Editor’s note: I (Chris Reilly) called Stephen McBride to get his thoughts on how the Iran conflict impacts our disruptive investments. We had a great conversation about investing in times of crisis, informed by some surprising lessons from 2008. Please enjoy the transcript below.

And quick reminder: Disruption_X enrollment closes soon. Go here to review your special pricing.

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Chris Reilly: Stephen, you sent me some surprising data from the 2008 financial crisis ahead of this conversation. Tell our readers about it.

Stephen McBride: It tracks the performance of three specific stocks before, during, and after the crash.

First, Netflix (NFLX). From February 2008 to February 2009, the S&P 500 cratered 44%. Netflix stock gained 47% in that same span.

That’s in large part because Netflix kept right on growing through the crisis. Its user base expanded 26% in 2008, then another 31% in 2009.

Chris: So while the market almost got cut in half during the worst crisis of our lifetimes, Netflix shares increased in value. 

Stephen: Right. Second, Priceline. Its stock tripled from around $60 in late 2008 to more than $200 by late 2009. Priceline’s revenue grew 34% in 2008 despite the crisis.

Third, Amazon (AMZN). Like most stocks, it fell at first. But it recovered quickly and was hitting new all-time highs by 2010.

Now imagine if you’d put $10,000 into each of those companies (Netflix, Priceline, and Amazon) at the start of 2007. So $30,000 total. You'd have had over $270,000 by the spring of 2012.

Chris: And if you’d put $30,000 in the broad market instead?

Stephen: Your $30,000 shrank to about $27,000, as the market generated negative returns over the same stretch. Take a look:

Chris: Are these the only stocks that shrugged off the 2008 crisis?

Stephen: No. Apple (AAPL), Google (GOOGL), and Salesforce (CRM) performed similarly. So did Intuitive Surgical (ISRG), whose robotic surgery systems were disrupting operating rooms.

Chris: I’m certain this data would surprise most investors. What is it about these stocks that let them power through a crisis that set normal companies back years?

Stephen: As you know, these are disruptor stocks. The best disruptors grow no matter what.

Most often, that’s because they’re taking advantage of huge, multi-year structural changes. Or more precisely, they’re causing these huge structural changes, while also taking advantage of them.

So Amazon didn't just sell books online. It changed the primary way people shop from in-person to online. This shift is still playing out today, almost 20 years later!

Netflix is a similar story. It created a whole new streaming market. We could say the same about a company like Uber (UBER). It replaced the taxi industry.

Those kinds of companies aren't dependent on the economic cycle in the way a bank or a homebuilder is. They can grow and grow, almost no matter what. And that growth doesn't stop in a crisis. If anything, disruption accelerates in tough times because people and businesses are forced to find cheaper, faster, and better ways of doing things.

Chris: So “macro” noise tends to be irrelevant to the underlying business?

Stephen: Yes, provided you select the right stocks.

Chris: The macro issue of today is the Iran war. Would you recommend people buy stocks like Netflix and Amazon to ride it out?

Stephen: Those are mature companies now, so they don’t have the same “grow no matter what” quality they did in the earlier 2000s.

My advice is to find today’s companies that will grow no matter what.

Chris: Which are?

Stephen: There are many to choose from... markets are rich with opportunity right now. If you made me choose one category, I’d say semiconductor capital equipment stocks, or “semi-cap” stocks.

These companies make the machines that make the chips powering artificial intelligence (AI). There is overwhelming demand for what they produce. I struggle to think of a scenario where their businesses aren’t a lot bigger in a year or two.

Chris: You currently recommend four small semi-cap stocks inside Disruption_X.

Stephen: Yes, and their performance is actually a great example of what we’ve been discussing.

When the Iran crisis started, their stock prices dipped along with everything else. But they recovered extremely fast when investors realized the Iran conflict has zero chance of limiting their growth.

They’re all up double digits from when we recommended them in February. I think they’re going a lot higher.

Chris: These are very small, high-velocity growth stocks. Wouldn’t conventional wisdom say they’d be the last stocks you’d want to own in a crisis?

Stephen: I guess. But who cares about conventional wisdom?

You have to understand the reason these stocks are growing so fast. If a growth stock is dependent on a calm Middle East or friendly global trade, go ahead and sell it.

But semi-cap stocks? They’ve got AI, the mother of all megatrends, as a decade-long tailwind.

And when you zoom in, you’ll see that their products are the most urgent bottleneck in the AI supply chain right now.

If there’s a secret to our success at investing in AI-related stocks, it’s that we’ve focused on bottlenecks. Data centers were a bottleneck… and those stocks soared. Then it was memory… and those stocks soared. Optical equipment, same story.

Semi-cap stocks are the current bottleneck.

Chris: Thanks. This is the last issue of The Jolt before enrollment in Disruption_X closes. What would you tell someone who’s on the fence about joining?

Stephen: Well, we’ve only opened up enrollment for a short window every six months or so. So if you’re serious about growth investing or think you might be within the next few months, now’s the time to act.

Also, the Iran situation is obfuscating all the opportunity available right now. There’s a lot of fear and uncertainty, yet disruptors are powering right through. The underlying trends—AI, defense tech, the next generation of chip manufacturing—are only accelerating.

Chris: Thanks, Stephen.

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Chris Reilly

Executive Editor, RiskHedge