When Experts Can't Classify It, They May Be Looking at Tomorrow

David Gardner recently shared one of his favorite investing signals on X, highlighting how it remains relevant even after 25 years. The signal suggests that when experts struggle to classify a company's industry, it may be a sign that the company is inventing its own category.

This concept was first introduced in David's book Rule Breakers, Rule Makers, where he noted that companies like Amazon were initially classified as booksellers but ultimately became much more. The classification problem often indicates that a company is breaking new ground and creating its own category.

Today, this signal still resonates with companies like Tesla, Nvidia, and Palantir, which are all struggling to fit into traditional industries. Tesla is seen by some as a carmaker, an energy company, or a robotics bet, while Nvidia's shift towards AI-infrastructure has left it difficult to categorize.

The disagreement over these companies' classifications may be information in itself, indicating that they are creating new categories and rules for their respective industries. Gardner emphasizes the importance of holding onto winners and adding to them rather than trimming them due to perceived overvaluation.