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Jeff Bezos has built an empire over the last 25 years that few futurists could have envisioned.
Today, Amazon holds a market capitalization of $1.65 trillion and stands as the fourth-largest U.S. company traded on the U.S. markets. And based on the company’s dominance in e-commerce, cloud computing, digital media, and other high-growth industries, it will likely maintain power for decades.
One of the things that stands out about Bezos is his simple approach to business.
Many entrepreneurs deem themselves visionaries.
They like to look to the future and try to predict where the market will move. They dream up new products or services and then attempt to create new markets for them. They try to disrupt industries or “hack” ways to succeed or create massive institutional change.
Yet so many fail.
They fail because — believe it or not — human beings are simple.
We don’t change our tastes, desires, fears, or goals by a massive amount over time.
Bezos’ greatest successes start with a simple business philosophy: Focus on the things that don’t change.
Today, I want to explain this ethos and why it applies to you as an investor.
Bezos Keeps it Simple
By focusing on things that don’t change, Bezos can focus on what already works.
And that has been incredibly important to Amazon’s success.
In a 2007 interview with the Harvard Business Review, Bezos said:
It helps to base your strategy on things that won’t change. When I’m talking with people outside the company, there’s a question that comes up very commonly: “What’s going to change in the next five to 10 years?” But I very rarely get asked “What’s not going to change in the next five to 10 years?”
Bezos went on to say that in the retail business, customers want low prices. Whether it’s today or a decade from now, that fundamental rule will likely not change. As a result, Amazon has focused heavily on providing the lowest price possible, even making sure that its suppliers don’t sell products cheaper anywhere else on the internet.
Bezos also recognized that customers want fast delivery, saying, “I can’t imagine that 10 years from now [customers] are going to say, ‘I love Amazon, but if only they could deliver my products a little more slowly.’” That idea is at the center of Amazon Prime, which redefined home delivery with its two-day service.
In addition, Bezos noted that customers demand vast selections of goods. I think it’s fair to say that Amazon offers the widest selection of products in one platform and checks this box rather well.
Another thing that we believe is pretty fundamental is that the world is getting increasingly transparent—that information perfection is on the rise. If you believe that, it becomes strategically smart to align yourself with the customer. … A lot of our strategy comes from having very deep points of view about things like this, believing that they are going to be stable over time, and making sure our activities line up with them.
This philosophy is brilliant for would-be entrepreneurs.
But I see a very important lesson here as well for investors.
In a world where investors constantly seek an edge, one should always return to the same rule. If you want to make money and protect that money, it’s important not to veer too far from what we know about the future of humanity.
So, let’s ask a simple question: What do we know about consumers that will not change?
Buy Businesses and Sectors that Will Be Here in 15 Years
Yes, consumers want low prices, choice, and fast delivery. Those criteria fit ideally in the world of retail.
But let’s take a step back and think about the other sectors and what humans truly need. If you’ve been following TradeSmith Daily, you know that we put together a four-part series on Forever Investments. These are the areas of the market that we know will continue to exist and thrive in the future.
I know it seems oversimplified. But humans will need electricity from companies that are expanding capacity and can ensure delivery. So, we look at the utility stocks and companies like NextEra Energy (NEE) that have a diverse blend of traditional carbon-based and alternative-based energy sources.
We know that Americans will need food, all while demanding the same consumer benefits outlined by Bezos. Of course, Walmart (WMT) is the nation’s largest grocery chain. But I also want to look at Kroger Co. (KR), a popular chain whose stock is owned by Warren Buffett.
We know that consumers want to be protected. They don’t want their personal information stolen. They want to be able to use the internet and buy products online with comfort. That will not change, so cybersecurity companies will remain central to our lives.
This isn’t rocket science. I’ll leave that to Amazon’s Blue Origin subsidiary. There’s no reason to overthink investment in a world of consumer choice and demand. Looking forward, I anticipate that some consumer trends will change over time. But for the most part, we have very basic needs and expectations.
We crave convenience, security, and affordability. Now it’s just a matter of tapping into those basic human emotions and identifying the best stocks or sector ETFs to maximize our returns.
We’ll continue to discuss those opportunities here at TradeSmith Daily.