Follow The Fortunes

We are always telling our clients to follow the fortunes of the companies that they own, not their share prices. This can be hard when a share price has fallen a lot, because the immediate assumption is that the company is in trouble. Sometimes it is, but often it is not.

If we don't get this point through to you, maybe Jeff Bezos will. He wrote this letter to shareholders in the year 2000 after the Amazon share price dropped by 80%. The dot-com bubble had popped and tech stock prices were all tanking but Amazon was still growing nicely.

The letter starts off with the word "Ouch". Fair enough. Here is the most important paragraph.

"So, if the company is better positioned today than it was a year ago, why is the stock price so much lower than it was a year ago? As the famed investor Benjamin Graham said, ''In the short term, the stock market is a voting machine; in the long term, it's a weighing machine.'' Clearly there was a lot of voting going on in the boom year of 1999—and much less weighing. We're a company that wants to be weighed, and over time, we will be - over the long term, all companies are. In the meantime, we have our heads down working to build a heavier and heavier company".

From July 2000 to today, Amazon has been a 100 bagger. $1000 invested then would be worth over $100 000 today. This lesson should be applied to more recent examples like PayPal, CrowdStrike, Netflix and Meta. If the business is still in good shape, then we should hold on to these stocks and ignore their share prices. Of course, this does not mean they will all go on to be the same size as Amazon. But if one or two do, your patience will be justified.