Instant Success: lessons for the investor
posted on July 23rd, 2015 by Bellmont Research Team
There is no such thing as instant success. I know this may sound misleading especially given the title of this article. There is a perception that ‘instant’ success can be attained whether it be business, sporting or even investing success. This leads people to spend countless time and money trying to achieve the holy grail. In this article I want to explore three case studies to help us learn about the truth behind ‘instant’ success and how these lessons can help us as investors.
GoPro has revolutionised what can be captured on film. A small mountable camera for both land and water designed to withstand shocks and bumps so that anyone anywhere can capture amazing images and film. The extreme sports community has jumped on board and we have all seen some of the amazing images that are being captured. I am going to indulge my surfing passion and post the first (hopefully not the last) surfing picture on the Bellmont website. Here is an amazing picture of Mick Fanning (all limbs intact!) deep inside a barreling wave and sharing that experience with the world courtesy of GoPro.
Last year GoPro listed on the New York Stock Exchange (NYSE) and was followed by numerous media reports of the amazing ‘instant’ success the company has had. I had numerous people wanting to speak to me about how this company has come from no where to take on the likes of Sony, Nikkon, etc. You dig a little deeper and you find that this ‘instant’ success was achieved over 10 years of hard work.
Founded in 2004 by Nick Woodman, after his first business went bust in 2001,an avid surfer and all round adrenalin junkie. Nick started the company in his bedroom where he designed the first prototype by cutting up a wetsuit, plastic and sourced a small and affordable camera from China. After receiving some initial interest he then traveled the country to setup a booth at trade shows with accessories he would ‘buy’ from home depot but then return after the event to save money. Between trade shows he would try make contact with as many executives as possible to try generate interest in what he was doing. In 2007 he almost lost his company after crises in confidence thankfully the takeover fell apart because of the GFC, before eventually listing in 2014, 10 years after starting from scratch.
Cochlear is one of the most amazing success stories of Australian innovation and determination, but it was far from instant as is often perceived.
Cochlear was founded by Professor Graeme Clarke who having witnessed his father suffer the frustration of being deaf was driven to find a way to allow people to hear. The following is an exert from the Cochlear website who have a eloquent overview of what Professor Clarke endured during this process.
“In the mid-1960s, while working as an ear surgeon in Melbourne, Australia, Professor Clark came upon a scientific paper by Blair Simmons in the US. It described how a profoundly deaf person received hearing sensations through electrical stimulation, but no speech understanding. The seed was planted, and in 1967 he began researching the possibility of an electronic, implantable hearing device: a cochlear implant.
Though creating an implant seemed like an impossibly tall order, Professor Clark dedicated years to its research and development. His colleagues said a cochlear implant wouldn’t work because the inner ear was just too complicated. Others said that there were unknown risks. There was also the lack of funding and the technological challenge of fitting electrodes into the tiny inner ear.
But the chance to give those living in deafness the gift of sound urged him on. For over a decade he continued his quest with a small team. Finally, his research was put to a test. In 1978, the first cochlear implant surgery took place. And he and his dedicated team discovered in 1978 how speech could be coded with multi-channel electrical stimulation. Professor Clark’s determination had paid off.”
Today Cochlear is the world leader in hearing devices which continues to strive to innovate and research having spent more than $500m in just the last 5 years alone in research and development.
In the current raging debate about Australian house prices I have had people (normally younger Australians) comment to me that their parents (the baby boomer generation) had the perfect conditions for house price growth and to achieve instant growth on the value of their homes.
I am not going to take sides and dive head first into the debate but what is interesting is this idea that house prices have grown in a straight line from day one and everyone who has purchased a house has had instant success.
The most common analysis people refer to is the family home, ’it was purchased for $150,000 and it’s now worth $750,000…’ end of debate. I am quick to point out however that this analysis misses the point. Their analysis is not a reflection of instant success, it’s a reflection of time invested in that asset. The average Australian has done well in property because they have remained invested for the long term.
Given the exceptional growth in house prices over the past 40 years it is easy to think you will achieve instant growth in any home you purchase. Its a trap that unfortunately many people are falling into.
As stated at the start of this post, there is no such thing as instant success. Success is achieved over the long term. It is clear from each one of these case studies that the perceived ‘instant success’ was actually achieved after years (normally 10+) of hard work and determination. As there is no such thing as instant success it doesn’t mean you wont be successful, this is our second key take away.
As investors we have to learn from these lessons. There is no such thing as instant success, success is achieved over the long term. Your expectations should be the same for investing in shares, it is extremely rare to have your portfolio increase dramatically as soon as you have invested. In fact it is more likely to be the case that it will take time, maybe years, for you to see the reward of your investment.
As there is no such thing as instant success it doesn’t mean you wont be successful. We have documented numerous times (click here & here for examples) how much damage investors do to their returns when they try to jump in and out of investments trying to achieve instant success. Its such an easy trap to fall into but one which does phenomenal damage to your long term returns. To achieve investment success you need to be invested for the long term.
For most people these lessons are logical and are easy to comprehend, the difficultly is in their application and in particular sticking to these lessons during periods of adverse market conditions.
This article was written by Simon Bylsma