I can remember a few years ago hearing about Amazon Prime and thinking that I would buy a few things, but that I wouldn’t spend enough on the site to make the annual fee worth it. Then I learned about all the other benefits that came along with my Prime subscription in addition to free shipping: streaming music, photo storage, and even movies. When I finally tried it, I soon started associating Amazon with more and more goods and services. Fast forward and I can now say with confidence that our household makes almost all of our online purchases through Amazon. My first stop is Amazon, not Google. It is now more convenient to buy batteries on Amazon than take my kids to Wal-Mart. Because of this shift in purchasing habits, you can find me in my garage every other Wednesday night breaking down a mountain of cardboard boxes and hoping that they all fit into my recycling container. I am sure some of you have a similar bi-weekly experience.
How did they do it? How did Amazon become the 800-pound gorilla in retail that is now striking fear in the hearts of companies in other industries like grocery and healthcare? Jeff Bezos is now the richest man in the world and he doesn’t seem likely to relinquish that title anytime soon. I recently saw an interview that provided insight into what Jeff Bezos sees as Amazon’s competitive advantage. The interviewer asked him how he reacts when an analyst congratulates him on having a “good quarter.” He says that he thanks them and then goes on to say that those quarterly results were already achieved years ago and how he’s now working on the quarterly results for 2020. At the end of the interview, he quips “It’s not natural for humans [to think long-term], it’s a discipline you have to build. The ‘get rich slowly schemes’ are not big sellers on infomercials,” .” What he’s saying here is that Amazon’s biggest competitive advantage is looking out further than its competitors are. Having a long-term perspective is also your largest competitive advantage as an investor.
Going through the process of constructing a plan, no matter how simple or complex, will break the link between short-term market fluctuations and your blood pressure.
Saying that you are investing for the long-term and actually doing it are two different things. If you check your account balances daily, you aren’t thinking long-term. If you make changes to your portfolio frequently, you aren’t thinking long-term. If CNBC headlines excite or terrify you, you aren’t thinking long-term. The good news though is that if you do those things you are acting like a normal human being. But the even better news is that you can take specific steps to steel your resolve against making emotionally-driven financial decisions. Going through the process of constructing a plan, no matter how simple or complex, will break the link between short-term market fluctuations and your blood pressure.
As a financial planner, clients often come in concerned about a geopolitical event and want to know what to do about it. The first thing I do is try to understand what the client’s understanding of the issue is and how they think it could affect them. Then I refer back to their financial plan and run through different scenarios to put their concerns into context. Almost every time the short-term risk they are trying to avoid—in this case market fluctuations—pales in comparison to the much larger and inevitable long-term risk of inflation.
Every year, Bezos republishes his original 1997 letter to shareholders as an appendix to the current year’s letter (I encourage you to read the most recent version here). I’m blown away that this one document has provided a focus that Amazon has maintained over the last 20 years. It is as relevant today as it was then and is a master class in charting a course into the future. Having read it several times, I’ll share with you what I have found to the key lesson: with some deliberate thought and diligence, we all have the opportunity to shift our perspective further out into the future. Not only will planning dramatically increase your odds of success, but it will also reduce the amount of heartburn you have to endure along the way.