Making Sense of Past Stock Drops

In this podcast, we try to make sense of past stock drops and pull out the lessons that investors can use today, including:

• What to look for from company executives as they respond to crises.
• Questions to help decide if companies are going through structural or cosmetic problems.
• How to revisit an investment thesis.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Feb. 19, 2022.

Steve Ballmer: That is the most expensive phone in the world, and it doesn't appeal to business customers because it doesn't have a keyboard, which makes it not a very good email machine. Now, it may sell very well or not.

Chris Hill: I'm Chris Hill, and that was Steve Ballmer back when he was the CEO of Microsoft (MSFT 1.82%). He was sharing his not-very-high opinion of a new device that had come on the market, the iPhone. Turns out it actually sold very well. Today on Motley Fool Money, we're going back in time to make sense of past stock drops. Because when a stock drops, a business could be going through structural problems or just cosmetic problems. Motley Fool senior analyst Asit Sharma is going to discuss what to look for in company executives as they respond to crises, and share some ways that history may be rhyming during this current bout of volatility. With more, here's producer Ricky Mulvey.

Ricky Mulvey: You're supposed to buy low, sell high. That's much harder to do in practice. Right now we're seeing one of the most emotional markets in history. Maybe or, for you as an investor, it might be. Well, today we're going to look back at some previous volatility, some previous stock drops that can hopefully give us some sense of what's going on today. Joining me now, Asit Sharma, senior analyst and a contributing learner for The Motley Fool. Asit, so happy to talk to you about this, excited to talk history of past stock drops and hopefully get a little bit more sense of what's going on right now.

Asit Sharma: Ricky, the same, although I tell you what, you've blown me away. I didn't know that investing is emotional.

Ricky Mulvey: You didn't?

Asit Sharma: Just kidding.

Ricky Mulvey: You thought we could go in as robots, do some high-frequency trades, and get on out.

Asit Sharma: I thought, turns out it's more complicating.

Ricky Mulvey: Little bit. I think one of the things that's so hard is people think, "I'm going to get out and then come back when the dust settles." But the problem with that philosophy is you never really know when there is an all-clear signal in the market. I thought that Downtown Josh Brown had a good blog post about this actually in 2020, where he was writing about how on March 9 in 2009, that was actually when the stock market returned to going up, and it really didn't give any sign that that was the case. He said: "The economic headlines were not improving, but there it was. By June 1, less than three months later, the stock market had climbed 41% from that March low, and even with that having happened, the majority of participants still weren't clear that the dust had fully settled." I really like that. It's about the broad market, but I think the same can be true about a lot of these stocks that go through a lot of ups and downs.

Asit Sharma: I agree. Ricky, the market itself is this weird beast because it is something that's driven by macro events and economic forecast. It is driven by business performance, how are the companies doing that you're investing in? But it's also driven by gut, and that's the gut of both institutional players and retail investors. Nobody knows when the dust is settling in a time of turmoil because none of us really know where we're settled during that. It's long communal exercise. You can only truly see bottoms in hindsight.

Ricky Mulvey: We're going to look back at some of maybe not bottoms, but drops, at least. I think as an investor for me, one of the things that's hard is, I know I want to buy low and sell high. But just because you're buying low doesn't mean you bought at the bottom, so you could buy a stock like Meta Platforms after it dropped to just a little bit, and then, oh shoot, it drops another 30%, and the mental fallacy I'm getting over right now is: Just because I bought a stock that maybe was down a little bit. me buying that stock does not constitute the turnaround point for it going back up again.

Asit Sharma: I wish it would be that way, but it's not.

Ricky Mulvey: I do, too, but that's the thing that's so hard where I'm like, I saw that the stock was going lower. Now, we're ready for the good times. That's not the case and it's not reasonable to think that as an investor.

Asit Sharma: I've been in that state many times where I've made the decision to buy and I'm really thinking a lot about what's going to happen next. I feel like I've pegged where I want to buy the stock. I like the price. Only to see that my interpretation isn't the market's interpretation of where that stock is going to start rising. Now, if we pin the idea of buy low, sell high on a single event, we decrease our chances for success in some ways. If we're measuring in the short-term, I really like both the Gardner brothers, their approaches to this. Tom Gardner, of course, is a big fan of dollar-cost averaging. I think he tweeted this last night, how much he likes the strategy. You're buying over time in multiple steps. Sometimes you are buying higher than the last time you bought, sometimes you're buying lower. It works out in the end. I love David Gardner's approach, which is counterintuitive, but if you've done the homework to identify a great company, then you keep buying on the way up. You've heard this before, Fools, winners keep winning. Two approaches that make sense in that they smooth out that singular event of trying to pin maybe a bottom so that you can try to sell higher later, it makes it more of a continuum of an investing decision.

Ricky Mulvey: You're never going to completely remove the emotion out of investing. But if you don't have a disciplined strategy, you have nothing. But it's still emotionally difficult to look at the drops. One thing that I've been doing, especially looking at some of the companies I've owned is revisiting my investment thesis. Why did I buy this company in the first place? Just because it's emotional to see that red on the brokerage account, does that change why I initially bought it? Actually, I recently did that with Lululemon, which I purchased because I thought it had a strong brand and like a lot of room for international sales growth, looking at some of their numbers, international sales. Sales outside North America was 14% of Lululemon's total business in 2020, and while it's not an exact comp, Nike does about 60% of its sales outside of the United States. I looked at that and I thought, if you want to play the fall of the Chinese middle-class game on strong American brands, different luxury brands, this might not be a bad place to do that. That was the long-term idea I had on that. But I ignored one thing. I know a lot of Fools like the Mirror.

Asit Sharma: Hey, Ricky, I love to look into the mirror. I'm a narcissist. Oh, you're not talking about that mirror?

Ricky Mulvey: I'm not talking about that mirror, I'm talking about the $500 million that people would want to spend essentially, $1,400 on this workout Mirror, and then $40 per month to have access to those classes. Then recently shareholders essentially asked, how is that doing? How's people's narcissism holding up? The answer was not so great. In December, the company cut its full-year Mirror revenue guidance in half from the previous range, which was between 250 million and 275 million to about $125-$130 million. Conceptually, that's high for me. I'm surprised that many people are getting involved in the Mirror. I am absolutely shocked offset that people want to stare at themselves the entire time they work out. I understand the post-workout Jim Muir selfies, whatever you want that, but really the entire time you want to see yourself sweat and strain and work online, I don't know. Then the second thing, the reason I didn't love it is because this Mirror, this $40 a month subscription, has really strong competition with these free YouTube classes. The competitive advantage wasn't there for me on that. I liked the international sales growth. Buried in that quarterly report, Lululemon actually confirmed my idea as an investor, what I was really looking for, which was that international growth is still strong. The company said international sales grew by 42% over the past two years. That's the bread and butter stuff that I'm trying to focus on as a shareholder. But it's hard when you see these huge drops in news that affect the share price.

Asit Sharma: Ricky, I like your analysis of this company. I like the reasons that you bought it. I like your working through of your thesis, testing the thesis after an earnings report. But let's take a look at your thesis. This is something that's very persuasive because Lululemon is a brand that has a lot of cachet in places like Asia. The company is one of the few retailers that has a very dominant physical footprint. It's still growing comparable sales when you combine the physical stores in a post COVID environment with their online e-commerce portion. They're calling their comparable sales at 27, 28%. The company itself is I think a really fun business proposition in the retail athleisure space. The other thing I'll note is that it's hard not to participate in this connected fitness world. You almost have to make these investments whether they become these huge drivers of your outcomes or they enable you to bring in new customers who want to use the technology. You almost have to do this and I don't blame them too much. Do they overspend? Probably not over the long term. What we're looking back at is a longer payback period on the investment but yeah, I think this will work out for them.

Ricky Mulvey: I don't want to sound like an old man yelling at a cloud. Optionality is great but also isn't there an element where you want those companies to focus on what they're good at or am I missing the boat and missing the point on connected fitness?

Asit Sharma: Well, we'll return to this theme later in this show but I think great management teams are teams that will take some risks sometimes. They like to exercise their imaginations. There is that element in this acquisition. Again, 500 million bucks seems like a big investment, but in the context of their balance sheet and their sales, it's not that huge. Let's come back to this point and we talk about a few other companies because you've turned a flag up in my mind.

Ricky Mulvey: OK. [laughs] I know you've also been looking at some stocks as well, especially ones that have taken advantage of COVID trends work from home that have experienced some significant drops lately.

Asit Sharma: Yeah Ricky. This is not one that I own but how could we not talk about Zoom? It's the poster child for stocks that had a big pull-through because of COVID and now are in this ambiguous place. I think it's a fascinating case study for this theme that we're talking about today. Some investors bought Zoom at its peak in, I think this was October of 2020. Its market cap today of 43 billion bucks is close to one-fourth of its peak market cap of some $162 billion. If you bought at the top, you're hurting. It's got to hurt. On the other hand, you have a company that appears to be able to sustain revenue growth for the next few years, somewhere between 20 and 30% year-over-year annualized. That company is now trading at just 33 times its forward sales and it's trading at just 28 times. It's 2022 estimated free cash flow of sum, $1.51, $1.6 billion bucks. You've looked at Zoom, it's got $4.4 billion of working capital on its books, has no long-term debt, it's extremely profitable. They're throwing off operating margins of 27%. 

Between all these factors, this top-line growth, the figures free cash flow, this huge balance sheet, management simply needs to figure out how to capitalize on its relationships with 2,500 customers that provide each more than 100,000 bucks in annualized recurring revenue while it keeps all those middle-market companies and small businesses in-house. They're doing a lot of innovation on this front. They've migrated over to this vision of a corporate enterprise sales. They are building up their direct sales team, they also are thinking through what it means to be in a hybrid workspace. Now their investment is geared toward companies having to use their licenses. If you've got a Zoom license for a few employees, it doesn't work.

If your company has 20,000 employees, you can't have Zoom licenses for just 2,000 of those 20,000. You have to buy it for the whole company. This is where they're starting to gain some new momentum in products like the Zoom phone, which is not really a phone, it's more of a platform that incorporates text messaging, videoconferencing, etc. But I wanted to say something here which hopefully will be helpful to listeners who have stocks that are in this ambiguous space after COVID. One thing you can do to figure out what might happen next is to look at the management team and try to assess what you make of their capabilities. Here in Zoom's case, you're trying to solve for this optimal use of capital and their ability to transform their business momentum which is high right now into something new.

Ricky Mulvey: You like the pivoting that Zoom's management team is doing? You think they're doing a good job at seeing where the puck is going on the hybrid work model?

Asit Sharma: I think so. I also think that the things we saw in this management team before COVID ever hit are very apparent now. It's a deliberate team they execute not trying to race ahead of other companies but to make sure that they don't slip up. They are building out some infrastructure of their own that will replace all the cloud infrastructure they basically had to place Zoom technology on during COVID. That's going to help them in the long run with their margins. But at the same time, they're not about to drop the ball. What is dropping the ball for Zoom? Well, Ricky, you and I have a meeting tomorrow and millions of people around the globe also have meetings and for some reason it doesn't work. [Laughter] Even during the peak of COVID they were always able to handle that load. It shows you how capable they were at execution beforehand. The other quick thing I will say here is they've got a very visionary CEO in Eric Yuan. He is someone who foresaw how clunky videoconferencing was years ago and worked in an extremely innovative way to build a product that saw beautiful uptake when the world changed. I think he can repeat this act. He's likely not to have such a big innovation in the future but the enhancements to the product which we'll see in the next few years, I think he is the right person to drive those.

Ricky Mulvey: Speaking of management teams, it's important to look at because sometimes stocks fall and they don't come back. I think poster child of that asset was General Electric. It was the largest company by market cap and then in a sense it's falling was emotional. People couldn't believe that this behemoth, this conglomerate, this real symbol of American capitalism fell, and a lot of it was because of financial engineering, a lot of acquisitions that made it bloated and unwieldy to manage. But you can look back at some of the decisions that it's leadership made that focused more on the financial engineering aspects rather than really growing the company and its capabilities in a coherent way.

Asit Sharma: Yeah. Ricky, when we were preparing for this show you pointed out to me that GE was worth $500 billion in the year 2000, and today it's worth $100 billion. I really agree with your take on what happened with GE. They mistook who their true stakeholders were. GE became enamored of its ability to produce very predictable profits for the Wall Street analysts who upgraded or downgraded the stock every quarter, forgetting that their true stakeholders were shareholders, were employees. So much of their focus was on the financial aspect of their business rather than key investments into the industrial parts of their business. Also I will say that here we also have to talk about the fact that GE has been a legacy company. Its roots go back decades and they have a significant pension liability on their books which is the result of offering everyone who worked there and attained a certain tenure a pension. Companies today are not really worked into that system. I think GE doesn't get enough of a break by many analysts to look back on the fact that over a period of time that they built up these huge pension liabilities and that was also hard for them to get out of. But yes, the world was changing, GE was not innovating among its various businesses. This is a warning sign to investors, isn't it Ricky? It makes you uncertain with the rate of technological change today. Hey, what will happen with the stocks that I'm holding?

Ricky Mulvey: I think one key metric to look at if you're wondering what leadership is doing and how is it focusing on the future is research and development spending. Over the course of Jack Welch's tenure as they focused more on that financial engineering side, R&D spending fell as a percentage of sales by nearly half. I think that's key to focus in on, is if you're looking for these great companies for the future. How are they preparing for that in a way that isn't just essentially appeasing quarterly Wall Street analysts. Are they doing something meaningful that will affect them years and even possibly decades down the line? The one example we like to talk about a lot at The Motley Fool of stocks falling are the times that Netflix broke. The times that Netflix went down 50, 70% and one of the famous times was [music] the Qwickster incident in 2011.

Steve Broido: [Music] September 2011, in a move that left many baffled, the CEO and founder of Netflix, Reed Hastings, announces in a Sunday evening blog post, the bifurcation of the company. Netflix would become a streaming-only service, while DVD-by-mail would carry on under the name Qwikster, a moniker that is impossible to spell correctly on the first and even the second try. Hastings correctly saw the potential of livestreaming and the eventual decline of the DVD-by-mail business model and started to disconnect the two.

Reed Hastings: The DVD service needs its own brands so that we can advertise it. We've named our DVD service Qwikster.

Steve Broido: But to consumers, it meant a price hike and inconveniently separate accounts, but most importantly, what a dumb name? Qwikster is now split into three new websites, Qwikster, Qwikster, Qwikster. [laughs] Reed Hastings quickly apologized for any confusion, and within a month Qwikster was dead, but the damage was done, 800,000 members had canceled and the stock plummeted more than 60%. Climbing back up from the hole would take time, but investors who were able to see the truth of Hastings' long-term vision were duly rewarded. Today, the stock is up 2,671%. Moral of the story, focus on the long-term vision, there might be stumbles along the way. This has been another amazing moment in market volatility.

Ricky Mulvey: One of the things that we talked about in a previous conversation, Asit was not just the incident itself, not just the Qwikster incident, not just how it fell, but how you viewed leaderships response, what Reed Hastings did after the stock fell and how that compares to a company like Peloton.

Asit Sharma: I think here that Reed Hastings showed what a great leader he was in this event. I've heard people knock on Reed Hastings as if he is a little full of himself or may be high on the arrogance scale, I don't think that's the case. Every successful CEO gets that at one point or another in their career. But to be able to very quickly pivot to look in the mirror.

Ricky Mulvey: Man in the mirror.

Asit Sharma: Not the Lululemon's Mirror, but the real mirror, the mirror that is right in front of you. I love that he was able to say, "OK, I really messed up here." This is one of those cases where stuff is hitting the fan, you could easily become defensive in this moment and tell your entire team, "We're going to ride this strategy out for one year folks, and I will be proven right." I have seen that movie so many times in the corporate world. This is something that is another key element of a great management team. What about humility? What about the ability to be really self-critical to quickly understand that you just goofed?

Ricky Mulvey: It's an interesting balance. Because look, you have a media executive, you have someone running a streaming service already [inaudible] blockbuster. Yeah, you want that person to have a little bit of swagger, but how much is too much? You find out when they make a big mistake. It's your point, that incident is something that could have broken the company. If it's something where you split DVD and streaming services, that's a problem that exists internally for you to separate things, you don't make that the customer's problem, you own that problem. Very quickly that's something that they responded to in a positive and generative way.

Asit Sharma: So true, and to your point on Peloton, I really feel that we have cues about management teams in many crises that occur. Pretty significant for Peloton, last year, a small child died using their treadmill and the company was very defensive up front about it, Ricky, it took them some time to come back to customers, to their stakeholders, and say, "Look, we're making changes to this product." When the initial reaction to something like that is, "Hey, everyone, you are not really using our product correctly."

Ricky Mulvey: Well, didn't they also tell their customers they needed to buy this extra subscription that had enhanced safety features?

Asit Sharma: I think they may have done that.

Ricky Mulvey: Yeah. Full shady.

Asit Sharma: If that was the case, that's sort of even worse. But you get these chances to evaluate a management team if you're a long-term holder, and this is the beauty of buy-and-hold investing. Sometimes you realize that whatever faith you placed in a management team was misplaced and it's time to get out, and that's perfectly OK. You could've made money in the stock, you could've bought Peloton at some point earlier and maybe you're holding onto a profit. If you look at that and understand how important it is that people drive the business decisions and people create the value, it's OK to sell. Buying and holding doesn't have to be about just making money.

Ricky Mulvey: Sometimes management teams' decisions quickly bring down a stock price, and sometimes it stays down for a very long time. One example of that is Microsoft after the dot-com bubble, it took 16 years for it to fully recover. One reason was its focus on the future, maybe some mistakes it made with phones. Here's then-CEO Steve Ballmer talking about the iPhone.

That is the most expensive phone in the world and it doesn't appeal to business customers because it doesn't have a keyboard, which makes it not a very good email machine. Now, it may sell very well or not. We have our strategy, we've got great Windows mobile devices in the market today, you can get a Motorola Q phone now for $99, it's a very capable machine, it will do music, it will do Internet, it'll do email, it will do instant messaging. I look at that and I say: "Well, I like our strategy. I like it a lot."

Ricky Mulvey: It's easy in retrospect Asit to like say, "Oh, of course, you don't need a keyboard on a business phone, users don't need that." But for a long time, a lot of Microsoft shareholders, essentially, were just in this wait-and-see game to see what the company could do with its gaming, what it could do with Cloud storage, what it could do with Office, which was moving from this licensure approach to software, to a SaaS approach.

Asit Sharma: Microsoft in Steve Ballmer's era was really great at one thing: They were great at optimizing results, they were engineers in every discipline that they approached, so they could engineer a great product. But here, again, going back to Lululemon, we talked about the exercise of imagination. This is what Steve Ballmer liked, was the ability to imagine a different future. Steve Jobs had this in spades, of course. It can make all the difference. Investors have that long drought with Microsoft. Why would you have stayed invested in Microsoft over that time period? Well, they had these wonderful balance sheets, still do, amazing cash-generation ability, still do. 

In those cases, if you're a long-term holder, maybe you wait a decade or more for a change, maybe you decide your capital can be better invested elsewhere and sell Microsoft after a few years when you see that Ballmer isn't creating any persuasive new products that are going to help the company grow its revenue at that previous rate that was in the high teens, between 20 and 30%. You could come back later if they make a change to management, and that's what happened in this case. They brought on Satya Nadella, who was intensely visionary, who had actually worked in a division of Microsoft that was very future-oriented, the Cloud business. Then you can make this decision, "I see promise in the way the capital is being deployed today, I'm going to get back into Microsoft."

But management teams that can't go through this exercise of imagination are teams that will end up only optimizing. GE was an optimizer. They were a financial optimization firm by the end of the day. This is one of those intangibles, if you're listening to this podcast thinking, I don't have like deep accounting chops, I'm not a finance person, how do I figure out what's going on with my company? I love to look at interviews of CEOs on YouTube. I love to read over widely, freely available, often at the fool.com transcripts of company conference calls and that's where you can find more detail about the people who are running the company so important.

Ricky Mulvey: You talked about the management decision at Microsoft. One thing they started doing is making smart acquisitions. One in particular that investors hated at the time was LinkedIn and that's turned into be a revenue, cash cow for them. I think that track record is now one reason that people are very excited about the Activision Blizzard acquisition for Microsoft and looking at these acquisitions and smart acquisitions, that was one thing that going back to General Electric, that brought them down. Even in 2016, they decided to buy out a company that made cool fueled turbines used by power plants for $9.5 billion. John Flannery, then CEO, later told CNBC, "If we could go back in the time machine today, we would pay a substantially lower price than we did." A company with the management team like Microsoft, they have the cash to make these smart acquisitions but they aren't necessarily forcing their hand.

Asit Sharma: Ricky, I love this point because forcing your hand is what happens when you're playing behind. GE was desperately looking for some investments that would generate tremendous value and so they thought they were a strategic buyer in the Alstom deal. But really they were buying a very decent asset at a high price and as you point out, Microsoft is very savvy in how it allocates its capital. Let's go back to Zoom, the point about this management team. I think they're going to be shrewd allocators of capital. They tried to buy Five9, $15 billion deal that I thought would've been pretty great for their business didn't go through. But I think you're going to see some of these smaller smart acquisitions, as you call them, strategic acquisitions ahead for Zoom. Microsoft certainly has that skill.

Ricky Mulvey: For one last stock drop that is good to remember is Chipotle. Chat some problems with people getting sick, eating their food.

Steve Broido: November 2015, Chipotle is under attack. Numerous outbreaks of E. coli, salmonella, and norovirus are linked to locations from Massachusetts to California. Chipotle, the nation's leading fast casual restaurant chain at the time, long private itself and using high-quality, healthy ingredients. But now found itself in the middle of a PR nightmare, even though Chipotle chose to introduce a new food safety program, shutdown all operations for an afternoon for health safety education. ...

And give away 21 million burritos. The stock still took a hit down almost 40% in just a few months. It would take roughly four years at Chipotle showing they could deliver on their promise of food with integrity for the stock to recover to pre-E. Coli highs. For investors who held through at all, they earned a return of more than 500% from the bottoms to today. Moral of the story: If a company breaks their strong brand promise, it will take an outsized reputational hit, but with persistence, the stock can still recover. This has been another amazing moment in markets volatility.

Ricky Mulvey: This is another case where you saw leadership face a crisis and multiple crises, if you will, and hit the accelerator in an interesting way. Take ownership for what happened and immediately look to essentially delight their customers, bring them back in the doors and fixed the problems they had with the food-borne illnesses.

Asit Sharma: Yes. I remember thinking at the time it is going to be years before Chipotle stock recovers from this, but on the ground, Steve Ells and Monty Moran, who no longer run the company, were doing all the right things, they put in a torn of procedures that essentially safeguarded the food from this type of crisis happening again. Now that's not to say that we couldn't see another food crisis with Chipotle, but I think the probabilities have substantially decreased from all the procedures that they were able to implement. But to do that, they had to take a hit on the restaurant margin. They had to take this short-term, near-term hit in the interest of being able to eventually get back to their business proposition, which is simply a throughput proposition. The more customers we can get through the door in an hour, the more money we make. Eventually, with a new CEO and some management innovations, they've been able to increase their throughput, COVID certainly helped and the stock has really recovered in the intervening years. But taking responsibility, being able to say quickly, we've messed up here, how do we fix this for the long term, those are other traits of great management teams.

Ricky Mulvey: They give away free guac, and it's amazing how that brings people back in the door.

Asit Sharma: I was so hesitant to go back and I think it was finally where those offers that got me to go.

Ricky Mulvey: Yeah.

Asit Sharma: Eat a burrito from there.

Ricky Mulvey: Maybe you'll get listeria, but I'm definitely going to get some free steak burritos. I think it's good to close up on some, if you're looking back on a company that's fallen, if you're looking back at your investment thesis, these are some questions I like to ask myself to say, was my thesis wrong, should I change my approach here? Or should I keep my head down and keep going, which is probably the better option, or usually the better option when a stock falls. One question is the company getting creative with its accounting? Are there lots of high level executives heading for the doors, General Electric, for one example, they are using a lot of proprietary sort of financial metrics that obfuscated what was going on with shareholders? No. 2, is the company reacting to whatever it's problem maybe with next-quarter solutions or is it thinking long-term? I think that's a critical thing to look at. Is management really focused on the future? No. 3, is the company handling its balance sheet in a responsible way, going back to that smart acquisition approach. Then No. 4, are there cultural institutional problems that you are concerned about? One thing we like to look at at the fullest Glassdoor ratings, how do employees of the company view working there? Are they holding onto talent?

Asit Sharma: Yeah, Ricky, I love this checklist. I think these are really fun and cogent, big-picture questions to ask. Listeners can make your own list, but you could just copy Ricky's here because these will uncover some of the observations that we made in retrospect over a lot of companies during this conversation. You can do this work at home very simple. I really like No. 2, is the company reacting to its problem with next-quarter solutions? That's simple to see when you look ahead at what a company should be doing for a multiyear period, you compare that to what they're doing on the ground if they're having some issues. Usually, the difference is falling out in the wash. Ricky, this has been such a fun conversation. I was curious what you're going to do going forward, the market is still pretty rocky here. I feel like I'm settled just talking with you, looking at my portfolio for me personally, I'm going to just try to focus on the businesses rather than stock-price, I always do that. How are you going to be approaching your portfolio in the coming months?

Ricky Mulvey: I'm a dollar-cost average, which is I have a certain amount of money that I set aside for stock investing every month and no matter what the market's doing, that's how I go about it. I'm not trying to play games, just you have a certain amount of money that comes out of your paycheck and goes into your investments. I think for me that's what I'm going to do is continue to dollar-cost average my way and focus on the long term. I'm relatively new at the investing game, I'm relatively young. This kind of thing really doesn't concern me when I know I'm going to be riding this out for the next 40, 50 years realistically, hopefully.

Asit Sharma: Sounds great. Next time we chat, I am going to ask you if you bought some more Lululemon.

Ricky Mulvey: We'll see.

Asit Sharma: Thanks a lot, Ricky.

Chris Hill: That's all for today, but coming up tomorrow, a conversation with Morgan Housel. As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.