Motley Fool co-founder David Gardner admits that he has a tendency to jump from thought to thought during his weekly podcast musings, but he does like to take aim at a central theme.
And in this episode of Rule Breaker Investing, his focus is the old wedding superstition of "something old, something new, something borrowed, and something blue." Follow along as he discusses a common investor question, an upstart automotive company, and what the NCAA tournament can teach us about a key asset of the most successful companies.
A full transcript follows the video.
This episode was recorded on April 5, 2017
David Gardner: Welcome back to Rule Breaker Investing. As I cast about for what to talk about this week, my mind drifted back to those Larry King columns.
Now I know some of us are young enough that we don't remember that Larry King, the radio and television host, once penned a column for USA TODAY. I believe it was their People section.
And it was often parodied. In fact, I saw this description of King's column at Observer.com characterized this way: "His column was at times parodiable, what with the apparently aimless concatenation of musings and meanderings, plugs, name-drops, and nostalgia. All those one and two-sentence assertions, questions, cracker-barrel philosophizing, etc."
And as I reflected on that, and thought about what to do with this week's podcast, I had to admit that might be an apt description of this entire podcast. For about two years, now, I've largely just been sitting in front of a microphone, often just talking to myself, arguably with ellipses in between what I'm saying.
And while I don't think I ever said things like ...
"Never underestimate the attraction of sorbet on a steamy August day ..."
"Gee, don't those Gabor sisters still look terrific?"
While I don't think I ever really did that, arguably I come close to doing that every week. That might be the heart and even soul of Rule Breaker Investing, the podcast. Anyway, thanks for being with me this week.
And as I thought about this hodgepodge podcast, which is what I'm featuring this week, I thought we need to have an organizing element, a framework, for this.
And how could I not go back to the phrase -- which I don't know why it always comes back to my mind. I was never a bride, myself, and I never had to think about what to wear at my wedding -- something old, something new, something borrowed, and something blue.
In fact at the wedding of Prince William and Kate Middleton the bride did, in fact, practice that old dictum. You can look it up on Wikipedia if you don't know what Kate's old, new, borrowed, and blue items were.
But I was curious about where this derived, and on Wikipedia, my source of all things truthful, the rhyme, it says can earlier be found in an 1876 edition of something called Notes and Queries and was called, in another 1876 book, "an ancient custom". So this is clearly something that's been around for a long time.
And I didn't know -- maybe you did -- that there's a fifth line that completes the traditional rhyme: something old, something new, something borrowed, something blue (which, by the way, is what we're going to be doing this week's podcast), but that last line "and a silver sixpence in her shoe."
Now give yourself a silver sixpence if you knew that. I certainly didn't. And I won't be featuring "silver sixpence in her shoe" in this week's podcast, although arguably I'd like to imagine that this podcast and your time would be worth a silver sixpence not just today but every week.
Anyway, so something old, something new, something borrowed, something blue. That's our framework this week and I want to start, of course, with something old. I've got more than one thing. In fact, I have two things that I'd like to present.
When I think about old, I think of it as something that I've previously said on this podcast or written (if you're a Motley Fool Stock Advisor member). I'm going to draw from a column I wrote three years ago. And so here comes something old. I've got two things for investors when we think about something old.
And the first one is how to follow any number of stocks no matter how many you have. One of the frequently asked questions, I think, yes. I think last week's March Mailbag had a question asking this and it's going to be reasked time and time again. It's very logical.
My brother, Tom Gardner, and I did 10-plus years of radio together. On AM radio and then NPR this question certainly recurred. It will always recur. How many stocks should I have in my portfolio? If I'm going to be a self-directed investor, what's the right number?
And the answer is always going to be "it depends". And what does it depend on? Most of all, I think it depends on you, whoever you are. The context that you bring to your financial life and your investing.
We have members of Motley Fool services like Rule Breakers and Stock Advisor who have subscribed for multiple years and say, right there on our discussion boards, "I haven't bought a stock yet." So we have people who care enough, or are interested enough in the subject, maybe just getting started, who literally haven't bought any stocks yet. And yet they're still Fools and we love to have you, if that's you.
And then we have people who literally have bought every single stock recommendation we've made in our services. And if you've been around Motley Fool Stock Advisor, you know that we started in March of 2002 and have picked one stock -- each brother one stock each -- every single month for more than 15 years, now. In fact I think we just passed (March 2017) we just passed our 15-year anniversary. That's a lot of stocks and some people have actually done that.
And I think the way that you can make it your own is by not thinking about the number of stocks, but asking yourself, with a different framework, how much time should I spend overseeing my portfolio?
And as I go with something old, here's what I wrote a few years ago and I'm going to present to you now. I think you should divide your stocks up into three categories. Simple numbers here.
The first category are stocks that represent 5% or more of your portfolio. Now, by definition you can't have more than 20 of those, and most of us may not even have one of those, depending on how diversified you are.
But that's the first category, and I think with that category of stocks you should spend extra time following those stocks, right? That means read the news. Read updates. Check out the conference calls. For me, anyway, read the discussion boards at the Motley Fool. Extra time is worthily spent here. These few stocks -- investments again -- constituting more than 5% of your Foolish portfolio really count. So spend the time.
Bucket number two -- our second group -- stocks in what I'll call the 1.5% to 5% range. And let's call that regular time. So extra time for the first category. Regular time (maybe you can see where we're headed) with the second category. Regular time comes down to, well, really, your own tastes and your modus operandi.
For me, regular time focuses on the community intelligence that we have. So I love following the discussion boards online that we have at the Motley Fool for our services. I also use Motley Fool CAPS, which, though, a somewhat dated platform remains something that I use every day, virtually. And I just enjoy following the stocks in this middle range -- 1.5% to 5% of your portfolio.
I like to put in the time, but you might be different. Maybe you prefer newswires. Or maybe you have an offline investment club and with your friends you go over these kinds of stocks and have regular talk about them. Or maybe you have weekly updates that you get from our site or somebody else's. Or maybe you just review the 10-Q's. So that's regular time.
And then our third and final category are, of course, stocks that account for 1.5% or less of your portfolio. And I think especially for anyone who's time strapped, feel free to give these stocks downtime. So am I saying not follow them? No, I'm definitely not saying not follow them, but I'm saying downtime.
So for the ones that do really well from that group, what's going to happen? They're going to presumably reach up into that higher-allocated time, that regular-time group. The ones that do well from your smaller holdings. And for the ones that don't; well, did you need to pour your heart into them? And I don't think you do. So I think that that simple approach works for any number of stocks for any person. Something old.
And something else old, and it's just one of my favorite lines and my dictum. The reason it's old is because it's probably one of my five most go-to concepts, and sometimes I think I don't repeat myself enough. I feel like I have to come up with something new -- new tricks every single week -- on Rule Breaker Investing.
And if I do that too often, I run the danger of not doing, I guess, what works for politicians, which is to take one sound bite and just pound it home all day long. So occasionally I'm going to pound this one home. If you're a longtime Rule Breaker Investing listener you've heard me say this. I'm going to say it again -- something old -- make your portfolio reflect your best hopes for our future.
That doesn't mean I'm telling you to buy any given stock. I'm encouraging you to make it your own. You're going to learn a lot more, you're going to love it, and you're going to do a lot better if you're making your portfolio reflect your best hopes for our future.
I don't have a lot of patience for people who have a disconnected financial life, in the sense that they have bought stocks that they don't really understand. Or somebody else's idea. Or that ethically disagree with how they proceed in their own lives.
I think that each of us should be making sure that the dollars that we spend as consumers largely reflect the dollars we've allocated as investors. Make your portfolio -- this is aspirational [and] that's where you should be thinking -- make your portfolio reflect your best hopes for our future.
I listen to a lot of Market Foolery. I hope you do, too. It's the Motley Fool's Monday through Thursday daily look at what's happened on the markets. And really if you're a Market Foolery listener you already know this, but we don't spend a lot of time talking about where the Dow went today.
We talk a lot more about what happened in the world of business, and it's often reflected in interesting moves by the stocks, themselves, which tends to preoccupy us in our interest. But it's much more about the story of business and what's working and what's not than it is about where the Nasdaq was versus the Russell 2000 each day.
So I love the storytelling of Market Foolery and earlier this week on Monday, Chris Hill and team largely double underlined what I thought was something new, something interesting, which is Tesla gaining a larger market cap than Ford.
Now I'm a big Henry Ford fan. I love Henry Ford's line. I've quoted it many times before, certainly on this podcast: "Whether you think you can, or whether you think you cannot, you're right."
I love that. I think it's true. I saw Henry Ford impersonated in my favorite musical, Ragtime, which is playing here at Ford's Theatre in Washington, DC. I was there last weekend. Henry Ford's a character there, and there's a great Henry Ford song in ragtime. If you know ragtime you probably can hum it.
I love Henry Ford, but how remarkable is it to think that that 100-year-plus-old company, over the course of its history, has rolled up to a market cap now in 2017 of $45 billion, and Tesla, a stock that we first recommended in Motley Fool Rule Breakers just five or six years ago has, in that time, skyrocketed thanks to the power of vision and looking toward the future. And a powerful entrepreneur in his own right, Elon Musk, has achieved a greater value than Ford in a hundred-plus years less of its existence.
So I just think that's remarkable. And the only insight that I want to provide, because I don't have a lot more to say about it, is (and I thought that Jason Moser spoke well to this in Market Foolery), but it's just a reminder that the stock market is always looking ahead. I think a lot of people, noting that Ford last year sold over six million cars and Tesla last year sold roughly two orders of magnitude fewer vehicles. Remarkable. Measured in the tens of thousands against a company selling millions.
But if you know Tesla, you know it's not just a car company. It's also SolarCity. It's also a battery producer. And it's a company that is in danger, in a great way, of disrupting the entire business of automobiles and has really been doing so in the last few years, earning plaudits for the quality of its vehicles and making it pure electric, in an age where at least one movie asked the question, "Who killed the electric car?"
So it's the power of rule breaking. It's the power of disruption that you're seeing magnified in what is, admittedly, a share price well ahead of the reality of what Tesla will become. But that's how the stock market works. We reflect, in share prices today, our best shot at looking at tomorrow. It would be silly, it would be foolish, to base our view of where a stock is priced by merely looking backwards and asking what have you done for me lately. Where are their profits?
So it is the blessing and the curse of stocks like Tesla that they will be volatile in the face of changing market perceptions of what they will become. But as of this week, anyway, and maybe we'll look back six months and say, "Can you believe Tesla was priced above Ford there for a while?"
As of this week, anyway, Tesla ... the sum total of everything that it is ... is now deemed more valuable than Ford. And frankly, if you're a Rule Breakers member, you've been invested with us for six years now watching that vision multibagging and coming true. Something new.
Something borrowed. Well, really almost anything I do on this podcast I've borrowed. I've learned so much from you. Every time you drop me a line or a question for mailbag, I learn from that. And every stock that I've ever heard of somebody else told me about. I didn't found any of the companies that have IPO'd. I've just heard about it, ultimately, from somebody else. We're all borrowing all the time.
And so maybe that's a point on its own but no. I feel like I should truly borrow something and share it. Something borrowed. So I'm going to give you my favorite online investment tool that nobody knows.
Now presumably somebody knows it. Maybe you know it. But in my experience if you ask most people how to do this, they can't find it online. Or I would say most people probably haven't heard of this URL.
So here it is. It's BuyUpside.com's stock returns calculators.
Have you ever been to BuyUpside.com? Probably not. I don't honestly remember who first mentioned it to me years ago, and I don't go there very often. But when I do, if you go to their Calculators section, drop down the list, and look at the Stock Returns one, this is particularly apt for Foolish investors -- by definition, long-term thinkers and actors.
If you have a long-term holding and you're wondering, "You know, accounting for all the splits, exactly how much has this risen since 17 years ago to this very day? Or versus the stock market over any period of time?"
BuyUpside.com's stock calculator is outstanding at factoring all of the splits and junk that can sometimes happen (special dividends, these kinds of things) to stocks, and then just give you that what is the annualized return of that stock?
Over a long period of time. That's another secret to this tool. A lot of tools can do this if you look back two, three, or five years; but for those of us who've held our Netflix since 2004, or our Amazon since 1997, it's an awfully powerful thing to find a place online, which is free, which you can go in and see how, exactly, [that stock has] returned. So there it is. A free plug for BuyUpside.com's stock returns calculator. Something borrowed.
And finally this week, something blue. Now if you know me (and some of you do personally and I hope you feel like you've gotten to know me, even if we haven't yet met), you might have picked up that I like college basketball, and you might have picked up that I'm a graduate of the University of North Carolina at Chapel Hill.
And if you have read the headlines this week (and not all of us have), there are people who are completely oblivious to March Madness, even in the U.S.A. But I know I'm reaching out well beyond our borders to many listeners around the globe who might not even care or know that college basketball, once a year, becomes a phenomenon in the month of March when the 351 teams that begin the season at the Division 1 level for men end up getting whittled down through an exciting all-or-nothing, you-win-you-progress, you-lose-you're-out tournament that drops it all down to just four teams which we call the Final Four, and then two, and then finally one.
And I can't not note (and part of the reason my voice broke earlier and I might sound a little hoarse), I can't not note that I spent well into the early morning hours both watching and celebrating my alma mater, the University of North Carolina at Chapel Hill's victory, winning it all for the sixth time in the school's history, March Madness.
And it was a team that I loved. I'm not going to spend, I hope, too much self-indulgent time, here, talking about my team. After all, if you are a college basketball fan chances are my team is not your team. There are far more teams -- there are 350 other teams -- that I would run the risk of just alienating you, because who wants to hear a homer talk about his team.
So where I'm headed with something blue is ultimately what we're about, here, on this podcast and that is an investing point.
It's a point I've made in front of audiences. Given occasionally in speeches. It never sounds better than the day after my team has won it all wearing Carolina blue, as traditionally all North Carolina teams have done for decades.
But it's a point that makes sense for other blue teams sticking to college basketball. So if you're a fan of North Carolina's archrival Duke, you also wear blue. If you are a fan of the school that has won more national championships than any other, and that's Kentucky (and also UCLA), they both wear blue. In particular, people think of Kentucky blue.
But the point that I'm wanting to make, and it really connects back to Tesla, as well, is that college basketball, for those who know it, for me, is a great analogue to what works for investors and in business, and it's about the power of brands and branding.
And that's part of Tesla's value. Part of the reason that Tesla is worth $47 billion or so this week, with precious little to show in terms of any profit, is because there's value very inherent just in the brand name itself.
And because brands don't show up anywhere on the financial statements unless you see a goodwill item for a brand that was acquired by a company reflected as goodwill, you're missing the incredible value and importance of brands sadly, again, not reflected in financial statements and often overlooked by investors who don't think twice about brands.
But brands are very powerful. Howard Schultz -- who is somebody I've learned something from (the now-retired CEO of Starbucks) -- Howard Schultz early on in our Motley Fool history visited the Fool and said, "You know, brands are businesses that make a promise every day and fulfill it."
That's not easy to do. I think for most of us as human beings, we're not great at fulfilling every promise we make, but think about how important it is and how difficult it is, especially for a company like Starbucks which has been another great long-term Motley Fool stock, to try to do that every single day for millions and millions of people around the world.
And no doubt they don't get it right a lot of the time, but they're always trying to get it right. And they get it right more often than not, that they've built, I think, one of the world's most powerful brands.
Apple. It just works. Think different. Think about Apple's branding and think about the power and the value of probably the world's No. 1 most valuable brand often cited in surveys, Apple.
And back to college basketball. Think about the power of branding. Why do the same schools seem to keep coming back and making it to the Final Four or the finals every year? We all love the upstarts, and I root for underdogs just in any sport I enjoy.
I think a lot of us -- especially in America -- America loves an underdog, but why do the same schools seem to come back time and time again? And I think it's about their brands. After all, once your brand is associated with success, and you're now trying to recruit the next generation of young kids who might play sports at your university, they recognize your name.
They've seen you on TV. They want to go to your university. It creates a self-fulfilling prophecy, a success machine, which is what consistently has happened for Duke. For North Carolina. For Kentucky. I'm just talking about basketball right now, but you can see it.
If you're a global football fan, you can look at the Premier League. You can see the same teams coming back time and time again. And it's the self-reinforcing power of a successful brand which attracts talent. The talent goes right out there and wins again. Rinse and repeat.
So something old, something new, something borrowed, and this week to close, something blue. These things are worth remembering for us as investors. Fool on!
As always, people on this program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Learn more about Rule Breaker Investing at RBI.Fool.com.
David Gardner owns shares of Amazon, Apple, Ford, Netflix, Starbucks, and Tesla. The Motley Fool owns shares of and recommends Amazon, Apple, Ford, Netflix, Starbucks, and Tesla. The Motley Fool has a disclosure policy.