In August 2011, I decided that the best way for me to help the world invest better would be to put my money where my mouth is. Instead of just writing about companies I believed were worthy of your investment dollars, I would invest in my picks and keep score.
Since then, I've made at least one purchase every month for my Roth IRA. Taken as a whole, these picks have returned a 34% gain, a full 13 percentage points better than the S&P 500's return in that time.
This month, I'm doing something I didn't see myself doing a year ago: investing in Facebook (NASDAQ:FB). Read below to find out why I think the company is worth buying now.
The three qualities of an excellent investment
Over the past month, I've been researching the stocks that have ended up being my best investments over the years. During the course of that research, three traits keep coming up again and again, and I believe Facebook has all three of them in spades.
The first quality is that the company has to have a mission beyond simply making money. CEO Mark Zuckerberg has made it abundantly clear from the very beginning that his company was never created with making a fortune in mind. In the company's initial filing with the SEC, he stated: "Facebook was not originally created to be a company. It was built to accomplish a social mission -- to make the world more open and connected."
The second quality was that the company had to be willing to forgo short-term profits in order to accomplish its long-term vision. Nothing speaks more clearly to this than Zuckerberg's comments in the company's latest conference call.
Investors should have been thrilled that Facebook's revenue increased 60% while net earnings per share swung from a loss of $0.02 to a gain of $0.17. Instead, they were fretting over the fact that the company announced it did, "not expect to significantly increase ads as a percentage of news feed stories...[which had] been a meaningful driver of our revenue growth in 2013."
Basically, Facebook was saying that it wasn't going to boost short-term profits at the expense of creating a user experience that had more to do with displaying ads than it did with connecting the world. That's the type of vision and restraint I like to see.
The final quality was a company with a founder as CEO. To a founder, a company is much more than a company -- it's an extension of themselves. I'm not 100% positive exactly how Facebook is going to remain relevant for decades to come. But that's OK; I'm not the CEO, someone far more capable than myself has that job, and I'm willing to put my money down on his performance.
Numbers to boot
Beyond these admittedly "soft" variables, there are also some very solid numbers that back up Facebook's performance. Here's what I consider to be the three most important:
- Since 2007, monthly average users have increased by 65% per year.
- Since going public, average revenue per user has increased 18% per year.
- At the end of last quarter, Facebook earned 49% of its revenue from mobile advertisements.
It's easy to look at Facebook's P/E of 118 and say that the company is way too expensive, but earnings are still low -- making for an inflated ratio -- and the company is still showing stellar revenue growth, north of 50% per year.
For all of these reasons, I'm buying shares of Facebook when our Motley Fool trading rules allow.