Amazon shares - risk to reward ratio?

edited 29 September 2020 at 11:03PM in Savings & Investments
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Steve182Steve182 Forumite
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edited 29 September 2020 at 11:03PM in Savings & Investments
About 2 years ago I bought Amazon shares which have since doubled in value so I'm very happy with them. That's certainly not true of my FTSE100 shares.

As I see it, Amazon has good chance of doubling every 5 years (at least for the next decade hopefully, until it's just too big to grow rapidly), so in 10 years my Amazon shares could be quadruple current value. Of course should we see something resembling the financial crisis or .com collapse as happened a decade or two ago, my current shares could easily be halved.

So in that timescale I'm looking at a possible +300% upside VS a -50% downside.

-50% would not be the end of the world as that's what I paid for them originally. If quizzed on the chances of either scenario happening  I would say that quadrupling in value is definitely more likely than halving in the 10 year timescale. I could cope with 50% loss if I had to but it would not please me.

Just to reiterate, this is not my only investment. I'm not looking for financial advice, I know this investment is not diversified. Is anyone else in a similar position or mindset to me and wishes to share their thoughts?












“Like a bunch of cod fishermen after all the cod’s been overfished, they don’t catch a lot of cod, but they keep on fishing in the same waters. That’s what’s happened to all these value investors. Maybe they should move to where the fish are.”   Charlie Munger, vice chairman, Berkshire Hathaway
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  • itwasntme001itwasntme001 Forumite
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    I own some too (about 20 shares) and have seen them triple in value.  No plans to sell them just yet.  They still have a lot of growth potential and I am still quite young (30s) so am happy to ride out the voltility that is bound to occur from time ot time.  I have a feeling they will double at least from here but from then on I am not so sure.  I do own PCT, SMT, fundsmith and some other tech names so my portfolio is certainly biased towards growth style but I look at it in term of the compounding of earnings at high rates over time which should hopefully make me wealthy eventually...
  • george4064george4064 Forumite
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    @Steve182 are your Amazon shares held within a globally diversified portfolio? Because if not, you are really excluding yourself from exposure to many other companies that may well perform better than Amazon over the long-term. So why restrict yourself to one company?
    "If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” Warren Buffett

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  • John464John464 Forumite
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    They are priced at over 100 times earnings so I can't see what restricts the downside to 50%
  • edited 30 September 2020 at 9:07AM
    PrismPrism Forumite
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    edited 30 September 2020 at 9:07AM
    John464 said:
    They are priced at over 100 times earnings so I can't see what restricts the downside to 50%
    I have no idea what Amazon are really worth but the standard historical P/E valuation is pretty much irrelevant when trying to work it out. I'll leave it to Fund Managers to try and work out how much money Amazon will be making in 10 years time.
  • edited 30 September 2020 at 11:20AM
    MaxiRobriguezMaxiRobriguez Forumite
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    edited 30 September 2020 at 11:20AM
    High P/E's aren't necessarily a problem as it suggests future growth. Owners simply need to decide whether they agree with the consensus as to whether to continue holding or not.

    Personally, I doubt that Amazon (and various other tech companies) can post another five years worth of growth like the one we've seen. These are companies which have proliferated every day life and dominate their markets already, and have already started moving to and are big players in other markets as well. P/E's of 100 from this point are frankly getting close to suggesting they will end up owning the entire planets revenue streams.

    Not to say growth won't happen from here. Share prices aren't based on fundamentals in the short term, and with interest rates low and people still having spare cash, then there's currently no reason why the favoured tech investment won't suddenly stop now. But I would think *at some point* if there is continued gains then at some point there's going to be losses, as the very aggressive growth expectations aren't met. 
  • edited 30 September 2020 at 11:38PM
    Steve182Steve182 Forumite
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    edited 30 September 2020 at 11:38PM
    @Steve182 are your Amazon shares held within a globally diversified portfolio? Because if not, you are really excluding yourself from exposure to many other companies that may well perform better than Amazon over the long-term. So why restrict yourself to one company?
    Amzn is my largest individual holding by some margin, but I also own the following -

    Alibaba
    Alphabet
    BATS
    Burford Capital
    Cara Therapeutics
    DGOC
    DS Smith
    Fundsmith
    Imperial Brands
    JD.com
    Lindsell Train IT
    Lindsell Train global equity
    Microsoft
    MJ Gleeson
    Northern VCT
    Persimmon
    RDSB
    SMT
    Smithson IT
    Sylvania Platinum
    Tencent Holdings
    Universal Display
    “Like a bunch of cod fishermen after all the cod’s been overfished, they don’t catch a lot of cod, but they keep on fishing in the same waters. That’s what’s happened to all these value investors. Maybe they should move to where the fish are.”   Charlie Munger, vice chairman, Berkshire Hathaway
  • Steve182Steve182 Forumite
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    John464 said:
    They are priced at over 100 times earnings so I can't see what restricts the downside to 50%
    You're right of course, downside is actually restricted to 100%
    I should have said I consider the "likely" downside to be a maximum of 50%. Conversely there is no limit to the upside, but I consider the "likely" upside to be a maximum of 300%. This based on CAGR of 15% for 10 years.    
    “Like a bunch of cod fishermen after all the cod’s been overfished, they don’t catch a lot of cod, but they keep on fishing in the same waters. That’s what’s happened to all these value investors. Maybe they should move to where the fish are.”   Charlie Munger, vice chairman, Berkshire Hathaway
  • ThrugelmirThrugelmir Forumite
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    Steve182 said:

    As I see it, Amazon has good chance of doubling every 5 years (at least for the next decade hopefully, until it's just too big to grow rapidly), so in 10 years my Amazon shares could be quadruple current value.











    The share price will increase to whatever investors are willing to pay for them.  That's very different to how profitable Amazon can become in the future as a business. On a head to head comparison as a retailer Walmart is more profitable currently. 

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