The One Thing You Must Do

You're crazy.

Yes, you. The guy in the belled cap. The one who says that it's possible to make millions from thousands by investing in common stocks. You're loony. Out there. One nickel short of a quarter. A Fool.

Wear it proudly
And ... you should be proud.

If your intent is to get rich by picking stocks, you're going to have to make bets that will make your friends, your family, and maybe even your dog question your sanity. Because great growth stories aren't obvious to the crowd.

For Warren Buffett, that day might have come in February 1973, when, in the midst of a brutal bear market, he began acquiring shares of Washington Post for Berkshire Hathaway.

For David Gardner, it might have been Sept. 9, 1997, when, in the midst of the Asian economic crisis that punished stocks globally, he bought his first shares of Amazon.com for the original Rule Breakers portfolio.

For me, it was Dec. 18, 2003, when I got called to the carpet by readers for suggesting in these digital pages that a money-losing former dot-com called Akamai Technologies (Nasdaq: AKAM  ) was cheap.

You, too, will have your day.

Now for the good news
Fortunately, the rewards for defying conventional wisdom can be huge. Consider:

Berkshire's position in Washington Post, bought for $11 million, is now worth $1.3 billion. Over 34 years, that's a 15% annualized return.

David's purchase of Amazon, acquired for a spilt-adjusted $3.24 a share, has returned 36.7% annually in the nine years and five months he's held it.

My position in Akamai, meanwhile, has tripled. If a Joe Oddlot like me can do that, you can, too.

Where to find the misunderstood multi-bagger
But you'll need to know where to start. My greatest winners were stocks whose competitive advantages were so massively misunderstood that legions of investors bet good money that they'd fail. That is, they went short.

Short sellers profit when stocks decline. To go short, as it's said, is to borrow stock from a shareholder, sell it, and then buy it back at a lower price, pocketing the difference.

Thanks to media interest in stocks that appear to have been subject to high levels of illegal naked shorting -- Overstock.com (Nasdaq: OSTK  ) and Biovail come to mind -- short sellers have earned a sinister reputation.

I think that's unfair. Most often, short sellers profit from irrationally high stock prices. Yet, even they are proved wrong from time to time. It's when that occurs that contrarian investors -- investors who used the pessimism surrounding a stock to get a great price -- get rich.

Run with the rebels
That's why David, who once earned nine years of 20% average annual returns betting against the crowd, created Motley Fool Rule Breakers. He figured that a team focused on finding misunderstood high-growth stocks would beat the market. So far, he's been right.

And we're still looking for multibaggers in the making. Firms like:

Company

Short Interest

3-Year Annualized Sales Growth

BioMarin Pharmaceuticals (NASDAQ:BMRN)

14.9%

97.5%

Conceptus (NASDAQ:CPTS)

12.1%

74.8%

Evergreen Solar (NASDAQ:ESLR)

27.2%

112.9%

Harris & Harris (NASDAQ:TINY)

14.1%

162.3%

Opsware (NASDAQ:OPSW)

14.3%

78.0%

Source: Capital IQ, a division of Standard & Poor's.

Should any of these stocks be in your portfolio? Well, nanotech financier Harris & Harris is already a Rule Breakers pick -- and two more are members of our Rule Breakers Universe watch list.

That said, there are obviously a number of folks who believe that these stocks will fail. But these companies are in the early stages of altering billion-dollar industries. Not all of them will, but those that do will earn early investors incredible returns.

The Foolish bottom line
A list of stocks with high short interest is a good place to start looking for great potential growth stories, but you have to choose your buys carefully and only after a close analysis of the business and its market opportunity.

That's what we do at Motley Fool Rule Breakers because we believe that great growth stories -- and particularly misunderstood growth stories -- can make you rich. And we want to invest in them.

Want a look at everything David and his team are buying now? Click here to get 30 days of free access to Rule Breakers. There's no obligation to subscribe.

Fool contributor Tim Beyers owned shares of Akamai and Berkshire Hathaway at the time of publication. Both Akamai and Harris & Harris are active Rule Breakers recommendations. Berkshire Hathaway is an Inside Value recommendation. Berkshire Hathaway and Amazon.com are both Stock Advisor selections. The Motley Fool's disclosure policy won't stop short on you.


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