Welcome to the end of the week! Just sit back, relax, and enjoy this weeks roundup in another edition of Happy Hour.
Too often, investors confuse little or no profits with not making money. As this post makes the case, Amazon has no problem making money. It makes piles of it.
Bezos uses all of it to test delivery drones, build phones, Kindles, warehouses, data centers, and whatever else he can come up with to grow market share and expand into new lines of business. Simply, Bezos believes the best use of capital is to plow it back into the business because it offers the best return on that money.
At what point does it become fruitless for Bezos to continue spending every dime on growth? Never is unlikely. Though, I doubt it happens in the foreseeable future either. The current price is betting on continued growth for some time. The market won’t have a calm reaction to the news when it does happen. It never does.
When that spending slows, what will the cost be to run the business? Warehouses and data centers aren’t cheap to run. Inflation won’t make it cheap to replace either. If Bezos keeps those costs under control, inflation will have a much smaller impact on the future success of the business and a bigger advantage over its competition.
Finally, what value do you put on a business like this? I don’t know. I don’t own Amazon, nor have I considered it, but it’s a good case study and a perfect example why you should dig deeper than quarterly reported numbers.
The way the stock price bounces around, investors seem to struggle with whether they agree with Bezos or not. So far he’s been right.
SPIVA releases it’s scorecard results this week which fuels the active versus passive debate twice a year. Once again index funds ruled the day. Keep in mind, many of these active funds are closest index funds in a high cost wrapper. But not all.
There was one exception. Over 50% of international small cap fund managers outperform the index over three and five year periods. But it’s basically a coin flip that you pick the right one.
- Things Got Better, Slowly – M. Housel
- Swedroe: Don’t Invest Without Discipline – ETF.com
- The Error-Proof Portfolio: Is Your ‘Balanced’ Fund Binging on Junk Bonds? – Morningstar
- 5 Lessons from My $650,000 Lunch with Warren Buffett – MarketWatch
- Buffett on Market Valuation – Brooklyn Investor