It's not easy to beat the market as an investor -- most mutual fund managers don't, and they're professionals. But using Motley Fool Caps, people can try their hands at stock picking, and get ranked over time based on how well they do. One early Caps stock picker -- he began when he was eight, back in 2007 -- was Motley Fool co-founder David Gardner's son Zack.
Could the reasons a kid thinks a stock will outperform lead to better returns than the rationale of an adult? In some cases, the answer is yes.
In this segment of the Rule Breaker Investing podcast, Zack is his dad's special guest, and they review his biggest hits, why he chose the stocks he did, and the lessons he's learned from his investing experiences.
A transcript follows the video.
This podcast was recorded on July 5, 2016
David Gardner: All right, Zack. Let's count down your top three of all time. Your third-best pick ever... and by the way, we already gave your worst pick. It was Lumber Liquidators; so we Foolishly covered our bases by making sure we talk about our losers, as well. Your third-best pick ever -- and you said this about it when you picked it -- again, January, 2007, a magical month for you. You said, "Well, lots of people like this stock. It has tasty food." Do you know what that company is?
Zack Gardner: McDonald's (NYSE:MCD) maybe?
David: That is correct. McDonald's is your No. 3 performer. You picked it at $32.56 in 2007, and here we are, now, about, again, 9.5 years later, and it's gone from $32 to $122. McDonald's is almost a four-bagger over that time with the stock market up about 50%. So a score of +219 as we tape this podcast. Your second-best pick, Zack? "This is a really good stock." (April, 2007). Do you remember this? 2007 was not a great time to be buying stocks.
Zack: Well, yeah. There was the whole financial downturn.
David: Yeah, like that whole financial downturn for the next two years...
Zack: Just a little thing, you know.
David: ... that sunk almost everything. So here you were, perhaps naively, wet behind the ears, a greenhorn, saying on April 22, 2007, "This is a really good stock, and they have lots of good games. And I play some of them." Do you know what that company is?
Zack: Oh, man, no. I would say, like, Nintendo, but it's not going to be Nintendo.
David: I intentionally did not let you look at your CAPS page before this interview so I could have these sincere conversations with you. So, close. You did have Nintendo as a pick. It was not a great pick for you.
Zack: Yeah, I know.
David: But this is a company that is one of our Starter Stocks and one of stars, today, for Motley Fool Stock Advisor.
Zack: I got it, I got it. Activision Blizzard (NASDAQ:ATVI).
David: You bet. It is Activision Blizzard. You picked it at $9.47. I'm pretty sure it sunk from there over the succeeding 18 months or so, but today it tips the scale at $39. So that's been a four-bagger for you for just patiently waiting and staying invested for, now, nine solid years. But that's all just a mere prelude to your No. 1 pick. The date was January 25, 2007. Again, this company, and the market itself, would have some really tough moments in the succeeding nine years.
The pitch -- and I know you already know what this stock is. In fact, you wrote this pitch four years later. You were just reflecting on the pick at the time. It was in 2011, so it's five years after you wrote this, but you wrote in 2011: "Man, I got this one a long time ago. Being very young at that time (in fact, I'm only 12 right now), I just picked stocks I liked, but look how it's turned out. I'm an all-star even though I'm one of the youngest people on CAPS!" (We'll talk about that at close). "With a current score of 1,147.94, this stock has made me the investor I am today. Thanks to the fact that my Dad, David Gardener [sic] found it."
Oh, thanks. I didn't even know you called me out there. By the way, our name has no "e" after the "d"...
Zack: [Laughs] Oh, man.
David: ... but we can talk about it [laughs]. "The new streaming feature is even better because it still has a large number of movies and shows, but it is not necessary to mail the DVDs back as they do not have to send you one." I can see, with time, you were able to write more ably, even though, occasionally, you would misspell a word. And that company, of course, is Netflix (NASDAQ:NFLX). Zack, you were up 2,685%. You have a 27-bagger in Netflix. The market, over the same time, is just up 53%, so you were over 2,500 points ahead of the stock market.
I've got some good news for you. I know you already know this. The top-three picks that you've made here, on your CAPS page, you also own in real life. And that's really, in the end, what we're trying to model for everybody who's listening to us today, or who's been part of Rule Breaker Investing this first year as a podcast -- and that's to get invested. Find companies that you like. Companies that impress you. Companies that are leading. And darn it, hold onto them.
And the stock market (and what it did in 2008-2009, right after you made this pick) was brutally bad. And then the Qwikster fiasco that Netflix's self-inflicted gunshot wound -- to its, well, we'll just say its foot, not its head -- in 2011-2013. That whole [period] really hurt the stock. It lost three-quarters of its value, and yet here we are reflecting back saying 27 times your money. Pretty sweet.
And to close, I mentioned earlier I'd [disclose] your most-recent three picks, and they are Whole Foods Market, Tesla, and Amazon. You made those a few years ago, so you need to get back to the platform and maybe pick a few new stocks. Of those three, one of them's been a loser, so far, and that's Whole Foods. But you did get Tesla pretty early, and Amazon's more than doubled where you picked it since 2013.
So Zack, looking back over this, there you were. You were an eight-year-old kid and I was, I don't know, a 30-something dad. Do you remember those times, at all, in front of the computer?
Zack: Very, very little.
David: Very, very little, yeah. So now, at the age of 17 -- still a very young man and an investor -- reflecting back and thinking through what we've done together, and what we just talked about on this podcast, can you draw, maybe one, two, or three lessons?
Zack: Let's start with this. Take all the help you can get because, why not? You know? Free resources are amazing. Paid resources -- potentially better. So I have you as my dad, and you got me my best pick, ever. A 27-bagger. Incredible.
David: Well, that's great, except that you did pick it. That's one thing I always like to say. Even if I make a good pick in Motley Fool Stock Advisor or Rule Breakers for any of our members, I didn't hold their hand and say, "Buy this." It was actually that they decided, eventually, to follow the advice. To call up their broker, or to tap through the computer, and that's what you did that day, is you made the pick. But keep going.
Zack: And similarly, I was just going to say, with Evergreen Energy, just look at the better people than you out there, because they're always out there, and learn from them.
David: That's a great point. In fact, one of the beauties of Motley Fool CAPS is it is a transparent platform, so you can see next to the screen name of anybody on the platform, their rating. So if it says, for example, 86.11, that means that they're in the 86th percentile of performance. They're ahead of 86% of the rest of the people, and that would actually happen to be you.
You're at 86.11, so you're grading out of the top quintile. You're not the top decile, yet. You still have a little bit of work to do. But over the course of history, now (of almost 10 years of your CAPS presence), you've racked up a total score of 3,590 as of this taping. So those are just points of alpha. If a stock went up 10%, and the market went up 9%, then that would be plus one point of alpha; so you racked up over 3,000 points of it.
And yet, interestingly, Zack, do you know what your accuracy is? Do you know the percentage of the time you're beating the market?
Zack: I'm going to say about 40%.
David: 43.24%. In other words, less than half the time, you got these picks right. But what's the mathematical lesson? And I know one thing. Your SAT on math is better than mine. So what's the mathematical takeaway from that?
Zack: Well, you actually just led incredibly well into what my second point was going to be, and it's that a big winner is always better than a big loser. You can only lose 100% of your money, but you can gain (if you look at Netflix) 27 times your money.
David: That's right. In fact, Zack, looking over the losers -- and again, more than half the time, you've lost, so far, at the age of 17 on your CAPS page -- I'm happy to say people like TMF Eldrehad had it more like getting it right 70% of the time. So it is possible, certainly, to up that percentage for you. But even given that, if you add up every single loser that you've picked, and you aggregated those points, it comes to about minus 900 alpha. In other words, that one pick three times all of your losers put together. That's good math. Zack, any other lessons? Or are we done for today?
Zack: Well, I think one last thing. Just looking at the profile as a whole, it just shows the power of time. As you were saying, buy and hold is incredible. [It's] only about nine years that the profile has been around, and you can accumulate so much just by holding stocks over only nine years. You aggregate that over a lifetime, it's incredible what you can do. So invest early.
David: And I'm going to leave it right there.