PATIENCE IS A VIRTUE – THE AMAZON STORY
Charlie Munger famously said that, “The big money is not in the buying and the selling, but in the waiting.” Charlie Munger was an American investor, businessman, and philanthropist, perhaps best known as the Vice Chairman of Berkshire Hathaway, a multinational conglomerate led by Warren Buffett. Munger’s partnership with Buffett has been integral to Berkshire Hathaway’s success. He was known for his wit, wisdom, and his ability to distill complex ideas into simple principles, which has been instrumental in shaping Berkshire Hathaway’s culture and investment approach.
Patience is an attribute that is often overlooked in investing, as some practitioners are convinced that constantly adjusting their sails to market winds will yield success. However, the harsh reality is that constant change hinders progress and as aptly highlighted by Charlie Munger patience is the cornerstone of investment success.
Amazon has been the top performing company in the S&P 500 over the past 30 years with an annualised return of 33.6% since its’ Initial Public Offering (IPO) on 15 May 1997. A $10,000 investment at it’s IPO would be worth an eyewatering $24,018,751 today. Assessing the triumph of an investment in Amazon might give the impression of reassurance, suggesting that staying patient and committed was a straightforward endeavor. Yet, conversely, the journey was notably tumultuous for investors, marked by numerous challenges that would have strained even the most resilient of individuals.
As illustrated in the chart below, early backers of Amazon would have seen significant returns as the share price soared rapidly, reaching nearly $5 per share in 1999. During this time, many investors understandably sold their Amazon holdings, likely multiplying their initial investments many times over. However, these gains were short-lived as the share price experienced a sharp decline over the following two and a half years, plummeting to a mere $0.28 by September 2001. Consequently, within a brief timeframe, investors witnessed nearly 95% of the market value wiped out, leading many to believe that Amazon had succumbed to the dot-com bubble.
Source: Lipper. Data as 31 December 2023.
Compounding the challenge of maintaining a long-term investment in Amazon is the fact that after the crash in September 2001, it took almost a decade for the share price to exceed its previous peak reached in 2001 (Refer to the graph below). Consequently, even the most triumphant company listed on the S&P 500 over the past three decades would have severely tested the patience of investors.
Source: Lipper. Data as 31 December 2023
The significance of patience in investing cannot be emphasized enough. Concentrating solely on short-term fluctuations in share prices rather than considering fundamentals and investment philosophy will likely yield unsatisfactory outcomes. In a world where quick fixes are often sought for every minor inconvenience, timeless truths endure, and only investors who possess genuine patience can truly appreciate its value.
