Editor's note: Our colleague Dave Lashmet is making an urgent call on a company with a huge breakthrough on its hands. And if you know Dave's track record, you know that's reason to pay attention. Over the past nine years, he has identified 32 stocks that doubled or more... while others have gone on to return as much as 4X, 8X, and even 15X.
So today, we're looking at how Dave finds standout winners with a long-term edge. In this piece, which we last published in DailyWealth in November 2020, he explains one telltale sign of companies that are "investing in the future." Plus, read on to learn how you can access the stock he's recommending today...
Today, I want to introduce you to the concept of "Proactive Investing."
Don't bother Googling it – it's not a long-standing school of investing. It's an idea I made up. But I believe it's a useful mindset for all new technology investors...
You see, there's a clear difference between trading and investing. Trading means buying a trend, or better yet, getting ahead of a trend. But it's tied to money flow in a broader market, a sector, a fund, or a stock.
Even high-flying momentum stocks can come back down to Earth. Of course, with the right plan and execution, you can be a successful trader... The important thing is, you must know what makes it different from long-term investing. And you need to know which it is you're doing.
So, how do you invest for the future? Rather than worry about what other investors are up to, I try to consider what the equity is up to.
This is especially important in tech investing. Think of it this way...
In the summer of 2020, my family found a five-acre plot of trees in Washington state. It's 100 feet above sea level, but only five minutes from the fast ferry to Seattle. It's flat land at the top of a hill, with no creek or swamp in sight. It's the perfect place to build a country home.
We set out to put in a road... then a writer's cabin... then a well... then a septic field. Then we would turn the cabin into a small home. We estimated it would take about four years and $400,000.
Now, when you begin a project like this, you can't know the exact resale value four years from now. You can't know the exact day you'll finish. Nor can you measure cost overruns. But every step brings you closer to a tangible goal. One day, there's a foundation. The next day, there's a roof.
And in our case, our market research suggested that eventually, this would be a rare, elite residence that we could sell for a pretty penny to some tech executive who only needs to go into Seattle once a week.
We wouldn't even have to finish the building project to see a return on our investment. At any stopping point, there is added value. Land with a road, a cabin, a well house, and a septic field... Even with an unfinished house, these fixed assets will help someone else build to their plan.
To be a proactive investor, you have to see the end goal and all the steps it takes to get there. That's because the process itself has value – even if the wisdom of many investment advisers is that "the future is risky, so just live in the moment."
Some of this is cultural. U.S. accounting rules treat research and development (R&D) costs as current losses. Sweden's rules say that R&D costs are future gains. They're treated like investments.
For the best tech companies, putting $100,000 a year into R&D for four years is a lot like my real estate investment... It's building something that unlocks value in the years to come.
A company could invest in unique technologies that its peers can't match. Or it could develop its own manufacturing capacity, so it can be independent while its rivals must pay higher and higher prices to compete with each other in the manufacturing chain.
Tech investors would do well to understand this Swedish way of thinking. The value of a company is not based on last quarter's sales – because those sales can't tell you much about the business in a year... or four.
Instead, look at what a company is building right now. From there, you can weigh future demand, do a competitive analysis, then predict the value of a forthcoming product and how that adds to cash flow.
We like to look at free cash flow ("FCF") because it's the number that doesn't lie...
Once everything else is paid, FCF is what a company has left over for dividends and buybacks. That's how it pays you, the firm's part-owner.
Note, all of this is unaffected by the trends in the market, a sector, a fund, or even a stock. Rather, it's what the asset can be worth to you – measured against both what it cost to acquire and the cost of holding onto it.
We can use this "Proactive Investing" logic with companies of any size... whether we're looking at small firms or larger, more established technology firms with a long history of profits, proven marketing skills, proven demand, and a proven ability to hold off competitors.
In short, if you want to invest in tech, look for companies that are building things of value in the present... to build a lasting competitive advantage. That's the best way to successfully invest for the future.
Editor's note: Dave has recommended a biotech company with a major competitive moat. This innovator has developed a groundbreaking medicine for a previously untreatable disease. It's set to improve life for millions of people... And now, in a matter of days, Wall Street is about to get its first glimpse of this treatment's financial potential. When that happens, Dave says this stock could soar 400% – and that could be just the beginning. So make sure you're positioned before October 31... Click here for the full story.
"One way or another, we want to secure our stake in the asset that a future market will desire," Dave writes. Some of the most lucrative companies that fill these long-term needs are in the biotechnology sector. And the best ones have a few key traits in common... Learn more here.
We want to own companies with a clear path to dominance. But when it comes to new technologies, it pays to be specific – and humble. Overly broad predictions can backfire. And with one of today's most popular tech trends, many of the biggest gains will likely come from uses that few of us expect... Read more here.