In This Market Sector, It Pays to Wait

The Weekend Edition is pulled from the daily Stansberry Digest.

You don't need to take huge risks to generate massive returns...

Conventional wisdom says that you shouldn't get emotional about investing... that buying stock in a company doesn't have to be exciting. It just needs to generate an acceptable return on investment relative to the risk involved.

That's true.

People aren't giddy after buying shares in Coca-Cola (KO) or Costco Wholesale (COST). These companies might be two of legendary investor Warren Buffett's favorite investments, but he doesn't buy them for a thrill...

Rather, they're boring and predictable companies that deliver results on a consistent basis.

But, on the other hand, investing can be exhilarating, especially when it involves technology companies working on breakthrough products with the potential for changing how the world works.

That kind of investing is also exhilarating because it can lead to life-changing returns... the kind of returns that turn everyday shareholders into millionaires. You might think that this requires taking on a huge amount of risk...

But that's just not true.

In today's essay, I will explain that when we look back in history, it reveals that the exhilaration that comes with investing in tech companies does not have to be paired with risk.

Said another way, investing in the next big tech companies can be more like investing in the Coca-Colas and Costcos of the world...

Today, I will show how, with a little patience, investing in tech stocks can multiply your investment – safely.

There's no denying the wealth-creating power of technology companies...

In just 30 years, they've completely altered the landscape of the stock market... and the face of the S&P 500 Index.

Back in 1990, the five largest companies (by market cap) in the S&P 500 were oil company Exxon Mobil (XOM), cigarette maker Philip Morris (PM), General Electric (GE), IBM (IBM), and Walmart (WMT).

Today, that same list has gone through a complete makeover. The five largest S&P 500 companies are all tech giants... Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOGL), and Facebook (FB).

Apple, Microsoft, and Amazon are each valued at more than $1 trillion today, based on their share prices. And, except for Apple, the founders of each of these tech companies have an individual net worth running into 12 figures... that's triple-digit billions of dollars.

Amazon founder and former CEO Jeff Bezos alone has a net worth of nearly $200 billion. That's approaching the gross domestic product ("GDP") of Greece.

These are the success stories of startups turned into global icons.         

But then there are tech companies – a lot of them – that never made it...

In fact, most companies with potentially world-changing technology never make it.

About 90% of all startups fail. And most of them do so by the fifth year.

Of the thousands of Internet companies that sprouted up during the dot-com boom in the late 1990s that were looking to turn traditional businesses into online successes, just a small percentage still exist today.

Those that failed all had compelling products and enticing business plans, but just could not succeed in the marketplace... be it bad timing or products. In any case, they disappointed many investors who were banking on them being the "next big thing."

But there's a better way to reap the benefits of technology stocks that do take off. And I'm not talking about having a crystal ball... or investing in every tech startup that comes along so you don't miss a few winners.

Here's what most people don't tell you, or realize, about successful tech investing...

You can wait for a new technology to mature and for a trend to take shape...

Think of how you live your own life...

If a company develops a non-invasive way of removing an arterial blockage, you likely won't rush to the hospital looking to get this new treatment. You will likely wait until it's tested, proven, and reliable.

And if a company announces a smartphone that you can control using only your voice, most people will read hundreds of reviews and wait until it proves itself before replacing their existing and reliable iPhone.

New technology usually seeks to upend the existing norms... But that change often takes years – and in some cases, decades – as people adapt and adopt it.

So, why would it make any more sense to buy shares in the change-making companies before their products have had a chance to fully catch on in the real world? It doesn't.

I'm here to tell you that it pays to wait. The results speak for themselves.

The biggest profits to be made with technology stocks require getting in early before they explode in value...

But as you can see in the table below, waiting for companies to prove themselves does not mean missing out on big gains.

If you waited until the start of 2009 to buy shares in Amazon – 15 years after its founding –you would have missed the first 3,056% in gains.

But you could have still realized 6,035% of upside and with more confidence and evidence of how the company could dominate e-commerce and establish itself as an industry leader.

If you had waited for Tesla (TSLA) to start selling its Model 3 sedan in 2015, instead of buying shares when Elon Musk founded the electric-car company in 2003, you would have still gained 1,396%...

Compare that with leaving a 1,135% gain on the table during Tesla's riskier early years. It's a similar story with the largest companies in the S&P 500 that I mentioned... Huge gains were made "late"...

Computers were life changing during the 1990s, but it wasn't until Apple started producing its iPod music player that the company's biggest gains were realized.

Apple's iPod, iPhone, iPad, and iMac revolutions in the last 21 years handed investors the biggest gains yet in the stock's 42-year history – a whopping 67,301%...

And investing in Apple in 2000, and benefiting from that huge gain, did not come with the risk of buying into the company as a startup.

So, here's the point... The next time you see a company with a promising technology, there's no need to rush in and get carried away by its potential.

You can wait for it to start changing life as we know it, since the trend will go on longer than you think.

Good investing,

Brian Tycangco

Editor's note: Apple's next blockbuster device is expected to be "bigger than the iPhone"... and could be a major life-changing event in the tech industry. To help tech-savvy investors make a fortune in the coming months ahead of an official announcement from Apple, Brian put together a brand-new presentation with everything you need to know about what's to come. Click here to learn more.