A 100-Bagger 16 Years in the Making

David Gardner explains why he held onto Amazon through a 90% decline.

Mar 15, 2014 at 4:30PM

Co-founders Tom and David Gardner look back on The Motley Fool's journey with Amazon.com (NASDAQ:AMZN) since first purchasing it in September 1997. The brothers discuss the ups and downs they've seen with the stock, now a 100-bagger for the Fool.

In this video segment, David shares the experience of purchasing Amazon for $3, watching it go up to $95, then seeing it fall back to $7, only to rise again. His secret? Look at the business, not the stock, to see what's really going on.

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Tom Gardner: OK, I just want to put these factors together. I'm really restating what you've said.

If you're looking for the next 100-bagger today, you would be looking in a big trend that has a visionary leader, high sales growth rate, and you have connection to it as a consumer. That's not the only place to find the next 100-bagger, but those four factors would be a useful way. And maybe the fifth is that it's a relatively small company. There are visionary leaders at Google, but it's not going to be a 100-bagger over the next 10 years.

So, it's a smaller company -- let's say market cap sub-$2 billion -- visionary leader, big trend, high sales growth rate, with consumer connection to you. That would be a good way for somebody to look out for it.

David Gardner: That's not a bad template. One thing I want to point out is you've described, in many cases, just what cool businesses are. They have those things. A 100-bagger takes it from the realm of business, into investing and how you, as an investor, achieve a 100-bagger, which is what we've done in Amazon.

That's a little bit of a separate story, right? Because to get a 100-bagger ... Amazon is one of the few stocks that's actually done that, that you could have done in the last 20 years, and it took 16 years. It took watching that stock go from $3 -- our cost -- to $95, and then back to $7, and we held all the way through back to $95, and then $100, $200, $300. It took 16 years of patience in a world that is very myopic.

Tom: Six months is the average holding period.

David: A lot of people sell off in advance of bad ... worried about the next earnings. There's a whole separate story. We don't have to talk about it too much in this conversation ...

Tom: No, I like it actually. Were you worried? When it went from $95 to $7, did you second-guess yourself at any point? You had a 30-bagger as an investment, and you watched it fall.

David: To a two-bagger.

Tom: To a two-bagger. So, you still had the joy of saying, "I've doubled my money," but you watched a 90% decline and obviously, in order for a stock to decline that much, most people have sold. What is it that allowed you to hold that? What are some factors in your approach to portfolio management or individual company investment?

David: Sure, and I'm going to be quick, because we're going to run out of time, but I'll just say for now, it's mostly looking at the business, not the stock. You know that; I know I'm preaching to the choir -- although while Tom and I have kind of got it for about 20 years, I think a lot of the world doesn't think about things that way.

Every time I watch financial television -- which, by the way, I don't, really -- I'm reminded again of how people are thinking too much about stocks; wigs, wags and short-term moves, and they're not really looking at the business. While Amazon's stock dramatically declined over that, the business did not nearly.

And it's not just Amazon, obviously. I'll just throw in another example near and dear to our hearts: Netflix (NASDAQ:NFLX).

Netflix stock dropped from a high in 2011-ish over $300, down to $55 within about 18 months. We held all the way down and we've held all the way back -- but did the business crumble? Even at its worst Qwikster moment, I think they lost about 500,000 subscribers from maybe 24 million to 23.5 million.

If you're looking at the business and you're not seeing any kind of drama there, I think it makes it a lot easier to continue to hold 30-baggers down to two-baggers, back to 100-plus-baggers.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. The Motley Fool recommends and owns shares of Amazon.com, Costco Wholesale, Google, Netflix, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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