In a perfect world, you'd get to hold every stock forever. Serious investors love to buy great stocks and then do absolutely nothing for many years or even decades, just watching their investments evolve and grow value. That's how master investor Warren Buffet built his enormous wealth, and the same strategy works wonders for us ordinary investors, too.
I certainly plan to hold most of the stocks in my real-money portfolio for a very long time. In most cases, I can still imagine massive market shifts that might force me to reconsider. If my original investment thesis no longer holds true, it's time to sell. But when it comes to e-commerce giant Amazon.com (NASDAQ:AMZN), I really do hope to keep that stock essentially forever.
Progress is a one-way street
Amazon's business environment is subject to change, especially in 2020. Both online retail sales and the Amazon Web Services (AWS) cloud computing platform benefit tremendously from the stay-at-home and work-from-home orders of the COVID-19 era.
One might think that these twin sea changes could be reversed in a hurry, too. Maybe the next disaster, the next government policy change, or the next wholesale shift in consumer habits could simply cancel the progress made in the e-commerce and cloud-computing sectors this year.
That would be a lot like trying to put the toothpaste back into the tube or making salted peanuts out of peanut butter. Our modern society is not going back to rotary phones or horse-drawn carriages. Online shopping and cloud computing are no different. Amazon isn't just enjoying these surging megatrends, but also leading both of them from the vanguard.
Big ideas are easily misunderstood
In the 1990s, Wall Street treated Amazon's online bookstore business like a pariah. The whole idea seemed unsustainable, a temporary fad that surely would give way to traditional retailers in due time. The proof was always in the pudding, as Amazon's operating margins and bottom-line profits were skimpy and sometimes negative. Expanding the bookstore to different product types shouldn't have made a difference in the long run, right?
AWS started out as something of a lark. Amazon had all this computing hardware sitting around most of the time, so it made sense to rent out some computing cycles to paying customers. I always thought it was a good idea, but that put me in the minority in 2008.
Both of these bold ideas worked out in the end. Amazon's online retail empire collected $61 billion in sales in the recently reported third quarter, and AWS generated $2.3 billion of operating profit for the same period. Amazon's thin profit margins often distract investors from the company's healthy cash flows -- an imbalance that leads to affordable tax bills but generous cash profits.
That's how Amazon led the charge in two thriving target markets that are turning the traditional retail and enterprise computing markets upside down as we speak.
Buy now and hold on for dear life
As my little history lesson above shows, Amazon isn't afraid to take risks and pursue business ideas that go against the grain of old-school thinking. I'm sure we haven't seen the last of Amazon's heel-turn strategy shifts, nor the last of its game-changing business ideas.
That's exactly why I don't plan to sell my Amazon stock anytime soon, and possibly not ever. Flexible innovation should keep Amazon's business empire flourishing for decades to come. The company has barely started to nibble on international retail opportunities, Amazon's shipping services might become a stand-alone business someday, and few companies do more research in artificial intelligence than Jeff Bezos' online bookstore does.
This company will lead revolutionary market changes more often than it will follow them. That's a recipe for extreme longevity. The $1.6 trillion market cap we see today should feel quaint and small next to the market cap Amazon is building over the next 12, 20, or 30 years. That's pretty much forever in investing years.