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Editor's note: Today, we're rerunning a classic essay from Extreme Value editor Dan Ferris. This idea is so essential to succeeding in the stock market that all of our readers should be familiar with it...

Use This Simple Secret to Find the Best Stocks

By Dan Ferris, editor, Extreme Value
Friday, November 20, 2015

One of the secrets to finding the best investments is so simple and so obvious, most people don't pay attention to it...
If you'd known about this secret back in 1994, you could have bought Colgate-Palmolive for less than $10 a share and made more than five times your money.
If you'd known about this secret back in early 1995, you could have bought Microsoft for $4 a share and made more than eight times your money.
If you'd known about this secret back in 2003, you could have bought McDonald's for $13 a share – and made more than seven times your money, including a growing stream of dividends.
When you take into account the crashes of 2000-2002 and 2008-2009, it's especially amazing investors could make this much. What's the secret?
Look for companies with the highest sales in their industry.
I realize this sounds so obvious it's almost laughable. That's just because the real secrets to successful investing aren't complex. They're so simple, anyone can understand them. For example, "Buy low, sell high" is laughably obvious. It's just that almost nobody has the discipline to actually do it.
Generating the most revenue in an industry is the definition of success in business. Microsoft Windows runs about 90% of the world's personal computers. Intel sells about 80% of the world's microprocessors. Campbell's sells more than 60% of the world's packaged soup. More than 60% of the world's credit and debit cards say "Visa" on them. Colgate-Palmolive sells more than 40% of the world's toothpaste. These are all excellent businesses with huge, consistent profits.
Once a business sells more than any other company in its industry, it becomes incredibly difficult to compete with. Imagine trying to build a home-improvement business today. You'd have to compete with Home Depot and Lowe's. Imagine trying to build the world's most popular retailer. You'd have to try to compete with Wal-Mart. Wal-Mart has put dozens of grocery chains and mom-and-pop shops out of business. Imagine trying to make better french fries and sell more of them than McDonald's. Never gonna happen. There's no substitute for being No. 1.
Think about Amazon. It used the Internet to sell more books to more customers than any brick-and-mortar bookstore chain ever could. Other book retailers can't compete with Amazon, because Amazon will always be able to sell more books.
If you'd bought Amazon shares in 2006, when they were less than $30 each, you'd have made more than nine times your money during a time when most stock market investors lost money. Even during the lowest point of the financial crisis, in March 2009, you wouldn't have lost money. Buying the company that sells the most was all you needed to know.
If you sell a product people like and want and then figure out how to sell it to more customers than any other company, you will rule your industry. If investors are smart enough to know what you're doing, they can make a fortune owning your stock.
Whether it's burgers, bandages, or books, investors owe it to themselves to know about the company that sells the most. In most cases, if the stock is cheap enough, the top seller is the best investment you can make in that industry.
Not all the world's best businesses sell more products than their competitors, but many of them do. And these companies should be on your investment radar screen – if they're not already in your portfolio. You can learn more about these types of companies in my book World Dominating Dividend Growers.
Good investing,
Dan Ferris

Further Reading:

In Dan's book, World Dominating Dividend Growers: Income Streams that Never Go Down, you'll learn exactly what makes these types of stocks the "beachfront real estate" of the stock market. Learn more about how to get your copy right here.
"You're not going to succeed in the stock market by just buying the world's best businesses..." Extreme Value analyst Mike Barrett writes. "A great business is a great long-term investment only if you buy it when it's unusually cheap." Learn more right here.

Market Notes


Today's chart suggests that things can't be all that bad for the U.S. economy...
Regular readers know we like to keep an eye on businesses that gauge the "temperature" of the U.S. economy. And while things aren't totally rosy, they aren't as bad as some folks would have you believe. For example, we've noted the recent highs in shares of ski-resort operator Vail Resorts, payroll-processing firm Automatic Data Processing, and cruise line Carnival. Today, we can add credit-card companies to the list.
Visa (V) and MasterCard (MA) are another good way to judge the health of the economy. When people are spending money and paying their bills, credit-card companies make plenty of money, which pushes shares higher.
As you can see below, both Visa and MasterCard are enjoying huge, steady uptrends. Over the past three years, shares of both companies have more than doubled. When these companies are marching higher, it's a good sign that "things can't be all that bad" in America.

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