3 Big Ideas I'm Investing in Now

Value investing is easy. It's cheap, low risk, incredibly effective, and the preferred stock-picking method for some of the investing world's biggest names, including Seth Klarman, Bill Miller, Bruce Berkowitz, and of course Warren Buffett.

I heartily recommend a value strategy if you're aiming for low-risk returns while investing in individual stocks. But if you're willing to embrace turbulence in exchange for a shot at sustained, long-term gains at or near venture capital's 20% annualized, you'll have to look up from the spreadsheets and Securities and Exchange Commission filings.

You'll have to think bigger. You'll have to invest like a venture capitalist. This is what we do at Motley Fool Rule Breakers, and it's earned us the top spot among investing newsletters ranked by the Hulbert Financial Digest with a 14.8% average annual return over the past five years, roughly 11 points a year better than the overall market.

How venture capitalists inspire me
A few weeks ago, my friend and Rule Breakers teammate Rick Munarriz offered up three strategies for earning high returns over time. Today, it's my turn to chime in, but instead of giving you strategies, I'm going to touch on three themes that I think are investment-worthy.

If you've read much of my recent coverage, you know that I'm a big believer in the sort of thematic investing that characterizes venture capital. Here's a look at what's been on my mind lately:

  • I'm following Boingo Wireless (Nasdaq: WIFI  ) because I believe that existing telecom networks will be unable to handle an exponential rise in data traffic.
  • I'm following soon-to-be-public HomeAway because I believe timesharing has outlived its usefulness for vacationing families that prize flexibility.
  • I'm following Facebook because I believe there's a war brewing over how software should be developed. Nothing less than the future of well-known computer operating systems is at stake.

My approach is to look for patterns of disruption and then invest as early as possible, knowing that the early investor is most likely to realize the greatest long-term returns when the intent is to hold for an extended period of time (a decade or more, in some cases).

Where the volcanoes are
I particularly like all three of the opportunities you see above, but I also think of them as low-hanging fruit. Each company is well-known if a little misunderstood. The opportunities they're tapping into are well-defined and should help to produce outsized returns for today's investors. You might even see one or more of these businesses appear on our Rule Breakers scorecard.

But I promised you more than low-hanging fruit. I promised Big Ideas. Here are three I'm looking at right now:

1. Social commerce
Sometimes we call it word of mouth. Other times we call it authentic marketing or even permission marketing. Whatever you want to name it, testimonials are the most powerful form of marketing. Yahoo! (Nasdaq: YHOO  ) coined the term social commerce in 2005 to describe the idea of using social media to help distribute testimonials, but I think we're past the point where tweeting user ratings is novel.

But that doesn't mean the idea of social commerce is dead. Imagine a Facebook group created solely for the purpose of seeing a certain film or finding the best organic food deals. Wouldn't retailers, producers, etc. want to engage with that group? What mechanisms would they use? How would couponing work? Facebook may very well be the best tool for these ad-hoc gatherings, but if consumers' loathing of broad-based TV advertising is any indicator, the overall marketing process is ripe for further disruption.

2. Content independence
This one's obvious, right? Consumers and businesses alike are increasingly drawing content from different sources, whether the content is work or entertainment themed. We can blame the rise of mobile apps and cloud computing for the shift.

Consider Dropbox and Box.net. These services are really nothing more than online storage closets. But using them gives consumers and business users the flexibility to work from a variety of devices and operating systems. I've begun documents on my Android tab that I went on to finish on my Mac laptop.

Similarly, Netflix (Nasdaq: NFLX  ) has created apps for a variety of platforms while handling streaming synchronicity via its cloud-based servers. Start a movie on an iPhone and finish it using the Wii connected to the living room TV? It's not only possible, it happens all the time.

As an investor, I'm betting this "Netflix effect" will become common and that Google (Nasdaq: GOOG  ) with Docs, Google TV, Google Books, and YouTube will lead the effort to bring cloud synchronicity for every type and style of content, making devices nothing but small servers. Facebook also has an interest in enabling this shift.

3. Clean skies
Airlines are awful businesses. As an investor you could gripe about any number of things: inept management, ludicrous labor strife, weather, massive capital requirements, and so on. But all these issues are dwarfed by the perpetual problem of fuel. Rising oil prices always lead to sinking airline profits.

Fortunately, some innovators are beginning to take action. Privately held biofuel manufacturer Solena Fuels came away from the Paris Air Show with tentative agreements to supply some of the nation's largest carriers, including AMR Corp.'s (NYSE: AMR  ) American Airlines and United Continental Holdings (NYSE: UAL  ) . Boeing has also demonstrated a willingness to manufacture biofuel-ready jets.

But there's a huge difference between goodwill gestures meant to appease the green movement and building a value chain capable of delivering millions of gallons of aircraft biofuel. Producers capable of scaling up to meet demand are required, a role that newly public Solazyme (Nasdaq: SZYM  ) may be equipped to help fill.

So those are my three ideas. What big innovations are you betting on now? What industries would you like to see change, and how would you change them? Please weigh in using the comments box below. And if you're in the mood for even more ideas click here for a copy of a new report that features five stocks the Fool has bet real money on. Produced by five of our top equity analysts the report is 100% free for the asking -- click here to get it now.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He owned shares of Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Yahoo! and Google. Motley Fool newsletter services have recommended buying shares of Netflix, Google, and Yahoo!. Motley Fool newsletter services have recommended buying puts in Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (13) | Recommend This Article (74)

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 24, 2011, at 8:43 PM, Charbroil121 wrote:

    Obviously, it makes sense for investors to take macroeconomic and societal trends into consideration in making their decisions, but I question the idea that value investing automatically implies low returns. What about Warren Buffett's statement that he could make 50% yearly returns investing in undervalued micro-caps or Benjamin Graham's argument that any ordinary person could make 20% a year investing in net-nets (http://greenbackd.com/2008/12/01/about-liquidation-value-inv...?

    Even discounting those extreme examples, there have been plenty of stockpickers who've made 15-20% annually buying undervalued companies which nevertheless aren't microcaps. After all, the studies show that low P/B companies as a group outperform growth companies over longer periods of time.

  • Report this Comment On June 24, 2011, at 9:19 PM, TMFMileHigh wrote:

    @Charbroil121,

    Nor do I don't question the historical data that demonstrates the extraordinary success of a value strategy.

    What I'm suggesting is that investors also consider the historical record of high-growth investing. 20-year venture capital returns exceed 25% annualized. David Gardner's 10-year real money Rule Breaker port return was above 20%.

    FWIW and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On June 25, 2011, at 4:11 AM, YiLan wrote:

    "Nor do I don't"? What?

  • Report this Comment On June 25, 2011, at 7:57 AM, TMFMileHigh wrote:

    @YiLan,

    >>"Nor do I don't"? What?

    Ugh, thanks for pointing that out. Seems my brain was moving too fast for my fingers. The phrasing should be: "Nor do I question ..."

    My apologies for the typo and Foolish best,

    Tim (TMFMileHigh and @milehighfool on Twitter)

  • Report this Comment On June 26, 2011, at 2:09 AM, hungrybrain wrote:

    Well, Bruce Berkowitz is loading up on C, BAC, MS and AIG big time and Buffett's on BK--so none of these are big buy Stock advisor picks from the fools?MA , V ? NO? Please explain why u disagree with Berkie a man who didn't buy ENR last year. http://nietzschesportfolio.blogspot.com/

  • Report this Comment On June 27, 2011, at 1:47 PM, BaroqueNoMonet wrote:

    what i have learned from motley fool,if you want the numbers in your portfolio to be green not red do your own research,read everything you can on what ever you are investing in.not from one source,don't jump into anything before you do your homework.all this reading kinda sucks but losing money sucks more.

  • Report this Comment On June 27, 2011, at 2:13 PM, pastreet wrote:

    As a pilot, I can say that bio fuels will likely be an excellent investment over the long term. Jets will never become solar powered... they will always need jet fuel, and as the costs rise, the industry will be forced to adapt.

    Pat

    www.compoundingreturns.com

  • Report this Comment On July 01, 2011, at 3:43 AM, akeagle52 wrote:

    Take a look and research uuraf, Ucore Rare Metals. It looks like this company is in a excellent position to be a major supplier to the United States of heavy Rare Earth Elements in the next three to five years. sf

  • Report this Comment On July 01, 2011, at 7:30 PM, gratrent09 wrote:

    I'm a little concerned about the advice this site is giving. Upon reading the above article at the bottom of the article it said "And if you're in the mood for even more ideas click here for a copy of a new report that features five stocks the Fool has bet real money on. Produced by five of our top equity analysts the report is 100% free for the asking." On this same page under the heading Most Popular Articles the 3rd article is title "Time to Quit Big Tobacco Dividends."

    I read both articles and they are totally opposing views so what is their recommendation?

  • Report this Comment On July 01, 2011, at 8:05 PM, Seathrun1 wrote:

    This community of Fools is a Motley bunch, each with his or her own opinion. Sometimes it's helpful to see more than one point of view, then use our own brains to decide what's best for our own portfolios.

  • Report this Comment On July 02, 2011, at 8:07 PM, sydneysendai wrote:

    Investors appear to be overlooking the fact there were over 1000 orders for commercial aircraft placed at the recent Paris airshow. The average Boeing 737 seats approximately 130. If we assume this to be an average per aircraft (some were larger some were cargo) that"s 130,000 new seats required. BE Aerospace (BEAV) largest product, by volume, is aircraft seats. BEAV is doing quite well recently, but analysts never seem to realize this componenet of the business.

  • Report this Comment On July 04, 2011, at 5:14 PM, IkeDuke wrote:

    More than the article itself, i like reading people's opinions, guys keep up the good work! Thanks!

  • Report this Comment On August 05, 2013, at 1:55 PM, barbie15fletcher wrote:

    Timeshares need to be looked up as a purchase and not an investment. Regardless of how timeshares are presented, they don´t perform as well as a house or stock investment. If you look around the resale market for timeshares on websites like EBay, Redweek, or TUGBBS will find that you can buy a timeshare for far less money than what the first owner purchased it for. These are good articles on how to use timeshares properly:

    http://www.timesharescam.com/

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