Investing 101

Three Rules for Best-in-Class Investing

I’ve always been inspired by science fiction.

That’s why I have such a great love for the genre.

I’m currently rereading Richard Morgan’s Altered Carbon books – the basis for the wonderful Netflix series of the same name.

But it’s no secret that Douglas Adams wrote one of my favorite books of all time: The Hitchhiker’s Guide to the Galaxy.

I constantly quote “Don’t panic” – the words emblazoned on the cover of the guide – when I write about volatility or market uncertainty.

It’s the mantra I’ve repeated to myself for decades. And I love to share it with investors when crisis and chaos appear to rule the day.

But Adams was more than a novelist. He was also a futurist in his own right.

In the late 1990s, he penned an insightful essay called “How to Stop Worrying and Learn to Love the Internet.”

In it, he laid down three rules that govern our attitudes toward technology.

I’ve relied on these over the years to help me spot opportunities in new innovations.

Adams’ three rules are…

1) Everything that’s already in the world when you’re born is just normal.

2) Anything that gets invented between then and before you turn 30 is incredibly exciting and creative and with any luck you can make a career out of it.

3) Anything that gets invented after you’re 30 is against the natural order of things and the beginning of the end of civilization as we know it until it’s been around for about 10 years when it gradually turns out to be alright really.

The whole point being this: The world is far from stagnant.

Technology marches forward.

And with it, so must our attitudes.

Two decades ago, no one could’ve imagined that everyday people could legally make money selling cannabis or playing video games for a living.

Nor did most see a world where digital currencies could be traded and profited from.

But here we are.

And that’s what inspires me about the future and moving forward.

I’m excited about new breakthroughs and new technologies and sharing those with as many people as I can through my writing and research.

Of course, finding the “next big thing” is only one piece of the puzzle.

The trickiest part is uncovering which companies in the most disruptive sectors are going to produce the biggest gains.

I’ve shown that growth stocks outperform value stocks over the long term.

And to find the best growth stocks – the best innovators – I generally apply my own three rules…

  1. I want revenue growing at an attractive pace – quite often, at least double digits.
  2. I want to get more bang for my buck, so I target shares of high-growth companies after they’ve pulled back from recent highs.
  3. I want the company to be one of the leaders in a large but growing market.

This is the basic recipe for uncovering best-in-class performers.

Merely targeting disruptive technologies or high-growth opportunities isn’t enough. The game plan needs to be more nuanced.

By relying on these rules, investors can manage their risks. They can position themselves to come out on top.

Even if it’s investing in something they feel is the harbinger of the end times, it will ultimately turn out to be okay really…

Like the internet… or the smartphone in your pocket… or that Bitcoin in your digital wallet.

Here’s to high returns,

Matthew

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