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Riding Out the Storm: Lessons from Amazon's Stock Volatility Thumbnail

Riding Out the Storm: Lessons from Amazon's Stock Volatility

Financial Planning Investments Retirement

This recent spat of of volatility has put a lot of people on their heels. But if you've ever wondered what true stock market volatility looks like, take a closer look at Amazon. Since 1999, this iconic tech giant has experienced no fewer than six major declines1, each wiping out at least 50% of shareholder value. Sounds alarming? Perhaps—but it also offers essential insights about managing risk and volatility through long-term investing.

Volatility is Normal—Even for Winners

Between the dot-com bubble in 1999 and the post-pandemic tech sell-off of 2021-2022, Amazon's stock price frequently took sharp dives:

  • 1999: Two separate crashes over 50%2.
  • 2000-2001: A staggering 94% collapse3.
  • 2003-2006: A prolonged 56% slide2.
  • 2007-2008: A swift 60% drop amid the financial crisis2.
  • 2021-2022: Another significant 56% drop during the tech pullback4.

Despite these gut-wrenching downturns, investors who stayed patient—and focused—were rewarded handsomely. Why? Because great companies rebound, and Amazon is a prime example.

Lessons in Patience and Perspective

Each significant decline in Amazon’s stock price was driven either by broader market crises or by temporary challenges specific to Amazon. Yet, investors who managed emotions and maintained their long-term view emerged victorious. For instance:

  • After the 94% plunge from 1999-2001, Amazon took nearly a decade to fully recover. Investors who panicked missed one of the greatest rebounds in market history3.
  • Conversely, the 2008 crash saw Amazon’s stock lose 60%—yet it recovered rapidly as the company's fundamentals remained strong4.

This highlights a critical lesson: volatility doesn't equal permanent loss—unless you sell at the bottom.

Managing Risk Through Long-Term Investing

How can investors practically manage this volatility? Consider these strategies:

  1. Maintain a Long-Term Horizon: Volatility smooths out significantly over longer periods. Amazon's short-term fluctuations are dramatic, but its long-term trajectory is overwhelmingly positive.
  2. Understand Your Investments: Knowing why you own a stock, like Amazon, makes it easier to withstand temporary downturns.
  3. Diversify Intelligently: Even with great stocks, diversification reduces emotional stress during market turbulence.
  4. Control Emotions and Expectations: Avoid panic selling during downturns, and resist the urge to chase performance during peaks.

The Payoff of Staying Invested

Investors who've remained steadfast with Amazon since its early volatility have witnessed spectacular growth. Since its IPO in 1997, Amazon’s adjusted share price has risen by approximately 11,900%, turning even modest early investments into substantial long-term wealth. For example, a $10,000 investment in Amazon’s IPO would be worth around $1.2 million today1. From surviving the dot-com bust to navigating the turbulence of recent years, Amazon's journey underscores an undeniable truth: volatility is the price investors pay for outstanding long-term returns.

Embrace Volatility, Win Long-Term

Amazon's wild ride over the past quarter-century is an ideal case study in risk management and the power of long-term investing. As history demonstrates, short-term pain often gives way to long-term gains. Investors prepared to stay the course—even through dramatic downturns—can turn volatility from a risk into an opportunity.

The key takeaway? Focus on long-term fundamentals, keep emotions in check, and let market volatility work for you—not against you.

Footnotes:

  1. Macrotrends. "Amazon (AMZN) Stock Historical Data." https://www.macrotrends.net/stocks/charts/AMZN/amazon/stock-price-history
  2. Yahoo Finance. "Amazon Historical Stock Prices." https://finance.yahoo.com/quote/AMZN/history/ 
  3. Nasdaq/Trefis. "Amazon Stock: Long-Term Performance Despite Wild Swings." https://www.nasdaq.com/articles/amazon-stock-long-term-performance 
  4. CNBC. "Amazon Lost $1 Trillion in Value During the 2022 Tech Rout." https://www.cnbc.com/2022/11/28/amazon-is-first-company-ever-to-lose-1-trillion-in-market-value.html

This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.