The Purpose of Disruptive Perspectives

When we analyze different themes, we use considerable time and many tools - quarterly reports, analyses, dialogue with companies, company visits, Excel, calculators, and language models. Often we create small notes, and sometimes large notes that we think of as perspectives. We are old enough to know that truths rarely exist, often just different perspectives.

Disruptive Perspectives has only one purpose: To share our perspectives on themes that shape our future. These are not academic papers, encyclopedia entries, or recommendations to do something, buy or sell something. Just good old-fashioned information sharing to show how we view different themes at the time of publication. Perspectives don't become less valuable, perhaps rather more, when you share them. With that starting point - have a pleasant journey through our perspectives.

Introduction: The Hunt for the Holy Grail

The quest for the Holy Grail refers to a legendary and symbolic search for a holy or mystical object, often tied to Christian mythology and medieval literature, particularly in connection with King Arthur and the Knights of the Round Table. The Holy Grail is usually described as a sacred chalice or cup, often associated with the cup Jesus used during the Last Supper or used to collect his blood during the crucifixion. In modern times, the Grail has become a cultural symbol for something very valuable, but often unattainable.

The hunt for the 10-bagger is the financial industry's answer to "The Quest for the Holy Grail." David Gardner's investment philosophy and his six "Rule Breaker" criteria provide a theoretically and empirically interesting starting point for identifying stocks with potential for extreme returns, like 100-baggers (stocks that deliver 100x returns).

Our point is not that we will find those companies, because we probably won't. But if the stock rises 2x, or 5x, we still make good investments. Stocks that can go many-fold often carry very high risk in periods. Equinor won't go bankrupt in the next five years, but most companies that could go many-fold in the next five years might.

We also think the six rules are a nice blend of theoretical and empirical rules that connect learning from both books and life. And yes, as always. These are our perspectives we share with you, not an academic exercise on the path to a Nobel Prize in Economics or an entry to the Ministry of Truth's collection of truths. We manage stocks, not truths. We only share fragments of a reality we consider relevant and true enough to call it a disruptive perspective. We never give advice to do anything other than read and reflect, and never make recommendations to buy anything other than a sweet little gift for someone close to you.

With that starting point, here is our perspective on the multiplier.

1.0 Identifying Stocks with High Return Potential

In this part of the perspective note, we will discuss David Gardner, founder of The Motley Fool, and his six criteria for finding stocks with high return potential. We do this by explaining his criteria and adding our interpretations and ways of analyzing industries and companies. When we have worked through these laws, theories, and principles, we will apply them to twelve different stocks we have analyzed in recent years.

1.1 David Gardner's "Rule Breaker" Criteria

David Gardner is known for identifying companies with enormous growth potential early. His "Rule Breaker" strategy focuses on innovative companies that break the rules in their industries. Here are the six criteria he uses to find potential 100-baggers:

Why Hold for 900% Returns?

Unlike many investors who sell after a quick 10-20% gain, Gardner believes in holding winners over the long term. His investments in Amazon (bought in 1997) and Nvidia (bought at 16 cents in 2005) show how patience can lead to extreme returns. For example:

• Amazon went from a few dollars per share in 1997 to thousands today, driven by dominance in e-commerce, cloud computing (AWS), and innovation.
• Nvidia went from 16 cents in 2005 to become a leader in AI and graphics, with stock price exploding due to demand for GPUs.

2.0 The 6 Criteria and Theoretical Perspectives

2.1 Criterion #1: Leading Company in a Growing Industry

The criterion requires both conducting industry analysis and defining the company's position in that industry. We have explained many theories and "laws" in other disruptive perspective notes that we use to analyze industries and companies' relative position (see for example note #9 Disruptive Theories).

Industry analysis starts with defining disruptive innovations using three different theories. In industry analysis, we focus on the S-curve and Porter's five forces to analyze whether the industry is growing. This leads us to discuss the concept of sustainable competitive advantage to create the analytical framework for leading companies.

Gardner's focus on leading companies in growing industries is directly linked to these theories. Such companies are often those creating new markets or disrupting existing ones, and their growth potential can be enormous, as explained by Christensen's and Schumpeter's work.

2.2 Criterion #2: Sustainable Competitive Advantage

When we analyze sustainable competitive advantages, we often do so for new and emerging technologies and markets, using perspectives from classical economics and innovation theories. These two approaches give us complementary tools to understand how companies can achieve and maintain competitive advantages in dynamic markets like eVTOL, batteries, self-driving units, platforms, satellites, and crypto exchanges.

We apply (1) classical economics as the foundation for competitive advantage. Classical economics, with thinkers like Adam Smith, David Ricardo, and later Michael Porter, focuses on resources, economies of scale, comparative advantages, and market positioning. (2) Innovation theories, like Joseph Schumpeter's "creative destruction," Clayton Christensen's "disruptive innovation," and resource-based theory (RBV), focus on how companies create and maintain advantages through technological and business innovation.

2.3 Criterion #3: Strong Historical Growth

Growth is a central concept for us and our investment strategies. In practice, companies' growth can come from two conditions: (1) The industry grows, and the company grows with stable market shares. (2) The industry is flat or declining, but the company grows by taking market share due to product or service characteristics. We often look for situations where the industry grows AND the company takes market share due to its sustainable competitive advantages.

A CAGR (Compound Annual Growth Rate) of 20%-25% over five years is often considered a threshold for "high growth" in the investor world, as it indicates the ability to double revenues approximately every three to four years. Gardner emphasizes historical growth, but we also weight analyses of future growth for companies with little growth today. This especially applies to companies disrupting through new markets.

The Valley of Death

"Valley of Death" is a term often used in innovation and entrepreneurship to describe the critical phase in a company's or technology's lifecycle where the risk of failure is high. In the context of the S-curve's introduction phase (the early, flat part where growth is slow), Valley of Death refers to the period where an innovation must prove both its technological viability (Proof of Technology), its business sustainability (Proof of Business Model), and its ability to scale early (Early Scaling).

This is the phase where many projects fail due to lack of funding, technical challenges, weak market fit, or inability to scale. The reward for us equity investors is that if the company makes it through, the stock price often also looks like an S-curve.

Valley of Death is thus the period where the company must navigate these three milestones while managing limited resources and high uncertainty. Tesla navigated its own "Valley of Death" by surviving years of economic uncertainty before the electric vehicle market moved higher up its S-curve. Even Apple wandered in the Valley of Death for many years. The company nearly went bankrupt in the late 1990s and was saved by a check from Bill Gates.

2.4 Criterion #4: Visionary Leadership

"One piece of advice for you, Ivers. Do the management analysis. Many times." I was a fresh analyst in the previous millennium and got a talking-to from the head of analysis because I had believed in the CEO of a smaller telecom company. A profit warning from the company meant I had few counterarguments to stammer out after the morning meeting at Aker Brygge.

To evaluate visionary leaders, we must again turn a small glance toward the world of theories, but the management analysis itself is a soft factor analysis where empirical evidence and experience count a lot for us.

"Entrepreneurship Theory" is its own small theoretical chunk that can be relevant to relate to. Schumpeter emphasized the role of entrepreneurs in driving innovation and economic growth. Visionary leaders like Steve Jobs (Apple), Elon Musk (Tesla), or Jeff Bezos (Amazon) are classic examples of founders who create new markets and drive growth. In the same group, we would place visionary leaders like Abel Avellan at ASTS, Brett Adcock at Figure, and not least Peter Beck at Rocket Lab.

Resource-Based View (RBV) focuses on how a company with unique resources and capabilities (like leadership) can achieve lasting competitive advantage. Visionary leadership is such a resource, as we see at TransMedics under Waleed Hassanein.

"Organizational Leadership" emphasizes that effective leaders can inspire and drive organizations to achieve exceptional results, especially in early-stage companies, like Serve Robotics under Ali Kashani and Joby. Gardner's requirement for visionary leadership is fundamental to identifying companies that can break through and create new industries or disrupt existing industries. Such leaders are often the key to realizing the company's full potential, in line with Schumpeter and RBV theories.

2.5 Criterion #5: Consumer Appeal or "Buzz"

The elite finance crowd often works with companies that have 50-60 analysts and have been thoroughly analyzed for many years. We, on the other hand, often work with companies that might get there. Small companies that become large companies. The company or product must have some kind of "buzz," a consumer appeal to stand out and embark on the journey from small to large. It can be visionary leaders, sustainable competitive advantages, or products that gain strong user groups. Elite finance doesn't think this is important; we do.

Behavioral Finance studies how psychological factors affect investment decisions. "Buzz" or "hype" can be a result of irrational enthusiasm, described in theories about market overreactions, as with Tesla's strong investor enthusiasm. ASTS has the same.

Market sentiment is a word you often hear finance people and money folks say. It's nothing other than this "buzz," it just sounds much fancier. Investor sentiment can drive stock prices upward, even if the fundamentals don't support it. This is a central concept in behavioral finance and can explain why some companies experience "hype."

We can also use concepts around S-curves and Diffusion of Innovations, which explain how new ideas or products spread through society. Companies with high consumer appeal are often those quickly adopted by early users and create a snowball effect, which we believe robotaxis, eVTOL, and AR glasses will experience in 2026.

2.6 Criterion #6: Overvalued by the Market?

"Ivers, that Tesla is crazy expensive, and Musk is completely nuts. Do you own it?" Some of the stocks that have provided the best returns over time are always expensive, and some of the cheapest stocks remain cheap over time. Why is this?

It's like this because there is no Ministry of Truth that defines what is cheap and expensive, and whether the stock will go up or down is determined by a few million trades, a bunch of algorithms, and some macro numbers. Some say "we never buy above P/E 15x," others say "we never buy below P/E 15x."

There is one thing that most everyone agrees on when we talk about valuation over the long term: Cash flow. Ultimately, all valuation always ends up in cash flow. But valuation rarely starts there. Calculating future cash flow is very demanding and very sensitive to small changes. That's why we have multiples. A key figure from the company like sales or earnings per share is multiplied by 10x or 20x to find a measure of company value or the stock's price target. Most investors use a set of different methods.

Growth vs. Value Investing

Unlike value-based investing, which focuses on today's fundamental values, growth investing requires the ability to analyze the future in unstable environments. This can include evaluating factors we've discussed above - new products, market expansion, or technological breakthroughs.

The strategy for growth-based investors is often about being ahead of the market, "skating where the puck is going" as Gretzky said about his strategy on the ice hockey rink. According to EMH, stock prices reflect all available information, which would make it difficult to consistently "skate where the puck is going" and beat the market. But in practice, the strategy suggests that markets are not always perfect.

This aligns with behavioral finance, which claims that investors can exploit mispricing by anticipating developments that are not yet priced in, for example by investing in a company before a major innovation becomes widely known or when the market doesn't believe in the technology. Self-driving cars, eVTOL, AR glasses, humanoids, and commercial drones are five examples of technologies the market cares little about today. But which we believe the market will care about in 2026 and 2027. And the years after.

Gardner's willingness to invest in companies that may seem "overvalued" in the short term is based on the belief that the market will eventually recognize their growth potential. This is a critique of EMH and an acknowledgment that behavioral factors can create temporary "mispricing."

2.7 Connection Between the Theories and Gardner's Strategy

Gardner's "Rule Breaker" strategy builds on a series of economic theories and innovation concepts:

• Disruptive innovation and Schumpeter's creative destruction explain why leading companies in growing industries are so valuable, as with Joby and ASTS.
• Competitive Advantage and Economic Moats are central to understanding sustainable competitive advantages, as with Tesla and MercadoLibre.
• Growth Investing and Neoclassical Growth Theory underpin the focus on historical and future growth, as with SoFi and Rocket Lab.
• Entrepreneurship Theory and Resource-Based View help identify visionary leadership, as with TransMedics and Serve.
• Behavioral Finance and market sentiment explain the importance of "buzz," as with Coinbase and Tesla.
• Valuation Theory and EMH are challenged by Gardner's approach, which looks at long-term potential rather than short-term efficiency, as with QuantumScape and EOSE.

Additionally, concepts like network effects (Coinbase, Grab) and Blue Ocean Strategy (Joby, AST) are particularly relevant for companies breaking with traditional models and creating new markets.

3.0 Individual Companies

Now we have explained and discussed David Gardner's 6 criteria with various theories and tools. We apply the six criteria to 12 different companies we have analyzed for some years. Most we own today and some we have owned for several years, although the size varies. We practice active management where we continuously adjust the size of investments. These analyses are not recommendations, but an illustration of how we work and apply theories, models, and principles to analyze companies we consider relevant for our investment strategy. Hopefully, these analyses can inspire you to make your own assessments and analyses.

3.1 Joby Aviation (JOBY US) - Case Study

Joby Aviation, founded in 2009 by JoeBen Bevirt, is a leading player in the eVTOL industry. They develop electric aircraft for air taxi services. These aircraft are called electric vertical takeoff and landing aircraft (eVTOL), and aim to revolutionize urban transport.

Criterion 1: Leading Company in a Growing Industry ✓

The eVTOL market is in an introduction phase on the S-curve with high expected growth (CAGR 20% from 2025-2034), driven by urbanization, need for sustainable transport, and technological advances. Air taxi and cargo transport are estimated to be the strongest growth segments. Joby has entered a breakthrough agreement with Dubai Roads and Transport Authority to start commercial operations as early as Q1 2026, strengthening their position as a market leader.

Criterion 2: Sustainable Competitive Advantage ✓

Joby has high vertical integration with in-house production in Marina, California, with facilities of 55,000 square meters, with options to expand to 500,000 square meters. Strategic partnerships with Toyota (which owns about 15% of the company) and progress in FAA certification give them a strong competitive position. Their technology, certification leadership, and strategic partnerships create a sustainable competitive advantage.

Criterion 3: Strong Historical Growth ✓

Joby is in a pre-commercial phase and has not yet generated significant revenue from commercial operations. However, the company shows progress in what enables rapid scaling to growth and profitability: an FAA-approved eVTOL aircraft ready for commercial and military flights. They have flown over 50,000 km (30,000 miles) on full-scale prototypes and are now in a multi-year test period with the Federal Aviation Administration (FAA) for certification.

Criterion 4: Visionary Leadership ✓

Joby is led by CEO JoeBen Bevirt, who has a background as a serial entrepreneur and engineer. His vision of creating a sustainable urban air mobility solution has driven Joby to become a leader in the eVTOL industry. The company's ability to secure partnerships with players like Toyota and authorities, as well as progress in FAA certification, indicates strong execution capability.

Criterion 5: Consumer Appeal or "Buzz" ✓

Joby has significant "buzz" around it, especially among investors and technology enthusiasts. The concept of air taxis is exciting and futuristic in itself, and the agreement to launch in Dubai, an innovation-driven city, reinforces this appeal. The day (2026?) when ordinary people can board an eVTOL at JFK airport outside New York and land in Manhattan 10 minutes later, the "buzz" will be even higher.

Criterion 6: Overvalued by the Market? ✓

Joby has no P/E value yet since they don't generate earnings, but the stock trades at a high valuation based on future expectations. This aligns with Gardner's criterion of looking for companies that may seem expensive by traditional measures but have enormous future potential. The most important positive trigger in the next four quarters will be related to final approval from the FAA in the USA and that Joby takes off as planned in Q1 2026 in the Middle East.

Porter's Five Forces and Industry Analysis

To properly analyze industries and competitive dynamics, we apply Porter's Five Forces framework. This helps us understand the competitive intensity and attractiveness of markets, which directly affects valuation and investment potential.

Understanding these forces helps identify which companies are best positioned to capture value as industries evolve from nascent to mature markets.

Valuation Approaches for Different Growth Profiles

For Low but Predictable Growth Companies (0-15% CAGR)

• Dividend Discount Model (DDM): Values stocks based on future dividends discounted to present value
• Discounted Cash Flow (DCF) with stable low growth: Simple single-stage DCF with low, constant growth rate
• Multiples like P/E or EV/EBITDA: Simple and comparable with peers in the same industry
• Asset-based valuation: Focuses on balance sheet values, useful if growth is low and the company has significant assets

For High Growth and Unpredictable Companies (20-50%+ CAGR)

• Two-stage or multi-stage DCF: Estimates high growth in an initial phase (e.g., 5-10 years with 30-50% growth), followed by a stabilization phase
• PEG-ratio (Price/Earnings to Growth): An extension of P/E, where P/E is divided by the earnings growth rate
• Venture Capital methods: For very unpredictable companies (e.g., pre-revenue), valued based on qualitative factors like team, market potential (TAM), and prototypes
• Market-based multiples like EV/Sales: Used when earnings are negative or volatile, since sales growth is more predictable than profit in early phases

5.0 Disruptive Investment Strategies and "The Multi-Bagger"

The quest for multi-baggers - stocks that return many times their initial investment - requires a different mindset than traditional investing. It's not about finding safe, dividend-paying blue chips. It's about identifying companies at inflection points, riding S-curves before they go vertical, and having the patience to hold through volatility.

The companies that become multi-baggers often look expensive by traditional metrics. They're investing heavily in growth, may not be profitable yet, and are attacking markets that don't fully exist. But that's precisely why they have multi-bagger potential. By the time they look cheap on a P/E basis, the exponential growth phase is often over.

Trigger Point Analysis

Beyond the six criteria, we use trigger point analysis to identify catalysts that could move stocks significantly. We look at triggers from the past four quarters and anticipate triggers for the next four quarters. This helps us understand momentum and timing for our investments.

Key Takeaways: The Multi-Bagger Mindset