One Stock to Rule Them All

This week, I had the pleasure of checking in with MyWallSt’s greatest winner: Shopify.

The stock first entered the MyWallSt shortlist in September 2016 trading at (a split adjusted) $4.50 a share. That year, it made $389 million in revenue. It was unprofitable but growing rapidly and had just won an arms race with Amazon.

In 2019, I pitched the stock again. This time at an in-person event in New York City dedicated to teaching new investors about compounding, diversification, and finding great businesses. By this point, my initial investment was up six-fold, but its potential for greater returns still rang true.

During my presentation, I pitched Shopify along with eight other stocks based on their possession of five winning attributes.

Today, I would like to revisit these attributes to help you find great businesses and assess the future of Shopify.

For investors hoping to find the next life-changing growth stock, here’s what to look for:

• Founding CEOs. These people are motivated by more than quarterly results. The company is the manifestation of their dreams, and they will do whatever it takes to help it succeed. 

• First mover in an important industry. Exploiting a niche and creating a new market. Preferably strong consumer appeal. 

• Asset light. Picture the new giants of today. Most of them own very little hardware.

• Revenue growth from an expanding, retained customer base. When revenue is growing fast, Wall Street almost never prices it right.

• Overvalued. Counterintuitively, a company with past price appreciation is a good thing. 

These traits were true for Shopify in 2016 and 2019. How do they look today?

Now I know what you’re thinking, “it’s easy to look like a brilliant investor when you only talk about your winners.”

Fair point.

On that fateful day in NYC, I pitched nine companies: Netflix, Costco, Shopify, Chipotle, Facebook (now Meta), Under Armour, Disney, Starbucks, and Virgin Galactic.

Together, in those five and a half short years, they have returned 120%, just about outperforming the S&P at 105%.

And I will admit some of them have been sore disappointments. Virgin Galactic is down 98%, Under Armour is down 62%, and Disney is down 20%. But they are more than made up for by Costco, Chipotle, Meta, Shopify, and Netflix. In truth, Shopify sits in fifth place, returning 221%, while Meta and Costco lead the way with 277% and 262%.

Together, they remind me of one of the most important lessons in growth investing. In the first few years, even in the first decade of your investing journey, things will seem really lumpy.

You diversify not to find fifteen awe-inspiring stocks that will defy the market and deliver jaw-dropping returns but to find one or two once-in-a-generation investments.

Because a few outsized winners will supercharge your portfolio more than you believe.

If we go back to 2016 and assemble the same portfolio (adding Virgin Galactic upon its SPAC in 2019), the total portfolio is up 580% compared to the S&P up 170%.

Running away with the lead and a 2,700% return? Shopify.

This winner made all the difference, and it still looks primed to deliver.