Finding the Next 100x Stock
Eight years ago the pick for the single best stock to hold for five years was Nvidia (NVDA), then trading under $7. It is up 30 to 32 times since. The lessons from 15 years of finding big winners - and, more importantly, avoiding the losers - are set out in a book called Disruption Investing.
The pace of change today is far greater than in past lifetimes, which makes hunting for the next breakout harder.
Why the Giants Are Usually Bad Investments
The most important chart in investing shows that winners rarely stay on top. The big dominant companies - the ones sitting in everyone's 401k retirement accounts - are usually bad investments. Look at the top 10 companies by market value each decade: every decade has a theme, and every decade five, six, or seven of those giants get kicked out of the top 10.
The move is to avoid the biggest companies in the world and instead own what I call the rising stars. Compare 2020 to today: Berkshire Hathaway (BRK), Visa (V), Alibaba (BABA), and Tencent (TCEHY) are out. In are Nvidia (NVDA), TSMC (TSM), Broadcom (AVGO), and SpaceX (SPCX). The shared theme is AI, which is where attention should go.
What Makes a Big Winner
The goal is to buy great businesses that profit from a disruptive mega trend or rapid change happening now. A study of the best-performing stocks over the past 20 years found common traits: they start small, they are either profitable or unprofitable on purpose (as Amazon (AMZN) was), and they run on some type of platform technology.
Focus on businesses making money today rather than the moonshots many people chase - solid earners that sit a little off the radar.
Two Sectors to Watch
Semiconductor capital equipment. These companies make the machines that make the chips. Chips are in short supply, and TSMC (TSM), Samsung, and Intel (INTC) are building tens of billions of dollars in new chip fabs. About 70% of the cost of a new fab goes to the machines. Names here include Applied Materials (AMAT), Lam Research (LRCX), KLA (KLAC), and ASML (ASML). All have pulled back sharply from recent all-time highs.
Cybersecurity. No chief security officer over the next five years will say to cut back on cyber spending. That makes it a strong set of opportunities.
