Date
21 November 2017
A huge jump in Amazon's share price has catapulted its founder Jeff Bezos to the second spot on the global wealth list. Photo: Bloomberg
A huge jump in Amazon's share price has catapulted its founder Jeff Bezos to the second spot on the global wealth list. Photo: Bloomberg

What Amazon’s success has taught investors

Amazon boss Jeff Bezos may soon become the world’s richest man given the pace of gain in his company’s share price.

From its beginnings as an online bookstore to the current phenomenon as an e-commerce and cloud services behemoth, Amazon’s growth can be considered a business miracle.

Share price of the tech giant has risen more than tenfold over past ten years. If compared to its initial public offering price, the gain — 480 times — is even more impressive.

The success of Amazon and the ensuing share price surge has transformed market views on the firm’s valuation.

Over the years, Amazon has posted minimal profit because it kept plowing the cash back into its operations. The hefty upfront cost of new business initiatives often ate into the bottom line.

But regardless of the high price-earnings ratio, the shares have surged as investors cared more about the long-term potential.

If one day Amazon starts to pay dividend, it might actually signal the end of its growth story.

The rise of Amazon has led to a downfall of numerous offline retailers in the last decade, which saw their shares badly underperforming.

Somewhat ironically, investors who adopted the traditional investment concept to buy cheap, value stocks such as those retailers have suffered heavy losses while those who bought “expensive” Amazon shares enjoyed huge gains.

If there is a lesson from Amazon, it should be about the importance of looking beyond one or two years of profit.

To win in this world of fast-changing technologies, investors need to focus on evolving trends and projecting how things may change in five years’ time.

Then ask the question: Is the business model of a certain company going to become obsolete?

Simply speaking, investors should seek quality investment rather than value investment.

Buy and hold strategy may not work anymore. Instead, wading across the stream by feeling the way is the right approach.

This article appeared in the Hong Kong Economic Journal on May 9

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RC

Director, Asset Management at Ample Capital Limited.

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