Here's Your Shot to Score Big

Anytime I need investing inspiration, I turn to "The Great One" -- but I don't mean Warren Buffett, Peter Lynch, or Benjamin Graham. And I definitely don't mean Jim Cramer.

You've probably heard The Great One's name dozens of times, but you may not know just how wise he is. Nonetheless, he's said some very smart things. For instance ...

"You miss 100% of the shots you never take"
That's but one of the many pearls of wisdom The Great One has dropped over the years. And while it might seem obvious, or even trite, it's a truth we often take for granted.

Just think of the person you never asked to the dance, or the job you never applied for, or the novel you never finished ... or the stock you never purchased.

It happens to all of us. We get nervous, or doubtful, or busy, or ... you name it. And that might end up costing us the person of our dreams, or the job we've always wanted, or our only shot at fame. But in the case of investing, it will definitely cost us a fortune.

In 2007, three stocks sat on my watch list for a full 365 days:

A $17,100 mistake
Should I have bought all three? Perhaps. But by not investing in any of them, I wound up making a grand total of ... nothing. Nada. Zip. Zilch.

However, had I decided to take a shot, I would have scored -- big time. Five grand invested in each company at the beginning of 2007 would have been worth $32,100 one year later.

You're right to point out that over the course of 2008, all three of these stocks have been absolutely decimated along with the rest of the market. In fact, all three are trading at roughly half of what they were this time last year.

However, all three are expertly managed, cash-generating businesses that should build shareholder value over time. Had I bought them in 2007, I would have had a shot to lock in some incredible gains -- and would now have a shot to build my positions while they are selling at incredible discounts.

And if we want to score really, really big ...
We have to follow The Great One's most famous piece of advice: "Skate to where the puck is going, not to where it's been."

You may already know that The Great One is ice hockey legend Wayne Gretzky. If not, all you need to know is that Gretzky was by far the greatest player ever to take the ice.

What made him The Great One? Quite simply, he was always one step ahead of everyone else -- not because of his speed, but because of his anticipation. While everyone else skated to where the puck had just been, Gretzky always skated to where it was going next.

That's the key to great investing, too
If you look back at my watch list, you'll notice an interesting correlation between market cap and percentage gain -- the smaller the business, the greater the returns. That won't always be the case, of course, but it's a quick and dirty way of showing that the best performers do indeed start small.

That's how you can skate to where the puck is going next.

It's simple math, really. While Google is one of the world's most powerful and innovative companies, it would have to pack on another $100 billion for its shares to double again.

Meanwhile, if Chipotle gains even one-tenth that amount, its share price should soar more than 650%.

Bigger isn't better, but size does matter
If you want even more proof of this investment phenomenon, just take a look back at 2007's top-performing stocks.

Here are a few companies that began 2007 with market values greater than $5 billion:

Data provided by Capital IQ, a division of Standard & Poor's.

And here are a few companies that began 2007 with market values less than $5 billion (but more than $50 million):

Data provided by Capital IQ.

While the gains of the top-performing large caps were certainly impressive, it's worth noting that the 37th best-performing small cap returned 13 percentage points more than the fourth best-performing large cap. In fact, of the top 10 overall performers, none was a large cap.

Granted, many of these small caps have fallen victim to massive sell-offs in recent months -- but so have large caps.

Here's how can you score big in 2009
First off, keep The Great One's advice in mind. Second, take a page out of my colleague Tim Hanson's book, and make sure to look for stocks that are:

1. Obscure
2. Ignored
3. Small

These three traits have characterized some of the best-performing stocks of the past decade. More importantly, they will characterize some of the most lucrative stocks of the next 10 years.

In fact, we started our Motley Fool Hidden Gems service precisely to uncover businesses with these three traits -- companies poised to rank among the very best investments of the next decade and beyond.

In other words, the Hidden Gems team is dedicated to discovering where the puck is going next. And so far, they've uncovered some great businesses -- like Chinese online travel-booking agent Ctrip.com (NYSE:CTRP).

And thanks to the current market sell-off, many of today's most promising small-cap stocks are selling at bargain-basement discounts. In other words, if ever there were a perfect time to take your shot and score big, this is it.

If you'd like to learn more or you just need a little help uncovering great small-cap businesses, you can see all of our recommendations – including our top two picks for new money – with a free 30-day guest pass.

There is no obligation to subscribe. To get started, simply click here.

This article was first published Jan. 25, 2008. It has been updated.

Fool contributor Austin Edwards finally did buy shares of Apple, Chipotle, and Google in 2008. Apple, and Amazon.com are Motley Fool Stock Advisor recommendations. Chipotle and Google are Rule Breakers picks. Chipotle B shares and Ctrip.com are Hidden Gems recommendations. The Fool owns Chipotle B shares. The Fool's disclosure policy is the coolest game on Earth.