Think back to the fall of 2007. Happy times, indeed. The market was rising, Lehman Brothers and Bear Stearns still existed, and we were blissfully unaware of the potential danger of weather balloons.

At that time -- perhaps overcome with confidence -- my colleague Joe Magyer and I penned an article asking why you weren't earning 50% annual returns. This, in fact, was a challenge posed to us by Motley Fool CEO and co-founder Tom Gardner, and one we spent some time thinking about because, well, we thought we might be able to pull it off.

The results of our brain strain
Our strategy to achieve this glorious return had three steps:

1. Get out of index funds.
2. Protect our principal.
3. Invest in small, underfollowed stocks that are likely to be mispriced.

Fast-forward to today. While I stand by those three steps, if you had followed them for the past few years, you would have subjected yourself to extraordinary volatility and (at least temporary) losses.

And that's the catch-22: The only way to give yourself a chance at massive returns is to expose your portfolio to massive potential losses. 

So are we idiots?
Since few individual investors are willing or able to take that degree of risk, that two-year-old article looks in hindsight like nothing more than a useless thought experiment. Sorry for wasting your time.

But I've revised my thinking to make it more actionable and relevant to you. Rather than chase 50% annual returns across your entire portfolio, why not aim for them in a small portion of your portfolio. That's called diversification, and it reduces your risk of massive losses. As the same time, as you'll see below, it also gives your portfolio the potential to achieve verymeaningful outperformance.

Here's what I mean by that
This past summer I traveled to China on our annual Global Gainsresearch trip, looking for stocks that might double or more over the next three years. (Anything less is generally not worth the hassle of investing in China.) One of the companies we discovered in Inner Mongolia was a small fertilizer company called Yongye International (Nasdaq: YONG).

The stock was cheap, the management team savvy, and the market opportunity enormous. In other words, it looked like a promising investment. (To read more about the investment opportunities in rural China, click here.)

And it turned out to be just that
I made Yongye my top pick from that trip. But it wasn't my only pick. Instead, I placed it within the context of a broader basket of plays on the booming development taking place in rural China. In fact, I told folks to buy four stocks in addition to Yongye, with Yongye representing less than half of a full 5% position. Here's what that basked looked like in the end:

Company

Recommended Position Size

Yongye International

2.00%

China Green Agriculture (AMEX: CGA)

1.00%

China Marine Food (AMEX: CMFO)

0.50%

Coca-Cola (NYSE: KO)

0.75%

China Mobile (NYSE: CHL)

0.75%

And here's what the returns have been from that basket since we recommended it in July:

Company

Return

Yongye

185%

China Green

63%

China Marine

13%

Coca-Cola

11%

China Mobile Continued...