What caught my eye this week.
People seem very confused about Amazon. This week I heard some market pundits chortling among themselves about how crazy high the valuation was for a company that “doesn’t make any money.”
Ho ho ho! In fact they only stopped laughing to say Amazon really must be regulated because it’s grown so vast and so powerful that it’s becoming a monopoly.
Um, hang on a minute…?
The company hasn’t raised external capital for decades and supposedly doesn’t make any money – yet it’s still managed to grow so big that it ought to be regulated away or even broken up?
And the company is obviously over-valued, except it’s also a monopoly that crushes all competition and only governments can stop it? (What price would you put on that sort of market dominance?)
I’m an Amazon shareholder, and have been for years. If you know of any other ‘obviously over-valued’ $700bn companies that grew that way in barely 20 years and that are so laughably bad at making money that ardent capitalists are calling for changes to the competition laws in the US to enable regulatory intervention, please do shout – I might like to invest in those, too.
Consumers seem similarly confused.
I know people who say they boycott Amazon because “it doesn’t pay any taxes”.
Firstly, why should it if it “doesn’t make any money”?
Secondly, Amazon – and the general shift to online sales – has helped keep a lid on inflation since the 1990s, and has crushed the cost of almost everything tangible, everywhere.
Why are people who are disdainful of city fund managers taking a 0.5% fee managing money so nostalgic about High Street giants where the business model might be to mark up tat up by 100% or more?
People are funny.
Our disposable incomes stretch far further these days, partly due to the relentless deflationary impact of online retail. I wouldn’t be surprised if the typical UK household is several thousand pounds a year better off compared to if the Internet had somehow never been invented.
Do you think you’d get thousands of pounds a year of extra value in your life if Amazon paid more taxes?
I have my doubts. I’d rather have the pounds in my pocket.
Why are we surprised when early retirees have second thoughts? – Monevator
The comment thread from Monevator readers on that article is from the top drawer – Monevator
From the archive-ator: Reasons to rent a house instead of buying – Monevator
Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1
London house prices falling at fastest rate for nine years, says Halifax – Guardian
Treasury ramps up the pressure on contractors’ tax [Search result] – FT
First drop in disposable income in six years as inflation bites – ThisIsMoney
We crush stock indexes, Yale fund claims – Institutional Investor
Construction growth in UK build-to-rent properties [Search result] – FT
UK dividends look unsustainable, investors warned – Hargreaves Lansdown
Bitcoin’s price crash started when professionals got the ability to short it – A Wealth Of Common Sense
Products and services
Fidelity fires broadside in battle to cut tracker fund fees [Search result] – FT
Post Office’s new family link mortgage enables you to buy with no deposit – ThisIsMoney
Is it time to take a contrarian view on cryptocurrencies? [Search result] – FT
New app Glint lets you use gold to buy breakfast via a credit card – ThisIsMoney
Can you ‘barge’ your way on to the house ladder? [Search result, about boats] – FT
Avios air miles scheme to close: What you need to know – ThisIsMoney
Comment and opinion
How many ISA millionaires are out there? – Fire V London
Too much in stocks – not bonds – is the risk to watch for – The Irrelevant Investor
The ideal age to retire to minimize regret and maximize happiness – Financial Samurai
A penny saved is two pennies earned – Elm Funds
A would-be early retiree finds new motivation in fresh nonsense at work – My Deliberate Life
Leaving a high-paying prestigious career in your 40s [US detail, but relevant] – Can I Retire Yet?
Death and taxes – 3652 Days
Building a predictably successful business [Podcast] – Motley Fool
Hacking hedonic adaption to get way more for your money – Mr Money Mustache
These ain’t yo mamas frugality tips – The Escape Artist
Why we don’t give each other gifts – Young FI Guy
Four high growth dividend champions [PDF] – John Kingham
An interview with market historian Elroy Dimson [Podcast] – Meb Faber
Six ways that fund managers can cut their overheads – The Evidence-based Investor
Come easy, go easy: The tech takedown – Musings on Markets
Facebook’s salutary lesson on being ‘priced for perfection’ – The Value Perspective
Kindle book bargains
The Millionaire Next Door by Thomas J. Stanley Ph.D.– £0.99 on Kindle
ReWork: Change the Way You Work Forever by David Fried – £0.99 on Kindle
The Health Gap: The Challenge of an Unequal World by Michael Marmot – £3.99 on Kindle
Side Hustle: Build a Side Business and Make Extra Money – Without Quitting Your Day Job by Chris Guillebeau – £0.99 on Kindle
Off our beat
A Remainer tries to understand the case for Brexit – Simple Living in Somerset
Travel is no cure for the mind – More To That
“Quitting corporate life for the start-up dream f*cked my life up” – Medium
Business lessons from The Profit TV show [One of my favourites] – Marginal Revolution
“If you get good returns in the first decade of retirement, you’re unlikely to run out of money, as long as you use a sensible withdrawal rate. If you get poor or even mediocre returns in the first decade of retirement, then technically speaking, you’re buggered!”
– Abraham Okusanya, Beyond the 4% Rule
Like these links? Subscribe to get them every Friday.
- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩]
Just to say this may be a sensitive topic, and I don’t want to get sued.
If fans/critics of the company can please restrict their focus to general and publicly verifiable business model issues, practices, media reports (with links) or similar rather than allege illegality that they have privileged information about but that the rest of us can’t see or judge (and aren’t anyway qualified to) that’d be much appreciated. Thanks!
Just to throw one more link in, the Exponent podcast has had some good discussions about Amazon’s place in the economy and their business model(s). Here’s one to start with:
Hey. Fair point re: their [non]profit, I think what might be controversial and can make me uncomfortable as a consumer is their alleged reputation with respect to the treatment of warehouse workers. As for their efficiency and general business acumen, they certainly set amazing standards & I confess to using them both to buy & sell; it’s lucky for governments that they don’t offer governance as a service.
Everything you say is true, Investor. I think the issue is that most people don’t understand how we tax companies and why we do it the way we do. We tax profits, not turnover, for sensible reasons, and we only tax shareholder capital gains when that gain is crystallised. Hence Amazon and Bezos don’t pay a huge amount of tax.
I too am a long-standing Amazon shareholder. I’m an Amazon Prime member, and have been almost since Prime launched in the UK. In fact I’ve been using Amazon since the mid 1990s. My house contains a few Alexa devices, a couple of Kindles, and so on. My family buys from Amazon, I’d guess, 2x a week.
As a consumer, shareholder, and open-minded, pro-competitive, tech-friendly, affluent Londoner I love Amazon. It improves my life, lowers prices, hasn’t abused my personal data and hardly winds me up at all with Steve Jobs-like idiosyncracies/hypocrisies.
As a tech industry veteran, I also profoundly appreciate Amazon Web Services, which is deservedly the leading cloud hosting provider, and has dramatically improved the infrastructure landscape for tech businesses, their staff, and their investors.
However, as somebody who has had some quite up-close-and-personal dealings with Amazon professionally, I perceive them to be an evil organisation whose inner nature is profoundly troubling. And I think the zeitgeist meme which boycotts Amazon raises questions that deserve consideration.
It is far too simplistic to say that the reason Amazon doesn’t pay any taxes is that it doesn’t make a profit. Amazon has deliberately structured its tax affairs in a way many of us find immoral.
Amazon’s pan-European VAT arrangement is (last thing I heard) with Luxembourg (http://europa.eu/rapid/press-release_IP-17-3701_en.htm), a country in which it does barely any business. It is (possibly past tense, these days) bespoke to Amazon. And it is confidential (https://www.theguardian.com/world/2014/dec/10/juncker-amazon-luxembourg-eased-tax-expert-comfort). No company’s VAT arrangements should be confidential, be it Apple, Amazon or a startup. This is immoral. Confidentiality agreements, as demonstrated by Harvey Weinstein, are favoured by people with stuff to hide. How they can be appropriate for national tax arrangements amazes me.
As part of Amazon’s VAT arrangements Amazon has needed to demonstrate that senior management, of its European businesses, is in Luxembourg. This means demonstrating that its UK >$10bn business, its German >$10bn business, and so on are managed, in the main, in Luxembourg. It has testified on such matters to Parliament (https://publications.parliament.uk/pa/cm201213/cmselect/cmpubacc/716/121112.htm and http://www.bbc.co.uk/news/av/business-20301381/mps-condemn-amazon-executive-over-tax-payments) in which it said, to Parliament, that its UK operations were essentially only “a fulfilment centre” for its Luxembourg business. Take a look at their hiring activity https://www.indeed.co.uk/Manager-Amazon-jobs and consider.
As UK consumers on Amazon can see for themselves what Amazon has been doing on its marketplace, and the difficulties in getting invoices let alone VAT invoices from ‘third party’ sellers. But recently the HMRC has had to ‘crack down’: https://realbusiness.co.uk/accounts-and-tax/2018/03/19/hmrc-tackles-online-vat-fraud-level-playing-field-retailers/. This is not ‘not paying tax because it doesn’t make any money’. Amazon has been unfairly competing with legitimate UK-based VAT-paying traders.
Amazon’s treatment of its staff has received a lot of negative press. I suspect its behaviour is not illegal, but that doesn’t stop me from feeling troubled by it. https://www.pastemagazine.com/articles/2017/12/7-examples-how-amazon-treats-their-90000-warehouse.html gives a feel.
Finally, look at the various tales of IP infringement, bullying, trademark squatting, and abusive behaviour using their search traffic and consumer clout to opponent’s detriment. One example is here http://fortune.com/2016/04/20/amazon-copies-merchants/ and at this lush (ahem) example here https://www.theguardian.com/technology/2014/feb/12/lush-trademarks-cosmetics-amazon-christoper-north .
I recognise the ‘all is fair in love, war and competitive business’ argument. Personally I worry that Amazon’s behaviour transcends such aphorisms.
Finally, and this is the hardest argument to make economically rationally, look what is happening to high streets across the UK. I believe in survival of the fittest. I believe in ‘creative destruction’. I believe in competition. I believe most of the forgotten names of the High Street deserve to be forgotten. But I also question whether the UK tax regime, which sets Business Rates centrally, taxes pensionable jobs more than zero hours freelancers, appears to soft-soap Amazon’s tax treatments, and is struggling to update competition policy in the light of Amazon’s global scope and reach, creates an appropriately level playing field.
So while I understand @TI’s “I’d rather have the pounds in my pocket”, I think Amazon deserves at least as much criticism as it gets. And I hope that its unacceptable behaviour can be brought to heel.
Don’t read this post, re-read the one above. Outstandingly well put, @flicted.
Completely disagree with this. Does anybody in the UK think a significant problem with their own or other peoples lives is that they don’t have enough consumer goods or consumer entertainment? Now, admittedly, amazon has played a role in lowering prices, but probably not a hugely significant one (unlike say cheap labour in China and manufacturing productivity growth).
More likely, people will say – I have a horrible, soul destroying, low paid precarious job (Amazon a major source of such jobs); too little is spent on the health service (amazon doesnt pay its taxes); poor public infrastructure (again Amazon pays very little tax). At least in its retail operations, isn’t amazon just basically an online walmart/tesco, but one which is even better at avoiding tax and seems to treat its workers even worse than Tesco’s at least? Hard to get behind that.
I’m not a fan of Amazon and can count on the fingers of one hand the number of times I’ve used it since my first purchase 15+ years ago. But neither do I have much time for people who criticize Amazon but continue to use it (a comment not addressed particularly to anyone on this board incidentally; rather I have in mind a university mailroom of my acquaintance where the staff pigeonholes always seemed to be stuffed with books in Amazon packaging at the same time as the members of staff to whom the packages belonged beat their breasts about Amazon’s alleged tax avoidance). If consumers aren’t prepared to undertake strategic boycotts, why would a company like Amazon feel moved to change their practices?
I find it troubling that MMM doesn’t keep any beer in the house. The guy makes good points about curbing consumption, but that beer thing with 100 pushups… it’s just weird. Surely he doesn’t believe that if he allowed himself to have a drink when he felt like it he’d be a fat drunk with a cirrhotic liver, so why the unnecessary strife then? Or is it just American puritanism and its dysfunctional relationship with alcohol?
An excellent comment from Con Flicted.
For what it’s worth here is my 2p. I think a lot of the issue comes down to the fact that a limited company is a made-up thing. It doesn’t really exist. We as a society have decided collectively to imagine something called a Limited Liability Company (etc.). In doing so, we’ve given the owners/allocators of capital some perks: your personal liability is limited, the owners have a veil of incorporation and some other special rights that individuals don’t have. We’ve done that because, generally speaking, when we pool our money and expertise, as a collective, we can make and do far more things. But, with getting those special rights we expect something in return. However, we as a society haven’t really explicitly set out what those things are. Sure there is the Companies Act, which mainly deals with legal and administrative matters, and there’s the Corporate Governance Code. But we don’t have an explicit set of principles which we expect companies to abide by. There are some informal “lines in the sand” which appear via public uproar: for example the BHS pensions fiasco. But there are very few set in stone expectations – perhaps illustrated by the vague: “Companies must pay their fair share in tax”. Maybe the only convention we have towards companies is: “don’t be a dick”. But almost everyone has a different view on what that is. There’s a genuine need for us as a society to discuss and come to together to think about what we expect from corporations and, perhaps more importantly, what we don’t want.
The fact you need to warn us you are worried about getting sued for comments posted on an article praising Amazon speaks volumes about the company’s power and behaviour.
@David — I’m not worried about my article, I’m worried about a comment free-for-all. 🙂 Unfortunately the UK has fairly poor protection against this sort of thing, compared to say the US.
People can (and are welcome!) to be critical, I didn’t expect to find many who agreed with me on this one. 🙂
What we need to be wary of is allegations about specific happenings or practices or behaviour that can’t be referenced in the public domain. There’s a place for that sort of thing, but my little blog isn’t it — better to take such revelations to the likes of the Guardian or ThisIsMoney or The Sunday Times, to suit, who have the resources. 🙂
Are we sure Alexa isn’t listening to us and gathering data?
You can be sure Alexa is listening to you and gathering data (and kindle and prime etc…)
The only two question are
– what is amazon using the data it gets from Alexa for
– who else is getting the data apart from amazon and what are they using it for
not being paranoid just a fact
UK dividends look unsustainable (not unstable) , is what Hargreaves Lansdown are saying, I think.
“I’m an Amazon shareholder and have been for years”
So now we know where the magic money for the flat came from
@egremont — Oops, thanks, typo, fixed now! (It’s really an FT article but I had a bunch of search results so using this syndicated version to cut down on that.)
If anyone doesn’t like Amazon or it’s business model then don’t shop with them and tell them.
Regarding the alternative High Street shopping model, I live in an area with a lot of shops but late on Saturday I find my 94 year old father struggling to get his new mobility scooter into the shed. He needs a ramp to cross the threshold, ordered on Prime, the correct height is available, despatched within an hour of order for delivery on Monday. I can’t even begin to thing of where I could obtain that degree of service locally.
It’s up to our government to make the tax rules that Amazon plays by, they will game the system as much as they can, it’s their duty as a company to do that. The simplest solution is to have a sales tax like the US. Unlike vat there are no reclaims you simply tax the ultimate owner not the intermediaries and require collection and payment to the destination state of the recipient.
When amazon is liable for the tax paid in the U.K. by its market sellers you can be sure it will collect it !
Regarding the work conditions in the U.K. of its workers then if persuasion does not work then legislate.
The Victorian mill owner of old did not offer great employment conditions and hence eventually legislation follows. Amazon and it’s ilk are new and public opinion only goes so far then legislative measures make sense.
About active investment by Yale: “Harvard Management Company (HMC) recorded an 8.1 percent return on endowment assets during fiscal 2017, reversing the negative 2.0 percent return reported in the prior year.”
About Amazon, Con Flicted writes: “Amazon’s pan-European VAT arrangement is (last thing I heard) with Luxembourg … a country in which it does barely any business. It is (possibly past tense, these days) bespoke to Amazon. And it is confidential”. Careful there, son: the EU is God-ordained and in every way perfect. You must be old and poor and ill-educated and live in, ugh!, Sunderland or somewhere like that.
Regarding hedonic adaption… The only thing in life I might exclude from this is the view from my house. I always tell people I bought a view with a house attached. To this day I never tire of it, it always gives me pleasure and it is never part of the norm… https://photos.app.goo.gl/dnK4jHy2K41i0wr02
Worth every penny!
@JimJim — That’s a stunner! 🙂 We moved from a house with a superb view when I was eight-years old, and I swear my father never really forgave himself.
I have found that gratitude has helped me slow down hedonic adaption at times, it seems to stop me from taking things for granted. As always though, it’s a work in progress hehe. Chris @TheFIJourney
The article about dividends is another attempt by the finance industry to promote worry in investors and persuade them to “do” something. It doesn’t much matter what because the industry always takes a cut of any transaction.
The alternative story that dividends are forecast to rise to a record £105 billion and investors can benefit most by doing nothing apart from reinvesting them is not very newsworthy.
A view can be a wonderful thing, but unless you own the view it can be taken from you at any time. We once passed up a chance to buy a view, in partnership with some neighbours. Drat; we were wrong!
@Dearieme – what a tragic attitude to hold. Most depressing comment I’ve read in a long while.
In contrast the ‘travel is no cure for the mind’ was one of the most uplifting things I’ve read in a good while. Thanks for the link. Reminds me that finance is interesting but philosophy is really where it’s at..
“what a tragic attitude to hold. Most depressing comment I’ve read in a long while.”
We didn’t buy a field; later a developer did. Silly us. It’s no fluke that landscape writers refer to “the borrowed landscape”. It ain’t yours if you don’t own it. Plain statement of fact. Enjoy it while you can; it could vanish any time. Of course we could have agitated nimby-style, hoping effectively to steal someone else’s property rights. But that would have been crooked.
Amazon are riding for a fall. I rarely use them simply because they are no longer the cheapest. I find that with a bit of searching on the internet I can find a specialist retailers website that is cheaper and better. Amazon no longer serves a useful purpose. I think most peope shop with them because of Amazon Prime or pure inertia. My advice would be to dig a bit deeper and you will find better prices somewhere else.
I do not like the geoblocking. How is this even legal? So much for supposedly free markets and competition lol.
Finally the way tey set up their website to try and mislead you into signing up for Amzon Prime is unbelievable. More like a scm website than a reputable retailer. That destroys trust. They and other companies like Facebook, Google and Microsoft have become hubristic and complacent and offer poor customer service, I would be selling my shares.
Sorry for the typos. My laptop keyboard is dying,
“A view can be a wonderful thing, but unless you own the view it can be taken from you at any time. We once passed up a chance to buy a view, in partnership with some neighbours. Drat; we were wrong!”
Sorry you missed out! As an investor, I’m sure you can appreciate that losing what you have is a risk, yes I borrow the landscape, I presently also have sight, losing either is a risk. Due diligence when buying the property 22 years ago found it in a well established green belt with a good distance to the nearest settlement. The field in front of our house is rented to a tenant farmer by Lord and Lady Cavendish… I assessed the risk of loss as small. So far, I have been proved correct and I don’t feel like cashing out yet, the dividend is too good and the capital appreciation has been sound too! 🙂
@JimJim – the Cavendish’s you say? Hmm… Edale Valley?
Near, but no stogie… T’other end of the park
Fantastic balanced comments from Hariseldon and Con Flicted, thank you.
I use Amazon when it’s convenient, but try to use alternatives when they’re convenient (I particularly like Speedy Hen for books, which is generally the same price/cheaper). I know little about Speedy Hen, and just hope they are paying some tax / treating their employees well etc…
I don’t invest in Amazon, not because I don’t think it’s impressive, but because:
a) However amazing a company is, I still don’t want to pay up for that many years’ future earnings.
b) I think that the big tech cos don’t really price in the danger of enforced break-up/regulation – the chance may be small, but it could be a nasty tail risk.
I’ve been wrong so far, and congrats to TI for being right.
I dislike Amazon for many reasons and have not used them once now for the past six years.
I continue to find reasons to despise their business practices. Example – I recently searched for ‘Waterstones’ on Google and the top result was an ad for Amazon showing ‘Water Stones’ as the search term. As Amazon don’t actually stock any products called ‘Water Stones’ this is a clear attempt to trick people into visiting Amazon instead of Waterstones. Their Google ad settings are presumably using the full word ‘Waterstones’ to produce ads in the search results.
It reminded me of the case brought by Lush cosmetics a few years back where Lush defeated Amazon in the high court for using their name as a tool to produce search results to sell non-Lush products (Google ‘Amazon defeated by Lush’ for the full story).
It seems the intent here is the same.
My understanding is that Amazon do make a profit (a very large profit), they just don’t pay out dividends to their shareholders choosing instead to reinvest and grow. But my understanding of business tax is that when a business buys new capital or invests in new operations etc, they can’t then deduct that as a cost and then claim their profit is lower to pay less tax.
I remember one year helping my parents pull together their accounts for their home business. We sent off the accounts to the accountant who then worked out what my parent’s tax bill was. I was surprised when I found out they’d incurred a large tax bill because I thought they’d basically made no profit over the year – their start-of-year bank balance was about the same as their end-of-year balance. But of course they had made a profit, it’s just they’d invested that profit into buying new equipment and new parts to make new products.
Basically what I’m saying is Amazon should be paying a much bigger tax bill, it’s just they divert their profits through Luxembourg who have given them a sweetheart deal. I’m presuming the new Anti-Tax Avoidance Directive from the EU laws will do something to prevent/mitigate this when it starts in January 2019 – whether the UK will benefit when it’s no longer part of the EU I’m not so sure.
I found the Amazon but very interesting! I always assumed it was common knowledge that Amazon made a proft but I suppose thats naughty of me now I’m supposed to be an FI blogger. Shouldn’t we look between the lines of these things?
I love these round up that you do, to someone like me just starting out its fab as your pointing me to all the right links to read!
Little Miss Fire
” Due diligence when buying the property 22 years ago found it in a well established green belt with a good distance to the nearest settlement.” Friends of ours did that too. Then John Prescott became Lord High Everything Else, and shazam!, they got a development at the bottom of their garden.