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Jeff Bezos, the founder of Amazon, shares valuable insights on the importance of focusing on the fundamentals of a business rather than its stock price. His wisdom offers a crucial lesson for entrepreneurs and investors alike.
Photo: Grant Miller for the George W. Bush Presidential Center
The Disconnect Between Stock Price and Business
Bezos liked Amazon's business fundamentals but knew that the stock price often didn't reflect the company's day-to-day operations.
"I liked our business and I liked the fundamentals of our business, but I also knew that the stock price was disconnected from what we were doing on a day-to-day basis"
All-Hands Meetings and Wise Words
In 1997, Amazon had a few hundred employees, and Bezos held all-hands meetings to address the company's stock price. He shared a famous quote from Benjamin Graham:
"In the short run, the stock market is a voting machine. In the long run, it's a weighing machine."
This means that while stock prices can fluctuate wildly in the short term based on market sentiment, over time, they reflect the true value of a company.
Avoiding the Emotional Rollercoaster
Bezos wanted his employees to understand that their success shouldn't be measured by the daily stock price. "The stock price is going up because all the employees had stock options and I didn't want them counting their success that way," he says. He cautioned them,
"When the stock is up 30% in a month, don't feel 30% smarter, because when it's down 30% in a month, then you're gonna have to feel 30% dumber, and it's not gonna feel as good."
Preparing for the Downturn
Bezos' foresight proved invaluable. By setting this mindset early on, Amazon's team was better prepared for the inevitable downturn. "It was good that I kind of laid that groundwork because, sure enough, in the year 2000, the whole thing came tumbling down," he recalls. The dot-com bubble burst, and Amazon's stock price plummeted, but the company's strong fundamentals helped it survive and eventually thrive.
Lessons for Entrepreneurs
Bezos' experience offers several key lessons for entrepreneurs:
Focus on Fundamentals: The true value of a company lies in its core business operations and long-term vision, not its short-term stock performance.
Manage Expectations: Prepare your team for market fluctuations by emphasizing the importance of consistent, quality work over stock price movements.
Stay Resilient: Even when the market takes a downturn, a solid foundation and clear vision can help a company weather the storm.
Conclusion
Jeff Bezos' approach to focusing on business fundamentals rather than stock prices is a timeless lesson in resilience and long-term thinking. By understanding that the stock market can be unpredictable, but the value of a well-run company will ultimately shine through, entrepreneurs can build stronger, more sustainable businesses. So, keep your eyes on the fundamentals and stay the course, just like Bezos did with Amazon.
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