5 Lessons From Jeff Bezos Annual Letter To Shareholders

The Founder of Amazon
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Written by:

Matt Allen
A passion for helping the average person led Matt to start his newsletter, The Common Capitalist, which is a newsletter that focuses on helping the average investor better understand finance.

5 Lessons From Jeff Bezos Annual Letter To Shareholders

The Founder of Amazon

This installment of The Matt Allen Letter is free for everyone. If you would like to read about stock analysis, stock market analysis, and much more. You can subscribe here.

Dear friends,

I believe that you can learn a lot of things in life from people who have been incredibly successful. I am a firm believer that you can apply these things to any aspect of our personal life.

In terms of investing, studying the leadership of companies and their vision is very important. You can take the things that Jeff Bezos talks about and look for it when you are trying to find the next Amazon.

I believe that if you would have read these letters back in 2005, you might of invested in Amazon because you would have been a big fan of their vision.

If I would have titled this, “how to turn $10,000 into $1 Million” this article would probably go viral. However, if you would have invested $10,000 into Amazon in 2005 that is what it would be worth today. In other words, you should take these principals and apply it when looking for the next Amazon.

From 1997-2020, Jeff Bezos wrote a yearly letter to Amazon’s shareholders. These letters have become an incredible source of insight into how he thinks about customers, leadership, efficiency, experience, retention, and much more.


1.Bet on ideas that have unlimited upside. 

“A dreamy business product has at least four characteristics. Customers love it, it can grow to very large size, it has strong returns on capital, and it’s durable in time—with the potential to endure for decades. When you find one of these, don’t just swipe right, get married.”

Bezos believes in making big bets on dream products with unlimited upside and a capped downside. These products have 4 characteristics: customers love it, can grow to very large size, strong returns on capital, and it’s durable.

Bezos made 3 incredibly risky bets: Amazon Marketplace, Amazon Web Services, and Amazon Prime. These 3 bets did not make sense at the time in the short term, but they did in the long term. With Prime, for example, no one on the Amazon team could point to numbers showing that giving customers free shipping for a yearly fee would ever pay for itself.

However, all 3 of these make billions each year.

I sent out a stock idea to our premium subscribers that I believe has unlimited upside with capped downsize in the long term that you can view here.

2. Focus on inputs, the outputs will take care of themselves

“Senior leaders that are new to Amazon are often surprised by how little time we spend discussing actual financial results or debating projected financial outputs. To be clear, we take these financial outputs seriously, but we believe that focusing our energy on the controllable inputs to our business is the most effective way to maximize financial outputs over time. . . . Our goal-setting sessions are lengthy, spirited, and detail-oriented. We have a high bar for the experience our customers deserve and a sense of urgency to improve that experience.”

Instead of focusing on the things that you can’t control, you should focus on the things that you can control. In investing, the average investor spends to much time focusing on what their profit will be (outputs) instead of finding great companies with great ideas. If you find these companies, you will make money.

In life, we spend to much time focusing on how fast this new diet will help us lose weight (output) instead of focusing on living a healthier life style each day. If you live a healthy life style, you will lose weight.

In sports, we focus on the championship (output) instead of focusing on being a champion each day.

In business, we focus on our profits (outputs) instead of focusing on the customer, innovation, and the overall experience.

In this letter, Bezos mentions several key inputs he and his team assessed throughout 2009, including:

  • The # of reviews added to Amazon products

  • The # of different items available for immediate shipment on Amazon Prime

  • The # of new product categories available

The more reviews added to Amazon products, the better a new customer’s understanding of whether that product is worth buying or not, and the more trust they can place in the platform.

3. In times of crisis, be aggressive and agile

“Reflect on this from Theodor Seuss Geisel: ‘When something bad happens you have three choices. You can either let it define you, let it destroy you, or you can let it strengthen you.’ I am very optimistic about which of these civilization is going to choose.”

In 2020, Bezos letter was quite different than the ones in the past. It focused on the threat that covid-19 had on Amazon.

But there are also similarities of previous Amazon crisis, especially the 2000 letter, which was created to ease the concerns of Amazon shareholders after the huge sell-off that followed the dot-com boom.

Bezos spends much of the beginning of the document running through a list of initiatives that the company has undertaken to support the efforts of healthcare workers around the world and protect employees.

The clear message of the letter is that Amazon is responding to Covid-19 by acting aggressively to keep its workers healthy, hiring additional workers to meet demand, and helping governments, healthcare organizations, and others collect valuable data on how the virus works and spreads.

This is the message of the Dr. Seuss quote near the end of the letter: “When something bad happens you have three choices. You can either let it define you, let it destroy you, or you can let it strengthen you.”

4. Measure a company by free cash flow

“Why focus on cash flows? Because a share of stock is a share of a company’s future cash flows, and, as a result, cash flows, more than any other single variable, seem to do the best job of explaining a company’s stock price over the long term.”

Many public companies are judged by earnings per share or earnings growth when judging their performance. Free cash flow should be prioritized because it is pegged to your company’s value both today and in the future.

In Bezos’ original 1997 letter (discussed below), he made it clear to his new investors exactly how Amazon thought about free cash flow vs. GAAP accounting.

With each letter, he has enclosed a copy of that original letter to remind shareholders of Amazon’s outlook on this question.

For Bezos, focusing on free cash flow provides a clear method of valuing Amazon for internal planning purposes, as well as for investors.

The metric represents how much value each individual share of stock in a company has today and stands to have in the future.

5. In lean times, build a cash moat

“The year 2001 will be an important one in our development. Like 2000, this year will be a year of focus and execution. As a first step, we’ve set the goal of achieving a pro forma operating profit in the fourth quarter. While we have a tremendous amount of work to do and there can be no guarantees, we have a plan to get there, it’s our top priority, and every person in this company is committed to helping with that goal. I look forward to reporting to you our progress in the coming year.”

I believe that this is important for someone personally and a business. Focusing on free cash flow or otherwise giving your business some form of cash moat (whether through outside equity, debt stakes, or tight operations) will help ride out difficult times when customers aren’t buying and/or financing has dried up.

This is so true for us personally, if you have multiple streams of income, it will allow you to go on offense when times get tough instead of when 99% of people go on defense.

I hope you enjoyed this newsletter, and I look forward to talking to you soon!

Stay Hungry, Stay Foolish

Matt Allen


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