Were some rules meant to be broken? And can breaking them make you massive amounts of money?
Yes. And quite possibly.
Thou shalt not steal
Sure, stealing might score you some quick cash, but breaking this rule will probably just land you in jail. Do not pass go, do not collect $200.
But then there's this one: Stocks have an intrinsic value based on the present value of future cash flows.
Ignore this rule, and you may well find yourself with a portfolio full of companies like Google
While future free cash flow is an indicator of a company's financial viability, remember that it's only an estimate. There are just too many variables that can drastically change those projections.
Think about Apple
As Motley Fool co-founder David Gardner insists, "Every company has multiple futures that will translate to one actual figure based on management's strategic choices, brand strength, and external factors like competition."
After two decades of observing businesses and the market, David has learned that although the average blue chip has only two or three futures, the average mid-cap has three to five. Meanwhile, the stocks he picks for his Motley Fool Rule Breakers growth investing service average somewhere between eight and 20.
Good question. You see, a company's overall future cash flow becomes difficult to predict when there are many different streams by which cash flows into a company.
So, analysts and investors who stick to the rules often end up turning their backs on dynamite breakout companies with the potential for huge returns -- instead opting for predictable cash cows whose best years are behind them.
Consider big-name companies such as Wal-Mart
So how exactly can breaking rules make you money?
Well, there are educated Fools out there who take calculated risks, break some rules, and end up uncovering the amazing investment potential of companies such as Akamai Technologies
Both have returned more than 250% since they were recommended in Rule Breakers two years ago.
Of course, the case of Archipelago looked more like rule bending than rule breaking, since its cash flow was respectable -- but not exceptional. Nonetheless, it did what all Rule Breakers picks are designed to do: Make you money, and lots of it.
Neither Paul Elliott nor Austin Edwards owns any of the stocks mentioned. Akamai and NYSE Euronext are Rule Breakers recommendations. Wal-Mart and Home Depot are Inside Value choices. The Motley Fool has a disclosure policy.