Contributed by: Jaclyn Jackson, CAP®
If you thought this blog was about Donald Trump, your leg was just pulled. This candidate’s name starts with a “J.B.”, that’s right – Jeff Bezos (pulled again). On August 26th, the Amazon Founder and CEO became the first person ever worth an unprecedented $200 billion. This happened just before 2020 required the best August returns since 1984 and US markets recovered from deep pandemic-facilitated lows by exceeding mid-February pre-pandemic highs. All the while in true Tale of Two Cities form, a global pandemic has millions of Americans reconciling above-average unemployment rates and highlighted a variety of social disparities through seemingly targeted infection rates. Amazon, specifically, has received unfavorable headlines during the pandemic as essential workers strike against the alleged lack of virus-related safety precautions taken by the company and unsatisfactory compensation.
Democratizing Capitalism
Although wealth inequality isn’t new, the pandemic amplified its implications. (As of writing this) Presidential elections are approaching. Like most elections, economics lead the ballot. Observing recent history’s populist-leaning politics, Pershing Square Capital founder and billionaire hedge fund manager, Bill Ackman suggests democratizing capitalism in his latest letter to investors. In the letter, he touted capitalism as the best system for maximizing the size of the economic pie. Yet, warns the lack of wage growth for most Americans facilitates Black Swan-like risks for investors as lower/middle-income Americans advocate radical change that overhauls modern capitalism. Essentially, social unrest poses a threat to investors. Ackman’s solution was creating programs that widen market participation (and subsequent gain participation) to individuals who can’t traditionally invest thereby restoring faith in capitalism.
Aligning Interests
Which brings it back to Jeff Bezos. Many anticipate the CEO will follow Tesla and Apple’s lead, by splitting Amazon stock. On the surface, stock splits are superficial. Technically, they don’t equate to any value change for a company. However, stock splits have historically been used to signal a company’s strength or hint that something good might be on the horizon for the company. As illustrated by the latest Tesla and Apple stock splits, many investors take note and likely load up on company stock consequently boosting the company’s value.
So, what does Jeff Bezos splitting Amazon stock have to do with Bill Ackman’s thoughts on saving capitalism? Amazon is one of the few businesses to profit during the pandemic directly contrasting the experience of small business owners and the general public alike. It becomes more challenging for the average person to praise Jeff Bezos’ extraordinary wealth when their experience mirrors Amazon employees who are frustrated by the inability to work safely or receive adequate compensation. At the current stock price, many cannot join in on Amazon’s success. By lowering the individual stock price, a stock split increases access to a wider range of investors. More participants in Amazon’s meteoric rise could increase their customer base, increase customer loyalty, and even discourage (at least in public opinion) attempts to break up the company as it moves into a monopolistic stratosphere. Perhaps designing a way for Amazon’s essential workers to more easily invest in the company could solve compensation distress. Jeff Bezos wins the day by making Amazon stocks more accessible; he sets his business and himself up to potentially gain more wealth and with a wider range of investor participants, he gets buy-in from the average individual. Bezos’ success becomes the average person’s success and their interests align in capitalism; Ackman’s resolution in practice.
No matter the political view, most Americans would agree that democracy is the blood and bone of our nation. Whether we are practicing democracy through voting or considering new ways to exercise democracy (as Bill Ackman explored), we are uplifting the country’s greatest strength.
Jaclyn Jackson, CAP® is a Portfolio Administrator at Center for Financial Planning, Inc.® She manages client portfolios and performs investment research.
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