Fellow Fools! Don't miss Tom and David Gardner starring in The Motley Fool's Money-Making, Life-Changing Special on PBS. It starts on March 3 and continues from city to city around the country. Pull up a chair and your favorite beverage, and enjoy the fun and learning. We can't wait!
My other announcement is that at our house a short walk from Fool Global HQ, the early spring irises -- those four-inch ones with dark purple petals -- have been up for almost two weeks. Nice, huh?
What we want
Rule Breaker investors first and foremost look for the top dog and first-mover in an important, emerging industry. We don't want the second best, and we don't want already-there industries -- they have their own investment strategies (Rule Maker, Foolish 8 Small-Caps, value, dart board investing, etc.). But we do want those important industries to emerge, and soon enough so that at least one of our risky Rule Breaker investments can bring us sufficient profit to provide market-beating returns and to compensate for losses we expect from other RB investments. Jeff Fischer has written about the problem of finding the Breaker early enough so that we don't miss huge profits.
Invest too early, and you may have zero potential to earn 10 times your investment in 5 years (10x/5y) -- truly Rule Breaker returns. Take the Internet and biotechnology. If you could have bought shares in a company using the Arpanet (the Internet's precursor) in the early 1970s, how long would you have waited before an AOL Time Warner (NYSE: AOL) appeared to offer Rule Breaker returns? Did you want to buy shares of first-generation biotech drug maker Biogen (Nasdaq: BGEN) at its 1983 IPO? Its chart shows at least six years of insignificant returns -- hardly 10x/5y. You can easily be too early.
One thing we have to watch is investing in a new technology, before companies use that technology to transform industries. It took years for the Arpanet to lead to the Internet and possible Rule Breakers such as eBay (Nasdaq: EBAY), which used the technology to transform auctions and the second-hand goods market. When the Rule Breaker Portfolio purchased Amgen (Nasdaq: AMGN), we called biotech an important, emerging industry. But by the time we bought Celera Genomics (NYSE: CRA), we realized that biotechnology was a technology, not an industry, and that both companies were using biotechnology to transform the industries of drug making and bioinformation.
On that note, I think there's a path-breaking technology worth looking at that may just now present Rule Breaking industries. Energy Conversion Devices (Nasdaq: ENER) is top dog and first-mover in not just one but six important emerging industries, based on the revolutionary technology of Ovonics.
Ovonics is the science of disordered and amorphous materials, invented by Stanford Ovshinsky, ECD's founder, president, and CEO. Simply put, Ovonics uses metals and non-crystalline materials to create alloys and new materials by engineering at the atomic level, producing materials that perform in ways previously thought impossible.
Here's an example: You may have a CD-RW drive on your computer, allowing you to "burn" compact discs. DVDs are now being produced that also allow recording. These optical media discs work because they use patented ECD Ovonics technology, and ECD is entitled to royalties on their production. ECD's invention is to coat CD-RW discs and DVDs with a thin layer of amorphous material. Light energy from a laser changes tiny pieces of the material between amorphous and crystalline states to represent digital information. The change in the digital information allows writing and rewriting on the discs and putting much more information on the discs than previously possible.
Until realization of such products as CD-RW discs and DVDs, Stan Ovshinsky endured since 1960 what record industry execs kept telling musician Frank Zappa: His work had no commercial potential. If you had bought ECD stock in 1971 (as far back as our chart data go), for example, your return today would be negative. You would have bought too early.
ECD's time to shine
But now the markets have come to the technology (as with the Internet and biotechnology). Ovonics today is an enabling technology for the following six important, emerging industries within the broader categories of alternative energy and information:
- regenerative fuel cells
- hydrogen storage (to enable hydrogen-fueled vehicles)
- nickel metal hydride (NiMH) batteries (recyclable, no memory problem as with nickel cadmium)
- rewriteable optical memory (CD-RW, DVD)
- advanced computer memory (to replace DRAM, FLASH, and field-programmable gate arrays)
How did ECD go from science fiction to products? In large part thanks to Executive Director and Chairman Robert Stempel, who joined the company in 1995 after serving as Stan Ovshinsky's business adviser for a few years. Stempel had been president and then CEO of General Motors (NYSE: GM) before retiring in 1992. His business expertise led to joint ventures with deep-pocketed partners to commercialize each of the six ECD product areas. Those partners include Intel (Nasdaq: INTC), General Electric (NYSE: GE), and Texaco (NYSE: TX), and former Micron Technology (NYSE: MU) Vice President and Chief Technology Officer Tyler Lowery. In each case, ECD contributes patents and manufacturing expertise, while the other partners contribute cash. ECD owns at least 40% of each joint venture. Today, the company has $100 million in cash, no debt, and joint ventures for every one of these six product categories.
In the coming weeks, we'll be looking at how ECD's Ovonics technology provides breakthrough products for the six Rule Breaking industries -- and what the company's web of joint ventures may deliver to investors. Meanwhile, you can learn more about the company and technology through a special website devoted to ECD developed by your fellow Fools (and from which I borrowed material for parts of this article)! Jay Reynolds (GorgemanJ) describes the site this way: "The building of the fledgling site [by Melissa Tatge] was enabled through a 'pass the hat' grassroots effort inspired by the ECD/Motley Fool community. A novel 'neural' site design was created to offer a unifying overview of ECD that would integrate its technologies and the Ovonic synergies between those technologies."
There's quite a story here, and there just may be a Rule Breaker.
Tom Jacobs (TMFTom9) is the last-mover and sleeping dog in the unimportant, derelict industry of Jacobsics. Read the prospectus before investing! He owns shares of Energy Conversion Devices, Celera Genomics, and Human Genome Sciences. To see his stock holdings, view his profile, and check out The Motley Fool's disclosure policy.