Here's Your Shot to Score Big

Some of the best investment advice I've ever heard came from "The Great One."

But I don't mean Peter Lynch, Benjamin Graham, or even Warren Buffett. And I definitely don't mean Jim Cramer.

"You miss 100% of the shots you never take"
That's but one of the many pearls of wisdom The Great One has dropped over the years. And while it might seem obvious, or even trite, it's a truth we often take for granted.

Just think of the person you never asked to the dance, or the job you never applied for, or the novel you never finished ... or the stock you never purchased.

It happens to all of us. We get nervous, or doubtful, or busy, or ... you name it. And that might end up costing us the person of our dreams, or the job we've always wanted, or our only shot at fame. But in the case of investing, it will definitely cost us a fortune.

Back in 2007, two stocks sat on my watch list for a full 365 days:

Stock

Gain in 2007

Chipotle

158%

Apple

134%

A $24,600 mistake
Should I have bought them? Perhaps. But by not investing in them, I wound up making a grand total of ... nothing. Nada. Zip. Zilch.

That's a bitter pill to swallow, especially considering that if I'd invested five grand in each company at the beginning of 2007, I would have been sitting on $24,600 one year later.

But I could have scored even bigger ...
How? By following The Great One's most famous piece of advice: "Skate to where the puck is going, not to where it's been."

You may already know that The Great One is hockey legend Wayne Gretzky. If not, all you need to know is that Gretzky was arguably the greatest player ever to take the ice.

What made him The Great One? Quite simply, he was always one step ahead of everyone else -- not because of his speed, but because of his anticipation. While everyone else skated to where the puck had just been, Gretzky always skated to where it was going next.

That's the key to great investing, too
If you look at the tables below, you'll notice an interesting correlation between market cap and percentage gain: The smaller the business, the greater the returns. While this won't always be the case, this data is a quick and dirty way of showing that the best performers do indeed start small.

That's also how you can skate to where the puck is going next.

Bigger isn't better, but size does matter
For proof, let's have a look at the top-performing stocks of the past 52 weeks with market caps greater than $25 billion:

Stock

Market Cap

52-Week Gain

Baidu (Nasdaq: BIDU  )

$25 billion

195%

VMware (NYSE: VMW  )

$27 billion

119%

Ford (NYSE: F  )

$40 billion

111%

Apple

$228 billion

95%

Wipro

$31 billion

89%

Sources: Google Finance and Yahoo! Finance. All data as of May 27,2010.

Now let's compare that with the top performing stocks of the past 52 weeks overall ...

Stock

52-Week Gain

Market Cap

inTEST (Nasdaq: INTT  )

2,180%

$38 million

Keryx Biopharmaceuticals

1,315%

$284 million

Magnum Hunter Resources (NYSE: MHR  )

1,150%

$286 million

Select Comfort

1,100%

$584 million

Human Genome Sciences

1,068%

$4.6 billion

Somaxon Pharmaceuticals

1,039%

$199 million

General Growth Properties

1,039%

$4.5 billion

Comstock Homebuilding Companies (Nasdaq: CHCI  )

1,033%

$42 million

Radio One

1,031%

$215 million

Commerical Vehicle Group (Nasdaq: CVGI  )

895%

$309 million

Sources: Google Finance and Yahoo! Finance. All data as of May 27, 2010.

Make no mistake ...
I'm not showing you these two tables to try to talk you out of investing in large-cap stocks. In fact, four of those five large are official Motley Fool recommendations, and I think they're all potentially great investments.

Baidu is the company behind China's largest and most powerful search engine, and Google's recent exit should help it gain even more market share. That's at least part of the reason why Baidu's revenue and profits soared 60% and 165%, respectively, in the first quarter. Meanwhile, VMware is the leading provider of virtualization software – a vital component in the ever-growing world of cloud computing.

Ford is continuing down the path to profitability, and has now turned in five straight months of 20%+ growth. Better yet, its top vehicles continue to rack up awards for customer satisfaction and quality. Apple has continued to blow away expectations as its wildly popular iPhones and iPads fly off the shelves. And of course, the upcoming release of its iPhone 4G promises to send revenues soaring even higher.

But as you can clearly see, the size of a company puts major limits on its growth potential. And the larger the company, the more analysts are following its every move –and the less likely the market is to misjudge its value.

In other words, if you want to score really big ...
You've got to dedicate a portion of your time to finding stocks that -- just like the small-caps listed above – are small, obscure, and ignored. Don't forget that because relatively few analysts are covering these stocks, there is a much greater chance that the market is undervaluing them.

That's why I'd like to invite you to take a free 30-day trial of our signature small-cap service, Motley Fool Hidden Gems, and follow along as the Hidden Gems team invests $250,000 of The Motley Fool's own money in a best-of-the-best small-cap portfolio. So far, 16 of their 21 open positions are in the green, and seven are already up more than 50%. Their approach to investing could give you a real shot to skate to where the puck is going next.

This offer is completely risk-free, with no obligation to subscribe. Stick with us if you like it, or pay nothing if you don't. To get started, simply click here.

This article was first published Jan. 25, 2008. It has been updated.

Austin Edwards did finally buy shares of Apple and Chipotle in 2008. Baidu, VMWare, and Chipotle Mexican Grill are Rule Breakers picks. Chipotle is also a Hidden Gems selection, and a Fool holding. The Fool's disclosure policy is the coolest game on Earth.


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