There are really only two types of companies out there: the disrupters and the disrupted.
What's in your portfolio?
It's not an easy question to answer. Everyone likes to think that their stocks are the lions feasting on the gazelles. They can't even begin to fathom that the speedy gazelles may be the ones turning the tables and gnawing on the overly confident lions. It can be a costly mistake, because knowing the difference separates the market beaters from the blindsided and vanquished.
Thankfully, there's an easy exercise that will help you determine if you're holding the prey or the hunter. I call it the three-year test.
How relevant will the companies in which you invest be in three years? If you can drum up an unbiased response, you will be able to sidestep losers today and load up on winners.
Take three steps back before going three years forward
The hardest step in this exercise is actually approaching your own stocks objectively. Investors are primarily optimists, so detachment and pondering the worst-case scenario doesn’t always come naturally.
Do it, though. You want to make money -- perhaps a whole lot of money -- in this market, don't you?
Let me cut to the jugular. You may very well own Dell Computer
Dell can't return to its heyday because computing has changed dramatically. Last year's holiday hit was the netbook, an entry-level compact laptop that is cheaper and more portable than traditional laptops. Dell's a player here, but trailing a few of the Asian leaders.
Computing has also gotten even smarter, as a result of the smartphone. Checking email and performing simple online tasks like updating your Facebook status or making a stock trade can be done on the new generation of pocket-sized wireless devices. When even Palm
The third and final dagger in Dell's three-year outlook is that cloud computing is changing the way we upgrade our hardware. Since everything from enterprise software to word processing programs now come in server-stored solutions, there is no longer a pressing need for new computers with nifty spec sheets. Diehard gamers and hardcore techies may beg to differ, but they're in the minority. For better or worse, you will probably hold on to your next computer longer than your last one.
So how confident should you be buying into a company with an awesome past, a decent present, but a cloudy future? If I were you, I would seek out the companies that will be more relevant in future.
Dig for disruptors
Every company believes that no one else can build a better mousetrap. Shareholders know better. Disruptors always come along. Heck, even disruptors get disrupted. Remember when AOL owned online connectivity, and Vonage
If you want to beat the market, the first step is to stay ahead of the market. Where are the disruptors today? They're everywhere, if you know where to look. Here are four I'm eyeing:
(NASDAQ:MELI)is the undisputed champ of online marketplaces throughout Latin America. Unlike domestic virtual auctioneers that have run cold, countries like Brazil and Argentina still have plenty of upside, as the niche is still in its infancy.
(NASDAQ:HANS)is the company behind the Monster energy drinks. It is gaining market share, as soda giants have failed to make a dent in this booming industry.
American Public Education
(NASDAQ:APEI)is a leader in online education. It sets itself apart from a crowded playing field by specializing in military personnel and their families. Offering up a wide variety of degree programs is ideal, especially after members of the military finish their stints in the armed forces and hit the job market.
(NASDAQ:TZOO)is growing the reach of its "Top 20" weekly emails by expanding overseas. Unlike the travel portals that are slashing booking fees to win transactions, Travelzoo is a unique travel deals publisher, cashing in by simply promoting sponsored vacation bargains.
How did I come across these disruptors? Well, I'm one of the analysts on the Motley Fool Rule Breakers newsletter team. Two of these stocks -- MercadoLibre and Hansen Natural -- are active recommendations. Subscribers can also unearth superior growth stock ideas on the lively discussion boards, where members pick apart potential winners.
These are companies that I can see mattering a lot more in the future. They specialize in niche industries that can take down -- or revolutionize -- larger sectors. They pass my three-year test.
Sorry, Dell. You flunked with fading colors.
Join me and my fellow subscribers in sniffing out the next wave of market-thumping disruptors. I invite you to check out Motley Fool Rule Breakers free for the next 30 days. That's less than three years, but it's a great start!
Longtime Fool contributor Rick Munarriz is a fan of disruptive growth stocks and has been part of the Rule Breakers analyst team since its inception nearly five years ago. He does not own shares in any of the stocks in this story. MercadoLibre and Hansen Natural are Motley Fool Rule Breakers selections. Dell is a Motley Fool Inside Value pick. The Fool has a disclosure policy.