Wayne, I think you know I am big fan of what you are trying to do to help lazy investors (like me) through the AAII GI and Sentiment models. They are truly innovative.
#1 Your premise that recognizing secular growth stocks increases the opportunity to benefit from their growth has been proven to be superior investment strategy since financial markets were created 400 years ago and is especially timely these days.
#2 The first task every investor faces is getting on the S-curve at the right stage – "early adoption." That's generally defined as during the first 34% of the curve were the biggest returns are possible. If you miss this "sweet spot" you can still "ride the curve" through the other 66% of the curve.
#3 Unfortunately, all investors have to be aware that ALL "existing secular stocks" face being replaced by any one of Mike Porter's 5 Market Forces:
(1) existing rivals (with improved superior strategy),
(2) increased supplier (3) or customer purchasing power,
(4) new market entrants (with replacement products that obsolete existing products ), OR
(5) technological innovation (that replace / make obsolete existing products.
#4 Clay Christensen of Harvard had a famous case study on the evolution of computers. (later a must -read book, "The Innovator's Dilemma.") Christensen's theory ("disruptive innovation") explains how smaller companies with fewer resources can successfully challenge established businesses by serving the lower end of the market and gradually moving "up market" with more sophisticated products, ultimately displacing incumbent offerings and market share. Disruptive innovation typically involves products or services that are initially simpler and more affordable, making them accessible to a broader audience. Christensen's work significantly reshaped how businesses understand and navigate technological and market changes. Every MBA knows this model.
A famous example Christensen used was the evolution of computing.
In the '50/'60s IBM dominated computing through its superior time-sharing mainframes and remote terminals (Ex: Fred Brook's famous IBM 360 system).
In the '70s, Ken Olsen and DEC severely reduced IBM's market share and profitability with its PDP-8/11 "mini" computers.
In the '80s Xerox PARC took market share through its innovations in local area networks (LANs), modems, the first "mouses," and WSYWIG bit-mapped terminals.
In the '90' Marc Andreessen's Mosaic browser made internet access available to small businesses and the masses.
By the 2000, IBM, DEC, and XRX, once secular role models, were "obsoleted" by all these new entrant "secular" players with superior technologies.
Note that the "half life" decay curve of "secular" dominance was a lot shorter than the 30 year model the article uses as a benchmark. This example is not atypical. "Disruptive disruption" is every VC's model today.
#5 The BIG PROBLEM EVERY INDEPENDENT INVESTOR faces with investing in today's "secular" stocks (in 2025 and beyond) is that there are dozens of KNOWN secular competitors seeking to exploit EACH of "5 Forces" with the BILLIONS of capex being thrown at them with the specific intent to unset today's M7 (or whatever acronym) darlings.
#6 In his 1962 book Everett Rogers "Diffusion of Innovations" theory explained HOW, WHY, and WHEN the rate new ideas and technology spread. The diffusion process communicates innovation through markets and among participants over time.
The origins of the diffusion of innovations theory are varied and span multiple disciplines. Rogers proposes that 5 elements (there's that number again) influence the spread of a new idea:
(1) the innovation itself,
(2) adopters,
(4) time, and
(5) the social system relying heavily on social capital like internets, social media, advertising, etc.
An innovation must be widely adopted to sustain its profitability. (VCs demand very steep ROIs and have lots of lawyers. They "pay themselves first" ... every time.)
The adoption rate eventually reaches critical mass. In 1989, Regis McKenna theorized that this point lies at the boundary between the "early adopters" (first 14%) and the "early majority" (first 34%). That's long before these "secular incumbents" are screened in" by most "growth screens."
#6 Wayne, as Andy' note to Red in "Shawshank" said, "thanks for getting this far."
#7. And therein lies my issues with the AAII Secular Growth model. I do not see how either the A+ Growth Grade (consistency of growth) scoring systems or Mohanram's G-Score (quality reinvestment signals) incorporate ways to identify these "disrupters." and I am not familiar with a list of previous "disruptor" successes that prove the efficacy of the GI model.
Original Message: Sent: 9/22/2025 4:19:00 PM
From: Jenna Brashear
Subject: Where Do Mega-Trends Sit on the S-Curve?
In his article The Strength Behind Secular Growth Investing (September 2025), Wayne Thorp explains:
"Secular growth rarely follows a straight line. Instead, it typically traces an S-curve-early adoption, acceleration, then maturity. The sweet spot for investors often lies in the early acceleration phase, after proof of concept but before mainstream saturation."
Two key questions for fellow investors:
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Where do you think today's mega-trends (AI adoption, electric vehicles, renewable energy, etc.) sit on the S-curve? And is it more profitable to invest early or after mainstream adoption becomes clear?
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AAII's Growth Investing approach combines the A+ Growth Grade (consistency of growth) with Mohanram's G-Score (quality reinvestment signals). Which factor do you consider more important for spotting future compounders?
Read the full article here: "The Strength Behind Secular Growth Investing" written by Wayne A. Thorp, CFA.
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Jenna Brashear AAII Community Manager Chicago, IL
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