Whatever decision Amazon makes on its advertising business, what is certain is that many companies, both successful and failing, might have one outward appearance but a lot more hidden inside. It can be these hidden depths that realise value in the long term – even if the core business is in structural decline. There have been multiple examples of relatively unnoticed parts of a business playing a large role in the future growth and success of the company. Nokia started life as an industrial conglomerate long before mobile phones were mainstream and refocused its business around mobile in the 1980s, Abercrombie & Fitch started life as a sporting goods shop, Nintendo as a playing card company and Flickr was a chat room for a web-based multi-player game with a photo sharing capability – the game was shelved and the photo uploading service took over. Finding these underappreciated parts of a business and recognising their potential growth prospects is, of course, the value of detailed fundamental stock research, and the reason why valuing a company with any degree of accuracy needs both dedicated and skilled people, and an ability to see the wood for the trees. Which is why, in the case of Amazon and many others, you should never judge a book by its cover.
James Bateman is head of multi-manager and multi-asset portfolio management for Fidelity Worldwide Investment
