The term “conventional wisdom” seems to be the ultimate irony in the world of finance right now.
”Conventional wisdom” tells you to invest in the stock market, diversify your holdings, max out your retirement plan… and listen to people from the bank about how you should manage your money.
Meanwhile, the wealthiest people in the world — both those who have inherited money or made money themselves — invest their wealth in a completely unconventional way.
The vast majority of the world’s wealthiest people have either started their own company… or directly invested in private companies at their infancy.
In fact, the top five people on Forbes’ 2021 billionaire list are the largest shareholders of their own companies:
- Jeff Bezos — Amazon (NASDAQ:AMZN)
- Elon Musk — Tesla (NASDAQ:TSLA), SpaceX
- Bernard Arnault — LVMH (OTCMKTS:LVMUY)
- Bill Gates — Microsoft (NASDAQ:MSFT)
- Mark Zuckerberg — Facebook (NASDAQ:FB)
Admittedly, these five people are brilliant entrepreneurs who worked extremely hard (with some great timing) to get to where they are. But it is notable that four out of the five founded their companies. (Arnault didn’t start LVMH, but he’s been CEO of the French luxury goods conglomerate since 1989.)
What’s even more interesting is that all five of these companies are publicly held… and three of them are valued at over $1 trillion(!).
These companies and their massive market caps have made their founders unbelievably wealthy. In fact, a simple daily price fluctuation of Amazon can increase (or decrease) Jeff Bezos’ net worth by billions of dollars.
For example, Amazon’s stock price recently dropped 7.6% in one day. That meant Bezos’ wealth declined by $14 billion… in one day.
However, guess what happens when Amazon stock increases in value?
As Amazon stock continues to soar, Bezos’ net worth skyrockets. That’s because the equity he owns was acquired when he founded the company.
So, when Amazon’s stock goes up in value, his personal net worth exponentially expands.
Although this concept is crystal clear for the world’s billionaires, shockingly, very few investors follow this strategy:
Invest in early-stage companies whose growth will exponentially increase your return potential…
Acquire the Soon-to-Be Acquired
It’s highly unlikely that Amazon’s share price will increase 10-fold within the next year.
However, the e-commerce giant will continue to acquire smaller companies and integrate them into the Amazon corporate structure.
It’s these “smaller” companies that Amazon acquires — most of them privately held — that will increase 10-fold (or more) and deliver massive returns to their investors.
Not Amazon investors… investors in those “smaller” companies.
Since 1998, Amazon has completed over 100 major acquisitions, including:
- Audible for $300 million in 2008
- Zappos for $1.2 billion in 2009
- Ring for $839 million in 2018
The list goes on and on…
The investors in those companies that got acquired… they are the ones who make life-changing returns quickly. Meanwhile, Amazon investors will see slow gains over many years.
To be clear, Amazon is an incredibly successful company. But the majority of that success, in terms of wealth creation, went to early investors in Amazon… and to the many companies that Amazon has acquired and their investors.
In other words, “unconventional” wisdom — investing in the privately held companies acquired by Amazon — is what delivers investors the best returns.
That’s why private investing is the way to go if you want to truly grow your wealth.
That’s exactly what we are going to be covering in Venture Capital Digest.
Over the coming weeks and months, I’ll be showing you how to find Amazon’s (or Facebook’s… or Microsoft’s…) next acquisition target…
And how you can profit from it.
On the date of publication, Cody Shirk did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
By focusing on megatrends that will shape the future, Cody Shirk uncovers generational wealth in the private investing space. To make sure you never miss Venture Capital Digest, click here to subscribe.