Finding the Next Amazon

By Mike Earl, CFP®, CPWA®

By Mike Earl, CFP®, CPWA®

Most of us have said or thought something like: “If only I had invested in __________, I would have so much money today.” Whether it’s the stock of Amazon, Google, Netflix, or Apple, the growth of these stocks over a long period of time is incredible. But when we examine the historical price movement of these stocks, we see that early investors have endured a bumpy ride.

My personal telling of this “what might have been” theme is Netflix stock. Through searching for  archived emails in my Gmail inbox, I learned that Netflix first shipped me a DVD (remember those?) back in September 2007. The company had been launched nearly 10 years before that, so I was hardly an early adopter to Netflix.

Netflix stock had its initial public offering on May 23rd, 2002. When adjusted for later stock splits, the closing price on that first day was $1.20 per share. Today, the stock trades at about $380.

I was a fan of Netflix’s service from the get-go. But I never invested in the company. For the sake of illustration, let’s say I had invested $5,000 in Netflix stock on November 30th, 2007, at a split-adjusted price of $3.30. That $5,000 investment would today be worth $575,924. That’s an annualized compound growth rate of nearly 55%.

Netflix stock from November 2007 to today.

But even if I had the foresight and courage to invest $5,000 Netflix back then, would I have held the shares until today? A common mishap for individual stock investors is selling their winners too early and holding their losers too long. Netflix’s stock price history gives a great example of how this happens.

There have been some vicious drawdowns in NFLX stock over the years:

Two distinct 75% drawdowns.

Let’s play the tape forward in my hypothetical purchase of $5,000 worth of stock on 11/20/2007. By April 17th, 2008, Netflix stock was up to a split-adjusted price of about $5.81, meaning my initial $5,000 investment had quickly ballooned to $8,800. In other words, I had a 67% gain in just 4 ½ months! 

Yet, four days later, Netflix plummeted down to a split-adjusted price of $4.286, bringing my investment value down to less than $6,500. I would still have been up $1,500 in my investment, but I would have been kicking myself over having “lost” over $2,300 in the span of four days.

It would have been tempting to take my 30% profit and run — selling the winner too early.

Fast-forward to the Financial Crisis of 2008/2009. On October 27th, 2008, Netflix stock dropped down to a split-adjusted price of about $2.56 per share. I would have now been down about 22% off my initial investment, meaning my $5,000 of Netflix stock was now worth a pitiful $3,878.

In October 2008, there was a lot of fear and panic in global stock markets. It would have been very easy for me to wimp out and sell my Netflix stock. Cut my losses and moved on.

We’ll give Historical Mike some credit and assume he gritted his teeth and held the Netflix stock.

Fast forward to 2011. In the span of less than 4 ½ months, Netflix stock shed nearly 80% of its value, trading from $42.68 on July 13, 2011, down to just over $9 on November 25, 2011 (nice Thanksgiving present). My initial $5,000 investment would have ballooned up to $64,660 in July 2011, less than four years after my purchase. But then, by November 2011 my investment would have plummeted back down to $13,800. 

Would I still have held the stock? It’s easy to say “yes, of course” in hindsight, but it would have been remarkably challenging in the moment. 

In behavioral finance, the term “hindsight bias” is used to explain this phenomenon, which some call the “knew-it-all-along effect.” After an event occurs (e.g. Netflix stock shooting to the moon), we think that event would have been easy to predict all along.

For every winner like Netflix, there are thousands of companies that fail. And even if a company doesn’t fail, there are many stocks of companies that suffer a “catastrophic loss”, defined as a 70% or more decline from peak value – with minimal recovery.

During the period studied in this chart, nearly 60% of technology companies had a catastrophic loss…and never really recovered. What if Netflix had been one of those companies? Not only would my initial investment be worth a pittance today, but that $5,000 of capital could have been invested in a broadly-diversified portfolio for all those years. So there’s an opportunity cost to deploying capital in an individual stock.

When someone buys individual stocks, they typically don’t buy just one. They don’t put all their eggs in one basket (which is wise). Over time, they might accumulate a portfolio of several individual stocks, purchased either based on the fundamentals, hunches, or both. Well, some of those stocks might hit big like Netflix. But some might be in companies like Blockbuster. We don’t know in advance which companies will be the winners and the losers. 

Even Apple had several distinct 75% or more drawdowns in their stock price (1985, 1997/98, and 2003):

Some very challenging times as an Apple investor over the years.

Investing in individual stocks does offer the potential of higher returns. But what are the chances? And what are the opportunity costs of doing so? And how will you know when to finally sell?

Sources:

1) ycharts.com

2) https://en.wikipedia.org/wiki/Timeline_of_Netflix

3) https://en.wikipedia.org/wiki/Hindsight_bias

 Because The Wealth Group, Austin B. Colby & Associates is independent of Raymond James, the expressed written opinions above are our own and not necessarily reflective of Raymond James’ opinions.

Facebook
Twitter
LinkedIn

Jamy Antoine

FINANCIAL ADVISOR

I’ve been a business owner, investor, and entrepreneur for over 21 years. Well over a decade ago, my wife and I had a significant net worth for our age. However, much of it was built on leverage – similar to Dave Ramsey – if you are familiar with his story.

My wife and I have been clients of The Wealth Group since 2006. Austin designed a plan that we followed for a few years, but due to my entrepreneurial nature, I eventually deviated from that plan and pursued whole life “bank on yourself” insurance, real estate, and other ventures.

While there certainly is a place for diversification, I’ll never forget the day Austin Colby – owner of The Wealth Group – sat us down and explained that although we looked pretty good on paper, mathematically, it was a house of cards. I remember walking out of that meeting feeling like someone had punched me in the gut. Hindsight and regret can be painful, but can also motivate new habits, behaviors, and attitudes toward money. The Wealth Group helped change my core beliefs about money and my family’s financial future. Remember, it is never too late to start making good decisions.

Ten years later, not only has our financial situation changed dramatically, but I’ve also joined The Wealth Group team using my business and personal finance experience to help business owners, entrepreneurs, affluent individuals, and motivated young families build and expand their financial future on solid footing, by holistically and proactively addressing all aspects of finance to include investing, tax, giving, estate and legacy planning.

I am happily married with four children. I serve on the deacon board at our church, and I have a life goal of becoming a scratch golfer!


— Jamy

Favorites

Education/Designations

  • BS – Maranatha Baptist Bible College. Pre-Med
  • DC – Doctor of Chiropractic – NWHSU  
  • FICPA – Fellowship International Chiropractic Pediatric Association
  • BCN – Board Certification Neuropathy – American College of Physical Medicine

Jaron Kissner

Financial Advisor

“In my early 20’s, I read a personal finance book for the first time. The contents of that book opened my eyes and sparked a passion in me that transformed the financial trajectory of my family. Fast forward a few years, and that passion led me to change my career path and become a financial planner.

I feel blessed to be a part of The Wealth Group and work with a very talented, high-quality team of people. I can’t think of work that is more rewarding and impactful than being able to help our clients and their families achieve their financial goals!”

— jaron

Favorites

Education/Designations

Bachelor of Science in Business Administration and minor in Christian Studies from North Central Universit

Personal Interests

Jaron married his lovely bride, Jennifer, in 2016. Since then, they have added three children to their family: Vivienne (2019), Graham (2021), and Cooper (2023), as well as a Golden Retriever named Penny. They settled into their first home in Jordan, MN in 2021. As a family, they enjoy spending time with family and friends, visiting relatives in AZ, hiking, and being on the lake. They are also very involved at River Valley Church in Chaska, where Jaron and Jennifer serve as deacons.

Jaron has recently become passionate about the game of golf and is striving to break 85. He also enjoys working out and watching the Vikings as they find new ways to lose NFC Championship games.

Paige Heltemes

financial advisor

“I have always had an interest in personal finance. Having a plan and setting goals for your financial life enables you to accomplish things that otherwise would never be possible. A thousand small steps in the right direction can lead to a life of stability and ability—The Wealth Group exists to help plot that course and keep our clients on track.”

— PAIGE

Even as a young adult, keeping her finances in order and planning for the future has allowed Paige to experience wealth as a blessing rather than a stressor. She wants people to know that same freedom, especially when life gets complicated. 

Favorites

Education/Designations

  • Bachelor of Science in Business Administration and minor in Christian Studies from North Central University

Ben Thorson

financial advisor

I enjoy helping our clients make good decisions with their money. It’s rewarding to watch our clients build wealth with us at their side. When I see a young family cross the $1 million net worth mark — after starting with our team with a net worth of $200,000 — it’s an awesome feeling.

As our clients continue to focus on the things they can control, such as paying down debt and adding money to their investment portfolio year after year, I have noticed that it becomes easier to stomach the (inevitable) bear market. Over my time at The Wealth Group, I have learned that good financial behaviors never go into a recession.

When I’m not at The Wealth Group I enjoy spending time with my wife and three children. Together we like to be outdoors, play sports, and be active participants at our church.

— Ben

Favorites

Education/Designations

  • Graduated from North Central University with a Bachelor of Science degree.
  • Accounting experience at CH Robinson in Eden Prairie.

 

Misty Tanner

Senior Client Services Associate

“I am passionate about my work because I think it is important to make wise, informed decisions with our finances as it permeates into all aspects of our lives. Just as people strive to maintain balance in their overall lives, financial wellness and understanding in your personal life is just as important. ”

— Misty

Favorites

Education/Designations

  • B.S. in Business Administration in Sports & Fitness, Minor in Bible & Theology
  • Certificate in Coaching

Karie Merritt

partner, Director of Client Services

“I have realized there are so many people in the world today who are unsure of how to save or plan for the future. They live paycheck to paycheck and think debt is normal. We get to help people realize that there’s a different way to live. We get to help people who feel hopeless finally find a clear path for the future while taking control of their finances for the first time. When people are proactive rather than reactive, it’s amazing what can be accomplished. 

— Karie

Karie’s main role is managing the onboarding process for new clients. She works hard to ensure a seamless transition and to make all clients feel welcome and cared for. As the Director of Client Services, she oversees the Client Services team, plans client events, processes monetary transfers, handles paperwork for clients and helps to manage the day-to-day operations of the office.

Favorites

Education/Designations

  • AA in Liberal Arts & Sciences from North Hennepin Community College
  • BA in Early Childhood Education and Teaching from Concordia University St. Paul
  • Notary Public

Dan Johnson, CFP®

PARTNER, Financial planneR

“I love being able to see and contribute to the confidence in the families we help when they know they are taking the correct steps towards financial independence. I truly enjoy building relationships with people. The work I do with The Wealth Group gives me the opportunity to do this by building a relationship that will last a lifetime.”

— Dan

Favorites

Education/Designations

  • Graduated from North Central University with a degree in Business Administration.
  • CERTIFIED FINANCIAL PLANNER™

 

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER ™, and CFP® in the U.S.

Adam Colby, CIMA

PARTNER, CFO, FINANCIAL PLANNER

“I love working alongside the people at The Wealth Group. Additionally, my younger brother (and now boss) and I have wanted to work together for years. When the opportunity arose within The Wealth Group I jumped at the chance. I have always had a passion for personal finance and investing; the transition into this investment-focused role was a natural one for me.”

— ADAM

Developing and stress-testing the firm’s asset allocation models is a passion of Adam’s.  You may often find him assessing risk metrics for client portfolios and the broader global markets as well as trading and rebalancing client portfolios.

Favorites

Education/Designations

  • CIMA®
  • BA (Business Major/Math Minor) from Dakota State University

Investments & Wealth Institute TM (The Institute) is the owner of the certification mark “CIMA” and “Certified Investment Management Analyst.” Use of CIMA and/or Certified Investment Management Analyst signifies that the user has successfully completed The Institute’s initial and ongoing credentialing requirements for investment management professional.

Mike K. Earl, CFP®, CPWA®

PARTNER, DIRECTOR OF WEALTH MANAGEMENT

From childhood, I was strongly interested in working hard, making money, and most importantly, saving money. Today, I use that passion to empower our clients to succeed with their money. A lot of people experience unnecessary stress and anxiety in their financial lives.

After college, I worked in a large bank and began investing on my own for the first time. I remember plugging numbers into a Roth IRA Calculator and realizing the power of compounding from an early age. I was amazed at how [seemingly] easy investing was…not realizing that bear markets are what make investing challenging. A few years into my career as a financial advisor, the Great Recession (2007-2009) hit, and I gained a lot of crucial experience in a short period. 

Those lessons from the Great Recession will stick with me for the rest of my life. I learned not to over-extend myself on real estate, to never sell out of stocks during a bear market, the power of being 100% debt-free (including no mortgage), and also the opportunities in stocks that arise from the ashes of a deep bear market.

Proverbs 11:14 says, “Where there is no guidance, a people falls, but in an abundance of counselors there is safety.” We aim to be those counselors that provide knowledge and safety for our clients. 

A good financial advisor should have the heart of a teacher. Through our relationship, we aim for our clients to grow in knowledge and mastery over their finances. We want them to be the driver of their financial plan, with us as their sidekick/coach to help them realize their plans and goals.

I have been quoted as a financial expert in Fox BusinessU.S. News & World ReportYahoo! NewsGOBanking RatesLifehacker, and Business Insider.

More important than my role at The Wealth Group is my position as a redeemed son of God, husband to Krista, and father to five children.

Favorites

Education/Designations

  • BS in Business/Economics from Wheaton College in Wheaton, IL
  • CERTIFIED FINANCIAL PLANNER™ (CFP®)
  • Certified Private Wealth Advisor (CPWA®)
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER ™, and CFP® in the U.S.

Paul M. Bennett, CFP

Sr. Financial Planner

“I want people to succeed at life and that includes guiding them to achieve sound money management. I enjoy helping individuals and businesses make beneficial decisions in regards to money and investment management. Long range planning is one of my professional passions and moving people from the thought of retirement to the reality of retirement is something I enjoy assisting our clients with.” 

— Paul

Paul has more than 25 years of experience advising business owners and affluent individuals about their finances. Paul has achieved the CERTIFIED FINANCIAL PLANNER™ designation. Being a CFP® professional enables him to help clients focus on what is important to them. He has also earned the Chartered Retirement Plan Counselor (CRPC®) designation, which demonstrates his expertise in the area of retirement financial planning for individuals.

Favorites

Education/Designations

  • BS in Finance from Minnesota State University, Mankato
  • CERTIFIED FINANCIAL PLANNER™
  • CRPC® (Chartered Retirement Plan Counselor)
  • CKA® (Certified Kingdom Advisor®)

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER ™, and CFP® in the U.S.

Austin B. Colby, MBA, CFP®

Owner / Sr. Financial Planner

“I believe every family can achieve their financial goals if the path to do so is clear. This work of building paths and guiding clients along those paths is my passion, and it brings me tremendous joy. After twenty years of doing this, I am more excited today than ever about helping families with their finances. Helping one family at a time make good choices makes a difference. I believe that wholeheartedly and am thankful for the opportunity to serve so many people in this capacity.”

— Austin

Austin is the owner and visionary behind The Wealth Group. His #1 responsibility is to lead our team in devotion to the mission: providing quality financial planning and investment management to the firm’s clients.

Favorites

Education/Designations

  • BS from Minnesota State University, Mankato – Finance with an emphasis in Financial Planning
  • MBA from Minnesota State University, Mankato – Leadership & Organizational Development
  • CERTIFIED FINANCIAL PLANNER™

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER ™, and CFP® in the U.S.