I believe there are three ways companies strike it big:
1) They invent (or seriously flesh out) and market a new technology. Think Edison’s light bulb. This is the most risky type of investments. Most inventions turn out to be either impossible to create at the time (Theranos, HDSN – if we talk publicly traded), impractical to produce at scale (many “in 5 years” technologies that you see in the media) or fail to find consumers (did you know Sears had an online service that offered social media, search engine and an online shop in the late 80s?). Even those that actually scale those three obstacles may not really strike it big and become a niche product (Segway). So extremely risky. The sectore with where most of the invention of new technologies is going on is pharmacology, biotech and material sciences.
2) They bring a niche or luxury product/service to the masses. Think Ford’s cars. This is a bit less risky as we are not talking about a possible Theranos/HDSN style failure. It may still fail to scale the production or reach a market though. I think currently there are a lot of ventures that are bringing processes that used to be the domain of big companies to tiny companies. Think Salesforce, Square or Shopify.
3) Make an existing service/product much more efficient than any of the competitors. Think Walmart or South West Airlines. This is even less risky than the previous two – the product or service exists, and is highly marketable, you “only” have to be able to implement your more efficient strategy. A lot of the cloud-using companies are like this because they can scale their customers much more easily – Zoom Video for instance, MongoDB, Okta etc.
So here’s the deal, I’m going to play with open cards and post a portfolio that will strike it big in the next decade. Laugh at me if you want to, but better yet, give it five years and laugh at me then:
New Tech stock:
GH, FLXN, VRTX, OMER, PCRX, HXL, FMC – extremely risky, expect these to go belly up
Luxury for the masses and/or more efficient than competitors (it’s a bit arguable):
MELI, MSFT, AMZN, SHOP, CRM, SQ, AYX, PYPL, TTD, ZM, MDB, OKTA, ZS, TWLO (MSFT and AMZN are here because they provide the cloud for the rest of them) – very risky – I don’t think they go bankrupt as easily, but pricing is high and they may not turn out to be the winners the market is expecting them to be.
Needless to say – I own most of these.
Disclaimer: Consult your financial professional before making any investment decision.