Life can only be understood backward; but it must be lived forward.
Those wise words about life from the Danish philosopher Soren Kierkegaard could equally be applied to investing. As we seek to identify the big winners of the next decade, it makes a lot of sense to take a closer look at the greatest stocks of the past decade.
When then-Motley Fool writer Tim Hanson looked at the market's best stocks in 2005 and subsequent years, he discovered that they tended to be obscure, ignored, and small. This is mostly true as well of this year's batch of best stocks, though there were a couple of notable exceptions.
Apple (AAPL 1.19%), which ranks seventh on our list of top-performing stocks over the past decade, is one huge exception, of course. Just 10 years ago, Apple had a market cap of $5.4 billion. Today, it has the No. 1 market cap in the world, and is one of the most respected and recognizable brands around. And in just the past 10 years, the company has introduced both the iPhone and iPad, two products that have transformed our culture in countless ways.
Many of the other top stocks were indeed small and obscure, however. Eight of the companies were valued below $100 million a decade ago. And four of the companies still have market caps below $1 billion, even with the remarkable returns they were able to generate over the past decade.
The market's 10 best stocks from The Motley Fool.
After looking at the list, a couple of things jump out at us. First, priceline (PCLN 2.46%) and WisdomTree (WETF +3.97%) were able to offer innovative products and services, which disrupted their industries in major ways. Learning more from Clayton Christensen, the Harvard Business School professor who is an expert on disruptive innovation, might be a wise resolution for all investors.
Secondly, boring, old energy and materials companies were well-represented on the list. This might be a good thing to remember the next time a shiny social networking IPO dominates the news coverage for several months.
Finally, when looking for the best stocks of the next decade, be on the lookout for meaningful trends. Some trends -- like the increasing use of the Internet for buying goods and services -- might be quite obvious. Other trends, however -- like the long-term shift to nitrogen fertilizers, which helped Terra Nitrogen (NYSE: TNH) make our list -- may not be so obvious.
There isn't, alas, some facile formula for finding the great stocks of the future. With discipline, imagination, and perhaps a bit of luck, it might be possible, however, to discover big winners that can turbocharge the overall returns of your portfolio.
