Last year, Kiplinger ran an article called "10 Stocks for the Next 10 Years." As investors, these articles provoke our interest -- after all, we're all trying to find the world's next Johnson & Johnson
But these days, it's hard enough to find a solid stock for the next few years, let alone the next decade. How helpful is it to look 10 years into the future?
10 picks from last decade
In August 2000, Fortune released its 10 stocks for the following decade. The magazine's portfolio included companies such as Broadcom and Viacom in the entertainment sector, and the now-defunct Nortel in communications. Out of the 10 companies the magazine chose, only one increased in value, two went bankrupt, and the rest brought pretty terrible returns. Overall, the portfolio netted a 44% drop, while the S&P 500 saw a 25% decline. Not exactly a great track record.
In February 2000, The New York Times asked 10 superinvestors (including Bill Miller of Legg Mason Value Trust) for one stock pick each -- essentially creating its own 10 stocks for the next decade. And although well-known companies such as Cisco Systems and JDS Uniphase made the list, only two stocks out of the 10 increased in value. Yet despite so many bad picks, this portfolio actually managed to deliver a whopping 33% versus the S&P 500's -18% over the same time period.
With both portfolios demonstrating terrible accuracy and poor acumen for predicting the next decade, how did the second portfolio perform so well?
The two stocks that went up in the second scenario didn't just go up -- they skyrocketed. Henry Schein, the single best performer, brought a 600% gain.
Regarding such magnificent picks, Peter Lynch has said that "one or two of these can make a career."
Making your own career
When you're ready to choose companies to hold for the next 10 years, what types of stocks will you look at? In these tumultuous times, no one would fault you for investing in dividend stocks like Verizon
However, it seems much smarter to invest in growth stocks -- companies that now look like what Green Mountain Coffee Roasters
Just think about the New York Times article. Eight out of the 10 stocks had negative returns, but it only took one home run to turn a dismal portfolio into a spectacular one. If 10 of the world's best investors only had a combined accuracy of 20% and still managed to deliver huge gains, we need to realize that it's not accuracy we're after -- it's growth.
How to plan for the next 10 years
A note of caution, though: Growth stocks are risky. You can win big, but you can lose big as well. It takes a certain type of investor to seek out growth stocks; not everyone is willing to roll the dice. If you're not that person, you can still be successful with other strategies.
But if you are that person, this is the place to be. At Motley Fool Rule Breakers, our co-founder David Gardner has been finding and recommending disruptive companies since 2004. Since then, Rule Breakers has beaten the S&P 500 by a remarkable 25 percentage points. Better yet, David's been able to deliver such amazing returns to our community through a fairly simple approach.
To put it simply, David looks for earth-shattering companies. Sometimes he picks a winner, and sometimes he doesn't. For instance, in 2007 and 2008, David recommended buying Take-Two Interactive
To be honest, plenty of Rule Breaker stocks currently aren't netting gains. But then there's Intuitive Surgical, which David first singled out in 2005. Knowing an innovative company when he saw one, David went on to recommend the company three times over. The first recommendation has amassed nearly 700%. Those types of gains are enough to wipe out any number of losses.
Sure, I could provide you with a list of the stocks I think will be great for 2020, but I'd be lying if I said they were a sure thing. I'd rather tell you which types of stocks to look for. Find an industry that has tons of potential -- our team specifically looks at nanotechnology, alternative energy, and biotechnology -- and then find a company with the ability to be a market leader and a constant innovator. If you can get in early on something like Intuitive Surgical, you'll be set for the next decade.
If you want help getting started, the Rule Breakers team is offering a 30-day free trial. You'll receive access to all of David's past and present recommendations, in addition to the five stocks he thinks are "best buys now." If being a Rule Breaker is part of your investing DNA, click here for more information.
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This article was originally published Dec. 31, 2009. It has been updated.
Jordan DiPietro owns shares of Paychex, which is a Motley Fool Inside Value choice. Green Mountain Coffee Roasters, Intuitive Surgical, and Take-Two Interactive Software are Rule Breakers recommendations. Starbucks is a Stock Advisor pick. Johnson & Johnson and Paychex are Income Investor picks. Motley Fool Options has recommended a buy calls position on Johnson & Johnson. The Fool's disclosure policy never breaks its own rules.
