In my first article for GuruFocus, I noted that the most successful investor in the UK in recent years, James Anderson, had been a frequent critic of value investing and had stated that investors would learn more by reading Jeff Bezos' annual shareholder letters than those written by Warren Buffett (Trades, Portfolio). While I do not believe value investing is dead because we just need to adapt value investing to the modern world, understanding Bezos' thinking is certainly a very valid idea in my view.
So, I have carefully gone through Bezos' 24 annual shareholder letters, and in this final part, we will see what we can learn as investors from the shareholder letters from 2016 to 2020, and what we need to look out for in companies that could be the next Amazon.com (AMZN, Financial).
Key lessons from Amazon’s letters to shareholders: 2016-2020
2016
Amazon has kept the vitality of “Day 1” throughout the years, emphasizing:
"Customer obsession, a sceptical view of proxies, the eager adoption of external trends, and high-velocity decision making."
Bezos says customers are always dissatisfied even when they say that they are happy and that the business is running well. Bezos tells us that customers always want something better and the desire to delight the customer will drive a business to invent on their behalf.
Bezos tells us it is important to prevent proxies from dictating your actions. Bad outcomes happen because you blindly followed a process, market research and/or customer surveys. Deep customer understanding is essential for inventors and designers. It is important to understand many anecdotes rather than just the averages. This is why Amazon incorporates and analyzes trends with machine learning to aid its product development. Bezos says we need to make most decisions with imperfect information in order to achieve speed. Then, ensure you quickly correct bad decisions. Slow decisions will be more damaging than bad decisions.
2017
This letter teaches us about high standards inside an organisation: high standards are teachable simply through exposure. Bezos says high standards are domain specific. Amazon started with high standards on inventing, customer care and hiring, but not in operational process, and later developed them. To achieve high standards in a particular domain area, you need to be able to recognise what good looks like in the domain and have realistic expectations for how much work it should take to achieve those results at scope. Low standards are also contagious. Business leaders must demonstrate relentlessly high standards.
"The American Customer Satisfaction Index recently announced the results of its annual survey, and for the 8th year in a row customers ranked Amazon #1."
2018
Bezos believes Amazon has a culture of builders – inventors who know that success comes through iteration. Amazon Web Services was developed based on a hunch; no customer asked for it. The business works hard to improve its public image and pushes projects that should increase the legitimacy of its operations in the eyes of society, such as its $15 minimum wage.
"Third-party sales have grown from 3% of the total to 58%. To put it bluntly: Third-party sellers are kicking our first party butt… We helped independent sellers compete against our first-party business by investing in and offering them the very best selling tools we could imagine and build."
2019
This letter was written shortly after the onset of the Covid-19 pandemic. Bezos states that Amazon will use the Covid crisis to step up and improve its public image by helping employees (paying temporarily higher wages) and communities (opening Whole Foods for one hour in the morning specially for seniors), hiring unemployed workers and eliminating price-gouging products.
Since the company supplies cloud services to companies, governments and the World Health Organization, Amazon Web Services benefited even more from the pandemic. In addition, its data centres are more environmentally friendly than most other solutions, and the company eventually plans to become 100% carbon free. Amazon recognizes and pays attention to social demands and acts on them to retain its market dominance.
2020
Bezos says that to be successful in business, you must create more value for everyone you interact with than you consume, and he addresses employee dissatisfaction exemplified by the Bessemer union vote. It’s important to invest in employee development and safety. Amazon aims to be Earth’s Best Employer, Safest Place to Work and Most Customer-Centric Company simultaneously. Amazon launched the Climate Pledge to drive a positive revolution in the economy, and will meet net-zero carbon by 2040, 10 years ahead of the Paris climate agreement, together with many other companies. Distinctiveness as a company is valuable but hard to maintain.
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