Like most investors, I am hoping to increase the value of my holdings. As a believer in long-term investing, I do that by identifying companies I think have future profit potential that is not fully reflected in their current share prices. Sometimes that involves investing in growth shares. Those are businesses that are still in the growth phase of their lifecycle.
Using that approach, here is how I would try to increase my money by a factor of five in the coming decade.
Identify big themes
I would start by thinking about what the world may be like in a decade and what that might mean for business.
For example, I expect people will still be washing their hair. That could see continued customer demand for water companies like Severn Trent and shampoo makers such as Unilever. But hair washing is not much of a growth story in my opinion.
By contrast, a decade from now, I also think a lot more wealthy people will move around between a variety of temporary homes. That is already happening to some extent, and shares like Airbnb offer me exposure to the trend. But I reckon that, although this market already exists, it could see massive growth in the next 10 years. That is why companies like Airbnb are among the growth shares I think could help me benefit.
Zoom in on competitive advantage
But just spotting where the ball is going is never enough to win the match. There needs to be somebody there who can put it to use.
So, having identified some big potential themes for a decade from now, I would then try to identify companies with a competitive advantage that could help them use such trends to their advantage.
Airbnb, for example, has brand recognition and a large customer base already. That does not just give it a headstart over rivals, I think it also affords the firm an enduring advantage that could help its future profitability.
What would other examples of such an advantage be? Another such asset could be proprietary technology, like that of Intuitive Surgical, or a very strong presence and critical mass in a key market. Lots of companies know how to spot emerging opportunities – but only some of them the assets that can help them muscle their way to the front of the pack and stay there. Those are the ones I might want to own in my portfolio.
Valuing growth shares
But spotting great businesses is only part of the process. If I want to increase my money at all, let alone from £1,000 to £5,000, the price I pay for such growth shares matters. If I overpay, I may end up losing money.
So I would focus on how to value shares. That can be harder for growth shares than for long-established companies, as there are more variables when it comes to the likely future performance in an evolving industry.
But doing well in investing is not just about buying shares in the right companies: it also involves buying at the right price. That is as true for growth shares as for any other ones.