Invest in a steady grower with a sizable dividend yield? Boring.
Only buy a stock with a P/E lower than its growth rate? Borrr-ing.
Put your money in a bank and watch it grow at 1.2%? Painfully boring.
There has to be a better way to invest, to grow your money, to reach retirement, buy the Beemer, or make a down payment on the yacht a little faster. And is it too much to ask that you be allowed to have a little fun along the way?
Profitable, but boring
Not that there's anything wrong with dividends, bargain-priced companies, and a nice safe checking account full of cash sufficient to carry you through a rainy month. Those all have a place. But if you want to put your money in investments that are just going to bore you to tears, you might as well go with the best of all worlds -- buy an index fund and let it compound at 10.5% per year (as the market wisdom says) through capital appreciation and reinvested dividends.
Honestly, I've got nothing against that manner of investing. It doesn't take any work to own an index fund. There's little research that needs to be done -- just make sure the fees are reasonable, buy it, and forget it. Every seven years or so, your money doubles, and before you know it you've got a down payment on a new Buick.
Wouldn't you really rather have a Beemer?
So index investing offers two great "pluses": First, it's easy; second, it offers satisfying returns to patient investors. Weighed against the "minus" of inducing boredom, I think index investing is a fine choice for most investors. Before turning her nose up at it, an investor should demand two even larger pluses -- an investing strategy that:
- Offers a chance at beating the market's historical 10.5% growth and
- Is fun.
Greater than 10.5%
We all know it's possible to beat the market's 10.5% return. I doubt there's an investor in America who hasn't seen statistics like the following at one time or another:
- If you bought Wal-Mart (NYSE:WMT) in 1990, today you'd be sitting on an 840% profit -- 14% annualized returns and significantly ahead of the S&P's historical rate.
- If you bought Oracle (NASDAQ:ORCL) in 1990, you'd have a 3,000% return by now.
- Microsoft (NASDAQ:MSFT) would have turned into an honest-to-goodness 50-bagger.
Those returns are fun, sure, but it's also fun to find great businesses like these in their early days.
The secret of fun
Investing in an S&P 500 index fund means buying S&P 500 companies -- which is to say, the 500 biggest firms in the nation, whose days of explosive growth are long past. Although it's true that Microsoft may continue growing strongly for decades, its chances of turning in another 50-bag performance are slim. To do that, the company would have to grow to a market capitalization of $13.8 trillion, larger than the entire U.S. economy. Unlikely, that.
To bag the 50-baggers, you need to catch superior companies while they're young. But here's the best part: just like puppies, companies are most fun when they're young and rambunctious. Take a moment to read the description of the kinds of cutting-edge growth companies we focus on at Motley Fool Rule Breakers:
"The earth shakes when these companies are born. ... Rule Breakers bring a disruptive technology, diabolically clever and effective marketing, or a totally new business model."
Now how fun is that? At Rule Breakers, we invest in companies like jewelry e-tailer Blue Nile (NASDAQ:NILE), the very mention of which has diamond-hawkers from Zale to Tiffany (NYSE:TIF) quaking in their boots. Or Star Trek revivalist Taser (NASDAQ:TASR), whose 21st-century phasers have painted a bulls-eye on Smith & Wesson (NASDAQ:SWHC), Ruger, and the rest of the already-beleaguered gun industry. Just seven and 13 years old, respectively, Blue Nile and Taser have decades of growth ahead of them before they reach the size of their current rivals.
And in our continuing hunt for new prospects, we maintain a Rule Breakers universe list of fast-growing companies that we think have real potential. Just to give you a feel for how cool some of these businesses are, here's a quick sampling from the latest list:
- A firm that aims to leapfrog Taser by developing honest-to-goodness rayguns.
- No less than 15 companies specializing in the cutting-edge field of nanotechnology.
- Dozens of businesses engaged in life-saving biotech research, including several focusing on the fast-evolving use of stem cells.
The 21st century is an exciting time to invest, my friends, and at Motley Fool Rule Breakers, we're focused on finding the most innovative companies for your investing dollars. Even better, we're having a blast doing it. While it's not for the faint of heart, it is undeniably the most fun of all the investing styles we practice at the Fool. If you're up for it, we'd love to have you aboard for the ride. Just buckle up, grit your teeth, and sign up now for a free one-month trial.
Fool contributor Rich Smith has no position in any company mentioned in this article. Wal-Mart and Microsoft are Inside Value recommendations. Blue Nile is both a Rule Breakers and Hidden Gems recommendation. The Motley Fool's fulldisclosure policybreaks all the rules of the investing game.
