01 May How To Achieve 12,000% Returns Against The Odds
By Chin Hui Leong, Co-Founder, The Smart Investor
What is growth investing about? Let me show you using some numbers…
The table below is a sample of stocks that I have held for nine years or more.
|Jan 2007||Netflix||12,441%||Online streaming|
|Feb 2007||Chipotle Mexican Grill||1,438%||Organic food|
|May 2009||Activision||488%||Online gaming|
|May 2010||Booking Group||662%||Online hotel booking|
|Jun 2010||Amazon.com||1,876%||Online shopping, data centres|
|Jun 2010||Apple||618%||Smartphone ecosystem|
|Oct 2010||Intuitive Surgical||451%||Robotic surgery|
|Mar 2011||Alphabet||418%||Online ads|
|Aug 2011||Starbucks||333%||Global coffee brand|
|Sep 2011||Mercado Libre||916%||Online shopping|
The returns may look phenomenal now… but the outlook was not like that over a decade ago….
There I was, in the middle of the Global Financial Crisis, back in early 2008, a downturn so severe that it was eventually billed as the worst recession to happen in over 50 years.
Things were looking bad. Really bad.
And there I was, right in the centre of the economic storm.
If today’s COVID-19 economic scenario feels similar, you might want to stick around for what I am about to share.
Growth against the odds
Here’s the thing, the economic downturn in 2008 wasn’t the only thing that befuddled me.
It was the fact that there were a select group of companies that kept growing.
Despite the gloom.
Despite the economic carnage.
Despite all the odds stacked against them.
These companies kept going. And kept growing.
The evidence was so strong that I couldn’t ignore them.
Not your regular fare
As conventional wisdom goes, non-discretionary goods and services are supposed to thrive in a recession.
By that same reasoning, consumers will be quick to cut back on discretionary products and services at the first sign of economic hardship.
But that was not what I saw.
Not even close.
The realisation did not come immediately.
Like a slow burn, the facts kept trickling in, slowly solidifying what I was witnessing.
Apple (NASDAQ: AAPL), a manufacturer of consumer products that is seen as discretionary, would go on and post revenue growth in excess of 35% for their fiscal year ended September 2008.
Yoga pants maker, Lululemon (NASDAQ: LULU) — again, as discretionary as consumer expenses go, ended up posting 31% sales growth for its fiscal year ended February 2009.
Booking Group (NASDAQ: BKNG), which facilitates travel and hotel bookings, also delivered growth in excess of 30% in revenue for 2008.
Consumers should be cutting back on vacations — it’s discretionary after all.
But evidently, Booking Group didn’t get that memo and kept posting higher sales.
… the list of companies exhibiting confounding, powerful growth just kept lengthening.
I needed to know why.
In fiscal 2008, the bulk of Apple’s sales came from Macbooks and iPods.
At the time, the iPhone accounted for less than 6% of its annual sales.
As history would show, Apple’s iconic smartphone was at the cusp of taking the world by storm, eclipsing any other consumer product that had come before it.
The iPhone was the spark that led to the birth of the smartphone economy, which has an estimated 3.5 billion users today.
There is little doubt that smartphones have been the biggest game changer over the past decade. The device has played a huge role in increasing the number of internet users from around 1.6 billion users in 2008 to over 4.1 billion users in 2019.
To put the trend into context, the rise of smartphones was strong enough to upend the Global Financial Crisis, the worst recession in 50 years.
And it wasn’t happening with just Apple.
I saw the same pattern playing out with Booking Group and Lululemon.
Booking Group was at the forefront of driving offline hotel bookings to go online.
Lululemon was at the centre of creating a new blend of clothing that could be used for sports (think yoga) and in other settings, including your workplace, school or other social outings.
These positive business developments, despite the odds, were eye-opening.
In my mind, if these companies could thrive in a downturn, it goes without saying that when the upturn happens, these companies are going to be even stronger than before.
And boy, did we have an upturn.
For the next 11 years, the changes driven by the likes of Apple, Booking Group, and Lululemon would continue, contributing to one of the longest US stock market bull runs that we have ever seen.
My mind was set.
Growth investing made sense to me. It was where I wanted to be.
Of the companies that I highlighted at the beginning of this article, I still hold all of the above companies today. And with a few (painful) exceptions, I still hold all of the shares today and am quite happy to do so.
COVID-19: History will not repeat itself (but it rhymes)
In many ways, the impact of the COVID-19 pandemic will be different from the Global Financial Crisis.
We have to recognise that much of the growth that happened during the financial crisis a decade ago is unlikely to happen today.
For instance, tourism and travel-related companies such as Booking Group will not be posting the same kind of growth it did in 2008. Few restaurants, if any, will be able to avoid a drop in demand as social-distancing measures keep the crowds at home.
Yet, with the new conditions set by COVID-19, there are still pockets of growth to be discovered.
We plan to work hard and uncover a select group of stocks in the coming months.
More than that, we will also be looking beyond 2020 and into the distant future if we hope to make money from growth investing.
Just as I found my ‘investing home’ in growth investing during a crisis, we find ourselves in the same position today.
But if you were remember one thing from reading this, it’s not where you start that matters.
It’s not about 2020 alone. Or 2021.
It’s about 2030 and where the world would look like then. Or 2040. And beyond.
My experience from holding growth companies for well over a decade informs me that the truly great returns come from holding in timeframes that are measured in years and decades, rather than the coming year.
I am now starting on a new journey with All Stars.
All Stars is all about finding the next shooting stars… those that will fly up and multiply our wealth many times over.
Come on this journey with us to experience how to investing in the next rising stars….
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