How I could have turned $10,000 into $270,000 in 5 years

This business could an an ASX blue-chip of tomorrow.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

One of the golden rules of share market investing is not to see it as a get-rich-quick scheme, well not unless you bought shares in a market-leading business covered below 5 years ago.

Even if you had struck it lucky with this expectation-crushing growth superstar it would have been a mistake to not own an initially small amount of it as part of a balanced investment portfolio.

After all, not spreading your risk by buying a number of stocks is one of the most amateur investing mistakes going that is surprisingly common as many share market participants tend to 'fall in love' with individual stocks, be overly confident in themselves, or just want to get-rich-quick.

These attitudes are much more likely to lead to catastrophic losses, than striking it lucky with that one dream stock.

So assuming we understand the basics of share market investing, let's take a quick look at one business that would have turned a $10,000 investment 5 years ago into nearly $270,000 today.

The a2 Milk Company Ltd (ASX: A2M) has gone from 56 cents per share on April 2 2015 to a record high of $15.10 per share today, to mean you would have made 27x your investment in just 5 years.

Rather then stewing on missing out on these kind of returns it might be worth considering a couple of qualities this business boasts that will help us find the next a2 Milk Company.

  • a2 Milk's infant formula and supermarket milk appears to have strong pricing power. In that it costs significantly more than nearly equivalent products yet normally price sensitive consumers still lap it up as evidenced by its fast-growing market share and sales. Genuine pricing power in a business is rare and means it has a competitive advantage or moat that could see it grow profits very strongly for a long time. As we're seeing with a2.
  • a2 Milk has genuinely large addressable markets, especially in China, although now latterly in the U.S.
  • a2 Milk's return on equity is 35% which means it's a very profitable business for investors. The higher any asset's return on equity invested the more profitable it's likely to be for its owners.
  • a2 Milk doesn't pay a dividend and its management have reinvested operating cashflows into heavy sales and marketing for more growth, while keeping a super strong balance sheet.

Those are just a few of the signs to look for in a business that could deliver eye-watering returns for smart investors. Even though these qualities are no secret you'd be surprised at the huge number of retail investors who buy poor businesses that exhibit none of these signs.

So why not read on about three more 3 More Blue Chip Shares for 2019 that also tick the boxes for outsized long-term returns….

Motley Fool contributor Tom Richardson owns shares of A2 Milk. You can find Tom on Twitter @tommyr345 The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

A golfer celebrates a good shot at the tee, indicating success.
Share Market News

Here are the top 10 ASX 200 shares today

ASX investors finally enjoyed a win this Thursday...

Read more »

a man sits back from his laptop computer with both hands behind his head feeling happy to see the Brambles share price moving significantly higher today
Industrials Shares

Up 39% in a year, is there more growth to come for this ASX 200 share?

IML Equity Analyst Josh Freiman shares his views on a major ASX 200 industrial stock.

Read more »

Man looking at his grocery receipt, symbolising inflation.
Share Market News

What the latest US inflation print means for ASX 200 investors

The ASX 200 is likely to benefit if the US Fed cuts interest rates again in December. But will it?

Read more »

guy helping girl invest in shares and dividends
Opinions

5 ways for investors buying ASX shares to stay focused during economic uncertainty

AMP Chief Economist, Dr Shane Oliver, offers advice on how to handle the Trump factor.

Read more »

A worried man holds his head and look at his computer.
Share Fallers

Why Graincorp, Light & Wonder, Orica, and Wildcat shares are falling today

These shares are having a tough time on Thursday. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Catapult, Flight Centre, Nufarm, and Xero shares are storming higher today

These shares are having a strong session on Thursday. But why? Let's find out.

Read more »

A male investor sits at his desk looking at his laptop screen holding his hand to his chin pondering whether to buy Macquarie shares
Opinions

1 ASX growth stock down 30% I'd buy right now

This international business is growing core earnings at a strong rate.

Read more »

Concept image of a man in a suit with his chest on fire.
Record Highs

How long can the CBA share price keep this up?

Australia's biggest bank is running hot. Does it make any sense?

Read more »