- January 22, 2026
Picking the Winners
How to think like a great stock picker
This article is for general information only and is not personal financial advice.
By Izaac Ronay
If you’ve been following along with the Explosive Growth portfolio updates, you would have noticed that we’ve been picking some pretty good winners.
At the time of writing this, the market has fallen 0.8% since we started the service. Our picks are up 57.7% on average. On an annualised basis, we’re tracking an impressive 218% return.
This doesn’t happen by chance.
We agonise over every addition to the portfolio.
But most importantly, we follow a very strict set of criteria for new additions. There’s a gated process if you like, where we filter down from the whole universe of stocks, to the handful of strong conviction ideas we’re happy to recommend and hold.
Less is more, and we’re not trying to get our investors into 100 different names. The option to stay on the sidelines, and pass up fifty deals to take just one is a super power.
Every investor or trader could benefit from that approach.
If I think back to my days of trading futures, one of my best months ever was when I took just six trades the whole month.
That was a learning experience! The market wasn’t right for my trading style, so I cut back to just the best opportunities.
I’d previously been taking hundreds of trades every month.
The Secret Sauce
There’s a lot of factors we look at when evaluating a solid investment. But the first, and most important aspect is the opportunity.
I touched on this briefly last month in The Week’s Edge and promised to expand on this idea of opportunity.
So, let’s get into it.
To identify a company with Explosive Growth potential, we’re not looking for 15% per year. We want – ideally – triple digit or greater returns.
If you want lower volatility and lower return plays, then keep that lens in mind as we work through this, but we’ll be focussed here on the process we use for Explosive Growth.
Let’s look at the factors that make a great opportunity.
1. Sector Tailwinds
This is the bigger forces operating in the global economy that mean things are more likely to get easier than harder.
Right now, copper miners have strong sector tailwinds from a very strong demand for continued electrification, including the rise of EVs, renewable energy and data centres. Plus, copper is getting harder to find and mined grades are declining over time. This means a viable mine now is likely to become more profitable into the future.
An example of an industry with sector headwinds would be thermal coal mining. While there is still money to be made, many economies around the world are phasing out coal-fired power stations. It’s also getting harder to get regulatory approval and funding. While this can lead to its own type of opportunity as less project approvals leads to price volatility, it adds risk and uncertainty.
2. Relatively Large and Growing Opportunity
The gap in the market we’re aiming for has to be relatively large compared to the size of the company.
A $100 million per year opportunity is much more attractive to a $5 million business than a $5 billion business.
Another way of framing this is to say that the company must be priced such that there’s enough value created if they successfully fill that gap.
Generally speaking, we’re targeting stocks we believe will be repriced 5X or more if they succeed.
We use peer pricing as a guide, which will of course change with the interest rate and risk environment.
The other important factor is that we want the opportunity to be growing, not shrinking. The market has a tendency to over-compensate for the impact of later earnings. That means a shrinking market can lead to severe discounting, making it much harder to achieve a short-term exit.
On the flip side, because growth stories are in high demand, companies that can demonstrate and reasonably forecast high growth can have impressive repricings.
3. Defensible Advantage
We are ideally looking for the only company that can exploit a particular opportunity.
Think of miners, who have the sole rights to develop a tenement. No one else can muscle in and takeover their supply.
Another clear example is a pharmaceutical stock with the first to market of a solution. Lumos Diagnostics (ASX:LDX) is a clear example of this. They’re racing to be the first to market a 10-minute bacterial vs viral infection test kit with a CLIA waiver for point-of-care applications.
Other defensible advantages might be harder to spot. But look for things like:
- Network effects: Microsoft (NASDAQ:MSFT) Windows is so successful because it’s the most popular operating system, which leads to everyone building their software for that system, reinforcing its leadership position.
- Exclusive contracts or relationships: Dicker Data (ASX:DRR) has exclusive rights to distribute NVIDIA (NASDAQ:NVDA) chips into Australia and New Zealand. Shriro (ASX:SHM) has been the exclusive distributor of Casio products in Australia since 1982.
- First mover disruption: Uber (NYSE:UBER) turned the world of taxis on its head by essentially opening the market up to every man and his dog. Camplify (ASX: CHL) has done the same with recreational vehicles. We’re wondering if Stakk (ASX:SKK) could do the same for customer onboarding. Once big disruption starts, you can bet a heap of imitators jump in. That’s when the race begins.
- Scarcity and Location: Think about toll roads and data centres here. The reason NextDC (ASX:NXT) is priced as if it has no competitors is because it’s very difficult to secure the real estate, approvals and energy requirements for a large data centre in the middle of a CBD. Transurban’s (ASX:TCL) toll roads don’t have competitors. Airports are also great examples as well.
Hype: This is the hardest edge to pull off, but when done correctly it can become an unstoppable compounding machine. Uber had hype. Apple (NASDAQ:AAPL) is the master of hype. Afterpay, now owned by Block (ASX:XYZ) soared off the back of hype. This is the irrational need for consumers to have a product, to be on board and be one of the in crowd.
4. Solution fit
The company must be able to exploit the opportunity in question. That means their product or solution has to add value.
Does it make life easier?
Does it make something happen that couldn’t before?
Does it make money?
Does it save time? Does it reduce risk?
It’s important to clearly think through whether what is being offered is actually valuable.
Brainchip (ASX:BRN) was a super hyped name in the ASX small cap space for a long time. Lots of flashy marketing and promises of industry disruption. The problem is that for all of that hype, there’s no real evidence that they have a superior, or even useful, product compared to the companies out there already selling and generating cash.
It’s important to question the flashy hype story that many small cap stocks peddle. Many flashy stories fall over. Most new drugs being developed never hit the market. A lot of tech companies spend a decade going nowhere but burning cash.
The Edge
Finding the big opportunity is the first step to finding an Explosive Growth stock. You can get a lot of other things wrong if you get this step right.
You can be forgiven for getting your entry timing wrong. Cash-strapped businesses can raise money, farm out work or use creative offtake deals. Bad leaders can (sometimes, but not always) be replaced.
But you can’t:
- Change the mineral structure of a mining tenement
- Gloss over death as a drug side-effect
- Make flairs cool again (yet)
Of course there’s more to finding a great returning stock. But this is the place to start and the most important step.
Having a robust and well thought out investment process is one of the things that separates average from great investors.
If you’re serious about achieving outsized investment returns, sign-up to the Explosive Growth portfolio, and follow Izaac Ronay and The Markets IQ on LinkedIn.
Until next time, happy investing.
Izaac Ronay
Izaac is a broker and trader with Vitti Capital. He brings over 10 years of trading experience with top-tier global trading houses and 20 years of experience analysing and investing in ASX listed equities.
This publication has been prepared by The Markets IQ, a division of Vitti Capital Pty Ltd (ABN 13 670 030 145), which is a Corporate Authorised Representative (001306367) of Point Capital Group Pty Ltd (ABN 41 625 931 900), the holder of Australian Financial Services Licence 518031. This report is for general information only and does not take into account your objectives, financial situation, or needs. It is not personal financial advice or a recommendation to buy, hold, or sell any security. You should consider whether the information is appropriate in light of your circumstances and obtain professional advice before making any investment decision. This report is intended solely for wholesale, sophisticated, or professional investors within the meaning of the Corporations Act 2001 (Cth).
Any views, probabilities, valuations, technical levels, or forecasts expressed are strictly the opinions of the authors as at the date of publication, based on publicly available information and assumptions which may change without notice. They are illustrative only and not predictive of future outcomes. Past performance is not a reliable indicator of future performance.
