The Motley Fool's aim is to educate, amuse, and enrich you with information about personal finance and investing. Today, I'll be trying to do that by introducing you to the top 10 signs you haven't found the next ultimate growth stock.
10. Stock certificates have replaced toilet paper as part of a new companywide cost-cutting effort.
9. Three words: branded ice sculptures.
8. The new CFO is Saturday Night Live motivational speaker Matt Foley. And he really does live in a van down by the river.
7. The CEO can't stop talking about his new book, Doing Time: Reflections on Management From Solitary Confinement.
6. When asked about R&D, the CEO answers that his daughter's recital and dance class is going "rather well, thanks."
5. Executives respond to every question asked during the quarterly conference call by asking, "You want fries with that?"
4. The sales VP counts Rip Van Winkle as his personal hero.
3. Half of the management team has degrees from Enron University.
2. The year-end bonuses are replaced with annual subscriptions to the "jelly of the month" club.
And the No. 1 sign that you haven't found the next ultimate growth stock ...
1. Vegas is laying 40-to-1 odds against the company booking a profit before the end of the century.
Congrats if you had a nice laugh thinking about the suckers who got snookered during the dot-bomb fallout and the ensuing scandals of Enron and WorldCom. But if you feel like one of those suckers -- haven't we all been there? -- then read on.
Not necessarily The Next Big Thing
The great myth about Rule Breaker investing is that it requires you to uncover The Next Big Thing before anyone else. Hardly. Take Vertex Pharmaceuticals (Nasdaq: VRTX ) , for example. It's been in business for well more than a decade and has seen major ups and downs over that period.
But changes in the structure of the business allowed the company to generate large royalties from big pharma partners during 2004 and, in turn, produced expectations for more of the same in 2005. It was, in essence, an emerging competitive advantage. And Vertex booked loads of new revenue as a result. So, in January, Foolish colleague Charly Travers recommended the stock for the Motley Fool Rule Breakers portfolio. The shares are up more than 160% since.
Sales growth helped fuel Vertex. In fact, revenue was up more than 48% from 2003 to 2004. And the company got within spitting distance of last year's total sales through the first three quarters of 2005. It's a good bet that Vertex will see revenue rise by at least another 40% this year. Such outrageous growth is attractive, especially when sales rise quarter after quarter after quarter.
Invest like a venture capitalist
Chief rebel and Fool co-founder David Gardner is fond of saying that investing in Rule Breakers is like learning to be a venture capitalist. It requires a smidgen of imagination, a pound of industry expertise, and a truckload of conviction. Because you will be wrong -- a lot. But when you're right, you'll be really right. It's those grand slams that should provide more than enough gains to trounce the market over the long haul.
And, sometimes, over the short haul. The Rule Breakers portfolio is walloping the market by nearly 15 percentage points as of this writing. You can get in on the action on our dime by taking a risk-free trial. Or you can sign up today and get all 30 buy reports and Stocks 2006, our analysts' best picks for the year ahead, including a surprising company that David and I think will wallop the rest of the selections. So, go ahead, break a few rules today. Just be sure when you do that ice sculptures and jail time aren't part of the equation.
Fool contributor Tim Beyers only breaks the rules in his portfolio. Wimp. Tim didn't own stock in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.