Why Wall Street ‘Geniuses’ Keep Missing Triple-Digit Winners
Let me ask you a question…
Who is the most successful investor of all time?
I’m guessing most of you are thinking Warren Buffett. But you’re wrong.
Buffett’s annualized return (as measured by growth in book value) is “only” about 20% since he took over Berkshire Hathaway in the mid-1960s. That’s easily ahead of the market average, but it’s not even close to being the best.
You’ve probably never heard of him, but another money manager has handily beaten Buffett.
His name is Jim Simons. He’s the founder of Renaissance Technologies, and he has the world’s best math and science minds on his payroll. Simons’ Renaissance, which is not a name most investors are familiar with, is one of the most successful — if not THE most successful — investment managers of all time.
Simons has averaged a 40% annual return since 1988.
That’s a great return… and one I would be happy with.
But Simons’ and Renaissance (along with most brokers and money managers) are missing out on one of the most powerful forces in the market. And no, I am not talking about dividend reinvestment or compounding. Both are powerful forces, for sure. No, I’m talking about the other side of the equation.
What most investors miss today are the big winners — the types of stocks that can post triple digit returns in just a few short years.
Why are so many people — including some of the world’s brightest investing minds — missing them?
The answer is simple. They aren’t looking for them.
Sophisticated “quants” like Renaissance, for example, don’t worry about the economy, industry dynamics or a stock‘s fundamentals… They look at pricing, studying not what a company does but how its price moves and how it is correlated to other predictable barometers.
Your stockbroker operates in a similar way. They use a standardized tool to assess your risk tolerance, calculate your “required rate of return” — what you think you should be able to earn on your money in a year, and then run something called a “Monte Carlo” simulation — to put various hypothetical investments into a basket and calculate the odds of achieving the expected return. When the odds look promising, he or she pulls the trigger and invests your cash for you.
Does this approach work as well as Simons’ models? For the most part, yes.
But the problem is your broker is never going to shoot for the biggest returns. He’s only going to seek to deliver your expected rate of return, which in most cases will be sub-market.
But at the end of each year, top-performing stocks routinely post gains of 400%, 500% even 1,000% and more. Those gains are all driven by the company’s narrative — the story of what it does, who it sells to, the demand for its product and, most important, what’s next.
For most of the professional money management world, these big winners are nothing more than outliers — something that can’t be predicted by a statistical model, so they don’t even try to find them.
That’s where I stand apart. As editor of StreetAuthority’s Game-Changing Stocks newsletter, I try to zero in on these “Game-Changers” using a nose for news and a careful read of each company’s narrative.
Of course, most of these types of stocks are highly speculative and risky ventures. But by following my 80/20 solution for allocating your portfolio, you maximize your chances of beating even the savviest investors.
If you don’t know about my 80/20 rule, here is the short explanation…
I suggest people invest 80% of their money in safe, reliable assets — the kind that will allow you to meet your needs and feel confident knowing you can adequately provide for your family.
The other 20% is dedicated to the home-run picks… the “Game-Changers.”
Let me show you how this strategy works…
Let’s say you have $25,000 to invest. With $20,000, or 80% of your portfolio, you match the market’s performance. Over the past decade the S&P 500 has returned about 7.95% on average per year, turning your $20,000 into $43,000 after just 10 years.
Not bad, but look at what happens to that $5,000 if you invest in the Next Big Thing. Let’s say that part of your portfolio returns 30% a year (there will be some big winners, but not everything will go up, so 30% is a good return to expect). After 10 years, that $5,000 would turn into about $69,000.
And after 10-years, the original $25,000 you started with would turn into $112,000. But if you had simply put all of your money into the safe, reliable investments most brokers recommend, you would only have $53,700.
So now you know the power of the 80/20 rule, how do you find the kinds of stocks that will power that 20% of your money into outsize gains?
That’s where I come in.
Every year I come out with my predictions for the Next Big Thing. For example, in 2009 we told our readers to expect a big move in nanotechnology. We said, “This is an opportunity of enormous proportions.” Our nanotech pick, Starpharma (OTC: SPHRY), shot up 293%.
We claimed in 2010 that the “best sci-fi speculation of the year” would be a powerful technology called RFID, or radio-frequency identification… and that three stocks would skyrocket because of it. A year later, my recommended picks were up 42%… 89%… and 310%.
I’ve compiled a new research report for this year called The Hottest Investment Opportunities for 2014. In it, we talk about a company developing a new tool that will quickly replace the keyboard… the company profiting off of “the death of cash,” plus nine other shocking predictions…
In my latest report, I’ll lay out the details of all of my predictions for the coming year — and the stocks that will profit from these bold calls.
I’ve already told you about a few of these ideas in StreetAuthority Daily. But to get the full details on all of my ideas, and the stocks that could see triple-digit gains or more, click here.