As a trader, Nicolas Darvas is best known for two things:
1) The trend-following technical system he designed – his famous “Darvas Box” method.
2) His emphasis on only buying stocks with extremely high-growth fundamentals.
But people often overlook other VITAL components to the trading system he created. For instance, Darvas wrote the following in his classic book, How I Made $2 Million in the Stock Market:
“I looked out for those stocks which were tied up with the future and where I could expect that revolutionary new products would sharply improve the company’s earnings. … What I had to do was to find stocks that would be hoisted up because they stirred people’s imaginations for the future.”
There’s a lot of wisdom in the above passage.
It’s easy to get so enamored with outstanding earnings figures and superb technical patterns that we often overlook one of the biggest drivers behind a winning stock: what I refer to as the company’s “Big Idea.”
What’s the BIG Idea that has people (and fund managers) excited about this company? What’s the UNIQUE story that makes this company a leader? What’s the MAIN reason people are expecting mega-growth from this company in the future?
If you can’t EASILY answer the above questions, your stock probably isn’t a Big Idea stock and it will have a tough time making massive gains for you.
A Big Idea can be summed up in just a simple sentence or two. A quick explanation of what makes this company so exceptional compared to everyone else. When people hear the Big Idea, they should “get” it quickly.
As an example, let’s take a quick look at a few big winners from the pages of Darvas Trader PRO over the past year. Next to each stock, I’ll offer my take on the company’s Big Idea.
BIDU: The Google of China.
GPOR: Middle East chaos is putting a premium on domestically-produced oil and gas. Here’s a fast-growing company that extracts and produces oil and gas in the U.S. and Canada.
LULU: What Nike was to the running fitness craze a couple decades ago, LULU is to the new yoga fitness craze.
WYNN: The world’s most prestigious casino and resort company is set to reap massive rewards from a rebounding world economy.
As you can see from the above examples, there’s no magic formula for determining a company’s Big Idea. Instead, we’re looking for a common sense, perhaps overly-obvious, explanation for why this company will make big money from a current or future trend.
It’s also important to understand that just as great fundamentals or technicals alone aren’t enough to ignite a winning stock, a Big Idea alone isn’t a good reason to buy into a stock.
However, if stellar technicals and fundamentals are already there, having a Big Idea driving the company will be the key differentiator between whether a stock blasts a homerun or dinks a mediocre single.
Take a look at your current watchlist. What is each company’s Big Idea? If you can’t easily identify a compelling Big Idea, it’s probably time to drop it from your list.