Some shares can have overnight success stories. Some of them are a long time in the making. How can investors spot the signs?
Some of the biggest share price winners ever
Sometimes a share price goes ballistic, sometimes it is an overnight success, or indeed overnight failure, but some of the best returns ever have been a very long time in the making. How can investors spot such winners in advance?
What has the sometimes largest auto company in the world and a tiny investment strategy & development firm in minerals have in common? Answer; both have seen their share price enjoy a rollercoaster ride.
For Volkswagen, it happened in October 2008, shares saw a massive jump in one day, at one point during the day, Volkswagen was the biggest company in the world, by market cap. The jump was down to a surge in activity from overcommitted short sellers who went into panic after the revelation that Porsche had been building up a bigger stake in the company. The share price ended the day at 520 euros, today the price is 138 euros.
In fact, the company’s share price is no stranger to sudden moves. Shares plummeted in the spring of 2015 following diesel emission revelations. Although shares have risen nicely since the 2015 lows, they are still way below the level just before news of diesel emission cheating broke.
The tiny mineral investment strategy & development company is Cadence Minerals, listed on AIM, formally Rare Earth Minerals. Shares rose by over 3,000 per cent back in 2013/2014. Shares have since plummeted. Then again, the company is heavily focused on the lithium ion market — where the dangers of hype and opportunities for stellar growth are ever present.
That’s all very well, but the rise and falls in shares in these companies was hardly predictable. Investors who got these stocks right were lucky rather than clever, in my opinion.
What about rises that were more predictable?
Apple is the obvious one — shares rose from around 50 cents in 1997 to $186 today. I remember that period in 1997 well. The company was in a sorry state, with one disastrous product after another (Newton and Pippin). They even got Bill Gates to help out, agreeing a deal with Microsoft. And one more thing happened that year, what was it now? Oh yes, Steve Jobs returned. Was the recovery predictable at that point? I certainly didn’t predict it. But things changed in the early 2000s. Moore’s Law had progressed to make a new type of consumer product possible. With the iPod, Apple began to look exciting. The revelation came for me around 2011, when I realised how good the iPhone was. I fell in love with it and became an Apple bull in this column — shares have risen roughly 20-fold since then.
The big development of this decade has been the cloud. And Salesforce has been the big beneficiary — shares are up 50-fold since 2005 and three-fold in the last five years.
Then of course there is Amazon — shares up over a thousand-fold since 1997 and five—fold over the last five years.
The hype cycle
There is a lesson in this for investors — new product types, such as smartphones, the cloud and now technologies such as virtual and augmented reality go through phases.
Gartner calls it the hype cycle. It breaks this down into five stages:
- Technology trigger
- Peak of inflated expectations
- Trough of disillusionment
- Slope of enlightenment
- Plateau of productivity
I think it is overly poetic. I would say there are three phases: hype, sceptical phase and transformational phase. I first noticed it with dotcoms: hype phase was late 1990s, sceptical was early 2000s then we entered the transformational phase.
The best time to invest is probably at the moment of maximum sceptism. It is a difficult strategy as you are going against the consensus. But the time to have invested in Amazon was at the point of maximum scepticism regarding dotcoms.
And again, Amazon along with Salesforce, when people were saying that cloud technologies were overhyped.
So many of the companies that have seen serious rises in share prices, started enjoying success at the point of investor scepticism.
I think that we may be set to enter another such period, markets don’t get the importance of AI and augmented reality. Which is why I think Apple could enjoy another good ride. At the point when investors are fretting over the maturing smartphone market — they have not spotted the next, and excuse the phrase, but this is one of the few occasions it is justified, the next paradigm shift. Likewise, Alphabet —whilst markets fret about regulators clipping its wings — sit centre stage in the AI revolution.
Best long-term performer
But if you like your investments to have a truly long-term perspective, look at Exxon Mobil.
Between 1926 and today it has seen an average annual return of 11.9 per cent, and (with dividends) has created one trillion dollars worth of wealth.
Dividends have increased by an average annual rate of 6.3 per cent.
The new oil
But for me, Exxon is very much 20th Century paradigm. It has become an over used quote, but when the Economist called data the new oil it was about right. That’s why Alphabet and Amazon are so interesting.
As for Apple, strap yourself in for the augmented reality revolution, it will make the rise of smartphones seem tame.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees