One of the best books I’ve read over the past year is William Green’s Richer, Wiser, Happier. In his book, Green writes about the lessons he’s gained from his interactions with some of the world’s best investors over the past few decades. One of the investors Green profiled in his book was Nicholas Sleep, whom I admire deeply. Here’s a memorable passage from the book on Sleep’s experience while investing in Amazon (NASDAQ: AMZN):
“Skepticism about Amazon continued to swirl. In the midst of the 2008 market meltdown, Sleep attended an event in New York where George Soros spoke about the threat of an impending financial apocalypse. Soros, one of the most successful traders in history, named just one stock that he was shorting as the world fell apart: Amazon.”
Amazon’s share price ended 2007 at US$92 and eventually fell to a low of US$35 during the 2008/09 financial crisis in November 2008. So Soros likely earned a handsome profit with his short of Amazon. But what’s also interesting is that Amazon’s current share price of around US$3,500 is tens of times (even more than a hundred times) higher than where it was at any point in 2008. The chart below shows Amazon’s share price from the end of 2007 to 30 June 2021.
The passage about Soros from Green’s book, and Amazon’s subsequent share price movement since the end of 2007, reminded me of an article from venture capitalist and finance writer, Morgan Housel. In his piece, Play Your Game, Housel wrote:
“It’s so easy to lump everyone into a category called “investors” and view them as playing on the same field called “markets.”
But people play wildly different games.
If you view investing as a single game, then you think every deviation from that game’s rules, strategies, or skills is wrong. But most of the time you’re just a marathon runner yelling at a powerlifter. So much of what we consider investing debates and disagreements are actually just people playing different games unintentionally talking over each other.
A big problem in investing is that we treat it like it’s math, where 2+2=4 for me and you and everyone – there’s one right answer. But I think it’s actually something closer to sports, where equally smart and talented people do things completely differently depending on what game they’re playing…
…2. Figure out what game you’re playing, then play it (and only it).
So few investors do this. Maybe they have a vague idea of their game, but they haven’t clearly defined it. And when they don’t know what game they’re playing, they’re at risk of taking their cues and advice from people playing different games, which can lead to risks they didn’t intend and outcomes they didn’t imagine.”
An investor who shorted Amazon early in 2008 and covered his short position later in the year, and another investor who invested in the company early in the same year but for the long run, both made the right decisions. They were merely playing different games.
At the investment fund that I’m running with Jeremy, we clearly know the game we’re playing. We’re looking for great businesses, buying their shares, and holding them for the long run while knowing that the share prices can be volatile. Other market participants can say that Amazon’s share price may fall by 30% over the next year – and they may well be right. But it’s of no consequence to Jeremy and me. Guessing what share prices will do over the short run is not the game we’re playing, and it’s not a game we know how to play. What’s important to us – and what we think we understand – is where Amazon’s business will be over the long run.
When investing, heed Housel’s words. “Figure out what game you’re playing, then play it (and only it).”
Note: An earlier version of this article was published at The Good Investors, a personal blog run by our friends.
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Disclosure: Ser Jing owns shares of Amazon.