From time to time, investors will run across the term millionaire-maker when reading about potentially promising stocks. While the concept of a stock that eventually makes its owners millionaires is fairly straightforward, there’s a lot to unpack in this simple idea.
Today, let’s take a look at what a millionaire-maker is, some notable examples and what investors might want to look for when trying to identify one.
Is There a Formal Definition of a Millionaire-Maker?
Although the term is used fairly commonly in investing, you’ll find that there’s no hard-and-fast definition of what constitutes a millionaire-maker. The term refers to a stock with the ability to turn a modest initial investment into $1 million or more over a time frame that would be considered reasonable by most investors.
However, there are no absolute rules as to how large or small the initial investment must be, the rate of compounding growth the stock must produce or the exact length of time it takes to get an investor to $1 million.
A Few Examples of Millionaire-Makers
To get a better sense of what a millionaire-maker looks like, let’s consider some prominent examples. Amazon provides a fantastic example of a high-growth tech millionaire-maker, though it’s worth noting that remarkably few companies can deliver the kind of returns it has.
Just $1,000 invested in Amazon shares when it went public would be worth over $822,000 today. A bit more than that, and an investor who had the foresight to buy Amazon at its IPO would be worth $1 million today with no other investments made in Amazon or any other stock in the intervening years.
Berkshire Hathaway is another extremely famous case of a millionaire-maker. A $1,000 investment in Berkshire when Warren Buffett took the company over 60 years ago would be worth over $55 million today. Clearly the power of long-term compounding because a similar investment made much later in the company’s history still has the potential to easily compound into $1 million.
Finally, consider the case of Coca-Cola, another stock with notable ties to Warren Buffett. Thanks to a more than 100-year history of compounding, a single share of Coca-Cola purchased at its IPO in 1919 would today be worth over $600,000 and yield over $17,000 in annual dividend income. Coca-Cola has been a slow-burning millionaire-maker, but its long-term investment returns are nothing short of extraordinary.
What to Look for in a Millionaire-Maker?
Although millionaire-makers come in many shapes and sizes, they do tend to share a few common characteristics. First and foremost, a stock that can turn a modest initial investment into $1 million or more must be a high-growth company, preferably operating in a market that is also growing quickly.
Using Amazon from our earlier examples, the company achieved dominance in the eCommerce world when that market was in its infancy. By establishing an early lead, Amazon has been able to benefit from the exponential growth of online shopping over multiple decades.
Competitive advantage is also an extremely large component of identifying millionaire-makers. In fact, a strong moat is so important that it shows up among the criteria that some of the most successful investors in the world look for.
Warren Buffett is known to prioritize durable competitive advantages over almost everything else when looking at a business, and Bill Ackman has famously put the need for a dominant market position among his so-called 8 commandments of investing at Pershing Square.
Typically, businesses that become millionaire-makers offer some kind of unique innovation or product. NVIDIA, one of the latest members of the millionaire-maker club, offers cutting-edge GPU technology that other chipmakers have been unable to compete effectively with.
On the more mundane end of the spectrum, Coca-Cola’s decades-long streak of strong returns has been delivered by the combination of its enormously popular product, efficient distribution and strong marketing.
A final factor that tends to be present among companies that generate massive returns over long periods of time is the guiding presence of a founder or leader with a particularly strong vision. While much of investing comes down to finding a combination of value and growth potential, there’s also something to be said for investing in specific leaders or management teams that bring unique strengths to a business.
Returning to our examples above, Amazon’s Jeff Bezos and Berkshire Hathaway’s Warren Buffett stand out as leaders who have guided their companies through decades of compounding growth. Apple founder Steve Jobs provided the company’s technological vision, while Tim Cook’s time as CEO has been dedicated to building the company through continued superior execution.
Disney, another stock that could be classified as a millionaire-maker, had the creative initiative of Walt Disney and was later guided by Bob Iger’s strong business instincts. Although some businesses do become millionaire-makers without this kind of visionary leadership, they usually either take longer or fail to stand the test of time.
Are There Still Millionaire-Makers Out There?
These days, it’s tempting to think that all of the millionaire-makers have already been identified. After all, the giant tech stocks that have powered returns over the last several years look too large to make millions from small investments again.
Up-and-coming fields like quantum computing promise a great deal, but they also present outsized risks because they haven’t been proven commercially. This may leave investors hoping to find the next millionaire-maker thinking that there aren’t many opportunities left.
The truth, however, is that there are almost always promising companies with the potential to deliver outsized returns over long periods of time to be found. It’s also worth noting that millionaire-makers don’t necessarily have to be massive, high-growth tech companies.
Consider, for example, O’Reilly Automotive, which traded for less than $3 per share in 1993 and today is priced at almost $1,400. As such, an investment of a little over $2,000 early on would be worth $1 million today. So, while it may be tempting to look for millionaire-makers in the tech world, it’s important to recognize that they can also be found in more mundane, day-to-day industries.
Finally, it’s worth considering that a stock doesn’t have to be a true millionaire-maker to be a fantastic investment. Turning small investments into millions is something only a handful of extremely high-quality businesses are able to do.
A stock that doesn’t quite make it into this club, however, could still become a 10-bagger and deliver returns that handily beat the market. While millionaire-makers are the best investments to make when they appear, an investment portfolio can do extremely well even without owning one.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.