Q: I have a diverse portfolio of blue chip stocks and ETFs, but would like to use some of my money to invest in a few stocks that could become the next big thing. How can I find the Facebooks and Amazon.coms of tomorrow?
No stock that has the potential of producing that type of growth is without a significant amount of risk, so it's important to never buy speculative investments with money that you can't afford to lose.
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Having said that, it's fine to chase the "next big thing" with a small portion of your portfolio. When I look for high-potential stocks, I look for innovative companies that solve a problem, and have the capability to scale their business far beyond its current size.
For example, Square (NYSE: SQ) is a company that I believe has the potential to grow to many times its current size. It has been highly successful at solving a problem: Many small businesses don't have a practical way of accepting card payments.
Even after several years of impressive growth, Square still has a small market share of card payment volume, and is only in a few international markets. Plus, the company is creating a small-business ecosystem with solutions such as small-business lending, consumer financing for purchases, and a food-delivery platform that smaller restaurants can use.
Online-only bank BofI Holding (NASDAQ: BOFI) is another example. The bank's innovative branchless business model counters the inefficiency problems of brick-and-mortar banks, and the company has shown a high rate of growth in recent years. With a new exclusive partnership with H&R Block, as well as its new auto- and consumer-lending businesses, the bank with a relatively small $8.5 billion in assets could have lots of room to grow.
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