Investing, like life, is all about the advantages of being early.
- Your chances of getting your high school crush to go to the prom with you are better if you ask before the line in front of you gets too long.
- It's easier to catch a performance by a promising but still obscure band in a small local nightclub than when they are world-class rock stars touring around the world, playing to huge arenas.
- The odds were more rewarding if you had picked George Mason University to reach the Final Four last month than if you placed your bet over the weekend.
Wall Street isn't any different. If you're early -- and right -- you're going to be rich. It's just common-sense advice. The catch has always been that "and right" part of the equation. Without that, you're simply throwing darts at the small-cap stock listings.
You're better than that. Let me teach you how to aim those darts.
The early signs of success
You can sometimes tell when you've come across somebody special. Even though the line between eccentric genius and certifiable fruitcake may be fine, you can usually pick out the person who stands out in a room for all the right reasons.
It's easy. Just try it the next time you're at a party. It's not the loud and boisterous guy doing keg stands. It's not the girl by the punch bowl caked in makeup an inch thick and surrounded by drunken wannabe suitors. No, it's the person off to the corner, who still manages to mesmerize the crowd, who wins you over. We know that some people are magnetic and some are not. That's just a fact of life. The biggest oversight in the investing space is that most market watchers fail to realize that there are magnetic stocks, too.
Yes, you heard me right. A company can have charisma. A company like Google (NASDAQ:GOOG) that can create a flurry of headline scribbling with nary a sneeze is such a company. The original AOL was a lot like that, too, back in the 1990s.
Then again, those two companies may feel out of reach at this point. Google is now a $110 billion company. And AOL? You didn't hear? It got married a few years ago!
That shouldn't discourage you from spotting the new trendsetters. They're everywhere. And like Google, they sometimes have some pretty funny names.
Heard of aQuantive (NASDAQ:AQNT)? You probably haven't. It's the product of the merger between dot-com survivors Avenue A and Razorfish. For all that you might have read about a company like Google making a mint in online advertising, it's a consolidator of interactive marketing boutiques like aQuantive that should really be garnering your early-bird attention. Companies need guidance when they approach Web-based advertising, and aQuantive is an enabler. It can manage campaigns and allocate funds between the appropriate mix of search portals and site-specific campaigns. It can also help make a company's website relevant and sticky so the Internet ad budget is money well spent.
But how in demand is aQuantive? Well, this past quarter, sales and earnings were up 44% and 63%, respectively.
More than just bragging rights
The real benefit of beating the crowd is that, if you're right, the crowd will come rushing in behind you. The mob includes individual investors, institutional money managers, and jealous competitors. All three groups will eventually bid stocks up, but it's that last segment that can really ratchet up the prices in a hurry.
The Motley Fool Rule Breakers newsletter service has only been around since the fall of 2004, but by singling out promising growth stocks, it's been the beneficiary of larger rivals paying up to take out smaller upstarts. Two of the recommended stocks -- Provide Commerce and Archipelago Holdings -- have already been acquired at healthy premiums. In the case of Archipelago, it has truly been something special, as the New York Stock Exchange made a bid for the parent of the ArcaEx electronic trading exchange. Investors in Archipelago now own a 30% stake in NYSE Group (NYSE:NYX). Those who bought into the company when David Gardner recommended it 14 months ago are sitting on a whopping 289% gain.
Just recently, it was a third newsletter pick, IMAX (NASDAQ:IMAX), that announced it had received several unsolicited offers. The big-screen movie star is growing just fine on its own, but it has brought in an investment banking firm to weigh the proposals.
From biotechs with promising pipelines to dynamic companies toiling away in everything from robotics to renewable energy, the Rule Breakers team is always on the lookout for dynamic growth stocks. The companies aren't being singled out because they're buyout fodder. If it happens, it's just a rewarding exit strategy.
Spotting 'em first
You don't need to take a leap of faith. Shares of Marvel Entertainment (NYSE:MVL) could have been had for peanuts even after Spider-Man was a summer blockbuster. I bought into Netflix (NASDAQ:NFLX) in 2002, but you could have bought in when it bottomed out last year and tripled your money.
David Gardner recommended both of these stocks early in their growth cycle. The Rule Breakers newsletter wasn't around at the time, so he rewarded readers of Motley Fool Stock Advisor with his market-crushing vision.
It all seems so easy in retrospect. How many iPods did Apple have to move before you started to believe in Apple Computer (NASDAQ:AAPL) again -- 10 million, 20 million, 30 million, 42 million? The earlier the milestone, the better the price you could have paid in grabbing a slice of the Apple pie.
So don't just heave darts at the list of small growth stocks. Treat it like a fiscal cocktail party. Fish for personality and gumption. You may get burned, but if you spread your risk around, you can still make the big winners pay off. That's the way it's been for Rule Breakers. Even though the typical pick has been active for only nine months, the average gain has been a huge 32% so far. That's four times the 8% that the S&P 500 has averaged over the same time.
It's still early for the newsletter service. Yes, you can still buy early into a premium research service that's also looking to buy in early. Still not sure? Give it a 30-day spin with a free trial subscription.
Keep moving, though. Time waits for no one if you still want to go the prom, catch the hot local band, or make a mint in the NCAA tournament.
Longtime Fool contributor Rick Munarriz loves to spot great things early. It's why he's been with The Motley Fool since 1995. He does own shares in Netflix. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
