There’s a way to invest in Amazon at 1997 prices
Take a modest sum of money, put it into a shrewd investment and watch as it multiplies in value.
Here at Agora Financial UK, it’s the job of my colleague Sean Keyes to help you make that ambition a reality. He specialises in small caps – tiny but fast growing companies that offer much bigger gains potential than the familiar names of the FTSE.
He’s been working on a special project over the last few weeks. And now it’s almost ready to share with a select group of readers.
I sat down with him for a chat to find out more.
Ben Traynor: So Sean, what’s this special project?
Sean Keyes: In a word, Ben, it’s all about Amazon.
BT: And in a few more words?
SK: Ha ha! OK, to kick off, imagine you’ve just stepped back in time to 1997. Amazon’s just had its IPO, meaning it’s the first opportunity for ordinary members of the public to buy the shares.
Now, with hindsight, obviously you’d buy them. That’s obvious, they’re up 84,000% over the last 20 years. It’s my contention though that even at the time there was enough information to spot the potential.
Now, obviously that’s easy to say after the fact. It’s not interesting.
What is interesting is that despite all that growth, Amazon has barely got started. That means there’s a great opportunity today to profit from what Amazon does next. Not by buying Amazon itself, but by getting into companies that are at the same part of their growth story that Amazon was at in 1997. Right at the very beginning.
BT: Sounds intriguing. And I will be asking you more about those smaller companies. Before that, though, I just wanted to pick you up on something. You said it’s your contention investors could have seen Amazon’s potential even at the time of the IPO in 1997. Can you elaborate on that?
SK: Sure. OK, so even before it went public, people inside the company could see the potential. One of its lawyers in the early days got special dispensation from the state bar to buy the shares, he told his family, some of them bought, some didn’t and regretted it… but the people who were close to Jeff Bezos, who worked with him every day and saw how focused he was on driving his vision forward, they bought in.
So that shows you had an inkling if you were inside the company. But even if you weren’t… what was easy to see and what most people got was that the internet had huge potential. And if you saw the potential of the internet for retail, then you would have been drawn to companies like Amazon who were operating in that arena and selling things online.
Why Amazon in particular? Well, there were three things about selling books, which was Amazon’s main thing back then, that made it a perfect business for the internet:
- There are loads of different books. That meant a huge range of products, which is naturally suited to a business with infinite shelf space;
- The existing book industry at the time had very high margins;
- There were only two major wholesale distributors of books in the US at the time, which made the admin easier when it came to sourcing supplies. Also, books are relatively small and robust and they don’t break when you send them through the post.
- You don’t need to hold and feel a book out before you buy it.
So if you saw all that in 1997, you understood the power of the internet and the way it was going to grow exponentially, and you maybe researched a bit about this guy Jeff Bezos and bought into his vision, you could have got into Amazon very early on with a lot of conviction.
Obviously there was lots of work still to do, Amazon had to sort out its logistics in the early 2000s… a lot of investments and acquisitions have been made since then… a lot of things went right that could have gone wrong. Although also, some things did go wrong and Amazon stayed standing and kept growing.
But if you look at what Bezos was saying about Amazon becoming an “everything store” – and he was saying it back then – and you see where it is now, you can draw a pretty straight line between then and now. So the information was out there then for investors to make an absolute killing.
BT: Is the kind of chaotic environment that characterised Amazon early on, is that typical of the kind of small cap growth companies you look at?
SK: I’d say it’s certainly something investors need to be prepared for. And it’s not really a bad thing a lot of the time, actually. The most successful companies in the portfolio I run are the ones that are growing fastest, hiring new people, breaking into new markets, probably outgrowing old systems and management structures, maybe making acquisition after acquisition to Get Big Fast – that’s an old Amazon mantra from the late nineties there.
Doing all those things means it’s going to get chaotic, not everything will go smoothly as planned, it’ll be seat of the pants. It’s because there’s activity. A characteristic of successful small cap investors is to be able to hold your nerve while a company is going through all these changes. Sometimes changes the market doesn’t understand or takes a dim view of the shares get hit.
Again, going back to Amazon, there was a lot of pressure for it to be profitable when it just wanted to keep ploughing money into growing bigger and getting into new product lines. Especially after the shares took an almighty hit along with everything else in the dot-com bust. In fact, Amazon did make an effort around that time to clean up its financials, but with hindsight we know Bezos was right to keep pushing ahead even though it made investors nervous. He made them very nervous but he also made them very rich, the ones who stuck around for the ride, anyway.
Chaos is usually a sign of change and growth, which is the whole point of small cap investing.
I’ll have some more from Sean tomorrow, when he’ll lay out the specifics of the opportunity in a bit more detail.
Right now though, there’s something you can do. You can get your name down for free to be one of the first 500 readers to access Sean’s Amazon report.
So, to learn how to invest in Amazon for a couple of quid, put your name down here.