Best of the Week
Most Popular
1.Crude Oil Price Trend Forecast 2016 Implications for Stock Market - Nadeem_Walayat
2.Odds of Winning Walkers Crisps Spell & Go olidays K, C and D Letters - Sami_Walayat
3.Massive Silver Price Rally During The Coming US Dollar Collapse - Hubert_Moolman
4.Pope Francis Calls For Worldwide Communist Government - Jeff_Berwick
5.EU Referendum Opinion Polls Neck and Neck Despite Operation Fear, Support BrExit Campaign - Nadeem_Walayat
6.David Morgan: There Will Soon Be a Run to Gold Like You've Never Seen Before - Mike Gleason
7.British Pound Soars on BrExit Hopes Despite Remain Establishment Fear Mongering - Nadeem_Walayat
8.Gold Price Possible $200 Rally - Bob_Loukas
9.The Federal Reserve is Not Going To Raise Interest Rates and Destroy Gold - Michael_Swanson
10.Silver Miners’ Q1’ 2016 Fundamentals - Zeal_LLC
Free Silver
Last 7 days
Will the Fed be Blind Sided by Stagflation? - 31st May 16
Gold Price Not Ready for a Final Intermediate Cycle Low - 31st May 16
EU Referendum - British People vs Establishment Elite, Vote LEAVE an Act of Defiance! - 31st May 16
Gold - Mr. Cool Cucumber is starting to Sweat - 31st May 16
AMAT Chirps, b2b Ramps, Yellen Hawks and Gold’s Fundamentals Erode - 31st May 16
Stock Market Re-Testing Overhead Resistance - 30th May 16
David Cameron Questioned on Out of Control Immigration at TEN TIMES Conservative Election Pledges - 30th May 16
Bitcoin Price Skyrockets And Is Now Up More Than 100% This Jubilee Year - 30th May 16
This Is Not The America My Parents Immigrated To In 1957 - 30th May 16
“Debt, Not The Economy, Reaches Escape Velocity” With Graham Mehl - 29th May 16
EU Referendum, Black Vote LEAVE or REMAIN? Which is Worse for Racism for Britain's Ethnic Minorities? - 29th May 16
Billionaire Gross: Jubilee Debt Relief as Prelude to New Global Economic Order - 29th May 16
Wargaming North Korea - Assessing the Threat - 29th May 16
EU REMAIN Population Forecasts - England 4.1 million Explosion, London Migration Crisis - 28th May 16
A Guide to the Trump-Sanders Debate - 28th May 16
Gold And Silver – At Significant Support. New “Story” Developing - 28th May 16
The Next Systemic Lehman Event - New Scheiss Dollar & Gold Trade Standard - 27th May 16
Energy and Debt Crisis Point to Much Higher Silver, Metals Prices - 27th May 16
Gold Junior Stocks Q1 2016 Fundamentals - 27th May 16
These Crisis Markets Are Primed to Deliver Big Gains, Platinum Never Cheaper! - 27th May 16
Operation Black Vote BrExit Warning for the Wrong EU Referendum - 27th May 16
UK Immigration Crisis Hits New Extreme, Catastrophic ONS Migration Stats Ahead of EU Referendum - 27th May 16
Many of the World’s Best Investors Made Their Fortunes This Way…And You Can Too - 27th May 16
The Ugly Truth About Stock Market Manipulation and Gold Prices - 27th May 16
Gold Price Looking Vulnerable While Gold Stocks Correct - 27th May 16
The 5 Fatal Flaws of Trading - 27th May 16
The Next Big Crash Of The U.S. Economy Is Coming, Here’s Why - 27th May 16
A New Golden Bull or Has the Market Gone Too Far Too Fast? - 27th May 16
It Feels Like Inflation - 26th May 16
Negative Interest Rates Set to Propel the Dow Jones to the Stratosphere? - 26th May 16
S&P Significant Low has Occurred – Not Likely! - 26th May 16
Statistics for Funeral Planning in UK Grave - 26th May 16
Think Beyond Oil And Gold: Interview With Mike 'Mish' Shedlock - 26th May 16
Hard Times and False Mainstream Media Narratives - 26th May 16
Will The Swiss Guarantee 75,000 CHF For Every Family? - 26th May 16
Is There A Stocks Bear Market in Progress? - 26th May 16
Billionaires Are Wrong on Gold - 26th May 16
How NOT to Invest in the Gold Market - 26th May 16
The Black Swan Spotter...Which Saw the Oil-Crash coming; now says the “Invisible Hand” will push Brent to $85 by Christmas - 26th May 16
U.S. Household Debt Still Below 2008 Peak - 25th May 16
Brexit: Wrong Discussion, Wrong People, Wrong Arguments - 25th May 16
SPX is at Strong Resistance - 25th May 16
US Dollar, Back From the Grave? - 25th May 16
Gold : Just the Facts Ma’am - 25th May 16
The Worst Urban Crisis in History Could be Upon Us - 24th May 16
Death Crosses Across The Board Are IRREFUTABLE Stock Market Sell Signals - 24th May 16
Bitcoin Trading Alert: Bitcoin Price Stays below $450 - 24th May 16
Stock Market Crash Death Cross Doom Prevails - 23rd May 16
Did AMAT Chirp? Implications for the Economy and Gold - 23rd May 16
Stocks Extended Their Rebound On Friday - Will They Continue Higher? - 23rd May 16
UK Treasury Propaganda Warns of 3.6% Brexit Recession, the £64 Billion Question? - 23rd May 16
Stock Market Support Breached, But Not Broken! - 23rd May 16
George Osborne Warns of 18% Cheaper House Prices - BrExit for First Time Buyers - 22nd May 16
Gold Bull-Phase I Continues to Confound (The Trek to “Known Values”) - 22nd May 16 r
Avoiding a War in Space - 22nd May 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Why 95% of Traders Fail

How Investors Can Leverage the Most Powerful Force in the Universe

Stock-Markets / Investing 2016 Feb 18, 2016 - 04:23 PM GMT

By: Investment_U

Stock-Markets

Andrew Gordon writes: Investing in the early days of an initial public offering (IPO) isn’t what it used to be.

Last year’s IPOs are a shining example. Shares of tech companies that IPO’d in 2015 averaged around a 40% drop from their first-day closing price to current prices.

The kind of gains you would have gotten from Amazon (Nasdaq: AMZN) (over 35,000% since its IPO), Microsoft (Nasdaq: MSFT) (over 53,000%) and Apple (Nasdaq: AAPL) (nearly 16,000%) are nowhere to be found among newly minted public companies.


As my Early Investing co-founder Adam Sharp pointed out here on Monday, that’s mainly because companies are waiting longer to tap the public markets.

Private companies - especially the stronger ones - don’t have to go public to raise large amounts of money. Uber, for example, is now in the middle of raising $2.1 billion!

And I have no doubt it will get it.

The kind of growth that makes investors serious money is now taking place before companies go public.

It’s made possible by the power of compounding.

The Most Powerful Force in the Universe

Einstein was the one who said it. The most powerful force in the universe is compound interest.

We can see it in action when we look at the rapid growth stages of startup companies. It’s not uncommon for these firms to grow revenues by 100% per year for several years in a row.

In my evaluation of companies for the Startup Investor portfolio, I consider 50% the minimum growth rate I need to see before I even think about adding a company to the portfolio. (Startup Investor is a paid research service run by Adam and me. Unfortunately, membership is currently closed. But you can still learn all about the ins and outs of the private equity world by subscribing to our free e-letter, Early Investing. Click here to check us out.)

The vast majority of companies that make it to an IPO have a substantial period of exponential growth. This can make investors a small fortune. But they have to invest in the earliest stages of a company - way before an IPO takes place.

Because it is during these periods that valuations also go up exponentially.

The most successful early-stage investors are those who understand the power and exceptionalism of exponential growth, and how they shape a startup portfolio’s risk and reward profile.

Exponential Growth Is Hard

Let’s take robotics (but it could be any industry).

Some investors might find it appealing to invest in a company making a robot that will be 10% better than what’s currently available.

Investors who understand the exponential dynamic, however, would instead invest in a company making a robot that will be 10 times better - one that could make you a fancy French dinner upon request.

It’s a much higher, more difficult bar. If this company could indeed make such a robot - and at a reasonable cost - its sales would stand an excellent chance of compounding year after year at a viral pace.

These are big ifs. But if the company can do what it says it will... and you have this company in your portfolio? All your other investments can fail and you’ll still make a handsome profit.

Basically, this company will either experience great success... or fail spectacularly.

As for the other robot, the one that’s 10% better? It’s simply marking time until it is disrupted by superior technology. It likely won’t have a substantial period of viral growth. Perhaps it’s a 2X winner.

So we have a fairly wide range of returns from these two robotics companies.

In a portfolio of startups, that’s typical. It’s called the power law of distribution (“distribution” is just another word for returns).

Returns are incredibly skewed, following the pattern shown in this chart...

The scary part? Most companies’ returns fall between 1X and 0.

And the part that trumps this scare: Companies that do well will do extremely well. They can earn you between 5X and 10X returns (and sometimes much more).

There’s just not many of them because - as I said - exponential growth is hard.

But the idea behind the power law is simple.

The small number of companies that do well will more than cover your losses and leave you with a fat profit.

Welcome to the world of startup investment - where your portfolio will have many more losers than winners, even some flat-out busts. But an exponential growth winner or two will make everything okay.

Ground-Floor Investing for Everybody

Everyday investors can now invest in this world and start a portfolio of their own, paying as little as $50 to $100 to invest in a startup. It’s all thanks to “ground-floor investing for everybody” rules issued by the government.

Early investing no longer means getting your first investment opportunity within the first or second day of an IPO, but years before a company goes public. You now have the option of investing in the earliest stages of a company - for example, when it’s raising its seed money.

As a general rule, venture capitalists aim to earn 10X their early-stage investments. They hope for much more and often get much less. But it’s those breakout investments that help even everything out.

To think exponentially means not worrying about the bucket with the busts in your portfolio. Instead, worry about putting a company or two in the “big winner” bucket.

Big ideas must turn into groundbreaking products that address huge markets before viral growth is even possible.

Fortunately, in the pre-IPO world - and only in the pre-IPO world - it is possible. Exponential growth does happen. And it’s what you need to focus on to be successful.

It’s the only approach that make sense - and dollars - for startup investors.

Good investing,

Andrew Gordon,

Co-Founder, Early Investing

Have thoughts on this article? Leave a comment below.

P.S. Investing in startups is new and frightening... I get it. But I can’t stress enough just how much money there is to be made here! If you’re having trouble getting up the courage to dive in, allow me to recommend our just-released report, “Startup Investing 101.” I personally worked for months to develop this “hit the ground running” guide to the startup investing world. It contains all the do’s and don’ts of startups - everything you need to know to get started. To learn more and pick up your copy, click here.

Source: http://www.investmentu.com/article/detail/49536/exponential-investing-how-leverage-most-powerful-force-in-universe#.VsYYwk0ny0k

http://www.investmentu.com

Copyright © 1999 - 2016 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife