Business Insider: Amazon CEO Jeff Bezos Interview Transcript (Part II)

“It’s almost always incorrect to blame the past, and it’s easy to do.” —Jeff Bezos

“…if you wanna do more of something, make the friction less. If you wanna do less of something, make the friction more.” —Jeff Bezos

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Jeff Bezos on…

This post is a continuation of Business Insider: Amazon CEO Jeff Bezos Interview (Part I). 

Transcription and emphasis added are my own. You’ll find the video itself at the end of this post.

Criticism [23:30] 

Henry Blodget, Business Insider: Hachette. You just had a very public famously fight with Hachette. A couple of questions. One over the price which you were allowed to sell their books I believe. First of all, were you surprised about the animosity that was directed at Amazon?

Jeff Bezos, Amazon CEO: Well. You know, my view is in this incident, and actually in our entire history, I think we have been treated extraordinarily well by the press, by the media, you know certainly by customers. So I have no complaints, you know. I think we have been treated way above average over time and I’m grateful for that. So you know, retailers negotiating and fighting with suppliers is not a new phenomenon. Rarely does it break through into kind of a public fight and mostly it’s not. But, it’s an essential job of any retailer to negotiate hard on behalf of customers, and that’s what we do.

Competition [24:48]

HB: So, if there was no negotiation and you could dictate to everybody exactly what the terms were gonna be, what would the future be for authors?

JB: So, the most important thing when you’re thinking about books. The most important thing is constantly encouraging the kind of incumbent, you know, participants in the book industry to think this way. The most important thing to observe is that you have to draw the box big. Books just don’t compete against books. Books compete against people reading blogs and news articles and playing video games and watching TV and going to see movies. Books are the competitive set for leisure time. You know it takes many hours to read a book. It’s a big commitment and if you narrow your field of view and only think of books competing against books you make really bad decisions. And what we really need to do is to help the culture of long-form reading. And you have to differentiate between short-form reading and long-form reading. If you want a healthy culture of reading book linked things you’ve gotta make books more accessible, and part of that is making them less expensive. Books in my view are too expensive. You know, 30 dollars for a book is too expensive. And so, if you just think that I’m only competing against other 30 dollar books, then you don’t get there. But if you realize you’re really competing against Candy Crush, then you start to say; gush maybe we should really try to be working on reducing friction on long-form reading. And that’s what Kindle has been about from the very beginning. You know, we humans co-evolve with our tools. We change our tools, then our tools change us. And the Internet era, almost all of the tools for reading have been reducing the friction of short-form reading. The Internet is perfect for delivering you know three paragraphs to your smart phone. But the Kindle has been trying to reduce friction for reading a whole book, and it’s working. The visions for Kindle is every book in print in any language all available in sixty seconds. And that’s a multi-decade vision. We’ve been working on it for a decade now and we’ve made huge progress. And so we’re making books easier to get, more affordable, more accessible. It’s a fantastic mission. Kindle team is very dedicated to it, and they’re doing a great job. And that is, you are getting more reading. Friction, if you wanna do more of something, make the friction less. If you wanna do less of something, make the friction more. There’s a particular snack food that you like a lot, and it’s making you fat. Put it on the top shelf where it’s harder to get to, and you’ll eat less of it. And so you know, don’t leave it on your kitchen counter.

HB: Which sounds great until it comes to the author who kind of wants to write a book, but can’t quite their jobs unless they have a nice advance from the big rich publisher who you are quietly demolishing…

JB: No… but the facts are wrong. Publishers are having unparalleled profitability and the book industry is in better shape than it’s ever been, and it’s due to e-books. If you think about how much, the Kindle team deserves a lot of credit for that because they were early, it’s been a little of piracy, and e-books like all other kinds of media, they have a there is a thriving payment mechanism, and then again because they got in early. This is a good news story for publishers and for authors. Some of this is just, it’s very difficult for incumbents who have a very sweet thing to accept change. It’s just very difficult, you know. It’s almost always incorrect to blame the past, and it’s easy to do. We all have these kind of sort fake memories of how great things used to be. Yeah right, before penicillin things were awesome. And mostly things are getting better, undoubtedly there are exceptions. But mostly things have gotten better. We live in a world where, I hope, things continue to get better. And surely, making reading more affordable is not going to make authors less money. Making reading more affordable is going to make authors more money.

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Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company or individual mentioned in this article. I have no positions in any stocks mentioned.

Business Insider: Amazon CEO Jeff Bezos Interview (Part I)

“We humans co-evolve with our tools. We change our tools, and then our tools change us.” —Jeff Bezos, CEO, Amazon

“We shape our buildings; thereafter they shape us.” —Winston Churchill

“We become what we behold. We shape our tools and then our tools shape us.” —Marshall McLuhan

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Business Insider Interviews Jeff Bezos

There’s a great interview with Jeff Bezos on YouTube where Henry Blodget from Business Insider sits down for an in-depth interview on a variety of Amazon topics.

I have transcribed some of these discussion points that I found to be interesting and that I enjoyed listening to. You’ll find the video itself at the end of this post.

Can Amazon Make Money? [4:54]

Henry Blodget, Business Insider: Let’s talk about profit, or in your case the complete lack thereof. Famously…

Jeff Bezos, Amazon CEO: This is Henry’s version of being nice to me…

HB: So, let’s just establish this once and for all. Can Amazon make money?

JB: Well, yes, and in fact we have in the past. And you have to understand, there are many ways of thinking about this, but the reality is that Amazon is a collection of several businesses and initiatives. And we have some very significant, very profitable, more established businesses that are free cash-flow generating. Very significantly. And fortunately, the way I think about it, we have lots of opportunities to invest in this new initiatives, and we take advantage of those opportunities. So, it’s kind of like we built this lemonade stand, you know, twenty years ago. The lemonade stand has become very profitable over time. But we also decided to use our skills and the assets that we’ve acquired over time to open up a hamburger stand, and a hot dog stand, and so on and so on. So we’re investing in new initiatives.

HB: And this is certainly what your investors who’ve have been with you for a long time prudently believe, and you ask them why. Why doesn’t it bother you the way it bothers some people, that the company is not profitable and it has an infinite P/E and that stuff?

JB: Look, you know. Warren Buffett has this great quote, he says: “You can hold a rock concert, and that’s okay. And you can hold a ballet, and that’s okay. Just don’t hold a rock concert and advertise it as ballet.” Investors come in all shapes and sizes. They have different investment horizons, different approaches, different beliefs about what the right kind of portfolio looks like. And, so it’s not when you know people use Wall Street as a shorthand. But there isn’t one type of investor, they come in different shapes and sizes. You have to be super clear about what kind of company you’re trying to build, what your approach is. We laid that out in our 1997 annual shareholder letter. We said we were going to take big bets. We said they were gonna fail. We said some of them hopefully were gonna work. We said we were gonna to invest for the long term, that we were gonna to take advantage of market opportunities as they arose. And there’s a certain kind of investor who is aligned with that approach. And so again, you could hold the ballet or the rock concert, and both can work. Just be clear about which one you are, and then people can self select.

HB: And so, lot’s of CEO’s I’m sure would like to learn from you, how is it that I can not be at all profitable, and still have an incredibly high stock price by some measures. What is your advice? Is it, spend many years explaining we’re not gonna earn a penny because we’re gonna be reinvesting it?

JB: I would say it’s very difficult for a publicly traded company to switch. So if you have been holding a rock concert, and then you wanna have a ballet. That transition is gonna be difficult. But if you’ve done it from the very beginning, and then I don’t think it’s not that difficult to do.

HB: So, I’ve been a shareholder for a long long time. Incredibly happy. Rode it up in the bubble. Rode it all the way down. Hung out for those seven lean years, and then suddenly it takes off like a rocket ship. Very much a believer in the long term, the investment cycle, the big bets, and all that stuff. Even I last quarter had a little bit of a gaupe when I saw the fact that you were not just breaking even any more, but loosing a boat-load of money. And in fact way more than you even said you were gonna lose which I thought was sandbagging, they said they were gonna lose and then they would come in with a profit and the stock price is gonna sore. And it was worse than you said. So, when do you begin to say; okey, that’s it, we’re gonna rein in a little bit.

JB: Where’s this part were you’re extra nice to me because I’m an investor? And the company is…

HB: I’m asking you as a shareholder…

JB: Look, we would all love our numbers to be smooth lines up into the light. That would be terrific, but that’s not how it works, you know. Those numbers are output measures. And you, I guess you could try to manage for the quarterly earnings very precisely. But, I think personally that would be a mistake. Most of the work that we put into any particular quarter happened years ago. So it’s not, you know, there aren’t that many knobs you could turn during a quarter. Or, I mean you can. But that’s like eating your seed corn if you turn those knobs. You don’t wanna do that. And so, it’s a… you know people, I think that if you focus on the inputs you can control of you business instead of your outputs, in the long term you get better results. So the Benjamin Graham quote here is that “In the short-term the market is a voting-machine. In the long-term it’s a weighing machine.” And I think people are well-advised to build a company that want’s to be weighed and not voted upon. That means having good returns on invested capital, having lots of free cash-flow. But if you said to me, if I said, here’s a job I would reject. If someone came to me and said Jeff; I want your job to be to drive up the Amazon stock price, and just manage that directly. That might sound ridiculously to some of you, but many companies actually do this. They actually go out and they try to sell the stock. That’s kind of the final output. It’s much better to say; let’s not do that, that’s not gonna be sustainable. It’s kind of a silly approach. What are the inputs to a higher stock price? So, okey free cash-flow and return on invested capital are inputs to a higher stock price. So okay, let’s keep working backwards. What are the inputs to free cash-flow? And you keep working backwards until you get to something that’s controllable. And a controllable input for free cash-flow would be something like lower cost structure. And you back up from there and you say, you know if we could improve our picking efficiency in our fulfillment centers and reduce defects. Defects are very very costly. You know reducing defects at the root is one of the best ways to lower cost structure. And so, that starts to be a job could accept. You would say, you know, a reasonable person would say I have no idea how to drive up the stock price, I cannot manage that directly, it’s not a controllable input. But I can make a picking algoritm more efficient and that would reduce cost structure and then you know follow that chain all along the way. That’s what you do in all of these businesses. You want customer obsession. You wanna invent your way out of boxes. Invent your way into the future. You wanna be patient, and you wanna have operational excellence. So that is you’re finding defects at the root and then you’re fixing them.

Investors Relations: Investment vs. Speculation [12:08]

HB: You talk about what a lot of CEO’s do, in terms of trying to drive up the stock price, selling the stock. You told me something when we were outside, something extraordinary, which is that you spend six hours a year…

JB: Yeah…

HB: …on investor relations.

JB: And we do a lot of things unusual there. So, you know. We don’t meet with our biggest investors. We meet with investors who have low portfolio turns. So, you know. Investors, many investors, many investment funds have very high portfolio turns. They turn their portfolio multiple times per year. They’re not really investors, they’re traders. It’s nothing wrong with that, it’s just a different thing. But where are you gonna spend your time and energy is one of the most important things in life. We all have a limited amount of time. Where you spend it, and how you spend it, is just an incredibly levered way to think about the world. So if you’re gonna spend time, you know, explaining the stock, the company really. We don’t really explain the stock, we explain the company, to people. You should do it to people who are long-term investors rather than traders. That’s our point of view.

HB: And what do you say to employees when you obviously have some traders in the stock who are not happy, and suddenly the stock is down 25 % after a quarter.

JB: Well, I… so, since 1997 at almost every all hands meeting, we have two o-hands meeting a year. And almost every all hands meeting I remind employees that if the stock is up 10 % this month, don’t feel 10 % smarter. Because when the stock is down 10 % some month you’re gonna have to feel 10 % dumber, and it’s not gonna feel as good. And so, you know ownership, we give most of our compensation, is done in terms of stock compensation. And part and parcel with ownership is a mentality of long-term thinking. You know, owners think longer-term than renters do. So I have a friend who rented his house to some tenants, and instead of getting a Christmas tree stand at Christmas, they just nailed the Christmas tree into the hard-wood floors of the house. No owner would ever do that, and, but sometimes, that’s a bad tenant. You know there are good tenants. But that’s a bad tenant. Because you know, it’s the same thing no one ever washed a rental car. And, you know you take better care of the things that you own, and… but one of the responsibilities of ownership, and definitely deep inside the Amazon culture, is to think about the fundamentals of the business and not the daily fluctuations in the stock price. There’s no information in that.

Succession Plans: Amazon After Bezos [23:11]

HB: Is there a succession plan?

JB: Yeah, there’s a succession plan for me and all of our senior executives. And…

HB: So there is somebody who will take over?

JB: Yeah, absolutely.

HB: Who?

JB: Secret.

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“When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we’ll take the cash flows.” —Jeff Bezos, CEO, Amazon, Shareholder Letter 1997

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Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company or individual mentioned in this article. I have no positions in any stocks mentioned.

Sequoia Fund Investor Day Transcript 2015 (Ruane, Cunniff & Goldfarb)

“Any time you look at an investment, you want to look at what percentage of its market it has and how big it can get.” ―Rory Priday

Sequoia Fund Investor Day Transcript 2015 (Ruane Cunniff & Goldfarb)

Ruane Cunniff & Goldfarb recently released their Sequoia Fund investor day transcript for 2015.  I picked up the link to the transcript via Market Folly, and it’s a great read.

The transcript lays out the Q&A session where Sequoia Fund’s investment management team discusses their thesis and outlook on numerous portfolio companies, including Valeant, Google, Mohawk, Idexx, Fastenal, Rolls Royce, TJX, O’Reilly, and many more.

While you read it, think about how each person in the investment team thinks about the companies and how their reasoning goes about why a business is good or not, and what kind of things they focus on in coming up with an investment thesis.

At the end of the second quarter, Sequoia Fund’s top holdings were:

This really is an interesting read in its entirety given their candidness about assessing their positions.

Sequoia Fund investor day transcript for 2015

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company or individual mentioned in this article. I have no positions in any stocks mentioned.

Q&A Session: “Value Investing in Japan and Beyond” with Mohnish Pabrai & Guy Spier (2012)

 

Mohnis Pabrai and Guy Spier at JIS 2012 (Transcript) – Value Conferences

Video and transcript found via Värdebyrån. See Värdebyrån for additional links.

Mohnish Pabrai, Guy Spier & Michael Shearn on Investment Checklists

Let’s start with a few words from Mohnish Pabrai on the use of an investment checklist from the Value Conferences session (see links below).

“For example, typically when I run the checklist the first time when I’m looking at an investment — it’s actually the last thing I do before making an investment — it usually takes no more than 15-20 minutes, maybe 30 minutes max to run it, but the first time I run it, it actually pops up all sorts of questions to which I don’t know the answer. That’s like been the biggest value addition, which is there are these blind spots that I have completely ignored. Then I go back and research the business some more to get answers to those questions and sometimes that can take a week or longer. Then I rerun a second time. Now the second time when I rerun it, we’ve got all the questions answered and we can see the failure or possible failure points.”

—Mohnish Pabrai

Go here for full transcript of the session.

See here for original post at Value Conferences.

Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company or individual mentioned in this article. I have no positions in any stocks mentioned.