Last Man Standing

Amazon in 2014 was a puzzle. It was big. It was growing. It had market share and mindshare. Competitors feared it as much as customers loved it.

 
What it didn’t have was a good business.

Profit margins wobbled between negligible and negative. That might be acceptable for a young startup, but Amazon was two decades old at the time. The whole thing was easy to mock and call a bubble.

Jeff Bezos had a different view: Margins don’t matter. Dollars do. A huge business with low margins was preferable to the opposite. He explained in 2014:

Margins are not one of the things we are seeking to optimize. It’s the absolute dollar free cash flow per share that you want to maximize.

Free cash flow [is] something that investors can spend. Investors can’t spend percentage margins … What matters always is dollar margins: the actual dollar amount. Companies are valued not on their margins, but on how many dollars they actually make.

There are parts to quibble with here, but I just liked Bezos’s simple logic: The business with the most dollars wins. Not the best margins or the highest quarterly growth. Just how many dollars you generate over the long run.

Let me propose the equivalent for individual investors. It might push you away trying to earn the highest returns because returns, like margins, don’t matter; generating wealth does.

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Πηγή: collaborativefund.com