Venture capitalist Michael Moritz highlights a core reason why most investors fail to build significant wealth: an inability to simply do nothing. He argues that the urge to constantly trade, often driven by short-term noise and fear, undermines the power of compounding. Moritz uses Amazon as an example, explaining how selling at all-time highs, a common reaction, prevents investors from capturing long-term growth, despite significant capital expenditure periods.
Michael Moritz Says Most Investors Can’t Do the One Thing That Actually Makes Money
Michael Moritz, a legendary investor who backed giants like Google, PayPal, and Stripe, believes most investors are fundamentally incapable of achieving true wealth. His explanation, highlighted by investor Charlie Munger, centers on a single, often overlooked, investor trait. A simple question Moritz poses about Amazon famously stumps experienced investors and exposes the common habit that silently devastates portfolios.
During his tenure at Sequoia Capital, spanning nearly four decades, Michael Moritz was instrumental in the success of transformative companies like Google, YouTube, PayPal, and Stripe. Reflecting on the common pitfalls of investors, Moritz stated, "Most investors are congenitally incapable of doing nothing. They just have to do something." This innate urge to act, he argues, is the primary destroyer of wealth. Investors frequently sell or adjust their positions based on fleeting headlines, round price numbers, or the fear of losing unrealized gains, mistaking activity for productivity. Over time, this constant trading erodes the power of compounding, which is the true engine of wealth creation.
Charlie Munger Praises Moritz's Temperament Over Intellect
The distinctive approach of Michael Moritz was recognized by the late Charlie Munger, who, when asked to name the most noteworthy investors to interview, singled out Moritz. Munger reportedly attributed Moritz's success not to superior intellect but to his exceptional temperament. Munger observed that Moritz, while not the most intellectually gifted, possessed a unique ability to hold onto his investments longer and more effectively than his more brilliant peers. Moritz expressed deep gratitude for this high praise.
The Amazon Question That Halts Investors
Moritz uses Amazon (NASDAQ:AMZN) as a prime example to illustrate his point. He poses a question that consistently challenges investors: "In the 30 years or so that Amazon has traded as a public company, how many days has that stock traded at an all-time high?" This question effectively halts most people because the idea of an all-time high often signals a market peak or an unsustainable valuation, prompting a desire to sell. However, for a continually growing business, new highs are not endpoints but milestones. Selling at these points, Moritz implies, means missing out on future growth.
The performance of Amazon over the past decade underscores this principle. While the stock delivered a remarkable 531.6% return over ten years, ending October 9th at $262.43, the five-year return of 59.6% tested the patience of many holders, particularly during periods of decline. It is during these challenging stretches, Moritz notes, that most investors "lose their nerve." They capitulate, succumbing to fear and regret, unable to recognize the long-term compounding power of a well-positioned company.
Amazon's Ambitious Investments Tested Investor Patience
Amazon is currently undergoing another phase that tests the resolve of its long-term shareholders. The company has committed approximately $200 billion in capital expenditures through 2026, focusing on AI infrastructure, custom chips, robotics, and the Amazon Leo satellite project. This aggressive investment has led to a trailing free cash flow deficit of -$7.6 billion, a figure that might trigger a sell decision for impatient investors.
However, the operational metrics reveal a different narrative. In its second-quarter filing, Amazon reported revenue growth of 19.6% to $200.61 billion and a 43% increase in operating income to $27.46 billion. Notably, AWS revenue surged by 37% to $42.23 billion, with its backlog reaching an impressive $496 billion. CEO Andy Jassy expressed optimism, suggesting AWS could eventually become a trillion-dollar annual revenue business. Furthermore, the company anticipates its data centers will remain profitable for over 30 years once operational. These long-term prospects reward patient investors while penalizing those who exit prematurely during the investment phase.
Applying Moritz's Discipline for Long-Term Success
Moritz's investment philosophy serves as a crucial filter for decision-making. Before selling a stock, investors should critically assess whether the reason stems from concerns about the company's future prospects or solely from price fluctuations. For Amazon, the relevant business questions revolve around meeting its third-quarter guidance for net sales ($197.0 billion to $202.0 billion) and operating income ($22.5 billion to $26.5 billion), and whether the significant capital expenditure cycle will indeed translate into the promised free cash flow generation. According to Moritz's logic, a stock hitting a new all-time high is irrelevant to these fundamental business considerations.
