It’s been said that one good speculation is worth a lifetime of prudent investing.
I know this to be true from personal experience.
Three of my investments – each up more than a hundredfold – have had a dramatic effect on my long-term returns and total net worth.
How do you identify investment with the potential to go up severalfold?
There’s a process. I call it “mastering the art of intelligent speculation.”
Intelligent speculation is not an oxymoron. And following just a few important principles will dramatically impact your real-world returns.
One method that can help you master intelligent speculation is to follow Oxford Microcap Trader‘s portfolio – it’s filled with microcap stocks that have the potential to rise tenfold or more.
Here are five characteristics that we’ve found the best microcaps typically have in common…
1. They are tremendous innovators.
Companies that rise tenfold or more offer revolutionary technologies, new medical devices, blockbuster drugs, and other state-of-the-art products and services. Over the last 10 years, for instance, investors have been stunned by the moves up in Tesla (Nasdaq: TSLA), with its electric cars; Apple (Nasdaq: AAPL), with its cutting-edge electronics; and Amazon (Nasdaq: AMZN), with its breakthrough e-commerce platform and one-click ordering system.
2. They experience terrific sales growth.
Notice I said sales growth, not profit growth. A lot of the best-performing companies were not profitable in the early stages of their run-ups. But even if they were losing money, they usually experienced top-line growth of 30% or more.
3. They protect their margins.
Huge sales numbers attract competition the way honey attracts bears. That means a firm has to be able to protect its innovations with patents, brands and trademarks. Otherwise, competitors will flock to the industry, grab market share and force down margins.
4. They beat consensus estimates.
Profit growth is what drives share prices higher. But in the short term, it’s all about beating expectations. Even if a company loses money – if the loss is smaller than expected – it can register as a significant beat.
5. They are relatively unknown.
The less people understand about what a company is doing – and the less media and Wall Street coverage it gets – the better the chance that its shares are mispriced. Hot stocks with splashy stories have not been the best performers, historically. By the time a company becomes widely known, much of its parabolic move upward may well be over.