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.
Look for World-Changing Ideas
Target Solid Businesses
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.
IPO Investments
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.
