With a market capitalization of over $811 billion, Alphabet Inc (NASDAQ: GOOGL) is one of the largest companies in the world. How does a company like Google/Alphabet invest its money so well?
About Alphabet
Alphabet Inc. is headquartered in Mountain View, California. It was created through a corporate restructuring of Google in 2015 and became the parent company of Google and several former Google subsidiaries. Alphabet is one of the largest companies in the world with a market capitalisation of more than $800 billion.
Why Should You Invest Like Google?
Google has proven its ability to consistently grow revenue by more than 20% per year over a very long period of time, and its return on invested capital (ROIC) is also above 20%.
Most investors would agree that’s a return they would be happy to make. So, how exactly does Google invest?
Google’s Investment Method
Most of Google’s revenue, around 85%, is generated through advertising. This is Google’s core business. This is the core revenue that, despite what other elements of the business may be doing, continues to grow consistently year-to-year.
This is similar to having an ASX ETF core for your share portfolio. It is diversified and relatively ‘safe’ compared to investing in individual companies. Over the long-term, you would expect an ETF that follows the ASX 200 to continue to grow gradually and steadily. This part of the ‘business’ (your investment portfolio) requires little maintenance and may deliver consistent dividends for income.
Outside of advertising is where Google/Alphabet gets exciting. Each year, Google invests resources into what it calls “other bets”. These investments are can be acquisitions or new subsidiaries that take Google in a different direction and maybe a new sector. One example of an “other bet” is Waymo, Google’s self-driving car company.
These investments in “other bets” are often unsuccessful but Google describes them as high-risk, high-reward and even describes them as “moonshots” in their annual report.
While some of these attempts fail, the “other bets” that succeed pay off in a big way. You might have even heard of some of Google’s other bets; Youtube, Android, Chrome?
These “other bets” are the individual companies you, as an investor, invest in. They are high-risk, high-reward and won’t always pay off, but a successful micro-cap investment could generate returns unheard of for blue chips.
The lesson here is that these “other bets” shouldn’t overrun your portfolio. It’s important to have a steady and stable core (usually ETF’s) to support your portfolio and then the rest of the money can be allocated to “other bets” that will hopefully boost your return.
If you’re looking for “other bets” to supplement your core portfolio, check out the high-growth companies in the free report below.
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Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.
