I'm guessing that -- like me -- you didn't buy shares of Microsoft (NASDAQ:MSFT) when it went public in March 1986.

And so, unlike Bill Gates, you're not enjoying your cumulative 31,338% return and an early retirement.

I'll similarly bet that -- also like me -- you didn't purchase shares of Amazon.com (NASDAQ:AMZN) when it IPO'd in 1997, which has brought investors a return of just 4,588% through 2007.

Oh, well
We could easily sulk over what we could have done in the past, but that won't help us get rich. Those specific opportunities are long gone.

But there are plenty more where those came from, right? And we're wise to look several steps into the future -- and find the companies that could become "the next Microsoft," right?

Or not
If you're looking for the next Microsoft or the next Amazon.com, you're making a mistake.

Yes, the next technology disrupter will make early investors wealthy beyond their wildest dreams.

But for every company that makes a substantial technological leap, countless others end up being mere fads and, worse yet, wind up costing the early, passionate investors a lot of cold, hard cash. To be blunt: The odds of finding the next Microsoft are against you.

Case in point …
Remember Iomega?

This highflier burst onto the tech scene in the mid-1990s with its proprietary Zip drives, boasting the storage capacity of a hard drive with the portability of a floppy disk. Many investors believed this company was the next hot thing -- and they shot the company's market capitalization as high as $6 billion in 1996.

Fast-forward to 2008. I don't know about you, but I can't remember the last time I've seen a Zip disk carried into a meeting. And the stock? The only breakthrough here is that the company was recently purchased by EMC (NYSE:EMC) for $213 million. (From 1997 to 2007, Iomega was among the worst performers in the market.)

So rather than enjoying the wealth that they thought would surely accompany the next big thing in tech, the unfortunate investors who bought in at the high -- around $102 a share -- and stuck with it until the buyout booked a 96% loss.

Don't let it happen to you
Rather than look for companies that appear to be "the next hot stock," invest in companies with much better odds of actually making you wealthy.

What would those look like? As my colleague Tim Hanson has consistently pointed out, the best stocks for the next 10 years will be the stocks that today are:

  1. Obscure.
  2. Ignored.
  3. Small.

It's those first two points that really stick out. Trendy stocks get bid up to lofty, unsustainable valuations -- because investors aren't investing in those companies, they're speculating in them.

Obscure companies operate in below-the-radar industries. Ignored companies have very little analyst coverage. And small companies -- well, this one's self-explanatory, but the important takeaway is that small companies simply have more room to run than large ones. Put those things together and toss in insider ownership -- a measure of a small company with invested (and, therefore, generally dedicated) management -- and you may have a formula for success.

Here are a few companies that meet those criteria today:


Market Capitalization

Analysts Covering

Insider Ownership

TBS International (NASDAQ:TBSI)

$950 million




$794 million



Forrester Research

$736 million



Hill International (NYSE:HIL)

$610 million



Zhongpin (NASDAQ:HOGS)

$263 million



Only more in-depth research -- and time -- will tell, but if you're investigating these stocks (or stocks like them), you're at least fishing in the right pond!

Uncovering small, underfollowed, and obscure companies is our mission at Motley Fool Hidden Gems -- and since the service's inception more than five years ago, our picks are beating the S&P 500 by an average of more than 15 percentage points.

Given today's market turmoil and volatility, we believe there are more than a few attractively priced small companies. If you'd like to see what we're recommending, click here to try Hidden Gems free for the next 30 days.

Adam J. Wiederman does not own any shares of the companies mentioned above. The Motley Fool owns shares of IPG Photonics, which is a Rule Breakers pick. Microsoft is an Inside Value recommendation and Amazon.com is a Stock Advisor recommendation. All Fools obey a strict disclosure policy.