1 Critical Investing Lesson From A Super Entrepreneur

If you’re looking for great entrepreneurs, it’s hard to find someone better than Jeff Bezos. Bezos founded U.S.-based in 1994 and since then, has remained at the helm of the company, guiding it forward.

In 1997, Bezos took Amazon public. That year, the company generated US$148 million in sales and just US$0.7 million in operating cash flow. Last year – 2015 – Amazon pulled in US$107 billion in revenue and US$11.9 billion in operating cash flow.

Such growth hasn’t gone unnoticed in the market – just take a look at the chart below, showing Amazon’s share price growth since its listing (Hint: the left-most share price is US$1.96):

Amazon's share price - May 1997 to today
Source: S&P Capital IQ

Bezos is, in my opinion, an incredibly smart man with plenty of great insights about the world of business. And, some of his insights are directly transferable to stock market investing itself. Here’s one of my favourites. In a 2011 interview with Wired, Bezos said the following (emphasis mine):

“Our first shareholder letter, in 1997, was entitled, “It’s all about the long term.” If everything you do needs to work on a three-year time horizon, then you’re competing against a lot of people.

But if you’re willing to invest on a seven-year time horizon, you’re now competing against a fraction of those people, because very few companies are willing to do that. Just by lengthening the time horizon, you can engage in endeavors that you could never otherwise pursue.”

In business, as Bezos mentioned, lengthening your time horizon can lessen the competition. In investing, I can see the same thing happening too. Some studies have shown how the average holding period for stocks in the U.S. had fallen from 7 years in 1940 to six months in 2010. If you’re willing to invest for longer periods of time – something which not many are willing or able to do – you may just be able to gain an edge.

And frankly, the edge that time can confer to investors is enormous. Take the following chart I had made recently on Singapore’s market barometer, the Straits Times Index (SGX: ^STI):

Straits Times Index's odds of making losses from May 1992 to January 2016
Source: S&P Capital IQ

What it shows are the historical odds of the Straits Times Index making a loss for various holding periods. For a holding period of one year, the index has suffered a loss 42% of the time; for a holding period of 20 years, the odds of making a loss has been shown to fall to zero.

Having time on your side can allow you to ride on the success of great businesses in the stock market as well.

Healthcare services provider Raffles Medical Group Ltd (SGX: R01) has seen its shares climb by 662% in price from S$0.545 at the start of March 1999 to S$4.15 currently; along the way, its profit had ballooned from 1.22 cents per share to 12.1 cents. But, the company’s shares were actually still worth just S$0.56 apiece as of 15 November 2008, despite seeing its profit already reaching a level of 5.84 cents at that point in time. It was only with the passage of time that the market gradually reflected the strength of Raffles Medical’s business.

In the same Wired interview, Bezos also mentioned that, “At Amazon, we like things to work in five to seven years. We’re willing to plant seeds, let them grow – and we’re very stubborn.” With Amazon’s business results, I think it’s a great example of how having a long time horizon can do wonders in the world of business. Now, can more investors realise that there may be great benefits that can come with a long time horizon in the world of stock market investing as well? I sure hope there will be. (Though a slightly selfish part of me hopes not!)

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in and Raffles Medical Group.