Amazon – Living in the future

*This content is brought to you Allan Gray

By Tom Slater* 

One common characteristic among the visionary leaders of the world’s biggest companies is their calmness against a backdrop of market volatility. The reason for that, we have discovered, is their ability to look beyond what is happening today and focus on tomorrow’s opportunities.

I had the benefit of seeing evidence of it first hand during my visit to what has been dubbed ‘the frontline of innovation’, the West Coast of America.

I established that the misery which has pervaded markets is, for now, a financial services industry phenomenon. It is far removed from the concerns of the world’s most dynamic growth companies. What’s more, it barely registers in the calculations of the entrepreneurial bosses of these businesses.

As I listened to Jeff Bezos, Amazon’s founder and chief executive officer, at his company’s HQ in Seattle, I noted that he didn’t speculate about the impact of rising interest rates on US consumers or what Brexit might do to Amazon’s UK sales. He started by declaring that he spends most of this time living in the future, a location he described as “a wonderful place!”.

Hearing Bezos talk confirmed a view shared by many at Baillie Gifford, that there are people out there who are much smarter than we are. Understanding what they are talking about and what they are doing to create the growth companies of tomorrow is an important stimulus to our own thinking.

An invitation to meet Bezos on his home patch was an opportunity to gain a competitive advantage. We consider ourselves fortunate to be in that position. We owe it to an investment approach that helps us to stand out from many others in the industry.

Access to smart people is not granted to those with most funds under management or companies with the ability to write large cheques. What opens the door is our record of behaviour and credibility as a long-term investor.

Bezos made the point that he only concerns himself with his company’s immediate operational reality if something goes drastically wrong. Otherwise, his focus is resolutely on the next big opportunities.

His thoughts conveyed something of the flavour of the research process we adopt when we consider investing in a company. We describe it as trying to learn from genius.

We know that if we start by looking at the same market data as everybody else, we are doomed to produce – at best – the same investment results. If we are going to achieve a different outcome, we have to adopt a different approach.

Bezos focused on four main areas during our discussion: Amazon’s virtual assistant Alexa as well as their media, grocery and cloud computing businesses.

This is a prescient example of their adaptability, which has been evident since they listed back in 1997. This is a long way from the humble beginnings of selling books online but there were clear hints to their long-term strategy back then.

Bezos stated in their inaugural shareholder letter that, “We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions.”

It is their relentless focus on this, as well as our interactions with the company, that informs and reassures our case for investing in Amazon. The meeting we had was evidence of the benefits that accrue from our long-term approach to investing, and the way in which we build relationships with companies.

We will continue to search for the companies that have the best opportunity to be outliers when it comes to delivering returns to our clients. We aim to own these companies for long periods, and without unnecessary transactions, so our clients can accrue the maximum possible returns. We believe that having the confidence in these companies to remain steadfast is the best way to convert current opportunities into outsized future returns.

  • Tom Slater, Head of US Equities at Baillie Gifford, and Long Term Global Growth (LTGG) portfolio manager, spent most of last autumn working on the West Coast of America. He explains what he learned from that experience.

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