Once again, we’re hearing a Cinderella story of wealth all over the news. Remember the media coverage back in 2012 after the Facebook IPO? This is the same story, different details. But some particulars of Snapchat’s rise to fame and fortune are exceptionally interesting.
Take, for instance, the involvement of Saint Francis High School in Mountain View, Calif. This is a private Catholic school comprised of about 1,600 students. A few years ago, parent Barry Eggers, head of the Saint Francis growth fund and part of the venture capital firm Lightspeed Venture Partners, decided to invest in Snapchat. Eggers’ daughter was a sophomore at Saint Francis at the time. Through his daughter and her friends, Eggers got clued into the popularity of Snapchat.
In 2012, Eggers reached out to Snap and got in touch with Spiegel. Eggers, through Lightspeed, started investing in Snap, and gave $15,000 to the Saint Francis fund to invest also. Here’s where Saint Francis hit the Powerball of investing — that $15,000 investment reached nearly $24 million after the IPO. You heard that right. The number represents growth of 160,000 percent.
While the folks at Saint Francis haven’t gone into specifics on where the cash will go, they do say some of it will be allocated to student scholarships. Tuition at the private school is approximately $17,500 per year. Do the math and you’ll find that Saint Francis can now afford to cover free tuition for over 1,350 students.
These types of stories tap into our greediest fantasies. Turning $15,000 into $24 million? Net growth of 160,000 percent? Black gold or Texas tea? Where do I sign up?
Before you start cashing out to cash in on the latest social media craze, consider this: There’s a graveyard of social media companies out there. Remember Friendster? This platform used to have 75 million users. Now? It’s defunct. What about MySpace? NewsCorp bought the company for a cool $580 million, and later sold it off in 2011 for a nominal $35 million. Even Twitter, while still going strong, is now down over 60 percent from its IPO price. This list goes on.
Here’s the takeaway. We love massive investment wins; they are the real-life examples of getting rich quick. If we’re really getting honest here, these stories perk up the greed in all (and I mean all) of us. But strategizing about striking it mega-rich on the stock market is no different from dreaming of pulling those elusive winning lotto numbers. Just like everything in life, perspective is important here. Facebook and Snapchat are anomalies; they are the once-in-a-lifetime grand slams if you were a very early investor. But for every grand slam, there are hundreds of catastrophic strikeouts.
Just like you don’t count on winning the lottery to finance your retirement, you can’t base your retirement investment strategy on cashing in on another out-of-the-blue IPO explosion. After all, we’re more likely to get struck by lightning than to strike it rich. So play it smart. Use the 15/50 Rule. Keep your focus always on the end game. And remember, above all else, growing wealth takes patience and time.
Wes Moss has been the host of “Money Matters” on News 95.5 and AM 750 WSB in Atlanta for more than seven years now, and he does a live show from 9-11 a.m. Sundays. He is the chief investment strategist for Atlanta-based Capital Investment Advisors. For more information, go to wesmoss.com.
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