Still not spent your 2007 bonus? Why not spend a few minutes looking through The Banker’s list of ways you could try to turn it into millions. All three of the friends and family members used as examples took a chance on investments that returned more than 1000% of their original stake. A cousin invested in the early days of Microsoft and her early investment paid off so handsomely that she was able to retire decades before her working colleagues.
A former colleague bought Gazprom shares in the weeks following the Russian rouble devaluation in 1998 and watched his shares climb by more than 1500% as economic confidence returned. And a neighbour sold his house to buy property in Buenos Aires in 2002 following the 80% devaluation of the Argentinian peso. His money went a long way, helping him to build a multi-million dollar property portfolio in just a few years.
The following is our top 10 list of broad areas where you might look for those elusive investments with the potential of almost limitless returns. But beware – by their very nature they also carry high risks.
1. Early-stage pharmaceutical research
The pharmaceutical industry is undergoing a revolution as traditional drugs made of simple chemical compounds give way to complex biopharmaceuticals. One day, drugs may be individually tailored to individuals according to genetic make-up and medical condition.
The problem is that finding medically useful molecular compounds and identifying genetic sequences associated with certain conditions is by its nature a million-to-one endeavour. So picking out which pharmaceutical research will lead to the next blockbuster drug is a little like finding a needle in a haystack.
Most of today’s drugs are targeted on about 500 active molecular groupings. Research into how human genes affect our response to each new drug is expected to lead to the discovery of many thousands of more useful active molecular compounds. So if you are prepared to risk your stake, you could do worse than invest in early-stage pharmaceutical research.
Because the journey from research laboratory to approved drug or medical application is long and arduous, investing early is fraught with risk. However, the returns are potentially huge.
Successful corporate minnows often grow very quickly – if a giant does not swallow them first. For example, Geneva-based Addex Pharmaceuticals, which specialises in the development of therapeutic compounds for the treatment of disorders of the central nervous system, was founded in May 2002. Five years later, in May 2007, it successfully launched its initial public offering on the SWX Swiss Exchange, raising CHF137m ($111m).
2. Biomaterials and medical devices
Another segment of the medical services sector that is changing the way we fight disease is research into biological materials used in surgery. Biocompatible materials, known more simply as biomaterial, are used to replace living human tissue. These natural or synthetic materials mimic the composition and properties of living human tissue with similar composition and are often used as a bridge between medical devices and real human tissue.
By coating inert implants with biomaterial, man-made devices are beginning to interact more effectively with individuals’ human biology. Researchers have developed special proteins that can be coupled with inert materials to give a bio-active surface to medical devices. For example, artificial hips already use a form of biomaterials in their coating. Calcium hydroxylapatite is a man-made material that is already used in many artificial hips as a bone replacement, helping surgeons attach man-made implants to living bone.
Companies involved in developing biomaterials could become some of the fastest-growing companies in the world during the next decade. Nasdaq-listed biomaterial company LifeCell, which specialises in man-made tissues used in surgery, has already increased its income by 35% this year.
LifeCell’s stock growth has been gaining momentum in the past few years as investors wake up to the huge potential. In early December 1997, its shares were trading at just over $5; by December 2007, they were trading at more than $43 per share – a growth of 860%, or 86% per year. In the past year, LifeCell’s shares rose by nearly 100%.
However, it is still early days for the commercialisation of biomaterials, because many of the developments are still at the research level.
3. Space tourism
Although futurologists began predicting commercial space flights in the 1950s, the market for commercial space flights is still limited to a handful of billionaires (a trip to the international space station costs about $30m aboard the Russian Soyuz spacecraft). Microsoft co-founder and creator of Word and Excel, Charles Simonyi, became the world’s fifth space tourist last April.
However, several groups have declared their intentions to open the market for space tourism more widely. Space Adventures, founded by former NASA researcher Eric Anderson in 1997, has already sold more than $120m-worth of space flights and invested about $500m in two space ports. It has plans for the first private voyage to the moon in 2009.
About 30 companies are connected in some way to the development of commercial space travel. They include Japan’s Spacetopia, James Benson’s Benson Space Company and Richard Branson’s Virgin Galactic, which announced its plans to offer low-cost space flights in September 2004.
On December 5, alongside his son and other directors, Mr Branson completed a space training course in preparation for a flight aboard SpaceShipTwo, a suborbital spaceship that will launch Virgin Galactic. Virgin Galactic is offering bookings for flights in 2009 on its website (www.virgingalactic.com). By November 2007, it had sold nearly 200 tickets for flights aboard SpaceShipTwo, which will fly at about 2500 miles per hour and reach an altitude of about 85 miles.
4. Buy shares in ePayment companies
Along with the growth of the internet economy, online fraud has swollen to a value of about $3bn a year. This has created a huge demand for the services of companies offering secure payment systems, such as PayPal and CyberSource. Less than four years after PayPal was founded, internet auction site eBay bought it in 2002 for $1.5bn. PayPal has now signed up more than 150 million accounts.
Both Google and Yahoo! (along with 220,000 businesses, including half the companies comprising the Dow Jones Industrial Average) use the payment services of a company called CyberSource. Headquartered in Mountain View, California, CyberSource was one of the US’s fastest-growing companies in 2007 and its shares advanced from just over $11 a share last September to $16 a share by December.
Including Authorize.net, which CyberSource bought on November 1, 2007, CyberSource processed about 1.1 billion transactions in 2006, representing $65bn-worth of e-commerce. Cybersource predicts net profits of just over $8m for the fourth quarter of 2007.
CyberSource has already signed up other blue-chip companies, such as British Airways, Hewlett-Packard, the London Underground, Home Depot and Nike as customers and operates in more than 190 markets worldwide. Not bad for a company that only rolled out its first web-based payment system in 2003.
5. Alternative fuel technologies
Fuel cells produce electricity and heat in a chemical reaction that uses fuel (often hydrogen) and oxygen. Unlike conventional engines, they create energy by chemical reaction without burning fuel. This is both more efficient and cleaner.
Instead of pollution, the only byproducts of the chemical reaction are water vapour, heat and oxygen. Although still under development, fuel cells may one day power not just cars, but also houses and even factories.
Fuel cells were first demonstrated in the 1800s, but it was only NASA’s development in the late 1950s that made them viable for commercial development. However, it was not until the 1990s that mainstream companies saw their potential.
Recent landmark developments include Virent Energy System’s 2006 introduction of a low-cost method of producing hydrogen from a mixture of hydrogenated glucose (a derivative of sugar) and water. The company hopes that, if successful, its technology will herald a huge step forward for the hydrogen-based economy.
Virent was founded in 2002 and has already attracted a lot of excitement. It is still small, employing about 50 people at its US headquarters in Madison, Wisconsin. To date, the company has received grants and venture capital funding of more than $40m.
Other landmark developments include the 2006 launch of an inexpensive fuel cell for integration into other systems by Berlin-based company Staxon. In the same year, Vancouver-based Angstrom Power started to sell small devices using hydrogen fuel cell technology under the brand ‘micro-hydrogen’.
In the six years since Angstrom was launched, it has developed fuel cells suitable for small devices such as bicycle lights and mobile phones, and it raised $18m in venture capital last September.
Last year, researchers at Purdue University announced the further development of a system of creating fuel on demand using aluminium and gallium alloy to extract hydrogen from water. The alloy attracts oxygen out of the water and liberates hydrogen in the reaction, splitting water into its constituents. This process of generating hydrogen on demand makes it unnecessary to store or transport the gas and bypasses two of the major obstacles in creating a hydrogen-driven economy.
6. Solar power
Even compared with current levels of worldwide energy consumption, the potential for solar energy is vast. Total human energy consumption is running at about one half of a zettajoule (1 zettajoule = 1021 joules ) and yet the total solar energy available to the earth is more than 7000 times current demand.
One of the most promising ways of harnessing solar energy is converting light from the sun into electricity using photovoltaic cells. Although the first photovoltaic cells were created in the late 1800s (capturing about only about 1% of the available energy), it was not until the oil shocks of the 1970s that the commercial development of solar energy production was taken seriously.
Having slumped in the 1980s, solar technology is once again undergoing rapid development. Using ultra-high-performance crystalline silicon solar cells, a research team led by the University of Delaware achieved a record-breaking solar cell efficiency of 42.8% from sunlight at standard terrestrial conditions.
Local governments in a growing number of countries across every continent are offering tax rebates and other incentives for using solar power. In these countries, it is usually possible to pay back the cost of installing photovoltaic cells in five to 10 years.
Silicon Valley-based SunPower’s highly efficient solar systems have made it one of the hottest solar energy companies in the past few years. In November 2007, Morgan Stanley agreed to provide the company with up to $190m to help it commercialise solar technology.
7. Mobile banking
Large volumes of retail banking transactions are predicted to migrate to mobile telephones in the next five to 10 years as mobile-to-bank networks become more sophisticated. This could change the face of banking by providing easier access to the banking industry, particularly in developing countries.
The current estimate is that 80% of all personal payments are made in cash and about 80% of all retail banking products are sold by banks through branch networks. Some of these services have already migrated online, but the next big step is that transactions will start to be originated through mobile phones or similar hand-held devices.
Each device carries an individual’s security details embedded on an internal chip. Similar technology already exists in the transport sector in the form of ‘intelligent’ electronic tickets that record the length, number and time of journeys, calculate fares and debit users’ bank accounts accordingly. Buses in the German town of Hanau have tested a technology that automatically bills users’ bank accounts, having calculated the most favourable fare tariff for every journey made during a one-month period.
Phones may also soon be used to store credits that can be used in contactless payments for goods and services in a similar way to how London commuters charge up their Oyster cards with up to £90 worth of credit. Oyster credits are automatically deducted from the card each time its holder travels on London’s tubes, trams, buses or railways.
Companies likely to benefit from the fast-changing payments industry include Giesecke & Devrient (G&D). G&D has been a leading supplier of traditional banknote paper and printing, but has more recently become a leading developer of smart cards and electronic payment systems. It is now a leading supplier of chip technologies to credit card companies and has helped drive the development of global industry standards for ‘e-purses’ that allow users to make cashless payments for low-value items.
Another company with huge potential for growth is Germany’s Orga Systems, one of the leading developers of new payment technologies for mobile phones. Founded in 2003, it has already teamed up with more than 40 wireless carriers, including mobile phone operators as far afield as Ukraine and Kazakhstan.
8. Emerging markets property
Costa Rica’s southern coast is a five-hour drive from the capital city San José, but plans for a new international airport at Dominical could make the lush jungle mountains overlooking some of its most pristine beaches easily accessible to foreign owners. The cost of development lots there (minimum size of 1000 square feet) start at $55,000 for 1000 square feet and custom construction costs start at about $75 per square foot.
Foreign buyers, particularly US retirees, have become increasingly interested in Costa Rica, yet prices have remained relatively low. Small rural properties are available for just $7500 and modern, three-bedroom, three-bathroom houses with garages on a quarter-acre lot can be bought for less than $140,000. For under $250,000, you could buy six acres of wooded lakefront or 30 acres of land with hot springs and waterfalls.
Other Central American countries, such as Panama and Belize, are also registering on the radar screens of international property brokers, as are Bulgaria, Egypt and India.
9. Biometric identity systems
Rising levels of migration and fears of international terrorism have made identity verification an increasingly important part of everyday security. Japan’s banks have already signed up for technology that uses an infra-red scan of the veins on clients’ palms for use in automated teller machines.
Identity systems using various biometric measures are already being phased in in countries such as the US, the UK, Germany, Australia, Israel, Hong Kong, Malaysia, Thailand and many more. Late last year, Post Bank of Uganda announced the roll out of biometric identity cards that are expected to open up the country’s retail banking sector to the 90% of the population that currently have no access to the banking system.
Companies involved in developing biometric identity cards and other security solutions include Giesecke & Devrient, Precise Biometrics, ActivIdentity Corporation, Oberthur Cards, Nanoident Biometrics and Fidelica Microsystems.
10. Future technology funds
Investing in small companies is an obvious way to target 1000% returns. The major drawback is being among the first to discover companies about which little has been published.
Although returns have yet to reach stratospheric levels, investment funds specialising in future technologies offer to do the legwork of finding companies with unlimited upside potential. For example, the Munder Future Technology Fund concentrates on future technology stocks, which tend to be relatively volatile and illiquid.
Although Munder’s fund has risen a relatively modest 5% to 10% a year since it was launched in 1999, its investments have included several companies in the early stages of development.
For this reason, investors might consider holding the fund over a longer period of time, increasing the chances that the companies in which the fund has invested will grow into corporate giants.
Alongside technology giants such as IBM and Microsoft, Munder’s fund has bought shares in the darlings of the technology sector, such as Corning (manufacturer of glass and ceramics components used in high-tech electronics), Digital River (provider of digital download technology) and Micron Technology (maker of advanced digital memory).