Growth Investing - part 1

Read an interesting article by David Gardner from The Motley Fools: "The Highest Possible Returns. Period." He is one of those investors that like to go after high growth companies. For those who like young and exciting companies, he is one to refer to. Below are an excerpt from the article about his experience of coming across the then so-called-overvalued AOL (America Online):
"In 1992, I was 26 and already spending my fair share of time online. For several years, I'd been a satisfied customer of America Online. Although I liked the service, I decided not to buy shares of the company at the initial public offering that year. I thought I'd wait a while. Idiot.
I kicked myself for two years while the stock quadrupled (means, up by 4 times). In the spring of '94, I followed my instincts and became an AOL shareholder -- in spite of an article in a major financial publication that declared AOL grossly overvalued and predicted that the stock would decline by 35%. (these sort of pessimism sound familiar?)
The following year, the stock dropped 25% or more three times. (oh wow!! it did fall!!) And then in 1996, shares absorbed a drop of 65%! (oh my God! jump ship! jump ship! cut lose! cut lose!) Despite these setbacks, the company went on to wreak havoc on the business and journalistic establishments en route to putting up some of the best returns available during a decade of great investment returns. Even with all of the temporary downturns, and even though the stock is today down from its all-time high, my initial investment has still increased about 37 times overall -- $10,000 in stock at that time would now be worth $372,156, which amounts to an annualized return of 31%." (er...)

Seriously, we might have heard of these kind of stories many times. Some examples from our own soil include Public Bank, IOI Corp, Genting and etc, have all gone through those kind of growth phase and returned as much. Congratulations to those who have hold on to them for such long time! I personally knew a few who does. Who said investing for long term is boring? I have some painful experiences myself (I kicked myself too hard!). Some close friends of mine can proved that I am not lying. One example is when Parkson was listed in China 2 years back. I remember the IPO price was around HK9 something, when I-Capital started to recommend this stock. Although actual feedbacks from friends in China are that the Parkson Stores there are doing very well, I hesitated because I thought the price is slightly high. So I bought the holding company Lion Diversified instead (Thank you, I-Captial!) Well then, fast forward to today, how much do you think Parkson Retail is selling? Reminder, HK9 just 2 years ago. As at last friday, it hit an intraday high of HK85! (Although the mother did almost as well, I swear I have sold all my holdings earlier. So, I haven't made all the gains myself. Told you who did. I-Capital! They are still holding big chunks of its shares.)

Anyway, back to the article, David Gardner did point out 6 signs of identifying these sort of Rule Breakers (as he called these high growth market leaders):

1) Top dog and first mover in an important, emerging industry.
2) Sustainable advantage gained through business momentum, patent protection, visionary leadership, or inept competitors.
3) Strong past price appreciation.
4) Good management and smart backing.
5) Strong consumer appeal.
6) You must find documented proof that it is overvalued according to the financial media.

More details discussion on these 6 signs later.