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 Adobe
By the same token, growth stocks are volatile. I saw it when I stepped outside 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. Half of this year's picks 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 such as America Online, Iomega, and Amazon.com
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. By the time you read this, Hurricane Ernesto may be gone, but it is barreling awfully close to my homestead at the moment.
Storms continue, but so do investing ideas. Last month, I looked at investing styles and labeled them like 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.
Oh, they do tell stories. It was easy to snuggle up to Intuitive Surgical
I'll probably be heading further in that direction in the coming weeks. 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.
This article was originally published on July 21, 2006. It has been updated.
Longtime Fool contributor Rick Munarriz believes in taking chances to earn superior returns. He does not own shares in any of the companies in this story, since he sold Intuitive Surgical last year and Baidu.com earlier this year. Amazon.com is a Stock Advisor recommendation. iRobot and Harris & Harris are Rule Breakers selections. The Fool has adisclosure policy.