Tech Wealth Rule No. 4: In Growth We Trust

29 | By Michael A. Robinson

In my recent columns, I laid out the first three rules for building wealth through what history has shown to be the most lucrative field of investing — high tech.

Today, I want to talk to you about the Holy Grail of investing.

It’s the one thing that elevates the tech sector far above any other profit opportunity you can think of. It’s also the one thing that will let you take your average household net worth of $25,000 and turn it into $250,000, $500,000 or more.

I’m talking, of course, about growth.

If you’re looking to create life-changing wealth – to get rich – then you have to find investments that can deliver superior growth on a consistent basis… like clockwork.

Let me show you what I mean.

Most of you have probably never heard of Abaxis Inc. (NasdaqGS: ABAX), a Union City, Calif.-based maker of portable blood screeners.

But I have.

And I can tell you some very intriguing insights about these folks.

I can tell you, for instance, that the company’s flagship product is in high demand because it can screen for several diseases at once. It delivers test results in a matter of minutes. And it requires very little training to use.

Last quarter, Abaxis grew its sales by 38% and its profits by almost twice that much.

And going forward, I’m expecting to see the company’s profits advance at an average annual pace of 15% for the next 5 years.

Product-focused innovation like this translates into substantive growth – and meaningful wealth. Indeed, $25,000 invested in Abaxis 10 years ago, would be worth $311,250 today.

That’s a return of 1,145%.

If you want to supercharge your investment portfolio – and perhaps even get rich – the fourth of my five investing strategies is one that you just can’t ignore.

Tech-Wealth System Rule No. 4: Focus on Growth

To drive this point home, I’m going to share a bit of wisdom that most investors – including Wall Street institutions – just don’t get.

You’ve probably been reading a lot lately about some of the high-tech heavyweights and the huge cash hoards they’ve amassed. If you include cash and both short- and long-term investments Apple, Microsoft, and Cisco Systems are right now sitting on about $137 billion, $78.8 billion and $47 billion, respectively.

That’s a heck of a lot of money. And the controversy, of course, is whether those companies should be able to keep all that cash on their balance sheets, or should pay it out to shareholders as hefty dividends.

But that’s the wrong question to be asking. The real question is: Why would I want to invest in these companies at all?

What happens, you see, is that highly profitable companies over time can amass big blocks of cash. For high-growth-seeking investors like you and me, however, that’s often a cautionary signal.

Chances are, those companies have either run out of ideas on how to use that cash to generate continued growth. Or their business has slowed so much that there’s just no place to profitably redeploy that cash.

In those situations, firms often boost their dividend payouts in a big way – effectively saying they believe you can make your money grow faster than they can.

If you’re looking to create meaningful wealth, why would you invest in a company that thinks like that?

After all, Silicon Valley has given birth to firms that have created more than $1 trillion in new shareholder wealth just since the middle 1980s. So there are plenty of high-growth alternatives.

All You Have To Do Is Look Around.

In a previous column I told you about a big winner in the hot new trend I call the Mobile Wave.

ARM Holdings (NasdaqGS: ARMH) has just crushed the market and has the stock returns to prove it. Over the past five years, it has given investors gains of nearly 650%, turning $25,000 into $187,500.

In my column about Rule No. 1, I cited ARM as a company that has great operations. But that’s only a part of the story.

The innovative chipmaker is also a growth machine.

Over the last three years, ARM has grown its sales at an average annual rate of about 24% and its earnings per share at 38%. Growth rates like that mean the company is doubling its top and bottom lines every three to four years.

And the company is projected to increase profits at an annual rate of 22% over the next three years. That’s why savvy investors are willing to pay 35 times earnings to own a piece of ARM. They understand the stock’s wealth-boosting payoff potential.

To put this firm’s high growth in context, let’s compare it to a former-leader-turned laggard.

I’m talking about Hewlett-Packard.

In its heyday, HP was the go-to firm for a wide range of tech products – from calculators to printers to branded PCs. From January 1980 to July 1997, the company’s stock advanced 1800% (from $1.80 a share to $34.44).

In recent years, HP’s luster has faded… as has the company’s growth rate. It missed the Mobile Wave and it isn’t positioned for the hot trends of Big Data and Cloud Computing.

Now, HP is just spinning its wheels…

Talk about dismal growth rates. Over the past three years the company’s revenue hasn’t advanced one bit and its earnings per share has actually fallen 2%.

Investors who bought this zombie firm paid dearly for their poor decision. Shares are down more than 55% percent over the past five years, meaning a $25,000 investment has been shaved to $11,250.

While we are focused on growth, we don’t way to buy growth at any price. We want to pay reasonable prices so we can really generate wealth.

There is a formula we follow.

That’s where my five-part tech-investing blueprint comes in. The entire objective of my strategy, developed from decades of experience, is to find these companies just before they start their surge – or at least soon after they start.

By that I mean we want to find companies that offer us excellent growth and safety of principal.

One way to achieve this objective is to sleuth out firms that have strong fundamentals – while continuing to invest in their future growth. Taking some of that balance-sheet cash we talked about and plowing it back into R&D results in new sales, higher profits and fatter shareholder returns.

That’s why I look for companies like ResMed Inc. (NYSE: RMD).

This mid-cap firm is a leader in medical devices for treating, diagnosing, and managing sleep-disordered breathing and other respiratory problems.

This is truly a growth field. Sleep-related breathing problems are as widespread as diabetes and asthma, affecting 20% of all U.S. adults.

With a market cap of $6.5 billion, ResMed recently boosted its quarterly profits by about 24%. It throws off $350 million in cash each year.

No wonder the stock is up more than 45% in the past year.

Meantime, ResMed also is doing a great job of paving the way for its continued success. The company invests about 7% of its sales in R&D in the five clinical areas that comprise the bulk of its sales. That’s about 15% higher than the medical device industry’s average R&D rate.

ResMed has about 50 clinical trials for new products under way that will lead to new profits, not to mention more gains for its investors.

This is a firm that truly understands that growth and shareholder wealth go hand-in-hand. R&D is such an integral part of ResMed’s operations it has set up a web page with an online video explaining its reinvestment strategy.

That’s why I expect the company to grow its earnings at a rate of 20% a year for at least the next three years…

These guys get it. They’re all about growth. They live by Rule No. 4.

And you should, too…

I’ll bring this all together when I tell you about the final rule on my list of Five High-Tech Wealth Creators.

You won’t want to miss this important conclusion…

29 Responses to Tech Wealth Rule No. 4: In Growth We Trust

  1. Ron isbell says:

    Thank you! You made more sense in a “to the point” manner, than those just trying to do so, and taking 20 pages or a 30 minute video to “try”. Keep it up.

  2. Stan Wengert says:

    I have searched my emails and do not find the first three High–Tech Wealth Creators.
    I am looking forward to #5.

    • Michael Robinson says:

      Hi Stan,

      Thanks for checking in and for reading these columns. You will find all of the rules to date archived on the site. They are arranged by month under the Archives tab on the home page. I would give you the links directly but those can’t be posted in this comments section. Hope that helps.



  3. Lai Than says:

    I am working as Electrical Engineer in telecommunication field. I am always interest in high tech companies. I like investing in tech companies.

  4. Harold R Mencher says:

    Mr. Robinson, my problem is this. I find it extremely frustrating to always hear about stocks that have already grown substantially over the short term. It makes me feel that I’m getting in at a relatively high point in the security as I seem to always do. After I get in, the stock seems to always go into a major correction. My druthers so-to-speak would be to find stock like a Microsoft or a Google or a Master Card when they first went public that one could easily see right off the bat that they were unique and had great future and almost immediate potential and I know those kind of stocks still exist and will still come to exist in the future.

    My biggest concern with the stocks that you’ve mentioned in your article is that they have already made some major moves. I guess what am asking here is your opinion about what I have stated and the concerns that I have. Thank you.

    Sincerely yours,
    Harold R Mencher

    • Michael Robinson says:

      Hi Harold,

      I appreciate your reaching out to me and for being so plain spoken. Let me say this. The structure of these columns was designed to give folks a sense of the kinds of gains you can make in tech investing. That’s why I always try to include an historical example or two in each of these pieces about my investing rules.

      I also put in examples of current stocks that still offer the chance to score some meaningful gains. Having said that, this is a free service to tech investors. I point that out because I have a service in which I recommend specific stocks to buy, when to enter, how to protect gains, when to take some profits off the table, and when to close the position completely.

      Given that, I can’t in fairness to my paid subscribers turn around and give that same level of detailed advice for free. I’m hoping to launch a tech newsletters for readers in which I make the kind of recommendations I think you are looking for. I will be sure to let you know when that occurs.

      Again, thanks for your interest. Cheers and best wishes,


      • Harold Hansen says:

        Mr. Robinson, I can not tell you how much I welcome your candor
        Yes, right on the approach, I believe you are 1 person that I have grown to respect. I don’t think I ever had a problem, but just in case I did.
        The only one person that will take
        A personal message instead of
        Trying to get an email though the
        “Gatekeepers!” I give you a high
        10! Please, by all means, keep it up! I lost quite a bit and I’m looking for a way to build, starting
        Very inexpensively. If you have a
        Suggestion, by all means, please
        Send your wisdom. Thank You!

  5. paul m sykes says:

    Hi Michael I have such a company with some of the best people behind it..
    this is now on the micro stage with forty plus years of dedicated R&D..we have made more than a breakthrough in fact more than a dozen
    new paradigm technologies relating to Vr3D the DNA of sound ,and working model prototypes ,years of secret market testing and ready to demonstrate to the full world.this Holy Grail to shake the global economy The smart phone market alone is worth to us now billions !.Billions in R&D by largest tech corporations do not even scratch the surface of this ! I have worked on projects for the Apollo 11 ,69 space program so i know what to compare ! Companies have grown ,you are absolutely right and squeezed every ounce of profit.,and now heading in the wrong direction …
    paul m sykes

    • Michael Robinson says:

      Hi Paul,

      Thanks for writing. This sounds intriguing and I will do some research on the topic you mentioned. And hats off to you for the Apollo work.



  6. CHARLES.G.LOGAN SR. says:


  7. Yaa says:

    Dear Michael,

    Each post gets better! Are you recommending the equities in today’s letter for investment?

    • Michael Robinson says:

      Hi Yaa,

      Great to hear from you. In my comment a little bit above this one, I explained that I have a paid service in which I pick specific stocks. I can’t do that in this free e-letter, which is geared more to discussing mostly strategic and some tactical approaches. I hope to launch another tech-investing service shortly and will let you know when that happens.



  8. Mark says:

    Hi Mike.

    Love reading your columms. but am very baffled on you choices.

    All i see i very high priced shares with little to non yeilds or gains. even 3D printing has slowed

    My Choices

    would be better with GSK USA / VOD USA / RR.L

    Loyal follower

    Mark B..

    • Michael Robinson says:

      Hi Mark,

      Thanks for writing and for your loyalty. I very much appreciate it. There are still plenty of tech shares out there with a lot of upside. I spend a lot of time looking at charts and fundamentals as well as following the hot new tech trends. Trust me on this, the tree still has plenty of fruit to bear.

      Good luck with all your investing,


  9. GL says:

    Thank you! These types of firms are what a lot of people are looking for but don’t know which ones to choose. Some, like myself, who don’t know how to research stocks have to rely on insight from someone like you.

  10. Don Chase says:

    Thanks for the 50/50 hindsight that you so beautifully put together. I really don’t care what has happened; it’s history that we may be able to learn from – that’s what you’re doing in your messages. What’s important to investors is to take that history and apply it to today’s stocks: Which meets the historical criteria at a low price and will skyrocket. We need a soothsayer!

  11. Rob Mellors says:

    Well said sir. I just wish financial article writers would get to the point and provide us with the key points, maybe in the form of a synopsis, and then allow us to link to further more detailed information should we be interested or for for us to go off and do more independent research if necessary.

  12. Bill says:

    I like the service and have told some friends and of coarse unless they have patience they all think you are blowing smoke over the fire no matter how many times you can say what all the GURU’S say, jump in at your own risk, do your own due diligence etc.,. I always am reluctant with what company or person gives ticker’s and advice but that is your job and of coarse you or who ever always has there contacts and number crunchers and all the agency’s to verify and speculate which is always fun comparing what I have and sometimes we are even on the same company but it is amusing on the marketing tactics that are used by all and quite fun to analyze (sorry long winded) but besides FDA, SEC., ECT and your contacts and just going to see the companies that need you to get there name out, is there any that the common investor can rely on that is lets say public and does not cost an arm an leg like the different TECH and MED/BIO AGENCY’S out there who would you say is one or two we can burn the night away researching on our own and still use your service as one can never have enough. Even say like the FDA or CDC and others you still have to learn how to dig through there info. I like Clinical Trails .gov and a couple others but do you have one or two without giving to much away that you could let us in on. Thanks keep up good WORK, Happy Holidays and New Year!

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