This article was updated March 18, 2016.
Some of the world's best investors, including Warren Buffett, say you should invest in companies that are unlikely to change much or face disruption by innovative upstarts. Think of slow-moving stalwarts like Coca-Cola and Wal-Mart Stores, which have dominated their respective industries for decades and won't be going anywhere soon.
But if you want to find stocks with the potential for explosive growth, you need to look for companies that are poised to disrupt their entire industries and even change the world for good.
In the video below, David Gardner, co-founder of The Motley Fool, discusses the top two qualities of Rule Breaking investments. A full transcript follows the video.
David Gardner: Hi, I'm David Gardner, Chief Rule Breaker here at The Motley Fool. When we talk about Rule Breaking stocks and Rule Breaking Investing, I often like to think in terms of companies that have many possible futures.
The greatest investor of our time, Warren Buffett, typically looks for the opposite. He looks for companies with one future. For example, See's Candies, or insurance; these are businesses that are going to look a lot like they do now 30 years from today.
By contrast, we Rule Breakers are often looking for companies like Amazon.com, which starts off as an online book-seller and becomes one of the largest retailers and cloud service companies in the world today, about 30 years later. When you think about that -- think about the different evolutions and all that Amazon has become -- I think it comes down to two things that we look for.
First of all: Do you have visionary people in place who recognize the possibilities? And beyond just being visionary, can they deliver those possibilities? There's Jeff Bezos at Amazon, or Reed Hastings, who took a company that was DVD mailing and made it into an Internet streaming company that also produces its own content today.
When we interviewed Reed Hastings about 15 years ago, he said, "I didn't call this DVDsByMail.com." Again, No. 1: Do you see the people that have the vision?
Then No. 2: Often it is in the name. Amazon was not onlinebooks.com, and certainly Netflix was not DVDsByMail.com. I hope that Rule Breaking thought is helpful. Fool on!
Disclaimer: As always, people on this program may have interests in the stocks that they talk about, and the Motley Fool may have formal recommendations for or against. So, don't buy or sell anything based solely on what you hear. Learn more about Rule Breaker Investing at RBI.Fool.com.
