I get one question more than any other at the moment…
…XYZ has already had a huge run up – should I buy it?
The fear, of course, is that the stock they want to buy has already had a huge run up and is going to tank immediately after they plunk down their money. I know – I’ve thought the same thing plenty of times over the years, too.[ad#Google Adsense 336×280-IA]It’s easy to think that many “expensive” stocks are going to roll over given that today’s dismal headlines range from the unimaginably mundane to the truly horrific.
But that’d be a very expensive mistake.
What most investors fail to understand is that there are still fabulous companies out there with equally unimaginable potential to quadruple your money.
Even though they’ve already had a 1,000%+ run.
Contrary to what most investors think, you haven’t missed a thing if you know what to look for.
The Best – and Most Famous – Companies Deliver Mega-Gains for Decades
I’ve talked with tens of thousands of investors around the world over the years, and if there’s a common regret, it usually centers around a stock that everybody knows had a tremendous run… yet most people missed.
If only I’d known, goes the thinking.
The sense of loss is palpable because they imagine how different their lives could have been “if only” they’d invested in Microsoft when it IPO’d, or Starbucks, or Amazon.
What they don’t realize is that there are plenty of “if only I’d known” moments happening every day right in front of their very eyes. Many times they involve the very same “expensive” stocks.
Take McDonald’s Corp. (NYSE: MCD), for example.
Mickey D’s went public April 21, 1965, at $22.50 a share and shot up to $30 by day’s end as thousands of investors watched incredulously from the sidelines. Market professionals scoffed, believing that there was no way a hamburger chain could sustain that kind of performance in an economy dominated by manufacturing and services – real businesses, or so they thought.
Their arrogance cost them – dearly. MCD stock returned 110% over the next six years versus just 12.3% from the S&P 500. And still millions didn’t buy because they thought that the stock was overvalued, too expensive, or just not worth it at the time.
McDonald’s would go on to return another 176% over the next 10 years, turning every $10,000 invested into $27,655. The S&P 500, by contrast, chalked up only 29.02% over the same time frame, leaving anybody who wasn’t on board far behind.
Human nature being what it is, many investors still thought they were too late and the stock was too expensive. It went on to quintuple the following decade. Then quadrupled from 1991 to 2001, when the dot-bomb hit and people thought the markets were going to hell in a handbasket.
Fast forward to today and MCD has – you guessed it – quadrupled again.
Now I could run the numbers and tell you that every $10,000 invested in 1965 is worth $1.672 million today, but to do so would be a cheap shot.
What I want you to understand is that investors had plenty of time to invest even if they thought they were “too late” to the initial party. They still do.
For instance, in 1981, even if you had supposedly been 16 years “too late” to McDonald’s, you could have still turned $10,000 into more than $755,000. Had you waited 26 years, you would have still been able to turn $10,000 into $160,800 – a return of 1,508%.
And don’t think for a minute that I’m cherry-picking McDonald’s, either…
Apple Inc.‘s (Nasdaq: AAPL) returned 50,412% since it went public, and there have been plenty of chances to get in along the way. Amazon’s returned 28,811% with dozens of great buying points. Tesla, Starbucks, Netflix… they’ve all had more than a few ups and downs, yet printed plenty of millionaires despite the fact that those investors bought in when shares were already “expensive.”
This is lost on millions of investors tempted to compare companies like McDonald’s to conventional metrics when conventional metrics do not apply. They fall for the argument that things “will be different this time” as justification that the bubble they perceive will pop.
Only problem is that sometimes things and some companies, in particular, really are different.
Conventional metrics break down when it comes to companies that disrupt an existing paradigm because fundamental analysis cannot see that coming.
You can, however, and it’s not as tough as you might think.
Ask yourself three questions if you’re considering an “expensive” stock right now:
- Is the stock you want to buy tapped into one or more Unstoppable Trends? If yes, then it’s got a trillion-dollar tailwind no matter what the Fed does next, no matter how Wall Street tries to hijack it, and no matter what Washington thinks. If not, pass.
- Does it make a “must-have” product or a “must-have” service? Genuine “must-have” investments are very simple to define and understand because you need them to survive, and people will spend whatever it takes even under economic conditions that will kill lesser competitors.
- Is it a disruptor at a time when others cannot understand the disruption? This is particularly important because disruptors – like McDonald’s was when it debuted – almost always have the last laugh.
Alphabet Inc. (Nasdaq: GOOGL), for example, generates $17.3 billion a quarter and is the unquestioned leader in online revenue generation. It’s got eight, perhaps even 10, businesses locked within it ranging from healthcare to artificial intelligence; every one of which is centered on what is now undeniably the world’s largest database.
Google cars, for example, are not just about cars but inherently have the ability to change the insurance industry by forcing a realignment of how premiums are calculated when it comes to “oops” prone humans.
Facebook Inc.’s (Nasdaq: FB) Oculus Rift virtual reality is not just about video games and artificial intelligence. Imagine what happens to the medical profession when you can choose a doctor in Finland even though you live in Bogota. That’s going to turn everything upside down – from medical instrument sales to the very concept of a doctor’s office visit.
Tesla Motors Inc.’s (Nasdaq: TLSA) cars are not about transportation or even batteries. They’re about human mobility and, as such, a Detroit-killer. Imagine what happens to productivity and mobile communication when CEO Elon Musk really steps on the gas – pun absolutely intended.
In closing, the best stocks are almost always expensive because they’re priced for growth. But that doesn’t mean you’ve missed out if you’re late to the party.
In fact, there are any number of companies that we talk all the time that are still worth buying today if you can answer “yes” to the questions I’ve just shared with you.
Do so and odds are you’ll be very happy with your purchase…
…even if the markets fall tomorrow.
— Keith Fitz-Gerald[ad#mmpress]
Source: Money Morning