How to Lose $30 Million

In the 1985 movie Brewster's Millions, Richard Pryor plays a relatively ordinary guy who learns that a wealthy uncle he never knew has just died, and that he stands to inherit a whopping $300 million -- if he can spend $30 million in 30 days. Among other restrictions, he can't tell anyone about his situation, he can't give it all to someone else, and he can only devote a small percentage to charity and gambling. As much as I enjoyed the movie, I find it hard to belive that anyone in real life would have so much trouble losing money.

Hard to lose
If I were Brewester, I could lose a lot of money in a hurry via ill-advised investments in the stock market. Penny stocks, trading for a few dollars or pennies per share, are frequently time bombs. They tend to float relatively few shares, and they're extra-susceptible to fraud. For example, in pump-and-dump schemes, some dastardly sort buys shares, hypes them so that others buy and the price soars, then quickly dumps them before they implode, wiping out the suckers who fell for the hype.

Alternatively, I might zero in on stocks in which smart investors have little faith, via our CAPS service. The following companies have earned just one star in our community intelligence service, for various reasons that you can read about in their CAPS Comments sections. (Star Scientific, for example, is locked in a legal battle with Reynolds American, while Research In Motion is facing competitive pressure and appears overvalued.)

But even if, as predicted, these turn out to be poor investments in the near future, they may not implode within the required 30 days -- the stock market just isn't that predictable over the short term.

The flip side: gaining $30 million
Of course, let's face it -- few of us are really interested in losing gobs of money. Most of us would like to make gobs of money. If you're in that camp, you're in luck; I think it may actually be easier to make money than lose it in the stock market. Invest in a simple broad-market index fund, for example, and over the long haul, you'll likely earn an annual average of 6% to 10%.

Notice that I used the words "the long haul." That's because, if we really want to be rational and profitable investors, we'd better focus on the long haul, not the coming weeks or months.

Of course, you can also do better than 6% to 10% if you're willing to focus on the long haul. How? Well, I'd recommend looking for some exceptional companies (with healthy balance sheets, rapidly rising sales and profit margins, and strong competitive positions) that are first-movers in important, emerging fields.

Those are the types of investments our Motley Fool Rule Breakers team seeks out. The members of our growth-stock newsletter service ask themselves five questions to make sure that each stock they recommend is the best of the best:

• What is the stock's market cap potential in five years?
• What is the probability of that happening?
• How strong is the company's branding position?
• How strong are its core values?
• How abundant, and how strong, is its competition?

It's a simple framework, sure. But it's helped Rule Breakers recommendations return 20.2% on average since the newsletter's inception, against just 16.5% for the S&P 500.

Bigger returns
Interested in those higher returns? Consider investing a modest chunk of your money in our Rule Breakers companies. You can join our service free for 30 days and read all of our research on promising companies from fields as diverse as alternative energy, nanotechnology, biotechnology, and the Internet. It can take a little time for emerging new offerings to really blossom, but for those of us without the benefit of a rich, deceased uncle, the potential rewards can make that patience warranted.

A brand-new issue of Rule Breakers releases at 4 p.m. ET today. Click here to see the two newest picks with a 30-day free trial.

Longtime Fool contributor Selena Maranjian does not own shares of any company mentioned. For more about Selena, view her bio and her profile. The Motley Fool is Fools writing for Fools.