When investing and trying to produce sizable gains that beat the market, there are no hard and fast rules that I play by. In fact, I don’t care where I have to look to make us money.

However, there are particular doctrines and methodologies that I adhere to that produce the most consistency and direction for my investments.

Some of these rules and methodologies that comprise my “Secret Sauce” I won’t share publicly, but others I will, as I feel it gives you a better idea of why and how I pick the stocks that I pick and what I look for in the companies that I want to make a long term commitment to.

One of these rules is what I like to call: The Double Thesis

The basic tenet of this rule is to ask myself one simple question when analyzing a company that appeals to me:

“Can this stock double in one year?”

Double Down

Now, before you think this is some sort of gambling premise, or a crapshoot designed to pick stocks that can make me look good quickly, let me explain what this means in more detail.

You see, when I first start looking at a particular company and its stock, it can be for a myriad of reasons.

Whittling down my thesis into a final buy recommendation takes a lot of work and time, and thus I have developed strategies that allow me to undertake this process more quickly and weed out GREAT opportunities from merely GOOD or OK opportunities.

Because of this premise I usually seek out stocks that have either fallen from grace, and/or are undervalued relative to their peers and growth prospects going forward.

This is why you usually won’t see mainstream stocks in my portfolio, and why you’ll hardly ever hear me talk about a company you already know about.

If you’ve heard about a stock on CNBC or read about it in the Wall Street Journal, odds are its move has already been made.

For instance, the easy money has already been made in the Apples and Starbucks of the world. Everyone knows about them and they are covered by tons of analysts and the press report on their every move.

On the flip side, some of the companies that I follow will go MONTHS without so much as a press release and certainly never garner any attention from the press.

These are the types of opportunities we should be looking for BEFORE anyone “out there” hears about them, or focus our attention on stocks people HATE, like housing or banking stocks in 2007-2008.

To that end, here are some of the factors that I consider before I propose The Double Thesis:

• Overall industry trends
• Margin/Profitability improvements within the company
• Competition
• Current stock price
• Valuation relative to industry or peers
• Growth prospects
• Management
• Business model improvements or shift
• Insider ownership changes
• Analyst optimism/pessimism
• Capital structure: cash flow, debt, etc.
• Other potential red flags or hidden attributes

Then What?

If a company makes it through my first detailed analysis and passes my initial tests and concerns, I then ask myself a simple question:

“Can this stock double in one year?”

Notice I didn’t say “WILL this stock double in one year”, and that’s an important distinction.

I am not trying to time the market, or a specific industry, sector or stock. What I am looking for is a company that is in the midst of a shift that I can capitalize on.

Maybe I’m a little early in recognizing the change, but that’s ok, because I would rather buy into a great company early on than too late.

So in essence, The Double Thesis proposes that because the stock I am evaluating is in such a fantastic risk/reward position, it isn’t inconceivable that it could double in one year or less, and STILL be a great bargain or at the very least, “fairly” priced.

What I am basically looking for is a company that presents such a value proposition that the odds are greatly in our favor of making money on this stock.

So much so in fact, that it would not be totally surprising if the stock doubled within one year.

Again, that’s not what I am specifically after, because timing that sort of move and guaranteeing it are near impossible to do, but what I am looking for is a protected position that still allows us the potential for HUGE gains going forward even if we have to wait several years for it to transpire.

I’m not looking to invest in stalwarts that everyone knows about and that move very little from year to year.

I am looking for hidden companies, industries or sectors that are poised for explosive growth and are trading at a significant discount to where they should be.

Again, this doesn’t mean I won’t invest in a well-known large company.

If it falls within my investing criteria then any stock is fair game at any time.

The Bottom Line

One of the most powerful and least utilized strategies on Wall Street and Main Street, is to go against the grain, not with it.

Finding great companies that have the ability to double their share price in a relatively short amount of time is not easy to do.

But I believe that following my tried-and-true methodologies and strategies allows us to not only cut down our downside risk, but more importantly, not squelch our upside potential.

Sure, we all know that Coca-Cola or Microsoft might be solid stocks for the wimpiest portion of your portfolio that you are afraid to lose, but how realistic is it to expect any of these companies to double EVER again, let alone in ONE year!?

If you are looking for outsized gains that will lead to ultimate outperformance for your portfolio, you need to look under every rock.

This means buying companies and stocks that NO ONE has ever heard of, or ones that have failed in the short term because of overreaction by Wall Street, or because of temporary problems in their business.

If you can’t look at every stock that you are about to add to your portfolio and answer The Double Thesis with a resounding YES, is it really worth adding to your portfolio in the first place?