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Revolution Investing: Even in a bear market, stay the course with stocks of revolutionary companies

My approach to investing is to find innovative companies in the most disruptive and revolutionary industries before the rest of Wall Street recognizes what I call secular revolutions.

There are two types of growth: secular and cyclical.

Cyclical growth happens when a company or a market sees upside along with the broader economic cycle. Energy companies, metals markets, chemicals, housing and many commodities fall into this type of category. That is, when times are good, their businesses are likely to be strong, and when times are bad, all the boats sink together.

Secular growth, on the other hand, happens when a nascent industry is taking off and about to grow into revolutionary proportions as it displaces old business models and technologies.

Two factors contribute to an industry’s secular growth: New demand is created, and demand from other industries is taken.

YouTube (owned by Alphabet Inc.

) and other web/app video sites, for example, are feeding the largest-ever demand for streaming video content. Some of that business has been taken from traditional network and cable television. That’s a double shot of growth for the streaming industry.

The key to long-term outperformance and making big money in the stock market is to find and own the best and most revolutionary companies that are disrupting or creating new marketplaces that will have huge secular growth ahead.

My highest-profile biggest winners over the years — Amazon
Google (now Alphabet), Facebook (now Meta Platforms

), bitcoin

and Tesla

 — are among the most disruptive, innovative companies on the planet. They have done more than disrupt their industries — they have revolutionized how we live.

What are some of the traits we should be looking for to try to find the next Revolutionary Companies to invest in?

Great investors and traders will tell you that you’re striving to get more trades right than wrong over the long-term and that if you manage your money effectively as you do that, you’ll end up very successful. Lord knows I’ve made and continue to make my share of bad calls. But realize, too, that even the best-performing stocks over the long term have been down big for months or even years at a time.

All this is to underscore how important several of our rules really are:

  • Analyze and invest in the very best technology revolution drivers you can find.

  • Trade around the near-term fluctuations.

  • Believe in your analysis even when the markets don’t.

  • Know the importance of eco-system/platform, virtuous cycles, lock-in, switching costs and critical mass.

What are some of the most innovative sectors that are becoming platforms that we should to be investing in?

Artificial intelligence, virtual/augmented reality, robotics, 3-D printing, wearables and, perhaps most importantly, space and other industries/platforms/offshoots that don’t exist yet.

Innovation is key to growing our economy, our society, and if we can find great innovative companies to invest in, we can make a lot of money. I continue to hold the big platform plays mentioned above and am always trying to find the next one. There are tens of thousands of publicly traded companies out there to choose from and only a few dozen or so will revolutionize our world.

You can try to eke out a few percentage points in cyclical stocks such as Caterpillar or giant defensive stocks like Coca-Cola. Or you can try to find secularly growing revolutionary tech companies, such as Enovix
along with Rocket Lab

and other, still not yet public, Space Revolution companies.

Revolution Investing: These aren’t just buzz words I created. I’ve built up a career and wealth over the years using Revolution Investing principles and expect there’s much more to be built while investing in these platforms in the years ahead.

We have to continue to come to work and analyze new names every day. We have to continue being patient and selective. We have to continue navigating the broader stock market bubbles and crashes. But that’s what I love doing.

I am excited about the long-term innovations and technological revolutions that will change our world over the next five, 10 and 20 years. I don’t believe we have seen the bottom in the broader market. Many of the most Revolutionary stocks with the most upside over the next five and 10 years are going to hit lower lows before they finish bottoming. But that’s why we spread out our purchases. This allows us to be flexible and to trim and sell sometimes when stocks have gone through the roof. And yes, many stocks will go through the roof again.

Events I’m taking part in

During the next two weeks I will be hosting, or be involved in, two virtual events:

The National Security C.L.A.S.S. (Cyber, Land, Air, Sea, & Space Summit) on Nov. 1 and 2, featuring Henry Kissinger, Jeff Bezos and other leaders to discussing policy, practices, solutions and challenges related to U.S. global competitiveness and national security.

Topics include military preparedness, dual-use technologies and supply-chain resilience across all domains including space. It costs the general public $24.95 to register, but David Hamilton, the host of the summit, has agreed to give my MarketWatch readers free admission. So register here and use CODY as your coupon code.

Second, I’ll be on a panel on how to invest in space at the Hyperdrive Space Summit in Albuquerque, N.M., on Nov. 16 and 17. Learn more here, and if you’re in the area, be sure to register and stop by to say “hi” after the panel. I love to meet MarketWatch readers. 

Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own, or plan to own, securities mentioned in this column.