1. Think Really Long Term
This is what Bezos said in an interview in 2011 (emphasis mine)…
If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people. But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue. At Amazon we like things to work in five to seven years.We’re willing to plant seeds, let them grow—and we’re very stubborn. We say we’re stubborn on vision and flexible on details.
In some cases, things are inevitable. The hard part is that you don’t know how long it might take, but you know it will happen if you’re patient enough. Ebooks had to happen. Infrastructure web services had to happen. So you can do these things with conviction if you are long-term-oriented and patient.
What a wonderful and sustainable moat this is – long-term thinking. Whether you are an entrepreneur or an investor, by thinking and acting (investing) long-term, or just by lengthening the time you stay with a good quality business, you can create wealth you could have never thought of.
Like the CEO of a privately held company who can make decisions for the future without worrying about next quarter’s earnings, you can use time arbitrage to benefit from time-tested investment processes without the worry, and often financial damage that comes from recklessly chasing quick returns.
Here is something else I read on Bezos’s long-term thinking in the amazing book Bold…
2. Focus on What’s NOT Going to Change
This lesson is closely related to the first one above i.e., long term thinking. Here’s more on this from Bold…
“What’s not going to change is what we must focus on!” I tell myself each time I think about the future of Safal Niveshak. And now Anshul also has to bear with these thoughts, though I am lucky because this is what he also believes in. 🙂
“Stability”, as Bezos mentions above, is what causes companies to endure over long periods of time. Look at the biggest wealth creators in the history of the world, or in India. Those have been the most stable businesses that have not changed for years.
And I am not talking about companies that did not change despite seeing changes in their industry (Nokia, MTNL, Kodak, etc.), but rather about companies that have continued to provide tremendous value to customers (the core of any business), even while changing with changing times.
So here a few checklist points you must have (on stability) while looking at investing in businesses –
- Is the core of this business going/prone to too many changes?
- Is this business open to disruption? (anything that can be done via Internet can be disrupted)
- Is the current management too aggressive on growth?
- Do the customers love this business? Have they loved it for years?
- Would the business be selling similar products/services 10 years later?
If the answer is ‘No’ for the first three questions and ‘Yes’ for the last two, it’s most probably a good business to own (at the right valuations).
3. Focus Intensely on the Customer
This lesson holds special relevance for the entrepreneur in me, but I also apply this while analyzing companies.
“Do the customers love this business and the products/services it sells?” and “Have they loved this business for the past few years?” is what I ask. In hindsight, my biggest successes in investing have come from businesses that pass this test.
Now, it may somewhat be a case of survivorship bias, because some companies that customers have loved have done disastrously for me (like Leela Hotels), but then the probability of a business doing well for an investor is high when the customers love its products/services over long periods of time.
Anyways, this is what I read in Bold…
4. Experiment, Experiment…Repeat
Honestly speaking, I hate when companies experiment a lot by venturing into unrelated areas through mindless acquisitions. But continuous experimentation within their circles of competence is an attribute of great entrepreneurs, like Bezos. So this is what I try to apply to my own business.
I have had my share of failures and disbelievers – with people calling me names when I started charging fee for my courses and newsletters, and how these were “doomed to fail when everything is available for free on the Internet.” But I have learned to live with this, for as I mentioned above, my focus is intensely on the value I provide to my readers and subscribers and for a really long period of time.
Anyways, here’s Bezos on ‘experimentation’ and ‘living with being misunderstood and criticised’…
5. Accept Failure and Move On
Now, this is not something I have learned only from Bezos, simply because I have failed so many times in life that I have been searching for inspiration all around on accepting failure (again and again) but still moving one.
I have learned this lesson especially from seeing my daughter grow up. Like when she was just a year old and was trying to take her first steps and repeatedly fell down, she tried again…and again…and again. Sometimes she laughed. Sometimes she cried. Sometimes she laughed and cried at the same time.
But she kept trying and trying…laughing and crying. She did not label her experience as a “failure”. She just enjoyed it.
Unlike us adults, our babies don’t know the possibility of a failure, so they happily keep falling down until one day they take a few steps, and then a few more. Before long, they’re jumping and running. All their trying pays off. They fall but never fail.
As grown-ups, what if we also simply choose not to fail? What if we treat our mistakes and failures as not things to be avoided but things to be cultivated?
Like Warren Buffett said…
You’re going to make mistakes. You can’t play in the game without making any mistakes. I don’t think about it, I just move on. Most business mistakes are irreversible setbacks, but you get another chance. There are two things in life that you don’t get another chance at – marrying the wrong person and what you do with your children. Business, you just go on. It’s a mistake to dwell on mistakes, it’s unproductive. It’s like Mark Twain’s story about the cat that sat on a hot stove – he never sat on a hot stove again, but he never sat on a cold one again either.
Life teaches us each day that stuff happens (and sometimes shit happens!), but we don’t need to give each of our experiences a label. Good, bad, hard, easy, success, failure etc. do not exist but as labels in our minds. All we need to do to hold our head high is to break through these labels.
Like here’s what Bezos says on dealing with failure…
Conclusion: Bezos’s Investing Checklist
Over the past two decades, no matter how much its shareholders criticized about all the money Amazon was ‘wasting’, no matter how often analysts opined that it “could never make money” and “would go bankrupt,” Amazon (and Bezos) has maintained its relentless focus on the long term and its customers.
And this is seemingly the biggest reason it is the only one of early Internet leaders that is still thriving. Its approach should be a lesson to all companies, not just Internet companies, and also to us investors (because we also wish to identify such companies that would thrive over the long run).