Jeff Bezo's Amazon is like Warren Buffett's Berkshire but younger, faster and more risk taking

I bought some Amazon stocks not so long ago when it was around $1,500.

I clearly understood why I never bought it until then…

Valuation…

I have been owning Alphabet for some time. The decision to own Alphabet was easy.

I could not live a day without Alphabet’s products. Google, Google map, Youtube…

Also it made cash flows and valuation has always been compelling.

Amazon? I occasionally purchased stuff from Amazon.

The quality of the stuff was ok (compared to stuff that I get from elsewhere. Costco maybe?) and I could get by without ordering stuff from Amazon.

Liked that I could read reviews before making purchases and fast delivery. I live in Toronto so the free delivery was made within 1- 2 days at most of the time.

I also like Jeff Bezos.

That was about it though.

Then one day, I realized during 2019 planning review that the fintech company that I work for will spend about $1M in AWS in 2019 then it will only grow higher to manage all the data that we produce. Also that our CTO made a request to me to set up AWS expenses having its own locked-in dedicated credit card so that other credit card expenses do not get co-mingled to prevent interruption of the services.

Around same time, Amazon started generating tones of cash and that’s when I jumped in.

I am like 10 years too late right?

Hard for me to invest in companies without cash flows. I saw Amazon’s growth coming but never sure how they convert that growth into cash flows and that probably was primary reason (along with its crazy valuation) why many investors never bought Amazon (thus missed the boat for years).

Look at the growth of Amazon. Very unpredictable net incomes but revenue and cash flow growth have been relatively more predictable.

You know what? Valuation is getting more reasonable. As of now only 30 times cash flows and cash flow grew close to 70% last year (with 29-30% of revenue and cash flow growth on average for last 10 years).

If they pull that off again next year, the valuation will be like 18 times cash flows which is unheard of in this close to $1 trillion giant.

I know that the same growth won’t be seen anytime soon (or never) and I hope that Jeff keeps investing that cash flows into the business for next AWS.

But you understand the math now that I could not figure out for a long time.

Markets make me humble. I never thought making money in the markets are easy but it is more difficult than I imagined.

My investing strategies have changed 5 to 6 times so far last 5 years or so and I constantly adapted after accepting my failures and at least learn something from them.

Lessons of not investing in Amazon made me tweak my portfolio management style a bit.

I started putting some money on stocks showing explosive growth while making sure I feel comfortable with the jockey.

Yesterday, I printed out all of Jeff Bezo’s shareholder letters and read the whole things in one sitting.

I had been shooting myself in the foot for not reading them all together until yesterday.

I had the similar sensation when I first read through Buffett’s letters.

Here is the link to all of Jeff Bezo’s letters since inception. I would recommend you to read some or all of them.

Amazon 1997-2018 Shareholder Letters

I found below quite refreshing as well.

I learned from my own experience that right tones from the top management are extremely important for companies to be successful.

Amazon explained their principles in their website.

Amazon’s Leadership Principles

We use our Leadership Principles every day, whether we’re discussing ideas for new projects or deciding on the best approach to solving a problem. It is just one of the things that makes Amazon peculiar.

Customer Obsession

Leaders start with the customer and work backwards. They work vigorously to earn and keep customer trust. Although leaders pay attention to competitors, they obsess over customers.

Ownership

Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own team. They never say “that’s not my job”.

Invent and Simplify

Leaders expect and require innovation and invention from their teams and always find ways to simplify. They are externally aware, look for new ideas from everywhere, and are not limited by “not invented here”. As we do new things, we accept that we may be misunderstood for long periods of time.

Are Right, A Lot

Leaders are right a lot. They have strong judgment and good instincts. They seek diverse perspectives and work to disconfirm their beliefs.

Learn and Be Curious

Leaders are never done learning and always seek to improve themselves. They are curious about new possibilities and act to explore them.

Hire and Develop the Best

Leaders raise the performance bar with every hire and promotion. They recognize exceptional talent, and willingly move them throughout the organization. Leaders develop leaders and take seriously their role in coaching others. We work on behalf of our people to invent mechanisms for development like Career Choice.

Insist on the Highest Standards

Leaders have relentlessly high standards – many people may think these standards are unreasonably high. Leaders are continually raising the bar and driving their teams to deliver high quality products, services and processes. Leaders ensure that defects do not get sent down the line and that problems are fixed so they stay fixed.

Think Big

Thinking small is a self-fulfilling prophecy. Leaders create and communicate a bold direction that inspires results. They think differently and look around corners for ways to serve customers.

Bias for Action

Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking.

Frugality

Accomplish more with less. Constraints breed resourcefulness, self-sufficiency and invention. There are no extra points for growing headcount, budget size or fixed expense.

Earn Trust

Leaders listen attentively, speak candidly, and treat others respectfully. They are vocally self-critical, even when doing so is awkward or embarrassing. Leaders do not believe their or their team’s body odor smells of perfume. They benchmark themselves and their teams against the best.

Dive Deep

Leaders operate at all levels, stay connected to the details, audit frequently, and are skeptical when metrics and anecdote differ. No task is beneath them.

Have Backbone; Disagree and Commit

Leaders are obligated to respectfully challenge decisions when they disagree, even when doing so is uncomfortable or exhausting. Leaders have conviction and are tenacious. They do not compromise for the sake of social cohesion. Once a decision is determined, they commit wholly.

Deliver Results

Leaders focus on the key inputs for their business and deliver them with the right quality and in a timely fashion. Despite setbacks, they rise to the occasion and never settle.

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