Tuesday, August 07, 2007

A Great Investment For $1000

Searching for 40,000% Returns by the Motley Fool shares some interesting and outstanding returns for an investment of only $1000.

$1000 invested in Microsoft (MSFT) in 1986 would be worth $386,250 in May, 2007 for a 38,525% return. $1000 invested in Dell (DELL) in 1988 would be worth $246,700 for a 24,570% return. No bad for a $1000 investment. The good news is even if one had invested a total of $10,000 and the other $8000 went to zero, the return would still be over $500,000.

Unfortunately, I don't own a Back to the Future modified DeLorean to go back to 1986 to make these investments. The best thing to do now is to look for companies with similar characteristics and bet that $1000 invested today will be worth over $200,000 twenty years from now. Based on hindsight, here are the characteristics I will be looking for in future winners:

A great business model. For both companies, their business model satisfied customers, and rewarded them with fast growing market share. Microsoft made DOS and the Windows the OEM operating system for the majority of computers. Unless one bought an Apple computer, DOS and Windows was likely the operating system. That gave Microsoft an edge when developing applications such as Excel and Word.

Dell provided customized computers that were lowest cost and better than models available in stores. Dells direct to consumer sales and minimal inventory model enabled them to provide the lowest cost and the exact features a buyer wanted. It was the best of both worlds when computer costs were driven by feature selection (e.g. size of hard drive) and when component prices were rapidly falling.

A product that is future focused. While other companies focused primarily on mainframe computers, both Dell and Microsoft were creating the new personal computer business. Dell and Microsoft became winners in the future. This is analogous to when cars were growing market share. Being the best buggy whip maker in the 1920s wasn't going to be a sustainable business model.

A passionate company leader who has staying power. Bill Gates was the person behind Microsoft's success and Michael Dell were the force behind Dell's. Both of them have been effectively leading the company for twenty years and refining the business strategies that made them powerhouses in their industries. In addition, they were able to guide their company through good and bad times.

What are today's potential $1000 investment winners? My picks are Google (GOOG), Amazon (AMZN), and General Electric (GE). These three companies have great business models, future focused products and passionate business leaders. I'm betting on them to be future big winners. More details will be published in a future post.

Full disclosure: I currently own shares of GOOG, AMZN and GE. I also own MSFT LEAP call options.

For more on Ideas You Can Use , check back every Friday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC


Adventures In Money Making said...

unfortunately 10 years ago, the market cap of MSFT was about 400 times less than it is today. Google is already a 160 billion dollar company. Unless its becomes a 64 trillion dollar company you cannot get 40,000% returns.

In order to see 40,000% returns you need to buy mid-cap, small cap or even micro-cap stocks.

Must easier is buying Berkshire hathaway and enjoying 20%+ growth every year.

Anonymous said...

Yep, it's too late to see those large gains in the stocks that you chose. You need to get in a company has a total market value of around 50M now and hope they have all the characteristics that you state. Good luck with that... it's not easy.

Anonymous said...

I can't say that I completely agree with your picks. Google has already made 5x original investments, doubling again would require the stock to go over $1000 per share. It's a great company, but it will be interesting to see what acts as a catalyst for future earnings growth.

As for GE, this company hasn't moved for years. It certainly is a good, diversified company, but once again, what's the catalyst?

Just my two cents...

Super Saver said...

@ Adventure and Lazy Man,

Agree 400x is highly unlikely for these stocks at their current capitalizations. Darn, that was one of the points in my next post:-) However, I do think that trillion dollar capitalizations will occur in the next 5-10 years. So a 50x or greater gain for AMZN ($30B market cap) may be possible. Perhaps 20X for GOOG and GE. Not 400X, but still pretty good.

@ Anonymous,

Here is my opinion on the catalysts for these companies:

GOOG - They are leveraging the content of masses to help them generate revenue. Every website is a potential revenue generator for GOOG. In addition, they are expanding to other mediums. Currently, the ad market is $400B and GOOG has $4B or 1%.

AMZN - Their new business model is to run the supply chain for other companies. AMZN believes they can run warehouse and shipping operations better and for a lower cost than most companies. If they can, this business model could create significant revenue for them.

GE - Green and infrastructure rebuilding is the bet GE is making. Both elements will be important in the future economy and GE is taking the lead.