Best Revolutionary Stocks—Update
Best Disruptive Stocks
The Human Side of the Business
Last July, I kicked off a series for Cabot Wealth Advisory titled Best Revolutionary Stocks, which proved very popular with readers.
I began by reviewing the story of Amazon.com, which began as a bookseller, but grew into a seller of nearly everything (more than anyone imagined at the beginning). As a lover of books and an embracer of new technologies, Amazon was right up my alley, as both a service AND as an investment. Readers who followed our advice saw profits of 1,291%!
I concluded my column with these four guidelines.
Rule #1 when hunting for revolutionary stocks is to ignore valuation. Wall Street likes to count things, and price/earnings ratios are their favorite measurement. But if you focus on P/E ratios, you’ll never invest in revolutionary companies like Amazon.
Rule #2 is to use your imagination. This is difficult for most investors. It’s much easier to look back than look ahead. But ahead is where the big profits are. In the case of Amazon, having the imagination to see that little company putting Borders out of business was key.
Rule #3 is to pay attention to management. It’s my contention that the best revolutionary stocks are those of companies led by visionaries. In fact, just off the top of my head, I listed these revolutionary stocks of my lifetime. Most—perhaps all—were led by exceptional managers: Apple, Blockbuster, eBay, Google, Green Mountain Coffee Roasters, Home Depot, IBM, McDonalds, Microsoft, Netflix, Oracle, Research in Motion, Starbucks, Tesla Motors, Teva Pharmaceuticals, Walmart, Yahoo! and Xerox.
Rule #4 is to invest only when there’s potential for a major increase in perception. If you invested in Amazon when Jeff Bezos was on the cover of Time, you lost money. Similarly, and more recently, if you bought Apple (AAPL) when it made headlines as being the most valuable company in the world, you lost money. To make big money, you’ve got to invest when skepticism is high!
Following this introduction to the topic, I canvassed all the Cabot editors, inviting them each to submit their favorite candidates for revolutionary stocks. Finally, I narrowed the submissions down to ten, and then presented them in Cabot Wealth Advisory over the following 10 weeks, in alphabetical order.
They did pretty well.
Assuming a buy at the average price of the next day, the results show an average gain until today of 15%, with the leader being Pandora (P) (picked by both Chloe Lutts Jensen and me), up 54%, and the only loser being Tesla Motors (TSLA) (picked by me), down 14%.
The bull market helped, of course.
So now it’s time for a similar feature, titled, “Best Disruptive Stocks." Yes, disruptive is similar to revolutionary, but in my mind, the main difference between revolutionary and disruptive is that disruptive implies a big visible loser.
Amazon.com, for example, disrupted Borders so much that the bookseller died!
Netflix, similarly, disrupted Blockbuster so acutely that the bricks-and-mortar chain filed for bankruptcy in 2010. Blockbuster was bought by Dish Network in 2011, and the company has been closing stores since, but the business is not quite dead yet.
Last week, I asked my editors for their suggestions. This week, I’ll conclude the research and selection process, and next Monday, I’ll kick off the series with my first featured stock. I hope you enjoy it—and profit from it!
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Moving on, I want to share a few thoughts about the investment advisory business, especially the human side.
The investment business is big and complicated.
It includes entities like Fidelity and Vanguard, which manage mutual funds for people who have little or no interest in investing.
It includes entities like SAC Capital Advisers, whose principals have been on trial for insider trading in recent weeks.
It includes people who inherited IBM or Johnson & Johnson stock decades ago and are happy to simply collect the dividends.
It includes people day-trading stocks, people selling options, and people buying on margin.
It includes short-sellers, who are more comfortable looking for the downside than the upside.
In brief, it includes all kinds of people investing and trading in all kinds of ways.
Furthermore, it includes all the people who work behind the scenes at money managers, banks, trading companies, brokerages and more. I know a lot of these people, and I don’t always understand what they do (nor do I envy them being part of those “machines”), but I accept that they’re part of this big varied industry.
Finally, it includes people like you:
You want investment advice you can understand.
You want investment advice that you can trust.
And you want investment advice that will help you become a better investor.
Our job is providing this advice—but that’s not all.
Ideally, we connect you with the system(s) and advisor(s) that fit your investing style, your personality and your circumstances.
Ideally, we help you learn to make more and lose less—consistently.
And ideally, we help you achieve your investment goal, whether it’s a comfortable retirement for yourself or a secure future for your family.
It’s a job that I like enormously and I’m very grateful to have you as a reader.
Speaking of family:
Cabot began as a family business. Even my grandmother stuffed envelopes back in the 1970s.
The business was originally created because my father wanted to teach people how to become more successful investors by following his system of market timing combined with relative performance (RP) analysis. I was a part-time (student) worker in the early days, and I was lucky to get taught at the same time, something I’m enormously grateful for.
Luckily, my father asked me to join the business, and I was able to work side-by-side with him for 18 years, in the process expanding the Cabot family of advisories to more than 10.
And now I’m very lucky to have a daughter (Chloe Lutts Jensen) who was attracted to the business, and has the skills the business demands. It’s very satisfying to know that the company will be in good hands when I choose to relinquish the reins (not that I’m in any hurry).
Now, if you’ve been reading these Cabot Wealth Advisories recently, you’ve probably noticed the notices for a new dividend-centric advisory we’re launching next week. It’s designed to make your retirement more comfortable, using what we’d dubbed the Individualized Retirement Investing System (IRIS). Chloe is the chief architect of the system, and you can read more about it (if you haven’t already) by clicking here.
Yours in pursuit of wisdom and wealth,
Chief Analyst, Cabot Stock of the Month and
Publisher, Cabot Wealth Advisory
P.S. Prepare your portfolio for the successful New Year with the recommendations featured in Cabot Stock of the Month. Each month, I select one stock that has the potential to hand you double- or even triple-digit returns, along with recommendations for when to buy, how much to pay and when to sell, plus follow-up analysis on every stock I recommend.
For more details, click here.