Why did you not buy REA Group Ltd [ASX:REA] in 2000?
It was obvious wasn’t it?
This was going to be a company worth far more in the years ahead.
Just consider their business model…
REA has that amazing network effect. It’s much like the one that’s made Facebook one of the world’s most valuable companies.
As more property buyers jump onto realestate.com.au, it encourages more sellers to do the same, and vice versa.
The more people that use the platform, the stronger it becomes.
And back in 2000, you could have picked up stock in this amazing business for a couple of cents. Today, the same stock is worth more than $90 a piece, an appreciation of more than 11,000%!
Why did you not buy this company? Why did more people not buy this company?
Do we all just hate money or something…?
The ones that got away…
You could run the same thought exercise for a whole bunch of wonderful companies.
Microsoft, Intel, Google, Facebook, Amazon…you get the idea.
Why in the world did investors not just pick any one of the above and just sit on it?
The returns from any one of these investments would have handed you some of the best returns in the industry.
Yet few bought them, and fewer still held them as they soared up 10 times, 20 times or even 50 times from their original value.
These are the investments we all look at and say: ‘Of course. I knew this thing was going to be big. If only I had have bought it back then!’
Think about the services some of these stocks provide?
Microsoft and Google, I mean, could you even imagine a world where these two companies don’t exist? MS Office and Google’s search are probably two things I use more than five times a day. It might not be that much different for you.
Or how about we go back to REA Group?
Imagine a world where REA Group never happened…
Sure, we still have Domain. But you property buyers out there, and especially realtors, know nothing else compares.
REA is the portal for Aussie property.
It’s taken years and millions of dollars for REA to make it that way too.
While there’s a long list of ‘the one that got away…’, try not to feel depressed.
Today I want to show you how you could make that list smaller, and pick up more of the big idea stocks, rather than watching them go by making others rich. [openx slug=inpost]
We all look silly in hindsight
Of course, it’s not as easy as saying ‘Why didn’t you buy REA Group, or this or that stock.’
Take Google for example.
This is one of the best businesses on the planet. Yet it didn’t seem that way when Google first listed in 2004.
The blog, A Wealth of Common Sense pointed out:
‘Even after they [Google] were public for a few years there were still plenty of doubters. Marianne Jennings wrote a book called The Seven Signs of Ethical Collapse which was published in 2006. Jennings does a nice job deconstructing the Enron, Worldcom, and Tyco debacles as a framework for spotting red flags in company management, financial statements, boards, corporate policies, and unethical behaviour.
‘At the end of the book, she then uses that framework to predict companies and industries that could be in trouble in the future. One of the companies she chose is none other than Google.’
It’s because the future of Google was far more uncertain than it is today. In 2004, it was hard to imagine a world where search would be so important and that one company would dominate that market.
It’s the same story for companies like REA Group.
Sure, investors thought it was a good idea. But they didn’t buy it either because it was too expensive, they miscalculated the potential market size, or they couldn’t foresee the myriad of products which REA could launch to complement their classified business.
So what’s the solution to picking up more stocks like REA Group and Google?
First let me tell you what you shouldn’t do…
Hoping for luck will make you poor
We’re not trying to buy a lottery ticket. Being hopeful and lucky is never an easy strategy to get rich.
Uber, for example, is a company I believe I’ll never look back on and say, ‘Damn, I wish I’d bought that one.’
That’s because Uber, as it stands today, is an unprofitable business. And they’ll likely stay that way as they continue to fund rides.
They funnel much needed cash into pipe dreams, which might just turn out as unprofitable as their ride hailing business.
If Uber does ever reach Google status, it will do so as a completely different company. One that has a strong core business that few if any competitors can replicate.
Weighing up ‘the next big thing’ is a helpful exercise, though.
Not only does it colour your opinions of businesses and different business models, it can challenge your original ideas and force you to think of a wide range of possibilities.
Rather than saying ‘Of course, this was going to be a sure thing’, always look for ideas to challenge your own.
Maybe all it takes is one simplified explanation or metaphor to change your mind. And with that, you could have your hands on the next REA Group…
Your friend,
Harje Ronngard