How many times have you underestimated a company's potential? You have probably done so a lot more than you realize. Too many times it's easy to thumbtack a company against the corkboard of stagnancy based on where the entity has been rather than where it may eventually be.
Let's consider XM Satellite Radio
Yet that's exactly what pundits were doing. It doesn't make sense when you think about it. No one values a cable or satellite TV provider based on the cost of basic programming -- even if they may have at one time. There is too much meat in the premium channels and pay-per-view offerings to ignore. That's why folks who assume that the future will be a rerun of the past miss the mark.
Investing based on the past is no present
Naturally, XM picked up on the premium content angle. It expanded its offerings beyond 100 digital channels and now offers subscribers the ability to pay $2.99 more a month for Playboy
Yet that's not all. In two weeks, folks will be able to subscribe to XM Radio's 70 music channels streamed online. Satellite radio subscribers will pay $3.99 a month for this service, while those who aren't XM-enabled will be charged $7.99 a month for access to the company's commercial-free music over the Internet.
And let's not sell rival Sirius Satellite Radio
Sirius has also tested streaming cartoon videos over its satellite service. The way more cars are coming equipped to entertain the backseat kiddies, it certainly has to give a short seller pause.
Yes, Sirius and XM are putting out some bone-ugly income statements these days -- and the balance sheets aren't any prettier to look at -- but these are open-ended situations that haven't even begun to skim the surface of their potential as operating entities.
I know there isn't a saying about pigeonholing pitfalls and pigeon droppings, but there should be.
Breaking all the rules
This month we are launching our Rule Breakers newsletter, which, like Opie and Anthony on XM, is a premium service. It just won't be as loose-lipped and controversial. Yet seeking out ultimate growth stocks involves not just understanding where a young company has been but where it is going.
Every stock recommendation in the newsletter goes into the catalysts behind their potential appreciation, and that's a highly misunderstood and underrated X factor in assessing any quality upstart's rocket appeal.
How many people were caught shorting Yahoo!
Who was caught bashing Amazon.com
Shares of Netflix
Just because a buggy whip maker didn't start making automobile air fresheners doesn't mean that today's companies are incapable of adapting to change -- if not flat out steering a predictable sector into a refreshingly lucrative new direction.
Once you break the rules, there is nothing to stop you from breaking the next set of rules -- even if they were your handiwork. So what's the pitfall of pigeonholing? It's failing to look up and away long enough to dodge the pigeon droppings.
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