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