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same $10,000 outlay into nearly $400,000. Amazon, however, is in a class of its own. The small $10,000 investment made at the IPO would today be worth about $20 million. A larger but still reasonable investment of $50,000 would be $100 million today. It can make one yearn for a working time machine. A couple other columns of information are just as important as the gargantuan percentage gains. One is the “Max Drawdown,” and the other is the “Max Loss.” Max Drawdown represents how deeply a stock declined in value during a period of time. Max Loss calculates, based on the initial investment, the worst possible drop the investment experienced over the same period. Microsoft and Home Depot, for example, never experienced a loss. In other words, money put into either of these stocks on that date in 1997 would have always shown a profit. Each of them did, however, experience a maximum drawdown of over 70% at some point. In other words, if the value climbed from $10,000 to $100,000, then fell to $30,000, that would be a 70% drawdown. It would be hard to stomach, but at no point would investors have experienced a loss in any of their original capital. They would simply feel “less rich.” Enduring multiple collapses Hanging onto Amazon, however, would have taken far more dedication than holding more stable stocks. The maximum loss was nearly 25%, and the maximum drawdown was an eye-watering 95.1%. In other words, as easy as it is to fantasize about putting a small $10,000 investment into Amazon and becoming fantastically rich in the year 2021, investors would have had to endure a collapse in their holdings of more than 95%. Of 1,000 investors, it would be surprising if even two of them had that kind of willpower. Naturally, the most brutal drop occurred in 2000-2002 when the dot-com bubble burst. Most stocks fell in that period, but web-related stocks were brutalized, with some disappearing altogether. Amazon was a vastly smaller company back then with no guarantee of success, so its price was eviscerated. Another smaller but still severe drop took place during the financial crisis of 2008, when Amazon lost “only” about two-thirds of its value. Many people sold their holdings during that tumble, while some clung to their shares
Amazon: After the internet bubble burst 140 120 100 80 60
40
20
Oct ‘99 Dec‘99 Feb ‘00 Apr ‘00 Jun ‘00 Aug ‘00 Oct ‘00 Dec ‘00 Feb ‘01
Apr ‘01 Jun ‘01 Aug ‘01
Amazon: During the financial crisis 110 105 100 95 90 85 80 75 70 65 60 55 50 45 40
Oct ‘07 Nov ‘07 Dec ‘07 Jan ‘08 Feb ‘08 Mar ‘08 Apr ‘08 May ‘08 Jun ‘08 Jul ‘08 Aug ‘08 Sep ‘08 Oct ‘08 Nov ‘08
steadfastly for a while and finally surrendered when the stock bottomed. Of course, for every seller at the bottom, there is another buyer. But the point is that precious few people held on through the thick and thin of the gyrations. Over the long haul, Amazon has changed from a spunky, risky and relatively small company to one of the largest companies and employers in human history. During that
200,000% The rise in Amazon’s stock price since its 1997 IPO 95.1% Amazon stock’s eye-watering maximum drawdown
June/July 2021 | Luckbox
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