I recently got my daughter settled in college, and I couldn’t help but think back to my own college days because one particular assignment set me on the path that has defined my life.
I was still a teenager at the time, but that one assignment changed my life… and the lives of other investors who have since benefitted from the assignment I did not complete successfully.
One of my professors told me to create a computer model that would mimic the S&P 500. His belief was that index investing – putting your money in funds that track indexes like the S&P 500 – was the best way to invest.
Using Wells Fargo’s mainframe computers, I got to work. When I finished the assignment, there was a problem…
My system didn’t just mirror the S&P’s performance, it beat it!
It was the best thing that could have happened to me, and I was hooked.
Why would I settle for merely keeping pace with the market if I could do better?
From then on, I devoted extensive time and resources to testing, refining, and validating my findings. That system has grown much more sophisticated through the years – and the computers have thankfully gotten much smaller – but remains the foundation of my own personal investing and my multidecade career managing money for clients and providing analysis and recommendations to individual investors.
You can benefit from it a simplified version of it by using my Portfolio Grader website to see how stocks you own or are interested in rate in the system. I then add extra analysis for advisory services like Growth Investor – which I started more than 40 years ago.
Today, though, I want to share another critical lesson I learned beyond beating the market, and that was how I was able to develop the system…
Expect Mind-Blowing Changes
Keep in mind, this was back when computers were a cutting-edge technology. They were massive – taking up an entire room – and expensive. Few people were using them, save for government agencies like NASA and some big corporations like Wells Fargo.
The big epiphany was finding a way to beat the market – by 3-to1, no less – using a powerful computer.
The other important revelation was the speed and ease with which I was able to do it. It was amazing that one man could singlehandedly complete a task that normally took 10, maybe even 20 market analysts… and I did it in a fraction of the time.
One person completing the work of many.
The big picture was not lost on me. I could see we were at the forefront of massive change. The increasingly fast pace of technological progress – in particular, the rise of computers – would be a disruptive force in society.
Businesses who needed to process vital statistics, store information, organize files, keep inventory, keep the books, and innumerable other tasks would eventually leave the paper-based analog world behind and increasingly turn to computers and automation.
I surmised that companies – and investors – who aligned themselves with this shift would advance at breakneck speeds. Their revenues, profits and stock prices would soar.
So… I made the rounds and managed to collect $300,000 from family and friends to begin a small investment fund that backed the technologies leading the revolution. I began publishing research urging folks to embrace the shift to an increasingly computerized world. And I recommended people invest in the companies developing the powerful mainframe computers businesses were employing to increase efficiency and productivity.
Like International Business Machines Corp. (NASDAQ:IBM) when it was trading at the equivalent of just $8 per share.
I recommended the young startups bringing the computing revolution into our homes. I was one of the first to recommend a little-known company founded by two guys working out of a garage in California –Apple Inc. (NASDAQ:AAPL) – when it was just a $1.49 stock. (I shared my latest thoughts on Apple and the latest iPhone in yesterday’s Market 360. You can read it here.)
Here’s why I’m telling you this: I believe we will continue to see the world change. In fact, over the next few years, I believe we’ll see the world change more rapidly than any other group of people in history.
The ways we work, travel, bank, receive health care, and entertain ourselves will look completely different than they look now.
Large new industries will be created at a pace we’ve never seen before, providing big opportunities for investors. These new industries will also demolish old industries at a pace we’ve never seen before, providing dangers for investors.
How to Get on the Right Side
That’s also why I see a big divide opening up in America. The gap between the rich and poor is the widest it’s been in decades. On one side, people are amassing more wealth, more quickly than any other group in American history. On the other side, the opposite is happening. Wealth is flowing out of the pockets of ordinary Americans at an unprecedented rate.
Much of it is due to the law of exponential progress. Thanks to innovation and technology, we can take one step forward, which then multiples to two steps, which becomes four steps, then eight, then 16… and on and on.
That’s the other lesson I learned on those huge mainframe computers as a college student. And every day, more Americans are waking up to the sobering reality that they are not immune to the massive changes happening right now.
The fundamentally superior companies enabling this exponential progress are some of the very best opportunities in the market today. They get harder to find in tough times, but they are out there. These are the companies I spend time, energy, and computer power finding in Growth Investing and for my clients.
I encourage you to look for those same companies. Investing in them is how to be on the right side of the great wealth divide.
P.S. Sadly, very few Americans even know that any of this is happening…
Which is why I put together this urgent presentation that helps explain exactly what is happening right now.
I’ll show you some specific, but simple steps you can take… beginning today… to help ensure you’re on the right side of the quickly growing changes.