In Search of the Perfect Investment

A few weeks ago I sent Jamie Dimon of JPMorgan Chase an email suggesting he plant a tree for every client (like me) who went paperless. I never heard from Mr. Dimon.

Yesterday I sent Jeff Bezos of Amazon a note asking him to speed up the delivery of a kid’s book, because the kid was visiting. He did. I’ll have the book Monday.

I own lots of shares in AMZN, but none in JPM — even though Chase should be making bundles of money based on how pitifully little they’re paying me for all the cash I have with them.

This may be a miserable way of picking stocks. But how you treat customers seems to my tiny brain to be a critical part of how you succeed in business.

Amazon treats me well. And it’s been a good performer. Here’s AMZN this year versus the S&P 500 (in green):

Last week’s Economist cover was on Amazon:

It had two articles, a leader and the main article:

From the Leader

In the summer of 1995 Jeff Bezos was a skinny obsessive working in a basement alongside his wife, packing paperbacks into boxes. Today, 25 years on, he is perhaps the 21st century’s most important tycoon: a muscle-ripped divorcé who finances space missions and newspapers for fun, and who receives adulation from Warren Buffett and abuse from Donald Trump. Amazon, his firm, is no longer just a bookseller but a digital conglomerate worth $1.3trn that consumers love, politicians love to hate, and investors and rivals have learned never to bet against. Now the pandemic has fuelled a digital surge that shows how important Amazon is to ordinary life in America and Europe, because of its crucial role in e-commerce, logistics and cloud computing

The digital surge began with online “pantry-loading” as consumers bulk-ordered toilet rolls and pasta. Amazon’s first-quarter sales rose by 26% year on year. When stimulus cheques arrived in mid-April Americans let rip on a broader range of goods. Two rivals, eBay and Costco, say online activity accelerated in May. There has been a scramble to meet demand, with Mr Bezos doing daily inventory checks once again. Amazon has hired 175,000 staff, equipped its people with 34m gloves, and leased 12 new cargo aircraft, bringing its fleet to 82. Undergirding the e-commerce surge is an infrastructure of cloud computing and payments systems. Amazon owns a chunk of that, too, through aws, its cloud arm, which saw first-quarter sales rise by 33%.

One question is whether the digital surge will subside. Shops are reopening, even if customers have to pay at tills shielded by Perspex. Yet the signs are that some of the boom will last, because it has involved not just the same people doing more of the same. A new cohort has taken to shopping online. In America “silver” customers in their 60s have set up digital-payment accounts. Many physical retailers have suffered fatal damage. Dozens have defaulted or are on the brink, including J Crew and Neiman Marcus. In the past year the shares of warehousing firms, which thrive on e-commerce, have outperformed those of shopping-mall landlords by 48 percentage points.

All this might appear to fit the script Mr Bezos has written over the years in his letters to shareholders, which are now pored over by investors as meticulously as those of Mr Buffett. He argues that Amazon is in a perpetual virtuous circle in which it spends money to win market share and expands into adjacent industries. From books it leapt to e-commerce, then opened its cloud and logistics arms to third-party retailers, making them vast new businesses in their own right. Customers are kept loyal by perks such as Prime, a subscription service, and Alexa, a voice-assistant. By this account, the new digital surge confirms Amazon’s inexorable rise. That is the view on Wall Street, where Amazon’s shares reached an all-time high on June 17th.

Twenty-five years on, Mr Bezos’s vision of a world that shops, watches and reads online is coming true faster than ever. But the job of running Amazon has become no easier, even if it no longer involves packing boxes.■

For the rest of this leader article, click here.

The main article is headed:

And on the second day…
Can Amazon keep growing like a youthful startup?
Investors certainly seem to think so

Here are some excerpts:

Next month Amazon will turn 9,500 days old. But for Jeff Bezos, the company’s founder and chief executive, it is always “Day 1”. Amazon, he has insisted since its founding in 1994, must forever behave like a feisty startup: innovate aggressively and expand relentlessly.

Adherence to this rule has made Amazon as convenient to consumers as it is feared by businesses which stand in its way. Today roughly $11,000-worth of goods change hands on Amazon’s e-commerce platform every second. The company delivered 3.5bn packages last year, one for every two human beings on Earth. Amazon Web Services (aws), its cloud-computing division, enables more than 100m people to make Zoom calls during the day and a similar number to watch Netflix at night. In all, Amazon generated $280bn in revenues last year.

This year Amazon has become not just convenient, but essential. The smiling brown package left at the threshold as the neon-vested delivery worker backs swiftly away has become the hallmark of the locked-down pandemic. Shopless and officeless life would be unimaginable without deliveries and cloud-based work-and insufferable without distractions like video-streaming. Investors see this as an acceleration of a long-term trend towards life online from which the world will not turn back. “The explosive demand created by covid-19 catapults Amazon straight into 2025,” says Michael Moritz of Sequoia Capital, a venture-capital firm.

Amazon’s market capitalisation doubled to $734bn between 2016 and 2018. Since then it has close to doubled again. Its shares trade at 118 times earnings, compared with 25-35 times for Apple and Microsoft, the other members of the trillion-dollar-company club. Up and down Wall Street, brokers tell clients to hold Amazon shares if they have them, or buy them if they don’t.

No firm bestrides the physical and digital worlds in the way Amazon does. In the physical world, it has a logistics system second to none. The 150m customers who subscribe to its Prime service get all their purchases delivered promptly-as well as perks like free streaming of videos and films-for a flat fee, with same-day delivery in some places. The convenience leads them to shop more. The logistics system is also used to fulfil orders for other companies. In 2018 “third-party” sales accounted for 58% of sales through the platform.

The scale of its retail operation gives Amazon an unparalleled collection of data on the desires and decision-making of hundreds of millions of shoppers-the sort of data that advertisers love. Amazon’s advertising revenues are now $11bn; its 7% share of the global online-ad market is larger than any save Google’s (38%) and Facebook’s (22%).

Read the rest of the article here.

A Failure of Imagination

I rue the day I didn’t buy the land on the hill with a spectacular view.

It had a long driveway and I was fearful of the winter snowplowing bills.

I was wrong. I still dream about the hill.

I still dream about the opportunities I missed in life because I was too lacking in imagination.

Too many of my friends are company men. They spent their entire careers making someone else rich.

Your long-term health depends on how much money you have, and how much stress you suffered along the way — working for someone irrational.

I’ll return to this theme. Meantime, mull your imagintion, please.

Life in the fast lane

The AC doesn’t work. My Subaru is being recalled by the factory.

I wanted to celebrate my quarantine by planting a flowering tree. By the time the landscaper and family had finished, I had four trees, two 25-gallon black plastic watering pans and lifetime job (my job) to water the frigging things.

Why I need to water these four trees when God happily waters all the others? Please explain.

Worse, I’m getting fat. I’m six pounds over. And my stomach is poking out, like everyone else’s.

This weekend, I diet. No bread. No apple turnovers. No Coke. No nothing.

See you Monday, when I’ll be thinner and beautiful again.  — Harry Newton