Over the past decade since its IPO on 19 August 2004, internet search giant Google Inc has been one of the biggest winners in the US share market. Between then and 22 August 2014, Google had clocked in total annualised returns of 26.8%, or 1,081% in total. To put its scale into perspective, its current market cap of S$495 billion is equivalent to almost half of the companies listed on the SGX. How was it possible to top such a momentous returns? Growing “David” to “Goliath” To do that, we shall attempt to draw some lessons from…
Over the past decade since its IPO on 19 August 2004, internet search giant Google Inc has been one of the biggest winners in the US share market. Between then and 22 August 2014, Google had clocked in total annualised returns of 26.8%, or 1,081% in total.
To put its scale into perspective, its current market cap of S$495 billion is equivalent to almost half of the companies listed on the SGX.
How was it possible to top such a momentous returns?
Growing “David” to “Goliath”
To do that, we shall attempt to draw some lessons from a trio of local shares that managed to top the internet giant’s returns. As a reminder, the trio of companies in question are Raffles Medical Group Ltd. (SGX: R01), Vicom Limited (SGX: V01), and Sim Lian Group Ltd (SGX: S05).
Without further ado, here are my observations:
1) Dividends do matter, a lot!
Consider this: the average returns of the Singaporean trio over ten years – inclusive of dividends reinvested – would be a staggering 1,333%. These sweet returns would beat Google’s decade’s worth of gains of 1,081%. However, if we drop dividends from the equation, the trio would return an average ten year return of ‘just’ 789%.
Although this 789% return would still be superb, it was the dividends which made a real difference. In fact, dividends made up more than 40% of the trio’s total returns on average. Investors should only ignore dividends at their own investing peril!
|Company||Returns without dividends*||Returns with dividends*|
|Raffles Medical Group Ltd.||979%||1,287%|
|Sim Lian Group Ltd||805%||1,517%|
*Closing price from 19 August 2004 till 22 August 2014
Source: S&P Capital IQ
2) Start with a smaller market capitalisation
First off, this is – most certainly – not an invitation to aim for the next red hot penny stock. To keep things in context, by the time Google was listed, it was already sporting a market cap of S$28.8 billion (that’s around US$23 billion). Based its market cap on its IPO day, it was bigger than all but seven companies trading in Singapore’s share market right now. In contrast, the current market caps for the local trio is much smaller than what Google was ten years ago.
Here are the current market caps of the three Singaporean shares that beat Google.
|Raffles Medical Group Ltd.||S$2.26 billion|
|VICOM Limited||S$584.9 million|
|Sim Lian Group Ltd||S$865.1 million|
Source: S&P Capital IQ
But, why would that matter?
All things being equal, it might be comparatively easier for the Singaporean trio to double from here as compared to where Google was 10 years ago. That’s because, the bigger a company is, the more likely its growth might slow going forward due simply to the mega-cap multiplier obstacle.
Foolish bottom line
The returns of Google in the last decade has soundly thrashed the long term annual returns of 8.65% for the STI ETF (SGX:ES5), a proxy for the Straits Times Index (SGX:^STI). While I wouldn’t complain having a “Google” (note disclosure below) in my portfolio, do bear in mind that such stupendous returns are not always needed for every investment you make.
After all, $1,000 invested in the STI ETF a decade ago would turn into a respectable $2,292. And, that 129.2% total return would be more than sufficient to grow real wealth beyond the average annual consumer inflation rate of 2.5% (over the last ten years).
Stay tuned, as I explore more lessons can we can take away from the internet giant’s stunning success.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong owns shares in Google (GOOGL and GOOG).