"The past does not repeat itself, but it rhymes."
-- Mark Twain
I'm with the good Mr. Twain on this one. While the past may not be a perfect model for the future, there's a heck of a lot we can learn by being students of the past. This is definitely true when it comes to investing.
With this in mind, I sat down with a nice, big mug of coffee and a list of the top performing stocks with a market cap of $250 million or more over the past 10 years to see if I could pull out some helpful hints for those looking to bag the next decade's monster stocks.
Before I start, though, let me be clear about one thing: These are not meant to be safe, conservative investment tips. While many of these can be adapted to a conservative strategy, I wrote them with big swings in mind. Picture mighty Casey taking powerful hacks at the ball -- if he connects, that ball may end up in the next state, but there's also the very real possibility that he strikes out.
1. Be at the front end of a massive trend
Many of the best performing stocks of any time period are part of some massive trend that carries an entire industry or multiple industries. The bubble notwithstanding, investors that have been in on the best of the computer- and Internet-related businesses over the past couple of decades have done quite well.
More recently, we've seen a major boom in commodities. One particularly notable area has been in crop nutrients. This helped Sociedad Quimica y Minera
While there may still be some juice left in the fertilizer run, the really massive gains have likely already been banked. However, investors that can see the next massive trend and get on it early (and hang on!) could put themselves in line for tremendous returns.
2. Look where others aren't
Between July 2001 and July of this year, Bancolombia
But who was talking about Colombia back in 2001? Heck, who's talking about Colombia today? If you look in places that other investors aren't, you stand a much better chance of finding great bargains.
3. Find a winning strategy and management capable of delivering
To some extent, you would have had to predict the future to really know the massive success that Apple
However, by the end of 2001, it had launched the iPod and was talking about its "digital hub" strategy that would seamlessly tie digital music and other peripheral devices to the PC. While big ideas like that may often be of limited value on their own, Apple was captained by Steve Jobs who had the vision, creativity, and leadership to actually make it happen.
To be sure, great management or not, companies with grand visions don't always deliver. But if you find a company with both -- vision and leadership -- then there's a much better chance for a big homerun.
4. Look small
If you want really massive returns, it's unlikely that you're going to find them among mega-cap or even large-cap companies. Among the top 10 performers of the past decade, Apple was the largest with a market cap of $8.1 billion in July 2001. Seven of the top 10 performers had market caps below $1 billion.
5. Believe in dividends
BP Prudhoe Bay Royalty Trust
Interest in dividends has seen a renaissance of late, and I hope that continues because a solid dividend policy can juice returns in a major way.
6. Be willing to pay for growth
As painful as this is for a value investor like me to say, if you want to be in on some of the absolute best performing stocks, you may have to pay what looks like a high price.
Cognizant Technology Solutions
7. Buy ugly and get lucky
For anyone that bought Netease's
In mid-2001, the stock had fallen hard and may have looked cheap, but the company was working on what would be a hefty loss for the year and it hadn't quite figured out what would be its way out of the mud -- at the time it was trying out a whole mess of fee-based, Internet-related services.
To be sure, there was still money to be made after the company had found that a good business could be made offering massively multiplayer online role-playing games -- Rule Breakers subscribers have seen shares climb nearly 275% since the early-2005 recommendation. But while that may sound good, the stock has returned close to 14,000% since July 2001.
And to get those returns? Well, let's just say sometimes Lady Luck may have a lot to do with it.
You can kick off your search by exploring a major trend (remember No. 1?) that my fellow Fools think will scare the pocket protector right off of Bill Gates. Dive in with this free video.
The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Netease, Sociedad Quimica y Minera, and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. 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.
Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.