To spare you the suspense, what “doesn’t change” is obvious when you think about it - people want a good/great deal and fast delivery.
That doesn’t explain AWS (their cloud business). That was a side effect of the online retail business. They had so much server capability for their own business that they decided to resell some of it.
I’m not an Amazon “hater” - I’m more of a spectator/skeptic, and I’m still not buying the stock at this price. (Besides, in some ways, I’m the George Costanza of investing - the day I buy my first share, the stock will begin a steady, gradual fall at best. So Saul should take my not buying as a bullish signal.) For one thing, their free cash flow figures are all over the place. This is from vuru.co:
Sorry for the messed up main title - it should be “AMZN - how Bezos focused on what doesn’t change”, but a typo and lack of space turned it into something bizarre.
I’ve been a long time Amazon customer but not an AMZN investor. I can’t say for sure what kept me out of AMZN, probably the extravagant price. That changed the day I was reading about Bezos’s space program, it wasn’t the excitement of space and technology but the business model, the reusable unmanned rocket. At the end of the day economy beats glitz. Later I saw a couple of his interviews on YouTube which convinced me that he was definitively focused on the right things and I have been buying AMZN on dips.
No stock is an escalator to financial heaven. One must be prepared for a 50% drop in a fast grower like AMZN. One must be mentally prepared to take the right action at the right time. What will you do when the stock drops 50%? AMZN has had some crazy volatility in the past and will probably have again in the future
My position in AMZN is a cop-out. Because I cannot remotely value it, I have no direct investment. However, recently I calculated my indirect investment and found I actually have quite a decent holding! So I delegate this difficult investment to others. It is quite galling I admit, as my admiration climbs along with the share price, but there it is, you have to obey your self-inflicted rules sometimes.
Hi Denny, what an amazing log graph! And over 15 years! And it’s especially impressive when you consider the scale and that it was as low as $7 or $8 back then, and is almost $800 now. Why did I ever invest in anything else?
Great question! It let’s me expound on my investing strategy.
It isn’t enough to know what a chart says, you have to figure out why it is saying whatever it is saying.
In the case of AMZN it is saying “success” but until I got to know more about Bezos I had a hard time justifying the price.
Don’t buy IPOs.
Had you bought AMZN at IPO you would have been underwater for almost three years and more that likely you would have sold and lost money. If a business is going to be sustainably successful there is no rush to buy, there will be time enough. You have to be nimble to catch short term successes but a solid business like AMZN, WMT, and XOM will be profitable for investors for decades. Being the first kid on the block is just taking unnecessary risks, let the stock prove itself first.
Charts talk to us.
I’m not talking about standard charting with its hundreds of “indicators.” I’m talking about panoramic pictures of a stock’s history like Klein chart we are admiring. It is a fantastic condensation of millions or trillions of bits of data about the company and about it’s investors that tells you exactly how you would have fared had you invested. By contrast, value investing expects to evaluate a small subset of these data to use as a predictor of the future. I believe the chart is the more reliable starting point and I stress “starting point” for the reasons stated above, “you have to figure out why [the chart] is saying whatever it is saying.”
I stress this last point because my detractors immediately say I’m acting like a mindless robot following a chart. They have to say so because otherwise they would not have an idea to stand on.
I vividly remember why people didn’t commit to AMZN in the “olden days”. It was tied to an impression that they were not a “gorilla” in the sense that others could replicate what they did by selling goods on the internet…often for less cost to the consumer.
On top of that, they were in constant negative cash flow for many years…many models predicted their business would fail.
But in retrospect…they were much more than just an online market place. But could you/did you see it back then???
But in retrospect…they were much more than just an online market place. But could you/did you see it back then???
Back then we didn’t understand the power of the network effect which operates not just for Gorillas. Somehow Bezos knew to bulk up to achieve the network effect in Amazon’s favor. This cut into earnings and cash flow and in retrospect it was the right strategy but a strategy that would turn off value and risk averse investors. But, as I said earlier, “What’s the rush?”
