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Rule Breaker

A Rule Breaker is a company that offers the prospect for superior growth because it is changing the way something is done.

Expanded Definition

Rule Breaker is a Foolish term that refers to companies that are growing rapidly by changing the way a particular type of business is done due to application of new technology, new methodologies or other disruptive or innovative developments.

Motley Fool Rule Breakers is also the name of a popular advisory service published by The Motley Fool. The advisory, subtitled "The Ultimate Growth Service," tries to identify rapidly growing companies that will beat the market due to their Rule Breaking qualities. While not all of the companies chosen by the Rule Breakers service necessarily meet the definition of Rule Breaker as defined here, many of them do. Members tend to be people with an interest in new technology or innovative products.

Rule Breaking companies tend to fall into the fields where innovative technology has become sufficiently mature to provide commercial opportunities to produce new applications. Rule Breakers can also be companies in an established industry that bring a disruptive new approach that changes the way business is done.

A Rule Breaker might be a biotechnology company bringing new scientific knowledge to bear on the development of drugs for unmet medical needs. It might be a fast food purveyor that creates a new market by offering healthy food or a new standard of service. It may be a software company that makes a radical improvement to the way businesses complete transactions with each other. It may be a clothing retailer that provides a hitherto impossible level of comfort or allows athletes to achieve a new level of performance. It may be a video game console developer who changes the way games are played and makes them relevant to a whole new demographic group. Above all, Rule Breakers bring unexpected new phenomena into the commercial world, and in doing so, change fundamentally the way that we live and work.

6 Signs of a Rule Breaker

  1. Top dog and first mover in an important, emerging industry. "Be first, be great"
  2. Sustainable advantage gained through business momentum, patent protection, visionary leadership, or inept competitors. "Thwarting the big bad wolf"
  3. Strong past price appreciation. "Invest in bottle rockets"
  4. Good management and smart backing. "Spotting the next Jeff Bezos"
  5. Strong consumer appeal. "Stocks with star power"
  6. Documented proof that it is overvalued, according to the financial media. "Cheap stocks stink"

(PDF report with more details and examples.)

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