else. That strategy served me well with a lot of the 3D printing stocks I used to own, but then it also backfired on me a little with Netflix. I wish I still had that one but oh well, you can’t win them all.

    I’m in the same boat on AMZN, I could sell it and walk away, but for now I’m sort of looking on where to place new money. I have been considering building up a little cash reserve in case there’s a pull back, that way I’ll be ready to jump on something new if the opportunity arises.

    It’s not what you make, it’s what you keep. If you think the price is high and it’s only going down, then maybe you should jump ship.

    1. Joy ( User Karma: 0 ) says:

      I know. I’m so diversified that I already have so many boring dividend stocks that it’s fun to keep a few risky ones. I just feel like AMZN can’t go up forever. It’s not like AAPL. It’s PE is too high right now and all that I’ve read says its fundamentals do not at all match the PE expectations even though they’re a good company. But it’s only $3k invested in it right now — if I sell I have to pay tax on it, which I guess is just $150 on the $1000 gain, but still. It might be a company that I should hold onto for 30 years…

      1. It sounds like this AMZN money is kind of like fun “let’s go pick the next unicorn stock.” If that’s the case then I would find what you would buy with new “unicorn” money. If you find something you really like then you can decide if you like AMZN more or your new investment idea. If you want to keep AMZN still then you have your answer, if you like the idea of this new company then go with that.

        Keep in mind that you can always take some of your boring dividend investments and push it back into AMZN later if it pulls back.

        One thing that I realized recently is being scared to sell an investment because of the tax implications is a poor reason to hold onto something for too long.

  3. james says:

    I wouldn’t call it day trading, since I’ve bought and sold typically over a month or two months period. Also, I only buy/sell at max 5% or my networth with these types of speculative trades. Most other investments are long term buy & hold. I consider amazon and other internet stocks such as facebook, twitter, and linkedin to be momentum stocks. The fundamentals doesn’t make much sense presently, but it makes investing/gambling more exciting. I don’t worry about taxes. I’d rather have gains and pay taxes rather with these trades rather and worry about capital gains with long term holds. Anything is better than tax write off though. Good luck!

  4. james says:

    For the record, I trade amazon. Probably not the smartest thing to do, but it’s a volatile stock, so I buy when it goes below 320 and sell once it’s above 335

    1. Joy ( User Karma: 0 ) says:

      I’ve never done day trading. Don’t the taxes cause you to take a big hit, or do you think it’s still worth it? I’m tempted to day trade but I feel like I’d lose a lot of money in the end.

  5. james says:

    If you’re a married couple, as long as you lived in a home for 2 years, you can keep up to 500k in profit tax free. However, you would still have to pay state income tax in California

  6. james says:

    For an investment of less than $4k, why not just hold it unless you need the money, have a better investing alternative(cash or other purposes), or feel the company is overvalued. Hold it as long as Bezos is the boss.

    1. Joy ( User Karma: 0 ) says:

      Because I think it’s super over valued. I would immediately put the cash into another investment, I’d just lose the tax. The question I have is – will the tax be more or less than the loss and respective gain I’d have on a different stock. I don’t think AMZN is going to 0 but I could see it wiping out all the gains on the $2100 investment.

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