Motley Fool: A mighty river Indeed

Amazon (Nasdaq: AMZN) recently turned in its first quarterly loss since 2015, and its stock was recently down a whopping 43% from its high in July. Is the company in big trouble? Should investors steer clear? Not at all.

Amazon’s loss occurred in a tumultuous period. Russia’s war on Ukraine has sent fuel prices soaring. Management has noted that the cost to ship overseas containers has more than doubled from pre-pandemic levels, and inflation pressures collectively added $2 billion in expenses compared to last year. Amazon’s net loss also reflects $8.2 billion in unrealized losses from its stock investment portfolio. Without those factors, Amazon would have netted billions in profit.

The company still benefits from an ironclad competitive position in the e-commerce industry. Its marketplace accounted for 41% of online retail sales in the U.S. last year, far more than the next 14 retailers combined. The company has an extensive fulfillment and logistics network, giving it much control over shipping costs and delivery times. It also dominates the cloud computing industry, and it is gaining ground in a third high-growth market: digital advertising.

Amazon’s stock, recently trading at 2.3 times sales – its cheapest valuation in the past six years – looks attractively priced for long-term investors. (John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors.)

Ask the Fool

Q: What does the time value of money refer to? – J.A., Clinton, New York

A: It’s a concept from the business world that assumes that a dollar today has more value than a dollar in the future. That’s partly because of inflation eroding purchasing power over time, and partly because investing today’s dollar can make it worth more in the future. (Test the concept for yourself: Would you rather receive a dollar today or a dollar in five years?)

Stock analysts and business school students incorporate the time value of money when performing complicated discounted cash flow, or DCF, analyses to arrive at an estimate of the intrinsic value of a company or stock. (There are also simpler ways to estimate a company’s value, using metrics such as a price-to-earnings (P/E) or price-to-sales ratio.)

A DCF analysis features estimates of how much cash a company will produce over time, with future earnings discounted at a “discount rate” that’s essentially the rate of return investors would expect.

Q: I’m thinking of relocating in retirement. Where can I look up the cost of living in various cities? – C.L., Phoenix

A: Try clicking over to Numbeo.com/cost-of-living – it provides the cost of living in many cities and countries. It offers some detailed category breakdowns, and you can compare locations. For example, it recently showed Atlanta with rent prices and grocery prices 12.6% and 7.8% lower, respectively, than those in Denver.

A little searching online can turn up more cost-of-living calculators – some including health care data, which is important for many people, especially those in or near retirement. MyMove.com/cost-of-living provides specific examples of health care costs for cities in the United States.

My dumbest investment

Back when oil crashed in 2016, I invested in several oil company stocks near their lows and enjoyed amazing initial returns. I was somewhat in love with them, so I hung on. (I wasn’t well-diversified, either.)

I held on through my mom’s death, a bad breakup and an international assignment in Asia – all without paying much attention to the stocks. Neglecting my portfolio turned my big returns on timely investments into big losses.

When I couldn’t keep track of my stocks, I should have rolled everything into cheap index funds until I could actively manage my portfolio again. I’m not saying you need to watch the markets every day and trade frequently, but you should be on top of your investments enough so that you can modify your strategy if necessary. If something happens where you have to be hands-off for a while, it’s better to either diversify well in safe companies or move to index funds. Obviously not diversifying was my other big mistake. – A.N., online

The Fool responds: We can’t add much to the problems you noted and the solutions you suggested. Low-fee index funds such as the SPDR S&P 500 ETF (ticker: SPY) will serve most of us very well, requiring little attention.

Note that there are no “safe” companies – but healthy and growing established businesses with solid track records in defensive industries require less attention than other businesses.