This is What it Takes to Make Light-Speed Stock Profits

Blue chip stocks are loved by the masses. Almost every extremely fund in Australia will have a large selection of — if they’re not completely comprised of — blue-chip stocks.

These companies are reliable-ish. They’re usually predictable, they get a large amount of coverage in the mainstream press, and over time they perform pretty well.

Investing in blue chip Stocks you’d hope to obtain returns per year like 8-9% perhaps if they’ve had a great year you might get 12-13% for example.

The table below shows the overall performance of the 10 biggest stocks on the ASX for the 2013/2014 financial 12 months.

This table was put together by the Commonwealth Bank within their ‘MyWealth’ section of their website. In this particular article they also included this little gem of a quote:

‘The ‘Blue Chip’ companies in the table above tend to be popular among investors because they’re known to them, often pay dividends and are generally perceived to be more steady than smaller companies.‘

Interestingly they throw in the word, ‘perceived’. The reality is azure chips also come with a reasonable degree of risk. All purchase of stocks does.

And it forces to you think about where your own risk/reward trade off point exists. How much risk are you willing to accept with regard to return? Perhaps more importantly, are you happy to accept boring returns with an element of risk?

Or would you like life a little more around the wild side? A little more exciting? A lot more opportunity for light-speed stock increases?

The facts don’t lie when it comes to multiple digit returns

The CBA article continues to explain that the ‘best performing company around the ASX 200 during the 2013/14 financial year was…Northern Star Resources‘.

Their overall performance over the period was 116%.

That’s great. That’s really good.

And you’d be pretty happy if you had Northern Star Sources [ASX:NST] shares.

But of the 200 firms that make up the ASX200, Northern Star was the only company to have triple figure gains within the year.

That’s right, for that financial year your chances of an ASX stock within the top 200 companies achieving over 100% gains was one in 200.

More recently there have been Fifty-one companies make over 100% gains in the last 12 months. I’m not making this upward. This is fact. Indisputable fact.

For example as of 31 This summer, Hansen Technologies [ASX:HSN] was up 108%. Impedimed Ltd [ASX:IPD] was up 286%. Aeris Environmental [ASX:AEI] had been up 328%. And Alexium International Group [ASX:AJX] was up 702%.

There are 47 others but I won’t lose interest you with them all. So that as I’m sure you’re well aware, past performance is certainly no sign of future performance.

Of these 51 though, there are a few azure chips. Well two to be precise. Blackmores [ASX:BKL] and Qantas [ASX:QAN].

Now you’d never have thought Qantas would be up 180% to 31 July this year. But falling fuel prices certainly possess helped the embattled airline.

Anyway, that’s two blue chip businesses of 51. In other words, the bulk of the companies making turbo charged returns in a short space of time aren’t blue chip businesses at all.

Many of them have market caps of tens and hundreds of millions. Not billions, much like your typical ‘safe’ Blue Chip stock.

Here’s the thing. You might like azure chip companies. The single number growth or at best low double digit growth companies that from the ASX 200, ASX100 or ASX50 might be right up your alley.

You might such as the slow and steady approach to things. Dull, simple, reliable, sluggish. That might be your game. And credit to you, if that’s what works for you that’s absolutely fine.

But sluggish and boring isn’t everyone’s game.

Small-cap stocks make for a thrilling ride

For some people, fast, exciting, foot-to-the-floor may be the way they want to live their life, and make their money. Of course there’s no such thing being an overnight success. And making a million dollars overnight is the stuff of 2am tele-sales ads.

But the proof is there that you can invest in companies that can make triple digit returns in 12 months. Longer term, two, three years later on those triple digit returns can turn into quadruple digit returns.

And in the right companies, using the right strategy and the correct products and technologies perhaps one day just a few of them will turn into quintuple digit gains.

You might say that’s impossible. But people thought that about Cisco, Amazon, Apple and Oracle during the ’80s and ’90s.

Now when it comes to Aussie stocks, the fun, the excitement, the Nitro power stocks tend to be small-cap stocks. These are the companies that would be the real up and comers on the ASX. They’re often the kinds of companies that you’ll never hear about from CBA research. You’re mainstream broker often won’t go near these simply because they come with a high level of risk.

That’s the trade-off you have to make when you start to think about small-cap stocks. You might be in collection for some unbelievable gains. The type of gains it takes most blue chip stocks five, Ten years to make (some will never help to make triple digit returns). But they’re also in line for some crazy fluctuations.

That means a stock could shoot up 20% in a day. It can also imply the stock sheds 20% in a day. And then bounces back. And then goes up, down, up again and then it could shoot off. It is a genuine rollercoaster ride.

I’ve observed one company in my expense advisory service rise 16% in a week, in order to fall 11.5% the week later on. It then fell another 22% in the next two months. And in the last month it’s gained 128%.

That’s the kind of face-melting pace these small-cap nitro stocks can move in.

If you ignore the potential associated with small-cap stocks on the ASX you’re potentially missing out on some of the biggest and finest investment opportunities there are in Australia.

But as I said earlier, it’s not for everyone. Simply, you’ve either obtained the intestinal fortitude for this, or you don’t.

Regards,

Sam