In the stock market, if an investor sticks to a few simple practices -- including buying great businesses, diversifying appropriately, and investing for the long-term -- the odds of winning increase. Identify companies with increasing earnings and stable cash flows, which also sport healthy balance sheets and reasonable valuations, and you'll prepare your portfolio for success.
But will this approach crush the market? That's quite another matter. To do so, you'll have to uncover an entirely different breed of stocks. We refer to companies with the potential to truly stand apart over the long-term as "rule breakers."
The Motley Fool's Rule Breakers service seeks high-growth stocks the team believes are likely to outperform the market for extended periods of time. Rule Breakers favors companies which can convert a high rate of growth into a driving force for long-term cash flow generation. In addition to deep financial analysis, the service places heavy emphasis on the following six characteristics in its stock selection criteria:
1. Top Dog and First Mover in an Important, Emerging Industry
2. Sustainable Advantage Gained Through Business Momentum, Patent Protection, Visionary Leadership, or Inept Competitors
3. Strong Past Price Appreciation
4. Good Management and Smart Backing
5. Strong Consumer Appeal
6. Grossly Overvalued According to the Financial Media
How it works
Rule Breakers subscribers receive access to our entire recommendation list, as well as an orientation in the form of a recommendation to purchase "Starter Stocks." These are Rule Breakers portfolio holdings which we believe represent the essence of the service, while engendering long-term confidence in Rule Breakers-style investing, as they are often a bit safer than some of our other recommendations.
On the fourth Wednesday of each month at 4pm ET, Rule Breakers releases two new stock picks to its members. In addition, the service highlights five stocks each month which are especially timely -- our "Best Buys Now."
The key is that you don't have to jump in and purchase every last recommendation -- Rule Breakers makes it easy for you to buy stocks which suit your investment style, at a pace you're comfortable with.
The Rule Breakers Team
Rule Breakers is led by David Gardner (TMFSpiffyPop), Chief Rule Breaker at The Motley Fool. Along with his brother Tom, David founded The Motley Fool in 1993. Together, David and Tom have grown the company from a sixteen-page newsletter to a multifaceted worldwide investment advisory and financial services firm, which reaches millions of investors each month through a variety of online and offline media and subscription services.
A recipient of the prestigious Morehead McCain scholarship, David graduated from the University of North Carolina at Chapel Hill in 1998. David has served as a member of the New York Stock Exchange's Individual Investors Advisory Committee since 1999, and is also a board member of the Folger Shakespeare Library in Washington, D.C. He also enjoys sharing his investing knowledge every Wednesday on his popular Rule Breaker Investing podcast.
David is joined by longtime Fool analysts Karl Thiel (TMFBreakerThiel), Rick Munarriz (TMFBreakerRick), and Tim Beyers (TMFMileHigh) in locating the newest Rule Breakers to recommend to subscribers, along with several graduates of Motley Fool's Analyst Development program.
Rule Breakers helps you embrace -- and manage -- risk
When you receive access to our complete recommendations list, you'll see the power of identifying high growth stocks early in their development and hanging on to those shares for an extended time frame. Some of our active recommendations date back to the mid-2000s, and a fair share of those have grown by hundreds, and in some cases, thousands of percent.
Of course, it would be disingenuous to claim that a strategy of investing in rule-breaking stocks always wins. We don't claim to be perfect, and not every stock pick turns out for the better. Companies in extreme growth mode often entail more than moderate risk.
But what exactly is "risk?" While it means different things to different investors, David Gardner defines it as "the chance that your investment outcome will be a substantial loss of capital."
Rule Breakers both embraces this definition of risk and seeks to manage it. You may remember the "Mohs Scale" from high school, which rates minerals' resistance to being scratched on a scale from one to ten, with talc being the softest (one) and diamond being the hardest (ten).
We've taken a similar intuitive approach to rate all Rule Breakers stocks based on their crushability. Crushability denotes how susceptible a stock is to being crushed by the pressures of doing business in an unpredictable world.
The Crushability scale runs from zero to twenty-five. The lower the score, the more likely a company is to withstand the various market forces which will continually test it.
Thus, a stock with a score of 21-22 points rates as an "egg," while a stock with 5-6 points rates as "carbon steel." Companies which score zero to two points get awarded the vaunted rating of -- you guessed it -- "diamond."
Other benefits of membership
As you can see, Rule Breakers is more than simply a list of stocks to buy. As a subscriber, you'll become a member of The Motley Fool's community, and can interact with other members on our discussion boards. Learn from like-minded fellow investors, and even pose questions to our analysts on topics which interest you!
You can also use our newly updated Motley Fool Scorecard to gauge your progress. The Scorecard is a real-time, mobile-ready stock tracking platform that offers personalized views, multiple portfolios, and an abundance of metrics to help analyze and improve your portfolio's performance.
Ready to break some rules?
At Rule Breakers, we're committed to your success as an investor. In addition to all the tools and benefits mentioned above, subscribers get access to premium reports covering important industry trends, as well as actionable stock ideas. Recent reports include 3 Hot Stocks to Buy in 2017, 9 Stocks for the Tier Zero World, and The Next Amazon.com. So join us in our journey, and subscribe today.
The Motley Fool has a disclosure policy.