I Can Make You Rich in 3 Years

There are really only two types of companies out there: the disrupters and the disrupted.

What's in your portfolio?

We all like to think our stocks are the lions feasting on the gazelles. We can't even begin to fathom that the speedy gazelles may be the ones turning the tables and gnawing on the overly confident lions. Failing to take that possibility into account can be a costly mistake, because knowing the difference separates the market beaters from the blindsided and vanquished.

Thankfully, there's an easy exercise that will help you determine whether you're holding the prey or the hunter. I call it the three-year test.

Put simply, ask yourself this: How relevant will the companies behind your investments be in three years? If you can drum up an unbiased response, you will be able to sidestep losers today and load up on winners.

Take three steps back before going three years forward
The hardest step in this exercise is approaching your own stocks objectively. Investors are primarily optimists, so the art of detachment, along with pondering the worst-case scenario, is not entirely natural.

Make the effort, though. You want to make money -- perhaps a whole lot of money -- in this market, don't you?

Let me cut to the chase. You may very well own GameStop (NYSE: GME  ) -- it's one of the rare retailers that thrived over the telltale holiday season. It's been posting healthy profit growth. Comps -- the feast-or-famine metric in the retail space -- have grown consistently higher. Now, can you honestly explain to me how the market leader in video-game retail will be as relevant in 2012 as it is in 2009?

Sure, the fundamentals appear sound today. The valuation is certainly attractive. However, this year alone we find the country's largest standalone toy store and the world's leading online retailer entering the used-game resale market. Used games make up GameStop's highest-margin business. You also have software developers such as Take-Two Interactive (Nasdaq: TTWO  ) -- the company behind last year's best-selling video game -- ready to deliver premium installments of its Grand Theft Auto IV juggernaut directly to Xbox owners. In short, physical retail is being gradually replaced by digital delivery.

So how confident should you be buying into a company with an awesome past and a decent present -- but a cloudy future? If I were you, I would seek out the companies that will be more relevant in time. Clearly there will be bigger opportunities for the video-game developers and console manufacturers as they cut out the middlemen.

Dig for disruptors
Every company believes that no one else can build a better mousetrap. Shareholders know better. Disruptors always come along. Heck, even disruptors get disrupted. Remember when AOL owned online connectivity, and wheeled Heelys (Nasdaq: HLYS  ) were the footwear of choice? Speedier AOL alternatives and a fashion shift away from bumps and bruises turned the hunters into the hunted.

If you want to beat the market, the first step is to stay ahead of the market. Where are the disruptors today? They're everywhere, if you know where to look. Here are four I'm eyeing:

  • iRobot (Nasdaq: IRBT  ) is revolutionizing the battlefield with its all-terrain recon and bomb-sniffing robots. It's also doing just fine closer to home, with its Roomba vacuum-cleaning automatons.  
  • First Solar (Nasdaq: FSLR  ) is one of the leaders in transforming sun rays into solar energy. If you don't see this as a more popular energy form in the future, you need to get out more often.
  • Akamai (Nasdaq: AKAM  ) is the undisputed champ among content-delivery networks. Akamai helps speed up the secure delivery of media files, software updates, and Web pages.
  • Sirius XM Radio (Nasdaq: SIRI  ) appeared to be heading for Chapter 11 bankruptcy three months ago, but it's hard to ignore a growing leisure service with 19 million paying subscribers. It is padding its coast-to-coast satellite-radio coverage by beefing up its Internet radio offerings, which is where the technology is ultimately heading.

How did I come across these disruptors? Well, I'm one of the analysts on the Motley Fool Rule Breakers newsletter team. Two of these stocks -- Akamai and iRobot -- are active recommendations. Subscribers can also unearth superior growth stock ideas on the lively discussion boards, where members pick apart potential winners.

These are companies that I can see mattering a lot more in the future. They specialize in niche industries that can take down -- or revolutionize -- larger sectors. They pass my three-year test.

Sorry, GameStop. You flunked with fading colors.

Join me and my fellow subscribers in sniffing out the next wave of market-thumping disruptors. I invite you to check out Motley Fool Rule Breakers free for the next 30 days.

Already subscribe to Rule Breakers? Log in at the top of this page.

This article was originally published on March 3, 2009. It has been updated.

Longtime Fool contributor Rick Munarriz is a fan of disruptive growth stocks and has been part of the Rule Breakers analyst team since its inception nearly five years ago. He does not own shares in any of the stocks in this story. Take-Two Interactive, Akamai, and iRobot are Motley Fool Rule Breakers selections. GameStop is a Stock Advisor pick. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (31)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 04, 2009, at 5:50 PM, ozzfan1317 wrote:

    I used to be a Shareholder in Sirius. Part of me regrets selling and the other part still thinks the company is doomed. I am tempted however to pick up some Liberty media stock since if sirius survives they stand to benefit greatly.

  • Report this Comment On May 04, 2009, at 9:48 PM, SekouMurphy wrote:

    There's a lot of talk about Amazon, BestBuy and even Toys-R-Us fighting for GameStop's trade-in business.

    I don't think Amazon would be a strong competitor because the kinds of people that trade in video games are hardcore gamers, GameStop's customer base. Amazon's customers are likely to be casual games, who probably wouldn't be trading games. Same holds true for BestBuy and Toys-R-Us.

    So I don't think they'll be much of a customer shift away from GameStop.

    There's a lot that goes into doing trade-ins, including pricing, demand and inventory management. Among the three, I'd rate Amazon as having the best chance, since they have the database of what used games are bought and sold. BestBuy and Toys-R-Us just don't have this expertise. Still, I don't think Amazon crosses customer bases well with GameStop.

    Here's a blog about this for more.

    http://phrenzie.com/2009/05/04/gamestop-v-amazon-bestbuy-toy...

  • Report this Comment On May 05, 2009, at 8:23 AM, AGCAPS wrote:

    So I have 5K what do you recommending?

    I would like to be rich in 3 years, retiring from my job and travel with my wife.

    Am I a challenger?

    Want you be my broker?

    Are you so optimist that by writing this article and make people believe they can be rich in THREE YEARS

    If you can’t pledge what you write do not do it and be honest.

    If you thinking you are up for my challenger just email or write back I will be glad to fallowing your advice.

  • Report this Comment On May 06, 2009, at 5:20 PM, DaytonFlyers wrote:

    AGCAPS- Get a Life, its just the title of the damn article, no where in the article does it say anything about getting rich in 3 years

  • Report this Comment On May 06, 2009, at 5:23 PM, automaticaev wrote:

    all you have to do is sign his contract and you will surley be rich!!!!!

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