What will be the next After­pay or Net­flix – stocks that will dis­rupt the mar­ket?

Money Magazine Australia - - COVER STORY -

The next big thing. It’s the stuff of dreams: the in­vest­ment that could grow into a huge, life-chang­ing win­ner.

Take Ama­zon. The com­pany that once de­scribed it­self as the world’s big­gest book­store sold for a spli­tad­justed $US1.50 a share back in 1997. In the heat and pas­sion of the dot.com boom, shares rock­eted to $US95 by April of 1999. Fa­mously, a month or so later it was de­scribed as Ama­zon.bomb in the The Wall Street Jour­nal af­ter the price fell to a lit­tle over $US50.

And 19 years later? Let’s just say that Ama­zon was the se­cond com­pany to hit a mar­ket cap­i­tal­i­sa­tion of $US1 tril­lion ($1.4 tril­lion) in early Septem­ber. The shares were up 1300 times since 1997 and 400 times since the Ama­zon.bomb story was writ­ten.

If you’d in­vested $10,000 into the mar­ket-dis­rupt­ing re­tailer 21 years ago, your share of the tril­lion-dol­lar-mon­ster would be a cool $13.3 mil­lion.

Now – as Alan Bond was to Kerry Packer – we might get only one Ama­zon in a life­time. But that doesn’t mean we can’t find other hugely suc­cess­ful in­vest­ments that dis­rupt ex­ist­ing mar­kets and cre­ate small (or large) for­tunes in the process.

So while I can’t prom­ise you a $13.3 mil­lion pay­day, here’s how to nar­row your search for the next big win­ners. There’ll be plenty of flame-outs, too, so it’s not risk free. You’ve been warned.

SMALL SIZE

I’m not a fan of so-called penny stocks – they’re usu­ally cheap for a rea­son. But trees don’t grow to the sky, so it’s im­por­tant to get in early in a com­pany’s life. Be on the lead­ing edge ... but not the bleed­ing edge! I wouldn’t use size alone as a cri­te­ria, and the smaller they are, the more likely you’ll lose money, as a rule, but the ear­lier you can find to­mor­row’s suc­cess story, the bet­ter. Some promis­ing com­pa­nies with mar­ket cap­i­tal­i­sa­tion around $200 mil­lion in­clude Vol­para (VHT), Bigt­in­can (BTH) and OneVue (OVH).

BIG MAR­KETS

No mat­ter how good you are at mak­ing tai­lor-made gear knobs for Dat­sun 180Bs, your mar­ket is nec­es­sar­ily pretty small. On the other hand, if you’re of­fer­ing to sell ev­ery­thing to ev­ery­one, ev­ery­where … well, as Croc­o­dile Dundee might say, that’s a mar­ket. Of course, that also in­vites plenty of com­pe­ti­tion, but if you’re go­ing to be the big­gest, you’re go­ing to have to be the best.

The big­gest mar­kets are con­sumer fo­cused (more peo­ple) or at least mass mar­ket and, ideally, bor­der­less in ap­peal. And, more of­ten than not, your mar­ket will be fo­cused on, or heav­ily re­liant on, tech­nol­ogy. Com­pa­nies that fit this bill in­clude Cat­a­pult (CAT), Nanoson­ics (NAN) and Starpharma (SPL).

STRONG LEAD­ER­SHIP

It’s an in­escapable re­al­ity that most big win­ners have founders at the helm in one way or an­other. They bring the vi­sion, charisma, drive and usu­ally a new way of do­ing things ... Steve Jobs, Jeff Be­zos and Net­flix’s Reed Hast­ings, to name just a few. Jamie Ph­er­ous of Cor­po­rate Travel (CTD) is in a sim­i­lar mould, as is Rus­lan Ko­gan from Ko­gan (KGN) and the Perich fam­ily from Free­dom Foods (FNP).

FOOL­ISH TAKE­AWAY

For every Net­flix, there’s a Quick­flix; for every After­pay, a bankcard. Busi­ness suc­cess doesn’t ad­here to any rules but you can put the in­vest­ing odds in your favour. You can get the cri­te­ria right but still lose money. You need pa­tience, a strong stom­ach, re­silience … and more luck than most peo­ple ad­mit. It’s a risky game but for many the re­wards make it a game worth play­ing.

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