The S&P 500 (^GSPC 1.02%) market index has grown at a compound average rate of 10% over the last 20 years. If you invested $1,000 in an S&P 500-tracking index fund two decades ago and reinvested your dividends in more stock along the way, you'd have $6,681 today. That's a solid investment, staying far ahead of inflation and taking good care of your wealth.
Woo-hoo!
However, as impressive as that long-term return may be, it pales in comparison to what could have been achieved with a bit of savvy foresight. Had you been able to spot some of the hottest growth stories of recent times at their earliest stages and invested in them before they took off, that $1,000 could have snowballed into a small fortune? To wit:
MNST Total Return Level data by YCharts
That solid return of $6,681 may be hard to spot in this chart. It's the straight line at the bottom, easily confused with the diagram's x-axis. Again, I'm talking about a really nice gain as the S&P 500 doubled your money by 2013, doubled it again in 2019, and climbed another 67% higher from that lofty plateau.
I'm just saying that an elite handful of then-unknown growth stocks made the broader market's big gains look trivial in comparison.
But most people did not make big investments in Monster Energy (MNST 0.41%), Netflix (NFLX -0.63%), and Apple (AAPL -0.35%) 20 years ago. What were the signs that something special was brewing in these three companies, way back in 2003?
Apple in 2003: classic iMacs and newfangled iPods
The mobile computing powerhouse we know as Wall Street's most valuable company today was nothing of the sort in 2003.
Four years before the first iPhone, Cupertino was all about the Macintosh family of personal computers. iMacs, PowerBooks, and Power Macintosh towers accounted for $4.5 billion of the company's $6.2 billion in full-year revenues that year. Software and services added up to just 11% of the annual top-line sales.
I mean, mobile devices were barely a blip on Apple's radar. You might recall (if you're old like me) U2 cross-promoting its new single, Vertigo, in an iPod marketing event that helped Apple light a fire under its music-playing gadget's sales trajectory. That event helped Apple's share price soar more than 420% higher in two years as Apple's revenues nearly doubled.
But you couldn't base your 2003 investment on Bono's helpful collab. It hadn't happened yet. If you bought Apple stock 18 years ago instead, with the iPod craze in full swing, but you'd have to settle for a total return of $152,940 on a $1,000 investment. Not too shabby, but a far cry from what I showed you in that chart.
Moreover, the company didn't look like a future winner in 2003. With the aftershocks of the dot-com crash still weighing down the tech sector, Apple's operating income was printed in red ink and nobody knew that the iPod and iPhone ideas would create a market monster.
So if you were buying Apple stock two decades ago, that might have been a stroke of genius or a flash of blind luck. Either way, I can't argue with the results. Visionary leaders like Steve Jobs can pull stupendous growth out of thin air sometimes.
Hansen Natural in 2003: a tiny juice company leans into energy drinks
Monster Beverage didn't adopt its current name until 2012. 20 years ago, the Monster line of caffeine-laced energy drinks had been on the market for just one year. It was a promising new idea, hitting the ground running with strong sales growth, but Monster generated less than 12% of Hansen's total sales in 2002. The company was trying a scattershot strategy to expand its core offerings of natural sodas and fruit juices.
As it turns out, energy drinks became a massive growth story and Monster quickly pushed into a leading role. Mind you, it was a crowded market even in those early days, dominated by Red Bull and featuring long-running rival brands like Rockstar or Amp. Its products stood out from the pack thanks to a picture-perfect brand name, clever marketing, and larger cans than many of the other energy-drink alternatives.
So if you kept a close eye on Hansen Natural in 2003, you may indeed have seen how this long-term story could play out. However, you probably weren't.
You see, Hansen Natural was small even by penny-stock standards. The company was worth $42 million, just one of the many thousand has-beens and wannabes that always hover below the radar of most investors. A few of these tiny companies make it big, as evidenced by Monster-née-Hansen here, but most don't last long and will do bad things to your invested cash.
So if you missed the signs of Hansen Natural evolving into an energy drink titan and a wealth-boosting investment, you are not alone. And I'm sure we are missing the next Monster-grade growth story right now, masked but thousands of future failures in the penny stock swamps. That's OK. I'll gladly wait until the next generation's biggest winner grows up a bit.
Netflix: did you even have a DVD player in 2003?
Here's another microcap from way back when.
Netflix shipped its first red DVD mailer in 1998 and entered the stock market in 2002. By April 2003, the company boasted $178 million in annual sales with a market cap of $576 million. That's large enough to raise some interest, but still too small to earn widespread coverage. To the best of my knowledge, we Fools started covering this stock four months after the two-decades-ago calendar mark we're working with here. And one of our first reports involved the massive short-selling interest Netflix shares had attracted already.
In other words, lots of people didn't see the future king of home entertainment in Netflix. They expected established giants like Blockbuster and Hollywood Video to put this outlandish challenger to bed, and probably quite quickly. Forget the "Albanian army" quips of 2010 -- Netflix hardly looked like a threat to the security team of Albany Mall.
That being said, Netflix was probably the easiest future winner to catch in 2003. Hansen was too small to notice and Apple was just another midcap with flattish sales and negative earnings. Netflix, on the other hand, more than doubled its sales in 2002 and served its first full million active subscribers in the first quarter of 2003.
Then-CEO Reed Hastings sure expected the good times to keep rolling:
"Netflix has and will continue to dominate the category we created," he stated in the Q4 2002 earnings release.
Of course, you would expect that bravado from any microcap's founder and leader and most investors didn't take that vision at face value. But Netflix really did dominate the DVD-by-mail market it created, and then replaced it with an equally successful digital streaming service on a global scale.
I didn't catch wind of Netflix's game-changing ideas until 2006, when I did a deep dive into the video-rental industry. No worries -- Netflix still ended up making me more money than any other stock over the years and I still recommend buying it today. This evolving entertainment empire still has a lot of growing left to do.
