Conclusion on Amazon.com, and a word on intelligent fanatics

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I hope you enjoyed my first two posts on Amazon.com. If you missed them, you can read them here:

Why Amazon.com scares, and fascinates me – Part 1

Why Amazon.com scares, and fascinates me – Part 2

The focus of these two posts were the disruptive nature of Amazon.com. I looked at how reading a few books on Amazon.com had been enough for me to evaluate my current portfolio, and to put on hold any future investments. I really felt that I needed to fully grasp what Amazon.com has become, and more importantly what it will become in the future.

The impact of Amazon.com extends far further than the impact it has on retailers, and the online stores vs bricks and mortar debate. Among many others, it includes the impact on manufacturers and consumer brands. Does Proctor & Gamble have the same value it used to?, when a company like Dollar Shave Club can so quickly take away market share in the razor blade market, largely using Amazon.com for distribution.

So I hope I have been able to convince you that Amazon.com is a factor to consider in making any future investment decisions. I am not an Amazon.com basher in that I like the convenience of their service, which I must say is very good and efficient. I do take the point that they have put many small independent stores out of business, especially book stores for example which I am sad about, but my question here would be, was this because of Amazon.com or because of changes in technology? If not Amazon.com then surely somebody else would have done the same. Amazon.com did not invent the internet or e-commerce, but you could argue they have perfected it. There are other issues like them not paying tax in certain jurisdictions/countries, but that is not within the scope of this post.

Lastly, before moving onto Jeff Bezos himself, I think a quote from the everything store book by Brad Stone sums up my reasons for considering Amazon.com as a factor to consider in any future investments. “Amazon may be the most beguiling company that ever existed, and it is just getting started. It is both missionary and mercenary.” And if that was not enough to get you worried, he continues to say “It will continue to expand until either Jeff Bezos exits the scene or no one is left to stand in his way.” Ouch!

Jeff Bezos, the intelligent fanatic

It was Warren Buffet’s business partner Charlie Munger who first coined the phrase ‘intelligent fanatic’. He used the phrase when describing business CEO’s who were fanatically building businesses, and who had the necessary intelligence, focus and energy to rise above competitors. He used the example of Sam Walton who, starting at the age of 44 and with one store in Bentonville, Arkansas, went on to build the massive retailer that is Wal-Mart. You would quite simply have to be fanatical to build such a big business so quickly. I read Sam Walton’s autobiography Made in America, and remember reading how he would be in the office at 4am, even on a Saturday! He was a retailing genius, but it was combined with fanatically hard work, focus and energy.

Jeff Bezos is without doubt also an ‘intelligent fanatic’. Starting Amazon.com in 1994, out of his garage, he has built it into what it is today. Not without help of course, because he had the foresight to hire only the most intelligent people right from the beginning. He is not easy to work for and drives people extremely hard.

However, reading the various books and articles about Jeff Bezos, the central theme is that he was fanatical about the customer having a good experience. In the early days, the book chain Barnes & Noble said they would crush Amazon.com. Jeff Bezos told his staff to wake up scared, but not scared of Barnes & Noble, but of not satisfying a customer. He has always been fanatically obsessed with the long term and doing things which will make Amazon.com a better company at the expense of short term profits.

I have recently been reading all the annual shareholder letters written by Jeff Bezos since 1997. He still includes the 1997 letter with each years annual report, because the vision was set then. He said then that the emphasis is on the long term and he wants to build a company with scale, before he worries about profits. The stock was punished for a long time because profits were slow in coming, but his vision has been validated. You could also have bought the stock in 1997 for under $5. Now you will pay around $760. So a $10000 investment in 1997 would be worth around $1.52m today. Even in 2007 you could have bought the stock for around $40.

I am now spending a lot of time looking at past annual report letters and articles on CEO’s, and trying to identify a future ‘intelligent fanatic’. It needs to be in an area that you are comfortable with. I for example would not be looking at a fanatical CEO of an auto stock. I may however look at a list of beverage businesses or retailers, and see who stands out.

You need to look at your own strengths, and be a little fanatical yourself in uncovering a great business, led by an ‘intelligent fanatic’. There are other future Amazon.com’s out there, although perhaps in other industries.

I must just add my appreciation to Ian Cassel here, whom I follow on twitter (@iancassel). I learnt the concept of an ‘intelligent fanatic’ by reading some of his posts, and he is writing a book on the subject which is being released on 15 September 2016. The book is called Intelligent Fanatics Project: How Great Leaders Build Sustainable Businesses. I am sure it will be an excellent read based on what I have read so far on his website.

Conclusion

Part of my reason for starting this blog was that it concentrates ones thoughts, and is a sort of memo to yourself.

So to conclude, the three main lessons I have learnt from writing these posts are:

  1. Amazon.com is a formidable company, you need to consider them whenever investing. Think of industries that have not yet been affected. I read recently that they are making inroads into the auto business. This list will get ever longer.
  2. Jeff Bezos is an intelligent fanatic. Finding an intelligent fanatic early, may lead to a life changing investment. Look at what CEO’s say in their letters, and then also what they do.
  3. Amazon.com may be an expensive stock, but I for one will be keeping an eye on it. It has been going 21 years, it is still a young company. It is run by an intelligent fanatic. Perhaps a great opportunity is still staring us in the face.

Lastly, if you know of any other fanatics, let me know. Who says investing is not interesting!

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