I've been a stupid and reckless investor in the past: owning too many stocks, not knowing enough about them, trading in and out of them too impatiently, and not keeping up with my holdings. It was a dumb strategy, and I paid the price -- poor performance.

I've learned a lot since then. My portfolio is full of companies I'm rather familiar with, and I understand them much better than my holdings of yore. I'm also aiming to hang on to them for a long time, unless some specific change in their fundamental fortunes makes me lose confidence in them. I expect that this approach will serve me well.

After all, these blue chips may be big, but they can still grow. Just look at how some of them have done in the past 20 years:

Stock

20-Year Total Return

Apple (Nasdaq: AAPL)

1,739%

Costco (Nasdaq: COST)

446%

McDonald's (NYSE: MCD)

900%

Not so bad, huh? If this group of holdings merely doubles every decade from now on, I'll have eight times its value in 30 years. $125,000 could become $1 million. And if my portfolio triples each decade -- admittedly more of a pipe-dream scenario -- its value will grow 27-fold.

For many investors, this is enough. Through a broad-market index fund, large-cap mutual fund, or blue chips you've carefully selected on your own, you can meet or beat the market over the long haul, outperforming most Americans.

Holding out for blowouts
Still, I confess that I yearn for much more than doubling every decade. Perhaps this is because I've actually experienced much more. I invested in America Online more than a decade ago, and watched my investment grow 70-fold. Of course, I didn't sell near the peak; now those shares, merged with Time Warner (NYSE: TWX), aren't even close to their former worth.

While I'm focusing my portfolio these days on proven winners with strong track records and defensible competitive positions, I'm also leaving some room for potential blowout results, by devoting a small portion of my portfolio to some aggressive investments.

How to find 'em early
Quite obviously, one secret to achieving blowout results lies in finding great companies early.

Back in the mid-'90s, you might have noticed America Online's large and growing base of users. In 1996, it had around 5 million subscribers and a market cap of $5 billion; by 1998, subscribers had roughly tripled, while its market cap increased fivefold. The company had a competitive advantage because of its high "switching costs" -- once subscribers had shared their email addresses with lots of friends, they were not likely to change providers or addresses too quickly. Based on all these factors, you might have decided that the company was worth at least a small investment, in case it became wildly successful. Continued...