Years ago, a friend of mine was buying up Apple (NASDAQ:AAPL), while I remained sceptical. He’s been retired for a few years now, and I’m not. I first considered buying Apple stock as far back as the 80s, at around $15. On a split-adjusted basis, that’s about 25 cents today.
But let’s just look at Apple’s progress in the 21st century. In September 2000, Apple was valued at approximately $6.6bn. At the time, Unilever‘s market cap was close to $26bn. Unilever was worth almost four Apples.
Just five years later, in September 2005, Apple stock had soared six-fold to $44bn, while Unilever’s valuation had grown to $42bn. Apple had closed the gap. Many a growth investor would have banked their profits with a big smile on their face. But what a future they would have missed.
By September 2010, Apple had carried on upwards without pausing for breath, and was now worth $250bn. Unilever stood at just $80bn. The value of Apple would have been enough to buy Unilever, AstraZeneca and GlaxoSmithKline in their entirety.
Apple stock soaring
By September 2015, Apple’s stock had reached $640bn. Which FTSE 100 companies would we need to combine to reach that? Take Unilever, AstraZeneca and GlaxoSmithKline as before, then add BP, Royal Dutch Shell and Diageo… and you’d almost be there.
By 2018, Apple had become the world’s first trillion dollar company, and in August 2020 broke the $2trn mark. And last week, topping $2.3trn, Apple stock was worth more than than the entire FTSE 100.
You could have become very wealthy if you’d put all your money into Apple. But isn’t growth investing very risky? Just look at all the failed companies in the dotcom boom. If you’d gone for one of those instead of Apple, you could easily have been wiped out.
Well, most of the people I hear about who lose shirts on growth stocks make one crucial mistake. They go for broke and stake a big portion of their cash on their multi-bagger contender. One way to minimise the risk is to diversify. After all, you wouldn’t have needed all of your money in Apple shares to have done very well over the past 20 years.
Growth plus safety
Here’s my suggestion. Spread your investments across, say, 10 or 15 companies. Allocate one or two slots to growth stocks, and then split the rest between boring old dividend-paying FTSE 100 stocks. Investors with only 10% or less of their portfolio allocated to Apple shares back then could still have built up a hefty retirement pot.
It’s the same with the UK’s volatile growth stocks of recent years. Take ASOS and Boohoo. They’ve both done very well, though if you’d timed them badly you could have taken significant losses from their ups and downs. But if a growth pick fails and it’s just one in a diversified portfolio, you can just go for another one for your next investment.
If you diversify to reduce the risk, growth investing over the long term can be very profitable.
