Would've, Should've, Could'veSubmitted by Trace Wealth Advisors on August 29th, 2019
Amazon has been one of the greatest success stories in the history of American business. As has been well documented, Jeff Bezos started the business after working for one of Wall Street’s most legendary hedge funds, D.E. Shaw, and it has gone on to become a disruptor across basically every consumer vertical. Wall Street has, in turn, rewarded Amazon investors handsomely. Those that were willing to take a chance on the Amazon IPO back in June of 1997 were compensated by an annual return of 37.92% per year through the end of July 2019. This type of investment success always leads investors to daydream thoughts like “what if I just would have put a little bit of money into the IPO?” or “how much would it have taken for me to make $10 million?”. Well, here are your answers:
- Had you simply invested $10,000 in the Amazon IPO and closed your eyes until the end of last month, you would have had a total value of $12,445,200.
- Want to make $10 million? A mere $8,036 investment on day one would have gotten you there.
Both pretty good deals if I’ve ever seen one. Like most things in life, it wasn’t that easy though. Consider the following chart:
That’s all of the drawdowns in Amazon since the stock came into existence. Does a 10%+ drawdown scare you? You would have experienced more than a dozen of those. Would a greater than 20% loss get your attention? There were seven occasions when the stock lost more than 1/5th of its value.
The majority of drawdowns in Amazon, however, are dwarfed by the one investors experienced from April 1999 until September 2001. Over that period of time you would have experienced a -93% loss that surely would have scared off even the bravest of equity investors…basically the stock traded like the company was going to go bankrupt. It took a full 8 ½ years for the stock to get back to its 1999 price, only to immediately start another drawdown during the financial crisis that would see the stock fall 54.16% from October 2007 until November 2008. Here’s what those back to back drawdowns looked like:
So the next time you start daydreaming about what it would be like to be one of the original investors in quite possibly the greatest American business success story of all time, don’t forget that you would have had to stomach some serious volatility (and likely navigate a few sleepless nights) in order to get there.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The hypothetical example above is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.