Making a Million Over Coffee

Maybe it was my Catholic upbringing. Maybe it was my no-nonsense parents. Whatever the case, I've always been more of a rule follower than a rule breaker.

So why, then, am I such an enthusiastic advocate of our Motley Fool Rule Breakers service? Because the Rule Breaker strategy of identifying great companies early and holding them for the long term is the best way I know of earning huge returns. To see how, let's consider the instructive example of Starbucks (NASDAQ:SBUX) and the Three Stooges.

Starbucks and the Three Stooges
Imagine it's the summer of 1992 and you've just received an inheritance of $100,000. You decide to invest in the stock market for the very first time. To better your chances, you buy a newsletter called High-Growth Investor 1992, and you allocate your money in the following stock picks from the newsletter:

• Larry's.com
• Curly's Computers
• Moe's Tech
• Starbucks

After one year, your four-stock portfolio has lost 16%. Three of your four stocks were from the rapidly growing technology sector, but they performed poorly nonetheless. The market punished them when they failed to deliver on their bold promises. Fortunately for you, the flier you took on that obscure coffee company out of Seattle prevented a total meltdown in your portfolio.

A passive strategy of investing in the S&P 500 would have earned you a return of $9,000 (9%) during the same period, so you're understandably a bit disappointed with your initial foray into the markets. Maybe this whole investing thing isn't for you. However, you decide to hang in there.

And today, in May 2006, you're glad you did. Alas, three of your companies went bankrupt over the past 13 years, but one of those picks, Starbucks, has more than made up for the failure of the others.

So Starbucks and the Three Stooges would have made you a millionaire over the past 13 years. Just like Larry Bird and four other guys putting Indiana State into the NCAA championship game back in 1979.

Swinging for the fences
At Rule Breakers, the mission is to find the next Starbucks, although that's hardly the only company that makes the point. Had you chosen General Electric (NYSE:GE) instead of Starbucks in your hypothetical portfolio, you would have earned $179,540. ExxonMobil (NYSE:XOM) instead of Starbucks? $155,703. And Yahoo! (NYSE:YHOO) instead of Starbucks? An impressive $619,758.

We're not looking for value or dividends or turnarounds. In the words of David Gardner, the lead analyst for Rule Breakers, we're looking for the greatest companies of the current (evolving to next) generation.

This is a tall order, and there will be some stooges along the way. But the discovery of just one great company will make it all worthwhile. To paraphrase Mickey Mantle, we're not just looking to hit home runs in clutch situations; we're looking to hit home runs with every swing of the bat.

Improving the odds
Isn't it all a matter of luck finding the nextMicrosoft (NASDAQ:MSFT) before it becomes prohibitively expensive? The answer is a resounding no. We think that with hard work, you can discover the great companies long before conventional wisdom gives them its blessing. And David Gardner has a track record, having touted Amazon.com (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) in writing -- at a time when the experts were laughing at these companies.

David and his team of analysts have continued the trend: the Rule Breakers recommendations are up 21% on average, and they're beating the market by 13.5 percentage points. We provide a scorecard in order to hold ourselves accountable for all picks, baggers and laggers alike. But picking Rule Breakers isn't about watching a scorecard, is it? How many Red Sox fans (just one last sports metaphor, I promise) remember that Johnny Damon batted .171 in the 2004 American League Championship Series against the Yankees? Now how many fans do you think remember the two homers (one of which was a grand slam) he hit in Game 7 of that series? Many of our selections, particularly in the biotech and nanotech areas, have a long-term investment time frame and can be quite volatile in the short term.

CNBC in 2016
Ten years from now, a group of CNBC analysts will be sitting around talking about how this or that company defied all the odds and became a world-beater stock. And I'm confident that some of those world-beaters will have been identified long before by one of our Rule Breakers analysts. Curious to see what they're looking at now? Take a risk-free 30-day trial to Rule Breakers. You're under no obligation. I promise.

The conventional wisdom crunches some numbers and then reports back that it's folly to predict the future. We disagree. Sure, no one can accurately see the future, but you can certainly make informed predictions about who will succeed and who will fail. Yes, we respect the numbers, but we also know that the present has much to teach us about the future. As the great poet William Wordsworth once wrote, "The child is the father of the man."

This article was originally published Jan. 20, 2005. It has been updated.

John Reeves owns shares none of the companies mentioned in this article. Starbucks, Amazon.com, and eBay are Motley Fool Stock Advisor recommendations. Microsoft is anInside Valuepick.The Motley Foolhas a disclosure policy.