If you’re looking for disruptive stocks, let’s first talk about disruptive innovation—and what that means exactly.
What are disruptive stocks?
According to Wikipedia, “Disruptive innovation is an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market-leading firms, products, and alliances.” The term was first coined by American scholar Clayton M. Christensen and his collaborators beginning in 1995.
Examples from history include automobiles replacing the horse and carriage; airplanes that changed migration and demographic trends for the world; the internet killing encyclopedias and phone books; computers disrupting just about every industry—from math calculations to the creation of whole new industries, including smartphones, and personal computers; digital photography that decimated the film industry; and ultrasounds that moved medical diagnostics years ahead.
In more recent years, Apple (AAPL) brought sleek computer graphics to our desktops and laptops and created a luxury smartphone business. Tesla (TSLA) certainly disrupted the automotive industry, with its luxurious styling and cutting-edge technology. Amazon (AMZN) has uprooted the book-selling and e-tailing industries and now even the grocery sector.
Why do investors like disruptive stocks?
Investors are always seeking “the next big thing,” and disruptive stocks often fit that bill. If a company has the smarts and drive to permanently change an industry and create and steal market share, it usually has the ability to garner immense wealth for its investors—and in case of market hiccups, will often be one of the few companies that manage to more easily weather the ups and downs that investors abhor.
It often takes a while for disrupters to create long-term profits, so investors sometimes ignore them—until most of the gains have been achieved. It’s difficult to jump on board a stock that looks uncertain, but sometimes you have to take a leap and just be patient. With other companies, they’ve begun to make some money, but as the saying goes, “You ain’t seen nuthin’ yet.”
The latter are the companies that I suggest investing in.
Which industries are best for finding disruptive stocks?
Many industries today offer a pathway for disruptive technology and companies, including:
Healthcare—Global demographics, the emergence of telehealth and cost control are spurring innovation.
Marijuana—An entire new and legal industry is making millions for entrepreneurs and investors.
Telecom—The advent of 5G technology will create fabulous investor wealth, as new products and companies pop up to serve the requirements of this mega-fast technology.
Internet of Things—Data-driven storage and processing needs are rapidly expanding, fueling amazing growth.
Security—Cyber threats are global, and we’ve made few inroads so far in defeating—or even slowing—the threats.
Biotech—Cures for old and costly diseases are coming and will reward those investors who jump on the right companies.
Blockchain—Competition is fierce and problems abound, but if they can be worked out, globally, the sky is the limit.
Artificial Intelligence—Still in its early development, and without many publicly traded companies, but interest in the technology has skyrocketed and AI looks poised to grow exponentially.
*This post has been updated from an original version, published in 2018.