Let’s start with Amazon, a long term holding in the fund.  Amazon.com Inc. (AMZN)’s third quarter of 2014 was very disappointing. Amazon’s stock was down over 10% since mid-July and experienced a $437 million operating loss for the 3rd quarter. This can be attributed to the write downs taking place for the Fire Phone which cost Amazon $170 million in inventory charges.

The Fire Phone is Amazon’s version of the smart phone that competes with Samsung and Apple for market share. The Fire Phone debuted at $199 but the price was slashed to 99 cents just weeks after it was introduced. The enormous impact of the Fire Phone failure is evident in how Amazon’s spending exceeded their sales for the 3rd quarter.

Amazon remains hopeful that sales will pick up as they approach the holiday season, which historically has been their most lucrative time of the year. But, they have scaled down their holiday season projections which has resulted in decreased investor confidence. The short term, seasonal outlook for Amazon remains unclear, and it will be important to track and analyze how Amazon responds to the Fire Phone catastrophe. 

I would suggest holding on to the stock until we see 2014 holiday seasonal results so that we may start to see if there is an upward trend in retail sales and margins. By doing this, we could wait for the stock to increase in price and then decide if we want to sell the stock and get out, or ultimately wait a little longer into 2015 to see if profit margins improve and then sell the stock. I think we should sell the stock, but it is just a matter of timing to determine how long we should wait.

The second holding I want to talk briefly about is Chicago Bridge & Iron Company (CBI), purchased in April 2013. CBI is a large multinational conglomerate engineering, procurement and construction company. It specializes in projects for oil and gas companies and is known for managing some of the largest onshore pipeline projects and large bulk liquid terminals and storage tanks. It designs pipelines for crude oil, natural gas, refined petroleum products, and various other chemicals.

The company has experienced over a 48% decline in stock price from the April 2014 high price to the October low of $43, which has raised investor skepticism about the potential of CBI stock.

Interestingly enough, Warren Buffet has purchased additional shares of CBI this year, and this came days after short sellers drove down the price of the stock by postulating that CBI was artificially increasing their earnings. Berkshire Hathaway is the largest stakeholder with a holding of 9.88% of the stock and could likely purchase more shares to increase their holdings.

Meryl Witmer, a Berkshire investor and director, explained that CBI stock “rallied almost 80 percent in 2013 and extended its gains at in the first quarter, closing at $81.75 on March 31”. It appears that investors remain unsure of what to conclude about the long-term potential of CBI stock, but Berkshire has used this uncertainty to their advantage and we will see how this pans out in the long-run.

It is tough to decide what the Alex. Brown program should do in regard to this stock. I would suggest holding the position until we review the 2014 Q4 results. I think there is a lot of potential for this company and that it will be beneficial to purchase additional stock in the future.