If history has taught us anything it is that there are patterns that tend to repeat. I find these patterns often flag the warning signs that are useful reminders of the negative consequences of past cycles and events. Over the course of history these apply to all sorts of situations including overheated markets & stock market crashes, geopolitical tensions & war, and government spending & debt crises.
Investors though are not typically very good at studying history (or at least remembering it). It is one of the reasons why there will always be booms and busts. Partially, its due to human behavior driven by fear and greed and by the time those investors gain the necessary experience to take advantage of similar events as they repeat there is a new batch of people seeing a situation unfold for the first time. But failing to learn from history does not only apply to dramatic catastrophes.
We often overlook the patterns of success too.
The great companies of the last 10-20 years, Amazon, Apple, Google, and Microsoft are all trillion-dollar plus companies today. In the past 10 years, the share prices of these companies have increased in value by 10x or more. They have seen extraordinary growth and they are all still rapidly growing companies despite their size.
Perhaps the most interesting thing to me is that 10 years ago they were already huge companies. They were market leaders that many thought were overpriced and didn’t buy. Back then they were $100b and $200b companies. For many, it was difficult to see the upside. They were viewed as expensive. My point here is that to find the next tech giants that deliver exceptional long term returns we don’t need to scour the earth looking at small companies. High growth large companies have that potential too.
People generally aren’t great at conceptualizing or comprehending exponential growth over the long term, especially when that growth rate is very high. A company share price worth $1 increasing by 10% per annum would be at $4.18 after 15 years. Compare that to a $1 company share price that increases by 20% per annum and after 15 years it would be at $15.41. From there it starts to get ridiculous but for the sake of the exercise I’ll continue. At 30% per annum a company with a $1 share price would reach $51.19 a share after 15 years.
What history tells me is that the next giant tech companies are already well-known companies we (or our kids or grandkids) use every day. They are emerging global leaders and even though they may worth $50b to $200b they are still growing at 15%-20% plus per annum. It is possible that some of these companies become the trillion-dollar companies of the next 10 years. In the next few weeks, I’ll write more on this topic and outline the attributes I look for in these types of businesses and provide a few examples of stocks I think have this potential.
General Advice Disclaimer: This information is of a general nature only and may not be relevant to your particular circumstances. The circumstances of each investor are different, and you should seek advice from an investment adviser who can consider if the strategies and products are right for you. Historical performance is often not a reliable indicator of future performance. You should not rely solely on historical performance to make investment decisions.