Jeff Bezos ‘Lost’ $12B In The Last 12 Days. Here’s What That Tells Investors

MUMBAI, INDIA – OCTOBER 16: Amazon CEO Jeff Bezos, right along with American news anchor Lauren … [+] Sanchez poses for photographs during a blue carpet event organized by Amazon Prime Video in Mumbai, India on January 16, 2020. (Photo by Imtiyaz Shaikh /Anadolu Agency via Getty Images)

Anadolu Agency via Getty Images

The $13 billion increase in Amazon AMZN CEO Jeff Bezos’s net worth on July 20 now has social media atwitter.

Yet Bezos’s net worth is well below its peak. Based on the decline in Amazon’s stock price — which peaked at around $3,344 on July 10 — Bezos has since experienced a $12.2 billion non-cash decline in his net worth.

I think investors should try to understand why Amazon — which as of July 21 had dropped 6.2% from its peak — and other large capitalization technology stocks are down since their July 10 highs.

The short answer: a powerful group of investors is selling shares of big technology companies as news of progress on Covid-19 vaccines spurs optimism that beaten down shares of social-density dependent companies will soar.

(I have no financial interest in the securities mentioned in this post).

To be sure, Amazon’s stock has suffered less than some other big tech companies. Since peaking around July 10, Netflix NFLX is down 15%, Zoom Video (-7.5%), and Salesforce CRM (-6.4%). Prices of other big cap tech stocks — Facebook (-3.2%) and Microsoft MSFT (-3.2%) — have declined less than Amazon.

Bezos’s Net Worth Rises 8% On July 20

Social media is abuzz — putting ‘Jeff Bezos’ in the number two “what’s happening” slot on Twitter Wednesday morning.

That strong position flows from a report that Bezos added $13 billion to his net worth — Amazon shares rose 8% on July 20 — “in 24 hours Amazon shares continue to surge amid the coronavirus pandemic,” wrote the Independent IBTX , increasing his net worth to $189.3 billion.

Bezos has not been as charitable as other wealthy people. The Independent noted that Warren Buffet has given about $34.5 billion to charity since “vowing to donate all his share in the company” and that the Bill and Melinda Gates Foundation has donated $46 billion to charitable causes.

Compared to them, Bezos’s 2018 fund to donate $2 billion to education programs for homeless people and a 2020 pledge to contribute $10 billion to tackle climate change looks like thin beer, in the minds of critics, according to the Independent.

Why Are Big Cap Tech Stocks Down Since July 10?

Although Netflix’s plunge is based on something tangible — namely a mixed earnings report which I wrote is a buying opportunity — there have not been any convincing explanations for the selloff in these large capitalization technology stocks. Jim Cramer described the drop as “profit taking,” reported CNBC.

He also referred to the decline in those stocks as giving him some stress relief. “We needed a breather. The market can’t go up every day without some sellers coming out of the woodwork. This is exactly, though, the kind of pullback I’ve been waiting for, so we have to use this moment to regroup and figure out the market’s next move,” according to CNBC.

Here is another guess as to why large capitalization technology stocks have taken a hit since July 10: good news on Covid-19 vaccines causes a powerful group of investors to sell big technology companies and buy shares of social-density-dependent companies — including cruise ship operators, airlines, hotels, concert venue operators, and clothing retailers — that have lost value because of global quarantining intended to slow the pandemic.

Consider the rise in the shares of these social-density-dependent companies on July 15 when Moderna published positive news about its Covid-19 vaccine candidate in the New England Journal of Medicine.

As AP reported, that day, “Royal Caribbean Cruises RCL surged 21.2% to lead a group of stocks that stand to gain if shoppers and travelers get back to life as it was before the pandemic. American Airlines AAL rose 16.2%, Gap GPS jumped 12.7% Live Nation Entertainment LYV rose 11.7% and Hilton Worldwide added 10.1%.”

Meanwhile one analyst hinted that investors might be shifting away from big cap tech stocks that benefit from the Work From Home (WFH) economy.

The news caused the Russell 2000 index of small-cap stocks to “jump 3.5%, a turnaround from earlier months when big, tech-oriented companies were carrying the market,” according to AP.

Sam Stovall, chief investment strategist at CFRA said, “It’s not just the behemoth tech stocks that are likely to lead share prices higher, but that mid- and small-cap stocks will also benefit, not only from an economic recovery, but also from very low interest rates,” noted AP.

That was bad for the WFH winners such as “Clorox CLX , Netflix and Amazon” which all fell on July 15.

What Should Investors Do?

If this theory is valid, I expect the WFH winners to rise on any negative Covid-19 vaccine news while social-density-dependent shares tumble. And good news on Covid-19 vaccines should have the opposite effect.

But I would ignore these short-term fluctuations and focus attention more on whether companies beat revenue and EPS growth expectations while raising guidance above what analysts are forecasting.

If Amazon beats and raises on July 30 —when it reports second quarter results, I expect Bezos’s net worth to surpass its record high.