I have a confession to make. I've made a lot of money learning from some of the greatest investors of our age. You too can make a ton of cash if you practice what they preach.
For 30 years, Ralph Wanger ran the legendary Acorn Fund, returning an annualized average of 16.3% versus 12.1% for the broader market. From 1970 to 2003, a $10,000 investment in Acorn would have grown to about $1.3 million; the same money invested in the S&P index would have only turned into $400,000. Most would be envious of these very impressive results.
Wanger was known for colorful quarterly reports, a quick wit, and a sound investing style that worked well in both up and down markets. But what most don't know is that Wanger was excellent at spotting trends and investing in businesses that could profit from them.
As Wanger once explained, "Going downstream -- investing in the businesses that will benefit from new technology rather than in the technology companies themselves -- is often the smarter strategy." To borrow an old adage, "It wasn't the prospectors that made the money in the Yukon Gold Rush; it was those who sold them the picks and shovels."
Spotting the trend
In 1988, Acorn invested in International Game Technology, a downstream play on the emerging trend of modern-day computers. IGT took a simple microprocessor, combined it with an existing coin slot, called it a slot machine, and sold it to casinos for $8,000 a pop. Believing he had found a wonderful stock, Ralph Wagner bought IGT in 1988 for $1 per share. By the time it reached its high in 1993, he had made 40 times his original investment.
Great minds …
You'll find that attention to the beneficiaries of technological advances is an approach shared by Ralph Wanger and David Gardner, Fool co-founder and advisor of Motley Fool Rule Breakers.
Back in 2002, David noted strong growth in the video game industry and recommended Activision
Today's picks and shovels
In the spirit of Wanger and David's strategy of investing downstream of technology, I thought I'd share with you two stock ideas. Both of these companies stand to generate huge profits from current technological trends.
The Foolish final word
To invest like a master, take a page from Ralph Wanger and David Gardner and look downstream. You have two ideas above for further research.
Or, if you want more, our Rule Breakers team met with Immersion -- and 17 other companies -- last week during an "Innovation Tour" of Silicon Valley. To get trip dispatches and our exclusive analysis from meetings with top executives (free of charge), simply click here, enter your email address, and tell us where to send them.
Wade Michels doesn't own shares in any of the companies mentioned. Immersion is a Rule Breakers pick. Apple, Activision, and Nintendo are Stock Advisor recommendations. Microsoft and Nokia are Inside Value selections. The Fool's disclosure policy is envied by masters.