Google held an initial public offering on Aug. 19, 2004. The IPO came out at $85 per share. If you had bought 10 shares that day and never sold, today you would have 12 class A Alphabet shares and 12 class C Alphabet shares, thanks to a name change and a stock split. Including dividends (and share prices that topped $2,000 apiece in 2021), that initial investment of $850 would be worth many tens of thousands of dollars now.
So how would you do it if you were trying to pick the next Google? Studying what some of the best-performing stocks have in common is a good place to start.
- Early investments in companies like Microsoft, Amazon, Apple, and Google provided investors with massive returns.
- These companies have something in common: each organization had an idea that changed the world.
- Diversifying your portfolio spreads risk across many stocks, which alleviates some of the downsides of investing in speculative, high-risk stocks.
- Investors are smart to buy into IPOs as early as possible, knowing that some will turn into a loss and some could turn into the next Google.
Look for World-Changing Ideas
Early investments in companies like Microsoft, Amazon, Apple, and Google provided investors with massive returns. While they may be atypical for the market overall, it's exciting to consider how you may be able to replicate the results of investors who brought home 1,000% or better from a single stock.
Each of these companies had an idea that changed the world. Microsoft helped put a computer on every desk in every workplace and in most homes in the world. Google changed how we search for information and monetized that search. Amazon changed how we shop. Apple changed how we use phones and the internet.
Massive growth is not limited to the technology industry. Walmart saw its stock price multiply six times between 1996 and 1999 as it cemented its position as the world’s largest brick-and-mortar retailer.
Target Solid Businesses
GoPro promised to change how we capture and edit video, with its namesake GoPro camera at the front and center. The stock shot up to $86 per share over the following months after an IPO at $24 per share. Then came a lengthy, slow decline that brought the stock down to around $5 per share as of late 2018. It rebounded only slightly over the next few years, touching $11 as of November 2021—a far cry from the $86 shares of 2014. What happened at GoPro that made it different from Facebook (now Meta), Google, and Amazon?
GoPro did not actually change the world. It just makes cameras. And while it sells over $1 billion worth of cameras every year, the company saw sales decline in 2016, and net profits turned into losses nearly every quarter for the next several years. GoPro wanted to change the world, but that doesn't mean it had the ability to do so, or even to earn a profit.
Meta, on the other hand, was able to follow through on its vision. Despite several missteps, the company has grown steadily from an IPO price of $38 per share to an all-time high of $382.18 on Sept. 7, 2021. There is little question as to why Meta has quickly become one of the world’s most valuable companies, with billions of users and $28 billion in revenue in 2020.
Make an Early Investment
Tesla is another company with lofty goals to change the world. What began as an electric car manufacturer has grown into one of the largest producers of batteries in the world. Tesla owns solar power business Solar City, and released the Tesla Powerwall. It built a “Gigafactory” in Nevada to capture additional economies of scale in battery production.
Tesla’s stock price was a wild ride for its first several years. The stock hovered around $30 to $40 per share until 2017 when the stock began an upward roller coaster. At one point, the shares had risen to a price nearly 50 times greater than those early days, even before the stock had been trading for less than 10 years. Even so, Tesla remains a high-risk opportunity because of the company's large-scale ambitions.
The Venture Capital Approach
Venture capital firms invest in risky startups knowing that most of their picks will fail. The company will break even despite the losses, however, if it makes 10 bad investments and one offers a 10-times return.
The same is true of risky stocks. It doesn't matter as much if a few stocks fall when you own a diverse portfolio. It can make up for losses across your portfolio if you hit it right with one or two good stock picks.
This is not a foolproof tactic. It's possible for your entire portfolio to drop at once, which happened to many investors in the Great Recession in 2007 and 2008. But spreading the risk across many stocks will help alleviate some of the downsides of investing in speculative, high-risk stocks.
Investors are smart to buy into IPOs as early as possible to get the best returns. Some will turn into a loss like with GoPro, while others might turn into the next Google.
The next biggest companies in the world are not born every day. They are few and far between. But you may be onto the next Google if you can pick the next world-changing idea with the right team behind it.