What if You Invested $1000 in Amazon Stock When It First Hit the Market?
It has been more than 20 years since Amazon had its IPO. As a result, the Amazon of the present is much bigger than the Amazon of the past, which in turn, means that the Amazon shares of the present are worth much more than the Amazon shares of the past. For people who were either fortunate enough or sagacious enough to have participated in Amazon’s IPO, this means that their Amazon shares would be worth a fortune, assuming that they have actually managed to hold onto them this entire time.
For those who are curious, Investopedia has estimated that if someone had invested just $100 into Amazon shares at the IPO share price of $18, they would have Amazon shares with a combined value of $101,197.33 by April 26 of 2018 if they had managed to hold onto them. Turn that into $1000 and you’ve got over $1 million. This is a huge increase in value, which serves as a very simple but nonetheless very powerful reminder of how far Amazon has come within a period of 20 years.
How Did Amazon Shareholders Gain So Much Value?
Much of the increase in the value of the Amazon shares comes from the fact that Amazon shares have become a lot more valuable in the present compared to the past. After all, Amazon is now one of the biggest online retailers that can be found in the entire world, which happens to be expanding its operations into new markets in new regions on a constant basis. As a result, the retail titan now earns a lot more revenue from its operations, which in turn, means that an ownership stake in it is now much more valuable.
However, it should be mentioned that part of the increase comes from the stock splits that Amazon carried out in 1998 and 1999. For those who are unfamiliar with the practice, a stock split is when a corporation chooses to split its outstanding shares into more shares. For example, a 2:1 split means that one share becomes two shares, much as how a 3:1 split means that one share becomes three shares. When this happens, the resulting shares have the share price of the initial share split between them in even portions, so if someone had 100 shares at $10 each before a 2:1 split, they would end up with 200 shares at $5 each. Generally speaking, corporations choose to perform stock splits for the purpose of lowering their share price, which has the useful effect of making their shares more liquid because there are more people who can participate in the market for them.
On the whole, Amazon is a remarkable example of how much growth some tech companies have seen in a relatively short period of time. In fact, it is not even the most impressive example of the tech companies that have seen huge successes in the past decade, as shown by the explosive results of Netflix, which managed to make a successful transition from a mail-based rental service to a streaming service. However, it is important to remember that while there are some tech companies that have managed to produce these impressive results, there are a lot of other tech companies that either never managed to make it out of the initial start-up phase or collapsed under their own weight at some point in time.
As a result, it tends to be a bad idea for people to attempt to predict the next Amazon because even the best investors struggle to predict the future with perfect accuracy. For proof, look no further than Warren Buffet, who has lavished praised on Jeff Bezos and Amazon in recent times while stating that he failed to get in on the action because he had no idea that Amazon and other tech stocks possessed so much upward potential.
Due to this, it tends to be a better idea for people who are unsure about what stocks to pick because they are still starting out as investors to choose stock indexes rather than singular stocks. This is because the general direction of the stock market is up, meaning that people who invest in stock indexes should be able to make a respectable profit in the long run because the general direction of the stocks in those stock indexes should make up for the losses of those that fare poorly. Moreover, it is important to note that there are stock indexes consisting of particular kinds of stocks, meaning that interested individuals have plenty of options for benefiting from tech stocks and other intriguing possibilities without actually having to pick out the individual winners.
