Why Don’t We Own Amazon?

The performance of Amazon’s stock has been remarkable. This year alone its stock price is already up 24% and it has generated an average annual return of more than 37.5% since it went public 21 years ago.  A $10,000 investment in 1997 is now worth $7.4 million![1]

Jeff Bezos, the CEO of Amazon, once said, “Your margin is my opportunity.”  From its humble beginnings as a book seller it has grown to dominate more than a few categories.  It has decimated the retail sector and it’s looking to conquer the healthcare and freight delivery industries.  When these initiatives were announced it sent several stocks tumbling, stocks such as Walgreens, United Healthcare, and FedEx.

It’s hard to beat Amazon as a stock and a company.  Amazon Prime is a phenomenal service.  I recently went to my local Home Depot to buy a cabinet hinge but couldn’t find what I was looking for, so I logged into my Amazon account, ordered the hinge, and had it delivered to my home the following day.

At a recent account review meeting I was asked by a client why he didn’t own any shares of Amazon.  I told him he owned it indirectly through his mutual funds.  I showed him where four of his funds owned a sizable position in Amazon and this meant his allocation amounted to about 1% of his stock holdings.

Furthermore, I pointed out to him how he also owned Alphabet, Apple, Facebook, Netflix and the other highfliers he repeatedly hears about on CNBC.

We continued our meeting and I asked him if he had ever heard of Douzone Bizon.  He had not.  I said it’s a South Korean company and this year the stock is up 64%.  I told him he owns it through his emerging markets fund.   I then asked him if he knew anything about Ablynx.  He hadn’t heard of this company either.  I mentioned to him that it’s a Belgium company he owned in his international small-cap fund and the stock is up 112% year-to-date.   I mentioned one last company he hadn’t heard of, KapStone Paper and Packaging.  This is a company he owns in his US small cap fund and it’s up 52% so far.

As the meeting progressed, we discussed how he owns several thousand companies from around the world giving him exposure to companies he might not buy on his own.  Individual investors who trade stocks tend to focus on buying shares of companies they know and trust. This isn’t a bad strategy, but it often ignores companies from around the world.  The United States stock market accounts for about 52% of the global stock market capitalization meaning the remaining 48% is outside of our borders.  If an investor only focuses on our market, he may miss out on opportunities found in other countries.

After our meeting my client felt better because he owned shares in Amazon through his funds.  He no longer felt as if he was missing out on one of the great stock market success stories of our time.

If you decide that you’re going to do only the things you know are going to work, you’re going to leave a lot of opportunity on the table.” ~ Jeff Bezos.

 

Bill Parrott is the President and CEO of Parrott Wealth Management an independent, fee-only, fiduciary financial planning and investment management firm in Austin, TX.  For more information please visit www.parrottwealth.com.

2/24/2018

Note:  Past performance is not a guarantee of future returns.  Your returns may differ than those posted in this blog and investments aren’t guaranteed.  Photo Credit: Tom Cross.

 

 

 

 

 

 

[1] Morningstar Office Hypothetical Tool.  AMZN stock price from 5/15/1997 to 1/31/2018.

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