Please ensure Javascript is enabled for purposes of website accessibility

3 Reasons I'm Buying Amazon.com, Inc. for My Roth IRA

By Brian Stoffel – Feb 27, 2014 at 10:04AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company might look expensive, but considering these three factors, it's worth it.

Every month for the past three years, I've identified one company that I'd be investing my money in. Over that time frame, these real-life investments have yielded an average return of 37%, handily beating the S&P 500 by 14 percentage points. 

This doesn't necessarily mean I'd encourage each and every reader to follow in my footsteps. Every investor has different goals, appetites for risk, and time horizons. So instead of trying to pick stocks that would satisfy every life situation (hint: those stocks don't exist), I find it much more instructive to let you know what my life situation is, and why I'm buying what I am.

My wife and I are in our early 30s with one daughter. We currently rent and live below our means. We don't mind investing in companies that some may consider "risky" or "expensive" because we have a decades-long time horizon.

Knowing that, here are the three big reasons we'll be investing our Roth IRA money this month in Amazon.com (AMZN 3.04%).

1. Jeff Bezos
I can't understate how important it has become for me -- as an investor -- to really get to know who is running the company that I own a part of. Of course, I've never met Jeff Bezos, and most of what I'm basing my evaluation on has to do with what he has done as CEO of Amazon, and what I can glean from his public interviews.

Source: Steve Jurvetson, via Wikimedia Commons.

But there are two important traits Bezos has that make me want to invest alongside him. First, he takes the uber-long view. Most CEOs would be chastised by Wall Street for ignoring short-term profits in an effort to create a company with an enormous and -- in my opinion -- impenetrable moat. Somehow, Bezos gets away with it, and the world's a better place for that.

Second, Bezos won't allow Amazon to be constrained by classifying it as just an e-tailer. Remember, at the beginning of the company's life, books were its lifeblood. And though books continue to be important, the company has blossomed well beyond that.

But let's not get ahead of ourselves; I'll talk more about that in reason three below.

2. E-commerce is still tinier than you think
It's no secret that the move to buying things online has led to monumental shifts in the retail landscape. Borders and Barnes & Noble used to dominate the book industry. But Borders is now gone, and Barnes & Noble is a shell of what it once was.

Shifts like that may lead you to believe that everyone's already doing most of their shopping online. But here's the secret: There's still room for so much growth. According to Forrester Research, only 8% of all U.S. retail purchases were made via the Internet last year. Think about that: 8%!

And if anyone wants to compete with Amazon, I say "Good luck" to them. Amazon's network of fulfillment centers makes quick delivery to anywhere in the United States amazingly easy. And the cost of these fulfillment centers is such that a company would have to spend billions before it could compete with Amazon.

3. The possibility for multiple futures
This is a lesson I learned firsthand from Fool co-founder David Gardner. He likes investing in companies that have what he likes to call "multiple futures." That means that a company's future may be tough to pin down, because it could potentially disrupt multiple industries over its lifetime.

Think about it: Amazon started with books, created an e-reader, and now you can buy pretty much anything you want on its website. But that's not all: Amazon is making moves into the grocery business, paying for original digital content, and providing cloud services for thousands of companies.

I have no idea how broad Amazon's scope will be 20 years from now, but I know that its core focus -- being the greatest company on earth when it comes to customer service -- will remain unchanged. And it remaining focused on that single priority as it expands is what excites me the most. 

Brian Stoffel owns shares of Amazon.com. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and Barnes & Noble. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amazon.com Stock Quote
Amazon.com
AMZN
$95.23 (3.04%) $2.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.