I lived through Hurricane Andrew in 1992. It was only the third Category 5 windstorm to make landfall in the United States, and it was a doozy. I remember waiting for the deafening gusts to subside before venturing out to see the savage destruction that the killer storm had caused. When it comes to windstorms, Category 5 is as intense as they get. When it comes to investing, growth stocks would be the market equivalent.
Growth stocks are powerful, which can sometimes be a good thing. Find the right stock on the cusp of blowing apart the landscape, and you can go from being a modest investor to a rich one in the blink of a hurricane's eye. Think of Dell
By the same token, growth stocks are volatile. I saw it when I stepped outside of my home in 1992. You can see it, too, in a portfolio ravaged by the wrong growth stocks. Planet Hollywood? 3DO? They both blew my portfolio to pieces way back when.
Bracing for the big one
Snapping up the right growth stocks is the aim of the Motley Fool Rule Breakers newsletter service. Every month, David Gardner leads a team of analysts in unearthing a couple of ultimate growth-stock ideas. When he's right, Category 5 investing can be a thing of beauty. Four of the 24 recommendations from last year have gone on to more than double. When he's wrong, the damage can be brutal. Nine of the last dozen monthly selections are sporting double-digit losses at the moment.
The key to aggressive growth-stock investing is to let your winners run. If you land that 10-bagger, it means that nine other similar investments can go to zero and you'll still have broken even.
Taking chances has led the service to single out some pretty eclectic -- if not outright eccentric -- companies. Harris & Harris
Buying into new technology is risky. In fact, both of these stocks are trading for less than they were when the companies were first recommended. That's OK. Disruptive technology may not disrupt overnight, but when it does, the upticks can come in a hurry.
I am fortunate enough to have been with The Motley Fool in the mid-1990s, when David was recommending the purchase of companies like America Online and Iomega
Andrew, 14 years later
The storms keep coming. I still live in Miami, so I've had my share of windstorms come by in recent years. Tropical Storm Beryl is dumping some lousy weather in the Northeast at the moment.
Storms continue, but so do investing ideas. This week, I've been looking at investing styles and labeling them as hurricane categories.
- Category 1 took a peek at high-yielding investments.
- Category 2 emphasized value stocks.
- Category 3 approached the merits of a balanced portfolio.
- Category 4 explored small-cap stocks.
Wrapping things up with the most powerful -- and sometimes dangerous -- basket of stocks makes sense. I'm part of the Rule Breakers team of analysts. I buy stocks in all shapes and flavors, though I'm always smitten by a good young growth stock with a great story to tell.
The only two stocks that I bought last month -- Color Kinetics
I'll probably be heading further in that direction this month. I don't fear Category 5 investing. I've seen David excel at it for nearly as long as I've been telling stories of how I made it through Hurricane Andrew.
Are you a Category 5 investor? Want to learn more to see if you are one? Give Rule Breakers a spin with a free 30-day pass to see if growth investing is right for you.
Longtime Fool contributor Rick Munarriz believes in taking chances to earn superior returns. He owns shares in Color Kinetics and Omnivision. Dell has been recommended by both Stock Advisor and Inside Value. The Fool has adisclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.