Holding on through thick and thin--Amazon

[netnet]

How and why could normal investor (who was not an employee) hold on to Amazon through thick and thin, from IPO to today, or from 2007 to today?

 

There is a great chart floating around (it was in my twitter feed, but sorry couldn't find it.) that showed the returns from holding it at several entry points and the returns were good even if it had been bought at the peaks.

 

Nevertheless the decline from highs to lows were the stuff of legend.  The one from 1999 to 2001 was >90% drop.  In hindsight, of course you can see that holding on was the way to go. But had you bought in 1998 or in 2007, you would have had to have ice water in your veins to hold through those declines. 

 

In hind-sight, you could have had a set rule to buy x amount when it dropped 60%, and non-optimally, sold 1l3 of the position on a triple.

 

I personally don't think I would have lasted through the sturm und drang.  There were all those analysts saying, but where are the profits, etc.

 

You would have to continually steel your self with the ideas that the runway is long and Bezos is a fanatic, but still...

 

 

[no_free_lunch]

TSLA

[Guest ajc]

 

You need to be way more heretical.

 

One small instance.... if you think you've identified a top founder, management team, and market opportunity with a chance to remain competitively advantaged, then you need to be willing to buy loads at or near the IPO. Completely anti-Buffett.

 

To do that, you need an ongoing list of all pre-IPO companies of note where you grade them on every available and relevant variable you can think of. You also need to understand venture capital. Does P/E matter, or do P/S and P/FCF mean more in the early growth stage. These people are trying to capture big market shares, not be also-rans. You need to know what VC's promote in terms of goals and then your valuation thinking needs to use whichever ratio's are relevant to a value investor who might be trying to give that company a fair appraisal knowing what it is they're trying to achieve financially and economically. Scour the internet for leaked financials and build an accurate-as-possible picture of the company from birth.

 

98, 99, and parts of 2000 were the biggest bubble some of us will ever see in our lives. If you look back you'll see all multiples were beyond out of whack, not just P/E. You should focus more on that and what okay multiples of all types are like for top, top growth companies. That way you can tell what's truly overpriced versus what's actually fair for a best-in-class young tech company. People who are blinded by the Dotcom crash, are guilty of the ridiculous extrapolation that every mediocre investor ever has been guilty of. Don't take some crazily extreme, short period of growth or falling stock prices as a guide for your entire investing future. If that's not one of the ultimate investing stupidities, I'm not sure what is. Understand what multiples are genuinely extreme, and which are fair based on the potential you think x company has and where it lines up against every other tech company out there.

 

Basically, you need to imagine yourself as an owner of all these businesses first and a value investor second. Then, use only the tools in your toolbox that are going to improve your perspective on the company in question, regardless of whether Graham, or Munger, or Buffett, have anything to say on the matter or have stone-cold contradicted it in the past. It's your money and your judgement - it has to be down purely to your own thinking.

 

One of the biggest mistake people on this board make when valuing growth companies is they simply parrot technology industry experts or hardcore value investors on everything and then either they've got smart-sounding opinions which they never came up with themselves, or they think it's all a big mystery and therefore stupid and uninvestable. The tech industry doesn't exist so it can meet you on your own terms as an investor, it is for the individual investor who is willing to think independently to meet and measure each individual business on the terms by which it is competing.

 

Be more flexible and open-minded, go learn how the VC industry operates and what it incentivizes, and you'll get far closer to a sensible valuation methodology in the end. It just takes a willingness to learn about those unique dynamics and a curious mind. Also, be less worried about what is or isn't taboo. Your aim should be to have your thinking make sense, not be that it's value investing orthodoxy. You're never going to value tech companies successfully if you can't challenge conventional thinking in a way similar to how the best tech founders do.

 

 

 

[ScottHall]

How and why could normal investor (who was not an employee) hold on to Amazon through thick and thin, from IPO to today, or from 2007 to today?

 

There is a great chart floating around (it was in my twitter feed, but sorry couldn't find it.) that showed the returns from holding it at several entry points and the returns were good even if it had been bought at the peaks.

 

Nevertheless the decline from highs to lows were the stuff of legend.  The one from 1999 to 2001 was >90% drop.  In hindsight, of course you can see that holding on was the way to go. But had you bought in 1998 or in 2007, you would have had to have ice water in your veins to hold through those declines. 

 

In hind-sight, you could have had a set rule to buy x amount when it dropped 60%, and non-optimally, sold 1l3 of the position on a triple.

 

I personally don't think I would have lasted through the sturm und drang.  There were all those analysts saying, but where are the profits, etc.

 

You would have to continually steel your self with the ideas that the runway is long and Bezos is a fanatic, but still...

 

Look up David Gardner. Stock's been a hundred bagger for him.

[benhacker]

I have a fun anecdote that covers some of this ground.

 

I have a client now who was an old co-worker (good guy, good worker, pretty chill, unassuming) who sat down with me for our first consultation to see if we were a good fit for each other.  He started our discussion by saying that he has an unusual financial situation and then told me a story....

 

He had a roommate in college who was the smartest person who he had ever met.  He roomed with him I think 1-2 years, and kind of stayed in touch a few years after (they weren't great friends, but stayed in touch).  The guy then founded a biotech / pharma company and this client took note.

 

Several years later (all these dates are from my memory of a story)... roommate took the company public.  My client bought the IPO or soon after... in his IRA.

 

He told me he sold a tiny bit in the 90's then he thought better of it and then never sold. His initial investment I think was $20-30k.

 

The way he talked about it was so simple.  He just bet on his friend and then rarely checked the prices.  Company was Gilead.  His stake was worth $2-3m at the time he told me the story.

 

As an aside to our discussion about my services, he asked for my opinion on what he should do with that portion of his money and I was kind of flummoxed... I just said, if the reason you bought was for your friend, you should think about selling since he's gone now (left GILD years back if I recall - this story is from several years ago).  But at the same time, I said who am I to give someone advice on a stock I don't follow, that they have clearly ridden to huge gains... (as a side note for the psychologists, I was not going to be managing this money regardless, so I wasn't biased. ;-) )

 

Anyway, the question is how you hold something for so long - my thoughts from the few I know who do or have done this:

- You have faith that transcends #'s (in management, the business, etc, or all of the above - It's a Phil Fisher stock)

- You don't check the price (when you check the price, it implies you will do something with that info... if you don't check, you are acknowledging that it doesn't matter to your decision)

- You make the investment a small enough portion of your portfolio that you don't feel the "risk management pull" to pare back

 

Probably, all 3 are needed in reality.

 

My 2 cents.

[DooDiligence]

 

Anyway, the question is how you hold something for so long - my thoughts from the few I know who do or have done this:

- You have faith that transcends #'s (in management, the business, etc, or all of the above - It's a Phil Fisher stock)

- You don't check the price (when you check the price, it implies you will do something with that info... if you don't check, you are acknowledging that it doesn't matter to your decision)

- You make the investment a small enough portion of your portfolio that you don't feel the "risk management pull" to pare back

 

Probably, all 3 are needed in reality.

 

My 2 cents.

 

That + love & understand what you own

[Jurgis]

How and why could normal investor (who was not an employee) hold on to Amazon through thick and thin, from IPO to today, or from 2007 to today?

 

Tough question. How about simpler one:

 

How and why could normal investor (who was not an employee) hold on to Berkshire through thick and thin, from 1964 to today...?

Would you have held through the 50% declines? And not sold for 50 years?

I could have bought BRK in the 90s and held to now... I did not.

(Aside 1: I thought there were at least two 50% declines, but I only see one in http://www.berkshirehathaway.com/letters/2016ltr.pdf )

(Aside 2: Depending on whether I would have bought BRK in 1995 (~12.X% annualized since then) or 1996 (~10.X%), I have either underperformed or outperformed... let's call it a wash)

 

If BRK is too easy question, how about Teledyne or TCI? Or Microsoft? Or Google for (somewhat) younger folks?

I did not buy-and-hold any of them.

 

Maybe interesting question (another thread?) is: what is your longest held stock and what was the return? Possibly excluding board namesakes BRK and FFH. I might start that.  8)

[KCLarkin]

I thought there were at least two 50% declines, but I only see one in http://www.berkshirehathaway.com/letters/2016ltr.pdf

 

Annual letter only shows calendar year returns. I believe there were 3 peak-to-trough declines.

[CassiusKing1]

Couldn't this conversation apply to Premier Diversified?

[Jurgis]

Couldn't this conversation apply to Premier Diversified?

 

It could.

 

But it's so much easier and fun to talk about something when you know the outcome. With Amazon we do. With Premier we don't.

 

8)

 

I'd be interested what stocks people hold that they need to consider whether they would hold through thick and thin.

 

Let's say thin is stock 50% decline or more or fundamentally business crash 20-30% of revenues and/or very significant drop of income/CF (tough to specify exactly - for some companies 20% income drop is dramatic, for others 100% drop/losses isn't).

 

I'd rather not comment on Premier.

 

FRMO?  8) The answer for that is that I won't hold it through thick and thin.

 

TSLA? I might, but it's not a real investment more like Elon support project. Very small position.

 

FFH? I am holding but sold some and shifted into BRK. Might not hold it through thick and thin.

 

BRK? I think I might - but not through Buffett's death.

 

Liberties? I think I might - but not through Malone's death. These will be tougher to hold than BRK if e.g. we have huge spike in rates, recession and they have trouble refinancing.

 

GOOGL? Tough to imagine what would cause significant stock/business crash. If one came, it might be hard to hold... or not. Not sure.

 

Enough of a list for now maybe.  8)