One of the most prevalent mistakes among people who have limited knowledge about the stock market and companies is that they think the (only reasonable) way of making money is to find the next Google or Apple before anybody else. Without doubt this is an alluring proposition. If one bought a 50% stake in Apple before its IPO, by now that investment would amount to probably tens, if not hundreds of billions. Sounds so very easy!
But why is then the world not full of ordinary folk who bought such stakes and became filthy rich?
First, because there are tens of thousands of start ups and identifying the winners is devilishly hard. Warren Buffett likes to give the following example: Imagine that you lived in the early 20th century and you predicted that the car industry was going to grow astonishingly (as it indeed did) in the US and the also worldwide. Which company would you pick, given that there were around 2,000 car makers in the United Sates? Not easy to pick up a winner from the list. You might have had a much greater chance playing the casino than betting on the right car maker. Similarly, today the future of the biotech industry looks bright but there are scores of small biotech companies. Some of them are probably going to do extremely well but trying to predict which ones is more of a speculation than true investing.