Wall Street analysts know a lot about businesses. But let's say you want to know what makes laser manufacturer IPG Photonics' (Nasdaq: IPGP ) product new and different -- and you could talk to one of two people.
The first is an Ivy League graduate with a degree in finance. She covers 30 companies in related fields and has read many reports on the industry. The other is an accelerator physicist with a degree from Stanford.
Trust superior knowledge
Whose advice are you going to take? While both are capable individuals, I'd be willing to put money on the fact that this analyst doesn't spend her spare time in a lab trying to slam together charged particles. In fact, I'd guess that the analyst would rehash some of what she read in IPG's 10-K:
Because fiber lasers are much more energy-efficient and place lower levels of thermal stress on their internal components, they have substantially lower cooling requirements compared to conventional lasers.
The accelerator physicist, however, might have a different perspective:
This really depends on the fiber laser. For similar output powers, the pump diodes will require similar cooling whether we're talking fiber or crystal (again with caveats about relative efficiency, operational modes, environment, etc.).
Regardless of whether you're now more or less interested in buying IPG after reading what the physicist had to say, you're at least now more informed. And you don't need me to tell you that information is the name of the game in this business.
Switching industries, sticking with experts
Now let's say you're an investor and you need to know if Intuitive Surgical's (Nasdaq: ISRG ) surgical robots are really going to revolutionize health care. As is custom, you might be inclined to check out an analyst report from a major investment house. Here's a report from Wachovia Capital Markets this month:
Robotic Surgery is a "win-win-win" providing benefits for the hospital (ROI), surgeon (easier surgery), and patient (better outcomes).
On the other side, let's take a look at what you might hear when you talk to a urological surgeon with decades of experience:
There are always going to be stellar surgeons and not so stellar surgeons. Within the robotic field, the hierarchy is already being established -- in the same manner as in open urologic pelvic surgery. Some of the names have been changed, that's all. ... (A patient) will still want to go to the high-volume hospital and surgeon for the best outcomes.
So what's my point?
My point is this: You could take Wachovia's word for it and assume that because Intuitive's products make life a bit easier for surgeons, every hospital is going to buy them. Or you could discover that an actual surgeon doesn't really see a huge potential for improvement in the quality of surgery because of the robots.
Again, your interest in Intuitive may not have changed, but at least you're informed. When you're interested in businesses outside your area of expertise -- say, biopharma or advanced technologies -- you need to obtain information straight from the experts. Otherwise, you're at a clear disadvantage, and that's particularly true if you're trying to decide whether innovative treatments from biotechs such as Dendreon (Nasdaq: DNDN ) and Amgen (Nasdaq: AMGN ) are going to receive FDA approval.
Consider, for example, the case of T. Rowe Price Health Sciences (PRHSX). The fund, which has 96% of its assets invested in health care, has crushed the market over the past decade, posting nearly 13% annualized returns. And where does much of that fund's intelligence come from? Fund manager Kris Jenner -- a money manager who also happens to be a medical doctor. It's worth noting that Jenner has made sizable bets on Gilead Sciences (Nasdaq: GILD ) , Cephalon (Nasdaq: CEPH ) , Genentech (NYSE: DNA ) , and Amgen -- the fund's top four holdings, making up almost 14% of net assets.
So how can you gain expertise? You could sneak into some postgraduate lecture halls, attend industry conferences, or put on a lab coat and waltz into the operating room (well, if they'll let you). Another great resource is our growing community of investors at Motley Fool Rule Breakers, where we specialize in finding high-growth stocks poised to revolutionize their industries. We have scientists theorizing about SunPower's latest solar cell, doctors critiquing Pfizer's pipeline, and engineers who can break down Cisco System's newest products.
Oh, and in case you were wondering, those expert excerpts above were taken straight from our community discussion boards.
The power of knowledge and superior returns
If you're looking at complex industries and you want to make money, it's in your best interest to consult an expert. It's the only way you can gain an edge over the widely published information that saturates the market today. Rule Breakers can help you do so. Click here to try the service free for 30 days with no obligation to subscribe.
Fool analyst Nick Kapur owns no shares of any company mentioned above and is not an expert in anything, really. However, he has quite an active presence on the discussion boards under the name TMFFlightsuit. Intuitive Surgical is a Motley Fool Rule Breakers recommendation. Pfizer is an Inside Value pick. T. Rowe Price Health Sciences is a Champion Funds recommendation. The Fool has a disclosure policy.