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Investment Lessons From Jeff Bezos: It’s All About The Long Term

Can you do a perfect handstand?  Apparently, it takes six months of daily practice to master one.  People who think it takes only two weeks are going to end up quitting.

“Unrealistic beliefs on scope – often hidden and undiscussed – kill high standards.  To achieve high standards yourself or as part of a team, you need to form and proactively communicate realistic beliefs about how hard something is going to be,” Jeff Bezos wrote in his 2018 letter to AMZN) shareholders.  “High standards” is the theme of this letter, on which Bezos articulated eloquently using Amazon’s own experience.

Business communities, leadership circles and the like have eagerly awaited this kind of management wisdom every year since Bezos’s first letter in 1997.  And for investors, these letters contain plenty of good lessons on investment philosophy.

Lesson One: It’s All About the Long Term

Bezos has always attached a copy of the original 1997 letter in each of the past 19 letters.  The message is loud and clear: Once you’ve defined the long-term business vision, stay true to it through thick and thin.

Bezos’ long-term vision has been crystal clear since Day 1.  He wrote in the 1997 letter, “We believe that a fundamental measure of our success will be the shareholder value we create over the long term.  This value will be a direct result of our ability to extend and solidify our current market leadership position.”  Amazon’s focus on customers has been central to the company right from the beginning. Bezos used the phrase “obsess over customers” in the 1997 letter to describe this strategy.

Through the years, Amazon has managed to stay on course, as the annual letters testify.  Despite the company’s monstrous expansion, its key strategies remain practically the same as they were in 1997: being customer-centric, pursuing growth and scale, and investing aggressively in infrastructure.

Investors can benefit from the same long-term vision that has served Amazon.  After all, we are looking for sustainable investment returns that will see us through retirement and the years beyond.  That approach doesn’t involve jumping into sporadic investment opportunities with the hope of hitting the jackpot. Once you’ve defined your long-term investment goals, let them guide your decision-making going forward.

True, that’s easier said than done, especially during periods of market euphoria and pessimism.  If you let your investing be swayed by every market gyration, we simply create more opportunities for mistakes.  In the best-case scenario, you’d be taking one step back for every two steps forward.  In the worst case, you could lose everything with one bad call.  Maintaining a long-term vision could save you from these self-imposed risks.

Lesson Two:  Tune Out the Noise

In his 1997 letter, Bezospointedly wrote, “We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.”  This was an audacious statement from a company just five years old.  Actions speak louder than words; in the years that followed, Amazon continued to focus on growing revenue at the expense of profits, and refused to divert its cash toward paying dividends. None of these practices were popular with Wall Street and shareholders, but Amazon stuck to them, tenaciously ignoring naysayers’ opinions.

As investors, we are exposed to “market information” 24/7 – much of it opinion, rather than hard facts. But we may have allowed this information onslaught to influence our investing too much.

Lesson Three: Long-term Growth Is Key

Bezos wrote in 1997, “When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.”  This is a clear commitment to focus on long-term sustainable growth, rather than short-term profits.

We can certainly apply this concept to our own investments.   We’re looking for stocks that can deliver sustainable profits over the long term, without getting distracted by short-term business fluctuations.

These are just three of the many useful lessons that investors can distill from Jeff Bezos’s letters, whether or not Amazon’s stock is your cup of tea. For Bezos, following his own advice has served him well. From its $18-per-share IPO (around $2 on split-adjusted share price) in 1997, through numerous wealth-boosting stock splits, Amazon crossed the $2,000-per-share mark in 2018.   Such is the reward for a long-term vision.


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Disclosure: Wendy So doesn't own any shares mentioned. Motley Fool Hong Kong is not licensed by the Hong Kong Securities and Futures Commission to carry out any regulated activities under the Securities and Futures Ordinance.