Thebest way to accurately predict the future is to invest in it. Let me explain.
In our 1999 book Rule Breakers, Rule Makers, I wrote a bit about venture capital. I encouraged Rule Breaker investors to look for "smart backing," emphasizing the importance not just of good management, but also of looking for companies that had attracted the money of well-regarded and well-heeled venture backers. "Everything matters" -- Starbucks' answer to how to create a good consumer experience -- also speaks truly to how we as investors should analyze companies.
Back then, I glorified -- overglorified -- the venture firm of Kleiner Perkins Caufield & Byers. I didn't know then that shortly thereafter, our own company would go on to pitch that firm, among many others, to invest in The Motley Fool.
Had I known how rudely they would treat our senior staff, or how cavalierly the firm wrote us off with lines like, "Why haven't you already gone public? Geez, you guys are now toast," etc., no doubt I would not have published such approbation of that firm. And it went on to back and push to IPO many a failed company (remember @Home? ouch!). But the reason I liked Kleiner Perkins at the time -- and still, to a certain extent, admire it today -- is its forward-thinking leadership exhibited most prominently by senior venture capitalist John Doerr, as well as a handful of others.
I got to meet another of them at a conference this March. And I want to put forth a line to you that he included as part of his PowerPoint presentation, because the line speaks directly to the Rule Breaker in all of us. He said that one of the guiding mantras at Kleiner Perkins is this:
The best way to accurately predict the future is to invest in it.
I agree. And in agreeing, I want to point out that the chronology implied by this line is the reverse of what most people would advocate or expect.
Buy the horse!
Kleiner is NOT saying that you should predict the future and then invest accordingly. That may be what you'd expect a "smart investor" to say, and that's probably what the world expects successful investors -- whether private venture cap or public equity -- to be saying and doing. No, sir.
What Kleiner is really saying is that you invest first, and only then are you really able to predict the future. Or, paraphrased: You have to be in the game to see where it's going. If you want to improve your odds at calling the horse race, talk to the trainers or the jockeys, not the TV commentator. Or better yet, own one of the horses!
The best way to accurately predict the future is to invest in it. That's what we're doing at our Motley Fool Rule Breakers investment service. We're putting money in the game early, and in so doing, I think we'll be smarter than others later on. I am no expert on any company or industry when I first recommend it or invest in it. However, I am that much more likely to become knowledgeable -- to become, even, an expert.
I've been fortunate to have the opportunity to both buy the horse and ride the horse, so to speak. Back in the 1990s, I invested early on in such Internet companies as AOL, eBay, and Amazon.com. During that time, I was also building my own online site devoted to superior investment ideas. So I had more than a passing interest in developments in the Internet industry.
At Rule Breakers, we are following a similar strategy. By recommending companies and compiling watch lists, we are becoming committed to developments in biotechnology, nanotechnology, and what we call early adopters, the first sightings of cool businesses on the Internet or in malls. Just recently we put together a Rule Breaker Universe of some 225 stocks that our analysts and growing community follow. Below I've listed seven from that list that we are considering:
|Company||Ticker||Sector||Market Cap||Growth Rate*|
|4Kids Entertainment||(NYSE: KDE )||Recreational Products||$262 million||11%|
|Aeropostale||(NYSE: ARO )||Retail||$1.85 billion||20%|
|Dendreon||(Nasdaq: DNDN )||Biotech||$312 million||10%|
|DreamWorks Animation||(NYSE: DWA )||Motion Pictures||$2.6 billion||15%|
|GuruNet||(AMEX: GRU )||Computer Services||$107 million||--|
|Symantec||(Nasdaq: SYMC )||Software||
|TiVo||(Nasdaq: TIVO )||Cable TV||$566 million||35%|
At first glance, companies such as Dendreon and Aeropostale do not appear to have much in common. But with a closer look, you will see that all of these companies are leaders in their respective industries. And all of them have phenomenal growth prospects over the next five years or so. We may not in the end select any of these companies as an official recommendation for Rule Breakers, as our team of analysts can be quite discriminating when making picks. But these are the types of companies we are looking at as we hunt in the best growth sectors of our economy.
See the future
You want to begin to "see" the future of hospital surgery? Find out about a company like Intuitive Surgical. Tell me, honestly, how much do you know about robotic surgery? Score five points for yourself if you know a little bit. If not, take a trial and read our write-up of Intuitive, and then do some stock research of your own.
When you are done, I suspect you'll know something about the future of surgery that most Americans do not. You will know about the cost savings provided by this company's products, and you'll be aware of the advantages of precision in the operating room. (If you know someone who's having radical prostate surgery, you'll also have some great advice for him.) As a consequence of doing your research and perhaps buying this stock, you are indeed more able to accurately predict the future.
Turn this phrase on its head, and I think you've reached an equal truism: "The worst way to accurately predict the future is not to invest in it." If you have no skin in the game, you have much less incentive to learn and stay informed. Consequently, you are much more likely to operate off poorer information and faultier assumptions than the investor, who has real incentive to stay current and knowledgeable. Who's going to win that battle of the brains?
That's why I have always sought to be an investor, not a journalist. But that column is for another time. If you, too, would like to snap on your chin strap and get in the game, why not join us for a 30-day free trial to Rule Breakers? You are under no obligation to subscribe. I promise. Click here to learn more.
This article was originally published on April 22, 2005. It has been updated.
Motley Fool co-founder David Gardner owns shares of Starbucks, Time Warner, eBay, Intuitive Surgical, and Amazon.com. TiVo is a Motley Fool Stock Advisor recommendation. The Motley Fool isinvestors writing for investors.