Disruptive and Revolutionary Investment Principles

I’m flying out tomorrow morning for a talk I’ll be giving to a hedge fund and its partners in Toronto. I’ll be talking about how and why it’s so important to invest in revolutionary companies in secularly growing industries. More on this in today’s report below. But first…

I’d mentioned a few times lately that I have been expecting the Brexit vote to happen without much change and that the markets would bounce when we get past Brexit. I thought it’d take getting the formal Brexit vote out of the way, but today’s big pop reminds you why timing such things is so hard. I’m not looking to do much hedging protection for the Brexit vote, but to answer the question from a Trading With Cody Chat Room participant this morning, I’d just buy some $SPX or $QQQ or $DJIA puts to hedge for the Brexit if you’re wanting to do so.

And if you are wanting to hedge for the potential of a Brexit, today’s a much better time to do so than on Friday! 🙂

$AXGN is up 50% since we bought it in October. Nice looking chart. Might soon be time to trim some, just to lock in some profits.

Now onto today’s report.

We call my column on Marketwatch, “Disruptive Money,” because the definition of “disruptive” is:

“innovative or groundbreaking.”

My approach to investing is to try to find the most innovative companies in the most disruptive and revolutionary industries before the rest of Wall Street recognizes these Secular Revolutions.

There are two types of growth, secular and cyclical. Cyclical growth happens when a company and/or a market see upside along with the broader economic cycle. Energy companies, metals markets, chemicals, housing and many commodities fall into this type of category. That is, when times are good, so too will their businesses likely be good and when times are bad, all the boats sink together.

Secular growth, on the other hand, happens when a nascent industry is taking off, about to grow into revolutionary proportions as it displaces old business models and technologies. Two factors contribute to an industry’s secular growth: Entirely new demand is created and demand from other industries is taken.

Netflix, YouTube and other web/app video sites, for example, are contributing to more people consuming more video than ever before. But people are also spending some of the time that they used to spend watching network and cable television on Netflix and YouTube. That’s a double shot of growth for the web/app video industry.

The key to long-term outperformance and making big money in the stock market is find and own the best and most revolutionary companies who are disrupting or creating new marketplaces that will have huge growth ahead — huge secular growth ahead.

When you’re looking at long-term, revolutionary-type investments, you’re obviously trying to find markets and companies that are growing quickly and with huge potential in front of them.

Four of my highest-profile biggest winners over the years, Amazon, Google, Facebook and Apple, are four of the most disruptive, innovative companies on the planet. Each of the four have clearly disrupted not just retail, not just search, not just PCs and not just social interaction. They’ve literally revolutionized how we live. What are some of the traits we should be looking for to try to find the next Revolutionary Companies to invest in?

Great investors and traders will tell you that you’re striving to get more trades right than wrong over the long-term and that if you manage your money effectively as you do that, you’ll end up very successful. Lord knows I’ve made and continue to make my fair share of bad calls. But realize, too, that even for these four huge winners in the Tech Revolutions we try to invest for, each of those stocks at one point was down big for a many months or even years at a time.

All this is to underscore how important several of our rules really are:

• Analyze and invest in the very best technology revolution drivers you can find.
• Trade around the near-term fluctuations.
• Believe in your analysis even when the markets don’t.
• Know the importance of eco-system/platform, virtuous cycles, lock-in, switching costs, and critical mass.

What are some of the most innovative sectors that are becoming platforms that we should to be investing in?

Artificial Intelligence, Virtual/Augmented Reality, Drones/Driverless vehicles, Robotics, 3-D Printing, Wearables, Internet-of-Things…and other industries/platforms/offshoots that don’t even exist yet.

Innovation is key to growing our economy, our society, and, if we can find great innovative companies, to invest in, we can make a lot of money. I continue to hold the big four platform plays I mentioned above and am always trying to find the next one. There are tens of thousands of publicly-traded companies out there to choose from and only a few dozen or so will Revolutionize our world.

You can try to eek out a few percentage points in cyclical stocks like Caterpillar or giant defensive stocks like Coca-Cola. Or you can try to find a few more ten-bagger secularly growing revolutionary tech companies and get your bucket out in front of the trillions of dollars those companies will create in value over the next five or ten years. Disruptive Money. Revolution Investing. These aren’t just buzz words, I created. I’ve built up a career and wealth over the years using Disruptive Money and Revolution Investing principles and I expect there’s much more career and wealth to be built upon and investing in these platforms in years ahead.