Rule Breakers come in many forms. In sports, none stands taller than the so-called "Miracle on Ice," which refers to the 1980 U.S. Olympic hockey team that triumphed against impossible odds and an overpowering Soviet squad to ultimately win the gold.
It's an inspiring story, to be sure. And "Miracle" sounds nice. (It sure made for one heck of a movie.) But I object to the use of the word; it suggests that the win was a fluke. Improbable? Sure. But a fluke? Not at all. Planning, dedication, and talent all played a huge part in the win.
And so it is with some of the stock market's biggest winners.
A miracle in the market
Take Vertex Pharmaceuticals (Nasdaq: VRTX ) , for example. Last January, biotech guru Charly Travers selected this maker of small-molecule drugs for Motley Fool Rule Breakers. Three months later, it was down almost 10%, while the portfolio as a whole was losing to the market by more than 12%. The situation seemed grim. And there was little reason for hope: Vertex had been losing shareholders money for years.
It was no different for the '80 Olympic hockey squad. Coach Herb Brooks scheduled an exhibition match against the Soviets at Madison Square Garden the week before the opening of the Olympic Games. The result? The U.S. team got pounded. The final score was 10-3 in favor of the Russians.
The Rule Breaking game plan
Naturally, going into the games, it was assumed that the Russians would take home the gold. It certainly looked like it early: The Soviets advanced to the medal round with a 5-0 record, having outscored its opponents 51-11.
But that dominance ended, suddenly and dramatically, in the opener of the medal round, with a 4-3 U.S. win. Two days later, the Americans outlasted Finland, 4-2, and reached the top of the podium. How did it happen? I'm no expert -- just a hockey fan -- but I believe investors can take three important lessons from Brooks' approach:
- Emphasize hard work over sheer talent: Brooks eschewed the idea of using all-stars because he knew that the Soviets buried teams that relied only on pure talent. (Indeed, the 1980 squad destroyed the NHL all-stars in an exhibition.) So, instead, he selected a team of hungry players he knew very, very well.
- Shoot till it hurts: What's more, Brooks' style was to create lots and lots of chances, figuring that more chances would lead to more goals. It was a bold, aggressive strategy, and it was unlike anything else the Soviets had seen to that point.
- Get a great goaltender: U.S. goalie Jim Craig could be both mediocre and unbeatable. Brooks was betting on unbeatable. If he got it, he knew there were two ways he could win: Either his top lines could pepper the other team with its aggressive style, or Craig could outlast the guy in the other net. And if he got both, well, you know how that played out.
These same tactics can work well in investing. Think about it:
- Emphasize hard work over sheer talent: Warren Buffett says you should stay within your circle of competence as an investor. And that means buying only what you know well. In so doing, you'll be more likely to create an edge and earn generous returns. Ultimately, an investor who does his homework is more than a match for the smartest guy in the room.
- Shoot till it hurts: This is the core difference between growth and value investors. Value is great; getting a lot of 30% to 50% returns will make you rich. But so will just one multibagger.
- Get a great goaltender: Great stocks, especially Rule Breakers, always have multiple options for delivering outstanding returns for shareholders.
This stock is on the podium
Charly's pick of Vertex sported all three of these attributes in abundance.
First, while others were looking only at Vertex's string of losses, Charly knew that there was a better-than-average chance that its drug for treating hepatitis C would come to market and create billions in value. So far, each trial has exceeded even the most aggressive expectations for success.
Second, Vertex was virtually forgotten when Charly picked it. Skeptical investors left a low bar for the company to clear. Accordingly, any success would open the door to multibagger returns.
Third and finally, Vertex had revenue-generating partnerships with GlaxoSmithKline (NYSE: GSK ) and Novartis (NYSE: NVS ) , among others. That would allow the company to keep the lights on as it continued its revolutionary work.
And the result? Vertex has nearly tripled, making it the fourth multibagger in the Rule Breakers portfolio, which is beating the market by more than 20 percentage points as I write. (Want the skinny on the other three multibaggers? Be our guest at Rule Breakers -- it's free for 30 days.)
The Foolish bottom line
Shortly before the tragic car accident that took his life, Coach Brooks told the Minneapolis Star-Tribune that "we should always have dreams." Certainly, he wasn't talking about stocks, but I've always thought of the market as the cheapest and most effective way to create wealth and, in turn, make dreams come true.
So, when it comes to investing, play to your strengths, be controversial, and aim for the top of the podium. You'll fail along the way, of course. But you'll also win. And in doing so, give yourself the opportunity to get rich. That's a miracle any Fool can appreciate.
GlaxoSmithKline is a Motley Fool Income Investor recommendation.
Fool contributor Tim Beyers is a long-suffering New York Islanders fan. He thought Rick DiPietro was brilliant in net for this year's U.S. team. Keep it up, Rick. Tim didn't own shares 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.