We all know the phrase, “don’t put all your eggs in one basket.”
That’s because it’s a simple way to express an abstract idea: Too much concentrated risk can lead to disaster.
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Nowhere is this more true than in the world of investing. It’s why countless finance gurus have sung the praises of diversified portfolios. By spreading your bets among many stocks, the risk of one bad selection wrecking your life savings is greatly reduced.
However, what if you had to choose only one stock to buy and hold?
Obviously, that’s not an ideal strategy, but in this hypothetical scenario, I know what stock I would choose: Amazon (NASDAQ: AMZN). Here’s why.
To start, we need to consider the greatest challenge in this scenario: the lack of diversification. By owning only a single stock, our hypothetical investor has put all their eggs in one basket — and so that basket needs some safety features.
Thankfully, Amazon has them. The company is a conglomerate. It combines e-commerce, cloud services, advertising, and artificial intelligence to generate its massive $600 billion-a-year revenue stream.
Moreover, these segments serve different customers and are driven by different economic trends. For example, the company’s cloud services division, Amazon Web Services (AWS), derives significant revenue from large enterprise clients like Netflix, Adobe, and Meta Platforms. On the other hand, Amazon’s e-commerce segment caters to retail customers through its 200 million-plus Prime members, who rely on the service for quick delivery of everyday items.
Granted, both segments rely on a healthy overall economy to drive top-line growth and profits, but at least Amazon stockholders are not reliant on just business spending — or consumer spending. There’s a blend of both behind Amazon’s massive revenue stream.
Next, there’s Amazon’s history and its management. Taking its stock performance first, there are few companies that can match Amazon’s long-term growth. Over the last 20 years, Amazon generated a compound annual growth rate (CAGR) of 26.9%. That’s more than double the return of the S&P 500 over the same period (10.8%).
While the stock’s past performance is no guarantee of the its ability to outperform over the next 20 years, it is a sign that the company’s management navigated numerous challenges while finding opportunities to expand its product offerings and grow its value proposition to customers. After all, let’s remember that Amazon began as an online bookstore and now generates roughly $50 billion per year in revenue from advertising alone.
