Be the Top Dog -- and the Richest Dog

Here at The Motley Fool, we offer guidance to investors interested in a range of investment styles, from small-cap investing to dividend investing to international and value investing. I believe in the tremendous value offered by each of these. But they don't get my heart racing as much as the Rule Breaker investing strategy does.

That might be because I've seen how powerful our most aggressive investing strategy can be. It can turn thousands into millions. It can put you into the one stock that changes everything. I experienced it long ago when my investment in America Online -- now part of Time Warner (NYSE: TWX  ) , for the time being -- ballooned from $3,000 to $210,000. I also experienced it more recently when I tripled my money in a year in Intuitive Surgical (Nasdaq: ISRG  ) , a stock I was introduced to via our Motley Fool Rule Breakers newsletter.

Intuitive Surgical has since taken away most of my gains, not being immune to our recent market meltdown. It specializes in robotic surgical equipment, and in this environment, hospitals are likely to cut back on such purchases. Still, I remain bullish on the company's long-term potential. Rule Breaker investing isn't for the faint of heart, but if you're willing to devote just a modest portion of your portfolio to it, it can reward you handsomely.

The basics
Fool co-founder David Gardner has summarized the six characteristics he looks for in Rule Breakers, and first among them is this -- the company should be:

Top dog and first mover in an important, emerging industry.

Examples abound. Think of online retailing, and Amazon.com (Nasdaq: AMZN  ) should come to mind. It was one of the first and is clearly top dog, billing itself as offering "Earth's Biggest Selection" and aiming to be the most customer-centric company around. Think of online auctions and, recent turbulence aside, eBay (Nasdaq: EBAY  ) is still the top dog, with an enviable business model that involves carrying no merchandise inventory.

Southwest Airlines (NYSE: LUV  ) was once a Rule Breaker, too, proving that at least one company can turn a long-term profit in the skies by breaking lots of rules. It eschewed the traditional hub-and-spoke routing system, for example, and decided to only fly and maintain one model of airplane.

You be a Rule Breaker
Besides the stock market listings, there's one other place you might look for a Rule Breaker, and that's in the mirror. Because if you want to make a lot of money in stocks that double, triple, quadruple, and more, you will want to be a top dog -- by being an early mover.

To make the most money on Rule Breaker stocks, you'll want to get in on them relatively early. You don't need to grab a chunk of their IPO, or even invest in their first year, necessarily. But in general, earlier is better. Check out these average annual returns from companies that started out as Rule Breakers and grew:

Company

Last 5 Years

Last 10 Years

Last 15 Years

Last 20 Years

Nike

61%

92%

688%

3,170%

Oracle (Nasdaq: ORCL  )

82%

211%

1,009%

5,113%

Cisco (Nasdaq: CSCO  )

(13%)

(29%)

1,351%

24,213%*

Amgen

(7%)

66%

772%

5,397%

Sources: Capital IQ (a division of Standard and Poor's) and Yahoo! Finance.
*Approximately last 19 years.

Clearly, investing earlier in top-dog Rule Breakers would have given you more accelerated appreciation.

So, as long as you recognize that younger, more dynamic companies can be more volatile sometimes, and as long as you're not betting your retirement on them, consider keeping one or a few Rule Breakers in your portfolio. With the economy in a recession, this is a particularly promising time to add some -- if you have the guts -- as many are rather beaten-down.

You can dig around for Rule Breakers on your own, or you can let us help you. I invite you to test-drive (for free), our Motley Fool Rule Breakers service, which will give you full access to all past issues and every previous recommendation. Headed by David Gardner, it pays special attention to cutting-edge fields such as biotech, alternative energy, and nanotechnology. Check it out to learn more.

Longtime Fool contributor Selena Maranjian owns shares of Time Warner, Intuitive Surgical, eBay, and Amgen. eBay is a Motley Fool Inside Value recommendation. Intuitive Surgical is a Motley Fool Rule Breakers selection. eBay and Amazon.com are Motley Fool Stock Advisor recommendations. The Motley Fool is Fools writing for Fools.


Read/Post Comments (2) | Recommend This Article (11)

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 June 04, 2009, at 3:36 PM, slakk wrote:

    Top dog does not always mean best dog though.

    Let's look at some top dogs...

    Microsoft- LINUX and MAC are better products

    Coca Cola- Local Detroiters prefer Faygo Cola

    McDonalds- Are you kdding? YUK!

    Fox News- The BBC and/or CBC kick their butts

    Nike- Fall apart and buy a new pair every 3 months? no way!

    Although these companies are on TOP of their industries, they may not have the best product, but they are run so that they grab the top spot of the market share. Consumers are duped into thinking that the biggest is the best, and so are smaller companies.

    Why not be the best, and charge more?

  • Report this Comment On June 04, 2009, at 7:06 PM, PauvrePapillon wrote:

    If you’re looking for a rule-breaker (and a multi-bagger in the making), take a look at the recent price action for Accuray and Varian.

    When the market (correctly) understood that CyberKnife was a truly unique and revolutionary technology, investors bid Accuray’s post-IPO shares up to an intraday high of $31.09 (9 February 2007). As Varian and others made repeated claims, in numerous press releases, interviews and conference calls, that their gantry-mounted machines could do the same thing as the robotically controlled CyberKnife, Accuray’s market cap shrank even though its economic fundamentals actually improved.

    On 6 December 2008, Accuray, finally, fired back with the release of two animated videos that effectively demonstrate what CyberKnife is and why it is fundamentally different from gantry-mounted radiation sprayers. You can see them for yourself at http://www.accuray.com.

    Since the release of Accuray’s technology differentiation videos, Accuray has taken off in one direction while Varian has headed in another.

    As of close of market today (Thursday 4 June 2009):

    ARAY is up 60.24 percent

    NASDAQ is up 22.60 percent

    VAR is down 6.61 percent

    Varian revived their misinformation campaign on Tuesday 26 May 2009 with the release of “New Jersey Doctors Now Delivering Non-Invasive, Image-Guided Radiosurgery Treatments Using Novalis Tx(TM) Technology” followed the next day with “Doctors in New Hampshire Now Treating Cancer with Non-Invasive Image-Guided Radiosurgery Using Novalis Tx(TM) Technology”, two press releases that have been challenged (by at least one physician) as “blatantly dishonest”.

    http://messages.finance.yahoo.com/Stocks_(A_to_Z)/Stocks_A/t...

    These press releases were followed by eight more articles including a major piece appearing in Barrons on Saturday 30 May entitled: “Fighting Cancer the World Over”.

    Nevertheless, 10 positive news pieces in eight trading days have not managed to revive investor interest in Varian nor reverse, or even slow down, the divergent trends of the two companies.

    Since 26 May, as of close of market today:

    ARAY is up 10.61 percent

    NASDAQ is up 9.34 percent

    VAR is up 3.81 percent

    So, even with a flurry of media coverage favoring Varian (and nothing at all to move Accuray), Accuray continues to outperform the NASDAQ while Varian continues to lag.

    Are Varian shareholders now paying the price for management’s “blatantly misleading” characterizations of its gantry-based technologies versus Accuray’s robotically controlled CyberKnife? Something is certainly going on and since 6 December 2008 is clearly the turning point, the simplest answer is… yes.

    ARAY vs. VAR

    http://finance.yahoo.com/echarts?s=VAR#chart3:symbol=var;ran...

Add your comment.

DocumentId: 913803, ~/Articles/ArticleHandler.aspx, 7/26/2014 6:28:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement