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The article only considers new investment. Jeff Bezos may be worth $150bn, but approximately $125bn of that is in Amazon stock. He's 80% invested in Amazon. Do

by nly 8y ago

The article only considers new investment. Jeff Bezos may be worth $150bn, but approximately $125bn of that is in Amazon stock. He's 80% invested in Amazon. Does it really matter where the worlds richest man puts the other 20% when he could afford to lose it all on moonshots and not give a damn? The risk-reward trade-offs you and me make while investing just don't apply to Jeffs personal investment decisions, and therefore aren't all that interesting.

adventured 8y ago
His wealth concentration is actually quite higher, around ~94.7% in AMZN stock. Bloomberg has him currently at a $132b net worth, with $125b in Amazon. The rest is Blue Origin and The Washington Post, with his cash position at 'only' an estimated $2.45b. Given the absurdly high valuation of Amazon - and as a fan of humanity pushing into space - I'd like to see him sell some larger blocks of Amazon while the stock market is so high, in order to secure funding for Blue Origin for a decade or more all at once. In terms of dilution, it's drastically better to yield ~$6b-$10b on a few sales out of a stake of $125b, than out of a position worth ~$65b (where he was at just two years ago) if the market is down for a long period of time. Especially true given he has recently indicated Blue Origin might demand even more than $1b per year.
- charlesdm 8y ago
  It doesn't matter as he can easily borrow tens of billions against his Amazon shares.
  - adventured 8y ago
    Debt always matters when it's that large of a sum. If he borrows $10b over six years against $65b in shares, he would have been dramatically better off liquidating $10b worth of stock over ~18 months when it was worth $125b-$145b and having zero debt. He's 54, has been at the helm for 24 years and isn't going to run Amazon forever, the market isn't going to freak out if he sells a few points more of stock. Is Amazon heading toward an 18 PE ratio against $20-$25 billion in profit? $360b-$450b market cap, versus a $778b market now (already down ~$250 billion from the highs). At some point in the near future will their profit growth stagnate, Microsoft or Intel style, for most of a decade; and will their multiple compress over time with that stagnation? Historically that's the very likely outcome (or far worse). The stock market goes down with the next recession, the very high S&P 500 / market multiple gets chopped down to a more reasonable historical level. After several years pass and the smoke clears, Amazon's AWS growth has slowed considerably, its online retail growth is single digits, and the market awards it a mature slower growth 15-20 style PE ratio. There has never been an exception in the tech world, when it comes to multiple compression. The compression monster comes for everyone. Microsoft, Intel, Cisco, Apple, Facebook, Google, etc have all suffered it. There will never be an exception. Amazon isn't going to get an 80 PE ratio on $20b in profit, the market will squeeze it perpetually down. It's very likely the party top is already over (the next time we see such absurdly low market-supporting interest rates, it'll be because of a recession, and stocks will have plunged accordingly). When it comes to the cost of funding Blue Origin (which is very high), I think he will have wished he sold more stock while it was on the moon during this stock market bonanza, where even very low growth stocks like Intuit are still fetching hilarious 50 PE ratios. And these are the reasonable scenarios. The dangerous scenario, where you're nuts to borrow $10 billion against stock, is where Amazon is disrupted (AWS particularly), or the economy gets really bad and Amazon gets a 16 PE ratio against $18 billion in profit (still not actually a bad outcome even then). In that case, Bezos is now borrowing $10b against ~$45b in shares or less. Non-trivial leverage, even for that much wealth. Or you could just easily evade all the major risk scenarios, sell off 1.6% of the richly valued Amazon stock - just 10% of your holdings - and fund Blue Origin debt free for a decade or so without concern (hopefully to the point of self-sustainability). And you do it while the market is bubbly, precisely because shareholders are far less likely to care then.
    - Retric 8y ago
      He owns ~16% of Amazon so dividends on your hypothetical 20+ Billion in profit can cover a ~1 Billion per year hobby. Even ignoring his CEO pay and other investments. At this point maximizing ROI is probably not a major concern for him.
    - deleted 8y ago
      [deleted]
    - mbesto 8y ago
      Frankly, you can napkin math all of this you want, but it's very likely he has very smart and very well paid financial consultants who do all of this specific math weight against the cost of debt/capital/etc for him. In other words - let's stop speculating here and simply say "I hope he continues to focus a large portion of his wealth towards X initiative that I like"
- nabla9 8y ago
  Alternatively he can just take loans against AMZN stock. It's how Elon Musk finances his business. Musk has leverage ratio around 40% of his TSLA holdings.
  - thaumasiotes 8y ago
    Whether you should mortgage or sell your Amazon stock obviously depends on whether you think the price of Amazon stock will go up or down. The comment you're responding to explicitly assumes it will go down: > Given the absurdly high valuation of Amazon In this case, taking out a loan against the stock is a terrible idea.
- hal-9-000 8y ago
  I'm not so sure if he could easily liquidate larger block of stocks without affecting price/panic much. Maybe in long period of time by periodically selling minor amounts. Amazon is Jeff and Jeff is Amazon, I wonder what would happen and how markets would react if he disclosed even slightest hint of his exit intentions. Also fan of humans conquering space though, and would definitely love to see that happen.
  - deleted 8y ago
    [deleted]
  - j1vms 8y ago
    > Amazon is Jeff and Jeff is Amazon True, and a scary thought for any heavy investors. That's why a company that size needs to have a publicly known succession plan given current valuation. There are people at Amazon who could take over but no one whom the market would trust with taking the reigns, right off the bat.
    - aczerepinski 8y ago
      People were saying Berkshire needed public succession plans for several decades before Buffett eventually created/disclosed them. The stock did really well during those decades, and virtually every other public company turned their CEO over many times.
- klaudius 8y ago
  Don't forget GOOG stock (https://www.growthink.com/content/story-jeff-bezos%E2%80%99-250000-investment-google-1998 https://www.growthink.com/content/story-jeff-bezos%E2%80%99-...).
WhompingWindows 8y ago
It's extremely interesting - you're not interested in the investments of someone who buys investigative journals and makes rocket/space exploration companies? While these may be little side-projects to you and Jeff, to the rest of us they are very very important.
- diminoten 8y ago
  Why are they very very important? Not the companies, but the fact that Jeff Bezos in particular has invested in them; what's "very very important" about that? Do you think these companies wouldn't exist or be as capable without Bezos? Why do you think that?
  - SeanAppleby 8y ago
    He doesn't mean it's particular to Bezos, but that wealthy people throwing massive (to anyone but them) amounts of money into extremely speculative bets on large issues for the long run of society is a big deal. The government and major corporations are slow and inertial, invested in iterative improvements on existing paradigms, as low risk small improvements are baked into the foundation of the incentive structure for their entire org. If you're CEO of a major company and make the company a tiny bit more efficient your life is great, but if you bet a billion dollars on pivoting the company towards a potential major improvement and the numbers come up wrong, your business is potentially structurally compromised and your life is relatively screwed. It's just not really worth it to gamble with your main game. These extremely speculative, niche, very capital intensive, long time horizon bets on paradigm changes couldn't exist without large amounts of funding from contrarian and extremely risk tolerant backers. Very wealthy people being willing to play with millions to billions of dollars in a way that is very likely to crash and burn enables risky exploration of paradigm changes like "can I get a rocket to land upright and use it again?", or "can I take a major publication and profitably revert its online funding model to subscriptions to retain integrity of its journalism in the era of the attention economy?" That kind of exploration is important and interesting.
    - diminoten 8y ago

by nly 8y ago

adventured 8y ago

His wealth concentration is actually quite higher, around ~94.7% in AMZN stock. Bloomberg has him currently at a $132b net worth, with $125b in Amazon. The rest is Blue Origin and The Washington Post, with his cash position at 'only' an estimated $2.45b. Given the absurdly high valuation of Amazon - and as a fan of humanity pushing into space - I'd like to see him sell some larger blocks of Amazon while the stock market is so high, in order to secure funding for Blue Origin for a decade or more all at once. In terms of dilution, it's drastically better to yield ~$6b-$10b on a few sales out of a stake of $125b, than out of a position worth ~$65b (where he was at just two years ago) if the market is down for a long period of time. Especially true given he has recently indicated Blue Origin might demand even more than $1b per year.

charlesdm 8y ago
It doesn't matter as he can easily borrow tens of billions against his Amazon shares.
- adventured 8y ago
  Debt always matters when it's that large of a sum. If he borrows $10b over six years against $65b in shares, he would have been dramatically better off liquidating $10b worth of stock over ~18 months when it was worth $125b-$145b and having zero debt. He's 54, has been at the helm for 24 years and isn't going to run Amazon forever, the market isn't going to freak out if he sells a few points more of stock. Is Amazon heading toward an 18 PE ratio against $20-$25 billion in profit? $360b-$450b market cap, versus a $778b market now (already down ~$250 billion from the highs). At some point in the near future will their profit growth stagnate, Microsoft or Intel style, for most of a decade; and will their multiple compress over time with that stagnation? Historically that's the very likely outcome (or far worse). The stock market goes down with the next recession, the very high S&P 500 / market multiple gets chopped down to a more reasonable historical level. After several years pass and the smoke clears, Amazon's AWS growth has slowed considerably, its online retail growth is single digits, and the market awards it a mature slower growth 15-20 style PE ratio. There has never been an exception in the tech world, when it comes to multiple compression. The compression monster comes for everyone. Microsoft, Intel, Cisco, Apple, Facebook, Google, etc have all suffered it. There will never be an exception. Amazon isn't going to get an 80 PE ratio on $20b in profit, the market will squeeze it perpetually down. It's very likely the party top is already over (the next time we see such absurdly low market-supporting interest rates, it'll be because of a recession, and stocks will have plunged accordingly). When it comes to the cost of funding Blue Origin (which is very high), I think he will have wished he sold more stock while it was on the moon during this stock market bonanza, where even very low growth stocks like Intuit are still fetching hilarious 50 PE ratios. And these are the reasonable scenarios. The dangerous scenario, where you're nuts to borrow $10 billion against stock, is where Amazon is disrupted (AWS particularly), or the economy gets really bad and Amazon gets a 16 PE ratio against $18 billion in profit (still not actually a bad outcome even then). In that case, Bezos is now borrowing $10b against ~$45b in shares or less. Non-trivial leverage, even for that much wealth. Or you could just easily evade all the major risk scenarios, sell off 1.6% of the richly valued Amazon stock - just 10% of your holdings - and fund Blue Origin debt free for a decade or so without concern (hopefully to the point of self-sustainability). And you do it while the market is bubbly, precisely because shareholders are far less likely to care then.
  - Retric 8y ago
    He owns ~16% of Amazon so dividends on your hypothetical 20+ Billion in profit can cover a ~1 Billion per year hobby. Even ignoring his CEO pay and other investments. At this point maximizing ROI is probably not a major concern for him.
  - deleted 8y ago
    [deleted]
  - mbesto 8y ago
    Frankly, you can napkin math all of this you want, but it's very likely he has very smart and very well paid financial consultants who do all of this specific math weight against the cost of debt/capital/etc for him. In other words - let's stop speculating here and simply say "I hope he continues to focus a large portion of his wealth towards X initiative that I like"
nabla9 8y ago
Alternatively he can just take loans against AMZN stock. It's how Elon Musk finances his business. Musk has leverage ratio around 40% of his TSLA holdings.
- thaumasiotes 8y ago
  Whether you should mortgage or sell your Amazon stock obviously depends on whether you think the price of Amazon stock will go up or down. The comment you're responding to explicitly assumes it will go down: > Given the absurdly high valuation of Amazon In this case, taking out a loan against the stock is a terrible idea.
hal-9-000 8y ago
I'm not so sure if he could easily liquidate larger block of stocks without affecting price/panic much. Maybe in long period of time by periodically selling minor amounts. Amazon is Jeff and Jeff is Amazon, I wonder what would happen and how markets would react if he disclosed even slightest hint of his exit intentions. Also fan of humans conquering space though, and would definitely love to see that happen.
- deleted 8y ago
  [deleted]
- j1vms 8y ago
  > Amazon is Jeff and Jeff is Amazon True, and a scary thought for any heavy investors. That's why a company that size needs to have a publicly known succession plan given current valuation. There are people at Amazon who could take over but no one whom the market would trust with taking the reigns, right off the bat.
  - aczerepinski 8y ago
    People were saying Berkshire needed public succession plans for several decades before Buffett eventually created/disclosed them. The stock did really well during those decades, and virtually every other public company turned their CEO over many times.
klaudius 8y ago
Don't forget GOOG stock (https://www.growthink.com/content/story-jeff-bezos%E2%80%99-250000-investment-google-1998 https://www.growthink.com/content/story-jeff-bezos%E2%80%99-...).

WhompingWindows 8y ago

It's extremely interesting - you're not interested in the investments of someone who buys investigative journals and makes rocket/space exploration companies? While these may be little side-projects to you and Jeff, to the rest of us they are very very important.

diminoten 8y ago
Why are they very very important? Not the companies, but the fact that Jeff Bezos in particular has invested in them; what's "very very important" about that? Do you think these companies wouldn't exist or be as capable without Bezos? Why do you think that?
- SeanAppleby 8y ago
  He doesn't mean it's particular to Bezos, but that wealthy people throwing massive (to anyone but them) amounts of money into extremely speculative bets on large issues for the long run of society is a big deal. The government and major corporations are slow and inertial, invested in iterative improvements on existing paradigms, as low risk small improvements are baked into the foundation of the incentive structure for their entire org. If you're CEO of a major company and make the company a tiny bit more efficient your life is great, but if you bet a billion dollars on pivoting the company towards a potential major improvement and the numbers come up wrong, your business is potentially structurally compromised and your life is relatively screwed. It's just not really worth it to gamble with your main game. These extremely speculative, niche, very capital intensive, long time horizon bets on paradigm changes couldn't exist without large amounts of funding from contrarian and extremely risk tolerant backers. Very wealthy people being willing to play with millions to billions of dollars in a way that is very likely to crash and burn enables risky exploration of paradigm changes like "can I get a rocket to land upright and use it again?", or "can I take a major publication and profitably revert its online funding model to subscriptions to retain integrity of its journalism in the era of the attention economy?" That kind of exploration is important and interesting.
  - diminoten 8y ago