Why Amazon Got Lucky With Jeff Bezos

I have to ask both because it's fresh on our minds given recent acquired activity, but also you write about it in the memo. What is the two of your journey been with Amazon? Did you discuss that? Was that part of this thinking about value and growth perhaps not being two different things?

I think it's also really interesting because a typical value investor, you sort of look just at the fundamentals of the business, and you look at the economics of the business. And Buffett is very famous for saying that you want a business that an idiot can run.

'Cause eventually someone will.

Yeah, exactly. And so he sort of talks about the primacy of business model over management. But I think Amazon's a great example of the opposite because, um, you could have never dreamed that, uh, if you owned Amazon when the story was about, uh, growing as a retailer, you could have never dreamed of AWS. That shows what happens when you bet on an amazing founder who can leverage their business to create value in really compelling other ways. And so I think it's a great business case study, but it's also a case study of, of putting faith in a management team and recognizing the, the optionality that comes with that.

Howard, did Amazon ever intersect with your investing career?

No. I'm a recovered equity investor. I was in the equity research department of Citibank from sixty-nine to seventy-eight, and then I left. And in the credit field, where I've spent the last forty-four years, we historically have not had contact with what you would call a, a tech company.

Although they had some distressed debt at, uh, at, uh, one point in time after the tech bubble.

Yeah. But again, remember, we put very heavy emphasis on predictability, and I think that, I think that for the most part, Oaktree does what Warren and Charlie do. They, they, they put it on the too hard pile.

I think, by the way, one other thing that I would add about Amazon that may be too wonky but also may be interesting is I think it's al-also an example of one of the things we sort of talk about in the memo, which is it's hard to just take a sort of knee-jerk thirty-thousand foot view, and, and you really have to sort of dive in and understand things. So, you know, what people said for the longest time was that Amazon was losing money and could never be profitable.

A charity run for the benefit of the American consumer.

Exactly. And that came from looking a lot at the income statement and recognizing that, that they were losing money, you know, partially because they were continuing to lower price to achieve scale. But I think what's interesting is they actually had a very favorable cash conversion cycle, so the business was much more sound from a free cash flow perspective much earlier than it was from an income state perspective.