How Fools Stack Up Picking the Long-Term Market Winners

In this segment from Rule Breaker Investing, Motley Fool co-founder David Gardner is inspired by the annual letter he gets from Roger King of Tampa, Fla., a Foolish investor who writes in about the best-performing investments in the S&P 500. Roger's 2017 letter has not yet arrived, but David wants to look back at the five best stocks as of last June, and talk about their places -- when applicable -- in Motley Fool portfolios. We're pretty sure you'll recognize a few of them.

A full transcript follows the video.

This video was recorded on June 14, 2017.

David Gardner: About this time every year for the last couple of years, I've gotten a letter from Roger King of Tampa, Fla. Roger is a Motley Fool member. I've never met Roger, but I love his letters and I'm going to share with you the most recent one I got from him, which was in June of 2016. Roger, I'm hoping I'll get your 2017 version later this month. But I'm going to excerpt a little bit of Roger's letter to me in June of last year -- June 2016.

"Dear Motley Fool," he wrote. "This letter is an update of a letter that I wrote to you about this time last year." Attached: "The latest Fortune magazine, June 15, 2016, has 'The Best Investments for the Last 10 Years'" -- that would have, at the time, been from 2005 through 2015 -- "of the 500 largest stocks in the U.S., the S&P 500."

I'm going to reveal those in a sec, but before I do this: The last time Roger sent me this note, the year before, triggered one of my favorite podcasts that I've gotten to do on Rule Breaker Investing. And what makes me sad is that you can't find that podcast readily these days, on either our own site or on something like iTunes. Take iTunes -- iTunes only retains the last 100 podcasts of each podcast that you want to look up on iTunes, so this one has now fallen below the fold. It was called "The Top 5 Stocks of the Past 10 Years." I did this one on July 29 of 2015. It was only 13 minutes long. It was a lot of fun, so I'm still going to plug it, and truly, if you want to just type in "Rule Breaker Investing Top 5 Stocks of the Past 10 Years" into Google, among the top three links you'll find this podcast, and I hope if you hadn't heard it before, that you'll listen to it. But I'm going to be channeling that same vibe with this week's podcast.

So what were the top five stocks of the past 10 years, through 2015, in last year's Fortune magazine edition?

Well, the No. 5 stock is XPO Logistics (XPO -0.19%), which rose 25.9% over the previous 10 years. That is not a company that I've ever recommended or owned. I do want to say two things briefly about XPO Logistics. One is that it had been added to our services in 2015. In the interest of full disclosure, my brother Tom in Stock Advisor recommended the stock in January of 2015, and I'm happy to say for Tom that it's up 60% since then, and it's about 33% ahead of the S&P 500. So great call, Tom Gardner, in January of 2015. That's one of the two things I want to say about XPO Logistics.

The second thing I want to say is that I hate XPO Logistics, and here's why. I think I may have said this last Christmas, but one of my big gifts last year for my family was going to be basically a NordicTrack. I ordered it well ahead of time on Amazon (NASDAQ: AMZN). And XPO Logistics starts to inform me about a week before it's due -- which I had just a couple of days before Christmas -- that it has been lost somewhere in one of their warehouses and they can't tell me whether they'll find it or not. And they wouldn't find it, the record will show, for about two and a half more weeks. So I had to take what was going to be a big reveal and had to make it a little postcard to my family members that it's still on its way.

Anyway, I don't like XPO Logistics very much, but I'm delighted to know that they've returned value to shareholders, and apparently delivered frequently and well enough that it's the fifth best-performing stock on the S&P 500 for the 10 years 2005-2015. So thus much for No. 5.

The No. 4 performing stock over those past 10 years was Apple (AAPL -1.20%). Apple returned 27.1% from 2005 to 2015 annualized, which rolls up to a pretty awesome number. A lot of us now know, a few years later, that Apple's basically the largest public company in the world, and so just think of the size that Apple started from 10-plus years ago to rack up those kinds of returns and become as large as it is today. So some good news for Stock Advisor members. You know that Apple is one of my stock picks. I'm sorry to say that I don't have it from 2005, but I am happy to tell you that I first recommended it in January of 2008. It is a seven-bagger since then, way ahead of the market -- hundreds and hundreds of percentage points ahead. So we had that one, No. 4.

The No. 3 best-performing stock of the last 10 years is Amazon. Amazon is up 30.6% annualized over that 10-year period. By the way, since Roger's letter of last June, I'm pretty sure Amazon's done well over the succeeding year, so we're talking about major ups for this stock over the last 11 years or so. Amazon is No. 3 among the S&P 500 for its performance. I'm happy to say with this one -- if you're a Stock Advisor member, you know this -- we've held Amazon since September of 2002. It is a 63-bagger for Motley Fool Stock Advisor members who were around back when we started Stock Advisor and who've shown a lot of patience ever since. And that's way ahead of the market by about 6,000% or so. That's No. 3.

The No. 2 best-performing stock on the S&P 500 over the last 10 years is Netflix (NFLX -8.86%). Netflix is up an annualized 40.3% as printed in that Fortune magazine issue dated June 15, 2016. Netflix has done pretty well over the succeeding year since, by the way. This is another company that Motley Fool Stock Advisor members will know well. My longest-standing Netflix recommendation was opened up on October of 2004. That stock is up about 65 times in value. I'm really happy to say that my brother Tom saw a good thing and recommended it, as well, to Stock Advisor members. In fact, I've had a lot of people come up to me over the years and say, "You know, Dave, I didn't buy it when you recommended it, but when Tom recommended it, that's when I finally bought -- because when the two brothers agree, that's a signal for me, and I'm OK with that." And I say it a little bit with a giggle. But Tom recommended it three years later, June of 2007: [it's] been a tremendous return for him, a 54-bagger for him as well. So I'm just here to say we had that one. We had No. 2.

The No. 1 performing stock on the S&P 500 over the past 10 years is Priceline (BKNG 0.13%). Priceline, over those 10 years, returned 49.9% annualized from 2005 to 2015. And there might be a theme developing. You might start seeing a thread here. I'm really happy to say that if you're a Stock Advisor member of long standing you know this, because I first recommended it on May 21st of 2004 at $23.71. So with Priceline, today, trading at $1,846 -- yeah, it's been an awesome investment. In fact, it's up 77 times in value: 7,690%. That's 7,497% ahead of the market, which maybe is up about 100% or so since 2004.

Just to throw a little bit more brother love out there, I'm happy to say that my brother Tom recognized Priceline's greatness in 2012 and so, once again, he's found another winner for members -- and I'm sure some of you waited not to buy on Dave's recommendation, but when Tom also recommended it, too. And if so, you're certainly happy, because you've made a three-bagger over these five years or so. So there are the facts. And the beautiful story is that we've had the top four performers on the S&P 500 over the past 10 years, and in every case except the first one that I mentioned, which is the No. 4 performer, Apple, we've had that stock for well more than 10 years.

Longtime Rule Breaker Investing fans will remember a podcast where I talked about FANG, because people a lot of the time were talking about Facebook, and Amazon, and Netflix, and Google, and those are the Four Horsemen, the four big stocks you have to own. This was a popular acronym people were using. Well, there was a little bit of FANG but not that much FANG in those four, because they go PNAA -- so pin-aah -- PNAA, apparently, better than FANG.

My serious point about FANG, when I did that podcast a year or two ago, was not whether you had those stocks in your portfolio, but really: "What's your FANG score," I asked. Sum up the number of years in total that you've owned any of these stocks, and that's your score, and let's have that conversation.

If we were to do our score for these four -- and this is really the critical point to achieving returns like the ones I'm talking about -- we've held Apple for nine years, we've held Amazon for 15, we've held Netflix for 13, and Priceline for 15. And if my math is right, 9 + 15 + 13 + 15 comes to the grand total of 52. So that's my PNAA score.

I highly encourage you not necessarily to go out and chase FANG stocks, or PNAA stocks, but to ask yourself: Are you positioning yourself for these kinds of returns by being patient enough to be willing to hold companies for that long? Because the way that these big-time results are racked up, completely apart from whether you found these stocks or not in the first place, is: Did you hold them through what were some very hard times and ultimately some very great times?

So it's a point no doubt I've made many times before on Rule Breaker Investing, and I'll make it again. But in a week in which a lot of people maybe needed to hear "stocks always go down faster than they go up," I wanted to make sure you understand, and can see the benefits of holding through times when stocks go down faster than they go up.

I want to thank Roger King, again, for sending his letter. And Roger, if you're hearing me right now, I don't follow Fortune magazine. I'm assuming that issue comes out again sometime this month. So whether it's Roger, or any of my other friends on Twitter: If you want to send us the most recent results, we'll get to review them again and see if we're still nailing, consistently, the top three performers on the S&P 500 over 10-year periods, and that we have them as actively covered stocks in Motley Fool Stock Advisor.

That's what it's all about in the end, isn't it? Performance and long-term performance. There are even more important things in life. But for Rule Breaker Investing, for our category of podcast, for the subject that we at The Motley Fool are focused on, I can't think of something that I could do much better than that for you, my listener -- for you, our members, here at The Motley Fool -- to find and give you the best stocks of our time.