Wednesday, May 17, 2006

A Waste of Paper??? Maybe Not...

I run some portfolios for my nephews and nieces. These portfolios invest in individual stocks.

As such, even though there are relatively few individual shares in each fund, I receive an annual blizzard of paperwork via "snail mail" as each company sends me an annual report, proxy, etc...

I generally think it is a waste to send paper this way when email / web site / etc... is so much more efficient. However, since I do feel an obligation as trustee to understand what is going on with the investments, I usually read them anyways.

In this case my supposition that this was a "waste of paper" turned out to be totally unfounded. For Amazon.com, the internet company everyone knows for selling books and every thing else under the sun via the web, the "shareholder letter" was excellent.

In the letter, the CEO (Bezos) cites a paper researching decision making. Here is a quote from the paper:

"Excessive attention by management scientists to operating decisions may well cause organizations to pursue inappropriate courses of action more efficiently."

I think that this is paraphrased as "doing the wrong thing, faster". I am also amused by the term "management scientist". What sort of qualifications are needed for this? A PhD in something in HR, I assume. Now that is funny - if those guys are scientists than I am a Renaissance Man (which I surely am not).

In the annual report he also re-posts the 1997 letter to shareholders in its entirety. This letter is an excellent summary of what went right and what went wrong during the internet "bubble". The letter's key points are under the title "It's all about the long term".

I like this line:

"We will continue to make investment decisions in light of long-term market leadership considerations rather than short-term profitability considerations or short-term Wall Street reactions"

And this:

"When forced to choose between optimizing the appearance of our GAAP accounting and maximizing the present value of future cash flows, we'll take the cash flows."

And this was way before Enron, the master of optimizing GAAP accounting while torpedoing future cash flows...

All in all the time spent reading and analyzing this annual report was time well spent. Maybe it is because I am of the age of MTV and not Grand Theft Auto but I still am more likely to read and study a printed document than a transient email or instant message. Perhaps it is because of the 100+ spam emails that come into my inbox each day that I am a bit jaded about the "permanent" nature of electronic correspondence vs. the potentially long-lived asset of a hard copy document. Posted by Picasa

1 comment:

Anonymous said...

The Amazon annual report, letter, and a copy of the paper can be found at:

http://phx.corporate-ir.net/phoenix.zhtml?c=97664&p=irol-reportsAnnual