Jeff Bezos Says a Company's Stock Price Doesn't Always Reflect the Business, a Lesson From Amazon's Dot-Com Crash That Investors Can Apply Today
Written by James Brumley for The Motley Fool -> In Amazon's infancy, Jeff Bezos remained solely focused on growing the business rather than the young company's volatile stock price. He found inspir…
In Amazon's infancy, Jeff Bezos remained solely focused on growing the business rather than the young company's volatile stock price.
He found inspiration, however, in the same source of wisdom as Warren Buffett.
A clear competitive edge and repeat customers are the key to longevity that eventually rewards investors.
Investors understand that the shares they hold are stakes in that underlying company's success or failure. Nevertheless, investors also understand that the company's success or failure -- or potential -- isn't always reflected in that stock's price. The trick is just knowing when and to what degree that disconnect exists.
That's something Amazon (NASDAQ: AMZN) founder Jeff Bezos was forced to accept early on. Although he took his e-commerce giant public in 1997 -- in the midst of dot-com mania -- the dot-com crash of 2000 crushed this young stock. All told, AMZN stock fell from a peak of $113 to a low near $6 during this turbulent period, shaking investors' confidence in the fledgling company.
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Some CEOs would have given up by getting out. Others would have sought to prop up the stock's price at any cost, even at the expense of their company's long-term future. Not Bezos, though. As he explained in a Q&A session last year, at the time, "the number of customers [still] went up, every month. Our gross profits went up every month... Our losses as a percentage of sales went down every month. Every single business metric -- new customers, customer repeat purchases, everything that we were monitoring through that entire period -- kept getting better."
He then adds, "That's one observation about bubbles in general. The fundamentals of the business can be disconnected... the stock price is [only] an output that you actually have very little control over."
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