Why I'll Never Find The Next Amazon

It sounds great in theory.

Step 1 - Find the next Amazon while it’s still a small and unknown company.

Step 2 - Hold it forever.

Step 3 - Make a bazillion dollars and retire on my own private island.

Let's go ahead and say I did the impossible and got Step 1 right. I say impossible because even Jeff Bezos wasn't sure it would become what it did. In 1995 he told his parents who were early investors that it was “very likely they’ll lose their entire investment in the company..."[i]

Given the founders’ own uncertainty, it would have been hard to give the company my full vote of confidence.

But for argument's sake, let's say I bought it anyway. Now comes the real challenge.  

 Step 2 - Hold it forever. 

 It might sound simple. After all, $10,000 invested when Amazon went public, would have turned into $16 Million today if no shares were ever sold.  

 But it is hardly a straight line of exponential growth. There were many ups and downs along the way.

 If I had bought it when they went public, I would have seen my investment lose 20% of its value in the first 5 days of owning the stock.

Let's say I held on though. Amazon rallied again and then crashed 50% in 1998, rallied and then crashed nearly 60% in 1999. But had I continued to hold on, by December of 1999, my $10,000 investment would have turned into over $600,000!

 And then, less than 2 years later, my $600,000 would be worth less than $35,000 - a decline of over 90%. At this point I would almost certainly assume the company was headed for bankruptcy. 

But let's say I did manage to hold on. It would have taken me more than 8 years to see my investment grow back to over $600,000, all the while experiencing declines of 20% every single year. This kind of up and down would continue, with double digit declines in EVERY single year that I owned the stock from the year I bought it in 1997 through 2020. 

I think we can agree - it would have taken a very dedicated investor, perhaps a little crazy too, to own the stock from $10,000 to $16 Million. But take heart. You don't need to find the needle in the haystack to have financial success, "...just buy the haystack" - Jack Bogle (Founder of Vanguard). 

Thank you for reading,

Alex

This blog post is not advice. Please read disclaimers.

[i] Locke, Taylor. “Jeff Bezos Thought There Was a '30% Chance' Amazon Would Succeed: I Told My Parents 'It's Very Likely They'll Lose Their Entire Investment'.” CNBC, CNBC, 3 Sept. 2020, www.cnbc.com/2020/09/03/jeff-bezos-thought-there-was-a-30percent-chance-amazon-would-succeed.html.