On this week's Rule Breakers podcast, Motley Fool co-founder David Gardner spices up his usual monthly dip into the mailbag by bringing in some special guests from The Fool offices. Topics range from the philosophical-- Is investing just gambling? Is it time to break up Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG), Facebook (NASDAQ:FB), and Amazon (NASDAQ:AMZN)? -- to the practical -- How does tax-loss harvesting work? What's the best Bitcoin broker? But beyond that, there's poetry, a discussion of how the Foolish ethos applies to The Fool's hiring process, a reflection on spiffy-pops, and more.
A full transcript follows the video.
This video was recorded on Oct. 25, 2017.
David Gardner: And welcome back to Rule Breaker Investing. It is Mailbag week, and boy, am I excited about this show. I don't even know why. I think it's because I said to my producer Rick Engdahl, before we started this taping, "This is going to be as close as we ever get to being a variety show."
We have a bunch of different voices. We have some odd things happening over the course of the next, approximately, one hour. I think we can bring it in, Rick, under an hour. I was going to say variety hour, but I'm not sure people want a Rule Breaker Investing podcast that runs 60 minutes, so you're going to help me stay on track, here. We've got a bunch of points. A bunch of different voices. I couldn't be more excited.
So let me start with something that's a little odd, because that's kind of the point this week. We're going to have fun. And I want to share with you what I did at the Conscious Capitalism Conference two weeks ago in Austin, Texas. Well, really I did a lot in that conference.
But one of my favorite moments was listening to and learning from an acclaimed songwriter and a champion of the poetry slam space, and his name ... why it's In-Q. His actual name is Adam, and Adam's a great guy. He was there with his manager, Kevin. But Adam performed, In-Q performed in front of us, everybody at Conscious Capitalism, a few of his poems, which were excellent. And not only are they well written, but they're beautifully performed. It's really a performance art.
And then he encouraged all the rest of us in a workshop, the next day, to do it ourselves. We had about 20 minutes. Listen, I'm going to give you my one tip from In-Q, but I'm going to share with you my poem, because how could I not start off Rule Breaker Investing Mailbag this particular month [without] my poem, my poetry slam poem.
So let me just mention what he told the crowd, there. He said, "Here's the thing. When you write your poem you're going to have 20 minutes. I want you to think," and I'm saying this to you my dear listeners, as well, "I want you to think about a time where you walked through a door, something happened, and when you walked back through that door, you were changed forever."
And he said, "It's not going to be something that probably happened at the office. I mean, it could be, but think a little bit bigger. Think outside of your normal space." And that's what about 60 or 70 of us did over the course of the next 20 or 25 minutes. I will tell you that a few of us got up and read our poems. I was not one of them. I was certainly raising my hand, but I knew that I could share it with tens of thousands of people just a few weeks later, so why be selfish and try to get there in front of the mic in front of 70 others.
But the three people who stepped up... We had a gentleman who had immigrated to this country and was sharing how he went from a place that was cold, where he'd been from and flew right to Houston where he was going to be living, and what a different life that was. So it was a great immigrant tale.
We had the story of a woman who had lost her voice. She woke up one day and had a malady that caused her to lose her voice for two years of her life and she reflected, after about 20 minutes of poetry slamming, on how that felt and how hard it was.
And then we had another woman, and this is really going to an emotional place, and the poem she slammed down was her lying in bed next to her second husband reflecting on the incredibly difficult circumstance of having to make the decision to pull the plug a decade or so before on her first husband.
So you can only imagine how emotional this was. How it was one part group therapy and one part extreme positivity around the poems and the expressions that people came up with. And I'm definitely going to be drawing on my inner In-Q here, a little bit, and let's see if you can figure out what I was writing about. It's not nearly as deep as what I just shared with you from my three new friends, but here we go.
"Why did everything stop
Because it did
Why did everything stop
In a way
I could say that never
Had something like this happened before
What is more, I was sure
That it would happen again.
I didn't know.
But it did.
Of doing what I did before
Some of it
That was good
As was some of my
To a point
Where something in me said
I don't care.
I don't care about the where
Of where we'll live
I don't care
About the who
Of who you'll be
You'll be you.
That is enough
When you'll talk or walk or balk
At a boy.
Your first word, your first step, your first date.
Because everything stopped
The day you were born
And now, now everything starts."
So we have 11 points to get through this Rule Breaker Investing podcast and that wasn't even one of them, but if you enjoyed that, I'm going to push you to a wonderful website. It's In-Q.com. Adam and his manager Kevin, they can come to your company or your organization and they can do for you what they did for us at Conscious Capitalism, which was create a really special moment and get people thinking in terms of poetry. So this comes from an English major. Thank you, In-Q, and thank you Fools for suffering a fool gladly. All right, let's get started.
Mailbag Item No. 1: This one comes from Zach Miller, @zmills12 on Twitter. Zach simply said, "Hey @RBIPodcast. Had a friend tell me my stock portfolio was gambling. Building a stock portfolio was gambling. Help me here. I know it's not, but what would DavidGFool say?"
Well, thanks for asking, Zach, and you know I've always got an answer for almost anything, even when I don't know the answer, and so the first thing I'd say to your friend, because you definitely want to build a bridge to this, let's face it, critic. I think it's very helpful to build a bridge.
So right away you say, "Yes." We'll just say his name is Bob. "Yes, Bob. It is kind of. You're right. Because it is gambling in this way. You are risking money when you invest, and you have little control over the outcome. So yeah, it is kind of like gambling."
But -- and here comes point No. 2 -- it's not really like gambling for these couple of reasons, Bob. First of all, when you gamble you go into a Las Vegas casino. Generally the house is making somewhere between 2-10% profit off of every single transaction. So some of the best odds you can get are just the slot machines. Some worse odds, some of the other games. And so the bad news, there, for anybody who's gambling is you're probably going to lose money, whether you're going to admit it or not, and that's because the games are naturally, statistically going to do that night in and night out.
And it gets even worse if we start looking at state lotteries. I'm not sure if everybody knows this, but half of the money from every dollar ticket that anybody buys on a state lottery -- half of that [fifty cents] goes right away as a tax. So that's really a bear market every day. You're down 50% every day you buy a lottery ticket.
So gambling -- minus returns. Statistical. Fact. Repeatable. Not a great idea.
But Bob, here's the thing about building a stock market portfolio. The stock market goes up about 10% a year. Yes, some years it goes down far worse than what you would have gotten at Las Vegas. But taken all in all, and two years out of every three, it goes up and just by building a portfolio you're participating in that positive money making dynamic that is antithetical to gambling and what these so-called gaming industry and sometimes your state lottery sells every single day.
So Bob, you're right, but you're not totally right. Thanks, Zach.
Mailbag Item No. 2: This one comes from Florin Barbaselu. I hope I did that OK, Florin. @florinbarbaselu on Twitter. Now if that sounds like a name that isn't a traditional one we'd expect here in the United States of America... Although you never know. We are a melting pot. It might be because Florin is not from America.
Florin says, "Hi. I'm just listening to the '9 Foolish Truths That I Hold to Be Self Evident' podcast [which is a great episode, by the way], but I also must highlight an error that has been said, Florin writes. Turkey is not an EU member. Thanks for the great investing value you provide. Fool on!"
Thank you Florin. Whether you're from Turkey or not, I blew it. I make a lot of mistakes and I guess the good news is I call myself a fool. But I really am, to be slightly more serious, I am highly dependent on all those around me to help me and sometimes [it's] our listeners [who] know the truth. So thank you very much. Turkey is not an EU member.
Mailbag Item No. 3: Point No. 3. I'm bringing in a guest star for this one because I've already established how little I know: to wit, the last Mailbag item. And here's another thing that I'm not so great at, and that's taxes and talking about taxes, but this is a fine question.
Good news! I work at The Motley Fool, where we have experts on just about every financial topic that I could care about. One of them is taxes and I've got Megan Brinsfield, here, from Motley Fool Wealth Management joining me to help answer this question from Joshua Fung. Megan, welcome!
Megan Brinsfield: Thank you. I'm excited to be here.
Gardner: I'm so delighted to have you. And here's what Josh wrote. He said, "Hey, David. I was reading about tax-loss harvesting, and it sounds too good to be true. Up to $3,000 back on losses per year?" Joshua goes on to say, "I'm only 24, so 3K is quite a bit, and some of my favorite stock purchases this year are in the red." He mentions AT&T, Verizon, and Wells Fargo, none of which, by the way, are in the Supernova Universe. But anyway, back to the matter at hand.
Joshua goes on to say, "I love these companies, and if tax-loss harvesting is what I think it is, I'd like to sell and repurchase these holdings at their current price. However, I don't trust what I've read and I'd like to hear more about tax-loss harvesting from you. Any explanation would be greatly appreciated. Go Giants!" Sorry, Josh. They didn't actually make the World Series, this year. Megan, tax-loss harvesting. What does Joshua have right and what does he need to know?
Brinsfield: Well, the good thing is that Josh is in good company if he doesn't understand tax-loss harvesting. One thing to keep in mind is that you've sustained a loss, and so that's what you are writing off on your taxes. It's a deduction, so if you have $3,000 of losses, that applies against your other income. It's not like you're getting $3,000 back on your taxes.
So the first step is sell at a loss. The second step that he mentions is repurchasing, and that's where the quagmire starts, is going through all the rules associated with repurchasing stocks that you've had a loss on.
And the IRS agrees with you. This is too good to be true. A lot of people in the past were churning losses so that they could take losses on their taxes, and rebuying the stocks so they haven't substantially changed their economic position.
So the IRS said, "We're actually going to look at a window associated when you sell stocks at a loss," and this is called the wash-loss rule or wash-sale rule. And on the day that you sell a stock at a loss, the IRS looks 30 days in the past and 30 days in the future, and says if you rebuy that stock or a substantially similar stock, that you violated their rules and they say that you can't actually claim that loss.
So how do you get around it? Some experts say aside from the investing side of things, if you really like that company you could double up, double up your position at the cost now, wait 31 days, and sell your original holding at a loss, and maintain that second position in your portfolio. That does require carrying some additional risk for that period of time.
Let's say you don't want to double up or you don't have the capital to be able to do that. You could sell one of these stocks and replace it with a similar stock, or what a lot of people do is replace with an ETF or index fund so that you can be invested for that 30 or 31-day period without violating these rules.
So there are a lot of little complexities that can hang you up, because the wash-loss rules apply across tax years, in IRAs and non-IRAs. Sometimes for husband-and-wife couples. So you have to be really careful about making sure you don't violate that time frame.
Gardner: Wow, what a great answer. I realize there are contingencies involved in answering a question like that, and you're pointing out the importance of context, Megan. I guess in closing, No. 1, we're trying not to lose with every investment, anyway, right?
Gardner: So it's not really too awesome to lose in the first place. No. 2, I like the idea a lot that you could replace it with a similar stock that's not that same stock. Having just read Joshua's note, we know that he was pointing to AT&T and Verizon, and humorously I was somewhat snarkily remarking that none of those are my stock picks, but one of my stock picks that I really do like that's in the same space is T-Mobile, which happens to be eating market share from both AT&T and Verizon so that might be an example.
But in the end, Megan, let me ask. If Joshua feels like you've got to 92% of his question, but 8% is contextual or interesting, is there a resource? Where would he go for more information? A tax professional? Is that the answer? Or is there some cool site he could google?
Brinsfield: So there's a lot of information on Fool.com that's free information...
Gardner: I know that website.
Gardner: It wasn't even intended to be a product and sometimes I forget about our own stuff. Keep going!
Brinsfield: Yeah, so that's a free resource where you can get general information. And you google the term "wash-loss rule" and you'll get a ton of hits, so it's easy to get general information. If you want answers that are specific to you and your personal situation, that's the time when you need to seek out help from either a tax professional or a financial planner, and they can dig into your specific portfolio and scenario.
Gardner: Outstanding! Megan, it's great to see you. Is this your first appearance on this podcast?
Brinsfield: It is! I'm so happy to be here.
Gardner: Thanks! I can't believe I hadn't had you before. You and our other wealth planners at our sister company, Motley Fool Wealth Management, do this kind of work every day, I know...
Gardner: It's not cheap. This podcast is free. But if people were interested in finding out more about Motley Fool Wealth Management, what would they do then?
Gardner: Megan Brinsfield, thank you so much for being on this episode of Rule Breaker Investing.
Brinsfield: Thank you!
Gardner: Mailbag Item No. 4: Rule Breaker Mailbag point No. 4. Well, actually, points No. 4 through No. 7. I have a special guest. If you were listening last week, you already know Aaron Bush from my Motley Fool Rule Breakers team. He's just released a report on cryptocurrencies, in fact, which you can talk about in a sec [maybe after], but we got a bunch of questions for you, Aaron, and you and I hand selected our four favorites and you're going to take them, because you'll take all comers.
Aaron Bush: Let's do it.
Gardner: You would have taken more than four...
Gardner: ... but we have to control the time somehow on this podcast, so Aaron let's start with this one and it comes from Andrew Palmer. Andrew wrote, "With China's recent 'Bitcoin ban' and U.S. financial firms' increasing interest in Bitcoin and Blockchain, how do you see new Bitcoin-related legislation or lack thereof affecting the growth of this ecosystem?" Aaron?
Bush: That's a good question. I think, in general, regulation and legislation do have a tendency to slow down the growth of ecosystems; however, in this case I believe that having some rules is important to just simply cut back the scams and the bad actors, so I'm not completely against regulation, here.
I think that most countries are still wary of instituting too many regulations because they don't want to scare away entrepreneurs and let the value that they create go to other places, and so I think that's something that a lot of countries are thinking about in their regulation.
This is one of those things, too, where the currency lives on the internet, so you can't just have one worldwide rule.
Bush: Right. There is no jurisdiction.
Bush: And so you start to see these companies create rules nation by nation. I mean, inside the U.S. I've actually been fairly impressed by the way the government is handling things, here. If you read through any of the reports the government has published, you'll see that the decision-making groups have a deep understanding of the technology.
Gardner: I am delighted to hear that.
Bush: Yes, it's fantastic. And the current approach that they're taking to regulating the industry is sort of like this. If it looks like a security, and it acts like a security, then treat it like a security. If it doesn't act like a security or look like a security, then don't treat it like a security. And I think that that's a very level-headed approach to managing legislation, here, and that should lead to a growing ecosystem of players, here, domestically.
However, like Andrew mentioned in his question, you do see countries like China ban ICOs...
Gardner: That's initial coin offerings.
Bush: Yes. Initial coin offerings, and they've started banning exchanges, too. So this really is a power play that's intended to suffocate the market. Now I'll say on one hand that actually makes me a bit bullish because that comes to show that...
Gardner: This is for real.
Bush: This is for real.
Gardner: China's trying to stop it.
Bush: Absolutely, but censorship does limit the growth of new ideas. But what's interesting to me with China is that they actually have proven pretty savvy in the past when it comes to managing cryptocurrencies, so I wonder if they're playing chess in some way, in a sense of maybe they're going to come out with their own cryptocurrency ecosystem.
So I think it's early. It's tough to tell. And I think over time we'll see governments learn how to better regulate this. Because this is a worldwide [phenomenon], I do believe that there always will be places where entrepreneurs are welcome, and I think that there will continue to be ways for tokenized ideas to grow increasingly popular.
Gardner: You know, this is a total digression and I'll keep it really short, but I had the pleasure of getting to see [not meet], but see the Prime Minister of Singapore earlier this week. I'm a member of something called The Economic Club of Washington, D.C., and people come through Washington from all parts of the world.
And, boy, was I once again so impressed by Singapore. When you say there will always be places for entrepreneurs, when you're a nation of five million people with no natural resources, starting from a really tough place 50 years ago, and you've gotten to be the size of economy that Singapore represents, that's a great example.
In fact, here's one thing I learned about Singapore, Aaron. They let in gambling, gaming. They didn't probably want to do it at first, but what the government decided is we will allow [it], because it's part of an ecosystem of tourism. Tourists come. They stay in the hotels. They want to do slots, that kind of thing. So they decided to let it in.
But here's the rule. Singapore natives, citizens, pay a $100 Singapore tax in order to go to the casino. So, you might ask who goes to the casinos, and the answer is all the people who are not citizens of the nation, itself. It's all the tourists who basically lose their money and pay Singapore. And Singaporeans can also gamble if they want, but they're going to be paying $100 tax to do so. Kind of interesting.
Mailbag Item No. 5: Anyway, question No. 2 for you. This is point No. 5 of this Mailbag and it comes [this is a quick one] from Del Clark. Del simply writes, "Which broker is best for cryptocurrency? Coinbase?"
Bush: I think that that is a good logistical question, because in the cryptocurrency world, the concept of brokerages doesn't really exist the same way that it does with stocks and equities. Instead you hold value in wallets, which are either software wallets or hardware wallets, and you trade on exchanges.
Now Coinbase is a respected and popular platform for buying and storing the most prominent cryptocurrencies. I think they support Bitcoin, Ethereum, and maybe Litecoin.
Gardner: Now Aaron, I'm not sure I've asked you this, but do you own any Bitcoin?
Bush: I do.
Gardner: OK, good. And did you use Coinbase?
Bush: I have in the past, yes.
Gardner: Excellent. Keep going.
Bush: So I think Coinbase is a great, simple solution. However, there is a trade-off. With Coinbase, you don't actually hold your own private key, which is ultimately what makes whatever you own yours, so you have to have trust in the company just like you would a normal bank.
Gardner: It's kind of like a broker. They used to hold the paper securities in the vault, and that's one reason you would use a broker, is that they would have the actual shares that you had safe. Safe and sound. So that's very real, here, for cryptocurrencies.
Bush: Right. So much of this movement is toward decentralization and this is sort of a centralized player. Some people like that. Some people don't. I think it's ultimately up to you to decide if you like that.
However, that's only for those very few specific leading cryptocurrencies. If you wanted to buy another cryptocurrency, you would need to create an account at an exchange, and a couple of examples are Kraken and ShapeShift. There are a bunch of different players, but those are two leaders right now. And through that exchange you exchange either your chosen fiat currency or cryptocurrency like Bitcoin for whatever else you want to buy and there are thousands of cryptocurrencies you can buy through these exchanges now. And it's just like a normal currency exchange, but crypto.
So you can generally hold value in those exchange accounts, but it's typically safer to move those accounts, then, to a wallet and as I mentioned there are software wallets, which are simply downloadable and you can store them there. They're secured cryptographically. Or a hardware wallet, which is like a separate container that you plug in via USB to the computer and you can transfer your digital assets over there and unplug it. So it can't be hacked, because it's not connected to the internet.
And so the last thing I'll say is that standardization is growing between these cryptocurrencies, but many cryptocurrencies still have different requirements, so it still is very much a case-by-case example. It's not super user-friendly yet, but it's slowly getting there.
Gardner: Awesome. Thank you, Aaron, and thanks Del Clark for a good question.
Mailbag Item No. 6: And here comes another one. This is from Tobin Anthony. This is Rule Breaker Mailbag No. 6. A friend of The Fool, Tobin Anthony.
"David, I heard Marc Andreessen say a while back on EconTalk," [thanks, Tobin says, by the way, for mentioning that podcast on an early Rule Breaker Investing episode], "saying that Blockchain was going to be the basis of contractual dealings in the future. He thought it was more important than cryptocurrency. Aaron made similar comments on last week's RBIPodcast. Can you get Aaron to explain what is it about the nature of Blockchain that allows for secure document exchange? Thanks."
Now that shouldn't be too hard, Aaron, right? You can just explain all the technical underpinnings. This is right within your wheelhouse. Anyone could do this.
Bush: Well, I'll try to keep it...
Gardner: Tobin should have just googled this himself and figured it out.
Bush: Yeah, come on Tobin. No, I'm happy to help and I'll keep this relatively big picture. So probably about 20 years ago, a man named Nick Szabo, who's become highly respected in this field, realized that the logic of legal contracts is very similar to the logic of programming. It's highly structured with set parameters and cause and effect are explicitly detailed in the contract or the code.
And what that means is that legal documents, where there's an exchange of some sort, can be programmed. And if the content of the deal resides on the internet [information and value]...
Gardner: Transparent. It's out there.
Bush: If so then the entire thing can be set up and executed in code. And this is what has become known as smart contracts.
Gardner: And is that one word, Aaron, or two.
Bush: Maybe put a hyphen.
Gardner: We'll go hyphen. Smart hyphen. I need to know, so thank you.
Bush: I think it's two, but I like the hyphen personally. So Blockchains are what make these smart contracts secure for the first time. Because of its distributed nature, any exchange or transaction that takes place must be verified by the miners across the network, and all of the miners must be in sync with each other. If something is off, or if one node is overridden in the transaction, the network will know that something is wrong just through that inconsistency.
So in other words, decentralization creates transparency across the entire network, and leaves no room for any funny business. The code executes itself. The miners prove it and verify it. Corrupting a Blockchain means corrupting every single node in the network, and the probability of that is about as close to zero as you can get for these really large networks, and that is what makes it secure.
I'll just quickly say that of course some exchanges are bound to add complication. It will be a lot easier for me to say, "Hey, David. Let's make a bet. Let's each choose a stock, and a hundred days from now, whoever's stock went up the highest percentage, the other person will give them one Bitcoin." That will be a lot easier to set up than say, "Hey, David. I want to buy your house using a Blockchain." There's just many more inputs. It's more complicated. A lot of those factors might live naturally outside of the internet.
That said, over the past month the first real estate transaction was made using a Blockchain. So I expect more possibilities to open up, but it's really because of the Blockchain that makes it secure.
Gardner: So Aaron, do you want to take that bet, by the way? What's your stock? A hundred days from now? Is that what it was?
Bush: I don't know if I'm willing to bet that much on a stock.
Gardner: Since only one of us has a Bitcoin, I guess only one of us could really win something from the other guy, so I'm going to say Match Group. What have you got? Match Group. That's my pick.
Bush: I'll go with Momo.
Gardner: Good, Momo, which is ticker symbol [MOMO]. This is not an official bet, and we didn't actually do this on the podcast, but we could have. And if we did, we could make it a Blockchain-contracted exchange.
Gardner: OK, which takes us to the final Blockchain question of this episode. "Hi, David." This is written by [Allen Morris]. "Hi, David. Because Bitcoin is finite, after 21 million coins mined there will be no more to find." This is not, by the way, a Dr. Seuss poem.
"What will happen to all those miners and all the assets they build up to mine for coins? If they were incentivized to process data and keep the system honest, how will they be incentivized when there are no more coins to be found? At that point, who will police the system? What would be in place to prevent Bitcoins from, say, becoming worthless?"
A little bit more to this question, Aaron. "My concern is," Allen writes, "that in five, 10, or X years, Bitcoin loses its governing body because of the lack of financial interest, and then what? Aaron was a wealth of information," he goes on to say. This is a little compliment...
Bush: Aw, shucks.
Gardner: ... for @AaronBush on Twitter? Is that who you are?
Gardner: AaronBush100. So a little compliment for you. "A wealth of information. I love your podcast. You've made an amazing impact in my life and my investment practices over time. I look forward to hearing how you and your team might respond. Thank you. Cheers. [Allen Morris]."
Bush: Awesome! Thank you, Allen! I'll say that part of what you mentioned there is true and part of it is a bit of a misperception or misconception. Let's remember, first of all, that we're talking specifically about Bitcoin, here, because some other cryptocurrencies have different monetary policy. They might increase their supply into perpetuity.
Bush: But with Bitcoin what is true is that the miners do compete to win over the new tokens that are being released, and that will happen until... It's expected at 2140 [their 2140]...
Gardner: The year 2140. Circle that on your calendars, Fools.
Bush: So we can be a little bit patient, here. But what is not true is that the miners are provided Bitcoins from that unreleased pile when they work to verify transactions across the network. Instead they're paid transaction fees by those conducting the transactions. So for all intents and purposes, the incentive to maintain the integrity of the network shouldn't go away, even if the supply remains stagnant.
I will say, though, that Bitcoin hasn't proven to be the most scalable network for transactions in the sense that if you are to conduct the large transaction, the fees will be substantially high. I do expect that to change over time as the code, itself, that's running the Bitcoin network improves just to make it more energy efficient and such...
Bush: But yes, transaction fees take care of that.
Gardner: Aaron, you mentioned earlier you own some Bitcoin. Have you mined?
Bush: I have not mined any Bitcoin.
Gardner: You kind of need to bring extra skills, right? I know that you have many skills. You've done some programming for me, for example, but that's almost a full-time call with some serious expertise for the miners. Am I right?
Bush: I have downloaded the Bitcoin software, but it's so competitive, now, that's when you've got to have...
Gardner: That supercomputer we talked last week.
Bush: You've got to have a supercomputer. I don't have a supercomputer sitting around, unfortunately.
Gardner: Understood. Well, we're awfully glad that instead of mining something off somewhere, instead you're here at The Motley Fool with Rule Breakers [on my team there] and the Rule Breaker Investing podcast. Now I know that there is a report that you worked hard on that is just being released. Could you briefly, before we move to Mailbag Item No. 8 and welcome our next guest to this week's variety show, put a brief plug in for that, Aaron.
Bush: So for all of our Premier Pass members, which is a service that provides all of our front-end and back-end services, we give some specific portfolio allocation guidance, as well. For all of those members we are unveiling a new Cryptocurrency and Blockchain report which is a four-part series detailing just so much that there is to know about this stuff.
Gardner: All the things! All of them.
Bush: Right. And we're opening up Premier Pass and all the new subscribers will be able to get this four-part report.
Gardner: Outstanding. Aaron, thank you very much for sharing some more of your expertise, and a delight to have you back.
Bush: Thank you, David.
Mailbag Item No. 8. OK, this one comes from David Kasserman, a fellow Dave. And this is a longer note, so I'm going to excerpt this. There are two sections I want to speak to.
First he says, "Dear David, my history with The Motley Fool goes back almost to its beginning. I recall using my dial-up internet connection in the early '90s to surf the internet in an attempt to find solid investment help. Luckily I happened upon your site. Watched with amazement as you picked Amazon, a company that was going to sell books, of all things, online. Being a cautious person with little experience in the stock market I read everything I could about Amazon and followed its progress closely.
"Unfortunately, I could never pull the trigger until many years later and even then was talked out of the investment just a few years after getting the courage to finally invest in it by a well-meaning relative. That was a 10-bagger ago," David writes.
"More recently I was listening to one of your podcasts. You were talking about the term that you coined 'spiffy-pop,' and how after that recording I believe 12 or 13 such spiffy-pops or day baggers, as you might call them, you no longer even mention that anymore."
Once a stock, as I said [this is me now] has spiffy-popped 13x, we no longer bother counting the 14th or noticing the 15th or 16th because at that point it's kind of boring. You've hit your baker's dozen. We call that the forget-me-pop as David knows.
"While observing the news today and seeing a couple of my holdings that didn't get away [namely Netflix and Baidu]," -- congratulations, one Dave to another -- "register spiffy-multi-pops, it occurred to me that perhaps there's another metric that could be applied and a new term developed such as a deca-pop or megaspiff, or megapop, etc. I would leave the term and definition up to you, of course. I understand that you've referred to investors like these as spiffy-two-pops, etc., similarly. You call it sometimes bad-move-spiffy-drops."
And he goes on a little bit there. All I wanted to say to this part of it is thank you, David, for noticing, for caring, back in the day. The Motley Fool keyword "Fool" on AOL before there was a Fool.com. I'm delighted that you eventually got invested with us and that you're experiencing spiffy-pops in your life.
Yes, there is more nomenclature here. I've invented some extra terms. Spiffy-drop would be a good example of one. We do talk about spiffy-two-pops and there are spiffy-deca-pops. It's funny that you would pull that phrase out of the air because that's what I selected for it.
If you're interested in the language around spiffy-pops, just google spiffy-pop and I'm pretty sure we're high up there on the search results. You're going to find the page that lays out the history of spiffy-pops. I think we've had about 29 of them so far in our Motley Fool services in 2017, but you're going to see more of our terminology and I hope you enjoy that.
Now, there's a second section to this email that I want to speak to and I've got my pal Cheryl, here, to help me with it. So Cheryl, first of all, welcome!
Cheryl Palting: Thank you for having me. It's an honor.
Gardner: I am not only honored to be with you, but I'm always very happy around you because if there is a happier person that I know in life, let alone around Fool HQ, I'm not sure that I know that person more so than I know Cheryl. Cheryl's the kind of Fool employee who I say things like, "Hey, I heard you made Funfetti cupcakes the other day. And I naively, and this was naïve on my part, said, "Cheryl, what is a Funfetti cupcake?" And then...
Palting: Life is too short not to know what a Funfetti cupcake is, David.
Gardner: And Cheryl, I think I asked you that question last week and then yesterday morning at my desk there were four Funfetti cupcakes which have been scrumptiously enjoyed and are now gone, but that's just kind of who Cheryl is. So it's awesome to have you on the show, Cheryl.
Cheryl, this is David Kasserman's second part of his email. A change, a twist in the wind, here, to a new place that you're going to help me navigate through. So here's what David goes on to write.
"Finally, I'd like to share another more personal story with regard to your company. Again, after having followed your company and advice closely for many years, I also became aware of the work environment at The Motley Fool as being something special and something about which you are proud. You've mentioned it several times. I've seen it written about, as well. You're to be congratulated.
"A couple of years ago my son was living and working in Washington, D.C. at a neighboring company called comScore with which I'm sure you're familiar." Yes, I am. It's a public company. It's a fine company.
"At the time he was extremely uncomfortable with his work situation. As a concerned parent I mentioned to him, "Austin, why don't you check out The Motley Fool? It's close by and I hear they have a great work environment." Well, being a proud parent and feeling confident that my son Austin, although young and relatively inexperienced, was hugely qualified and would find a place with your company, initially he did not tell me that he, in fact, had applied but in the end was rejected in the 'final round.'" And I'm sorry to note that.
David goes on. "I think he was embarrassed to be rejected and held on to this for some time. More recently, he mentioned it to me again. Perhaps he wasn't sure I heard it the first time, or perhaps it was just to let me know that I should take The Motley Fool's advice less seriously. Because when I asked him why he thought he was rejected, he just shrugged his shoulders, said that he never heard why. Followed by a: 'I don't know.'
"I may be completely off base. Perhaps I don't have all the facts," [this is David writing] "which is usually the case, but as an extension of your human resources department, work environment, and the scope of your influence, I believe that when a sound applicant is rejected for a position, that constructive feedback is in order for a variety of reasons. It shows caring beyond your business, thoughtfulness, gives something meaningful back to the applicant. Rejection is tough," [we all agree on that], "and being able to grow from it is obviously up to the individual, but to do so without sincere and meaningful reasons makes it especially hard."
This is, by the way, kind of hard to read. I know you said it was a little heartbreaking for you, Cheryl, to read this story from David Kasserman.
Gardner: He goes on and closes, "I'd love to hear your thoughts. I've never been an active contributor to your boards and websites, but I'm grateful for them and for your contribution to my financial health. Fool on!" Cheryl, what's the first thing that comes to mind for you there?
Palting: The first thing that comes to my mind is one, we have to thank David for sending in such a thought-provoking question and a thought-provoking conversation because it's a conversation that I think people don't have as often as they should. When it comes to recruiting and giving feedback, it's a big part of every single company that exists.
Gardner: Yeah, we do a lot of feedback here just internally. This is not speaking about the job applicants, but feedback's a big thing, here, at Fool HQ. 360. I think that's a best practice, fair to say, but all kinds of coaching. So feedback is big.
Palting: Right. And so when I hear that a candidate specifically [because I work in recruiting], is asking for feedback and was not getting what they were asking for and not having a great experience, I feel like that can be improved.
Gardner: Yes, because Cheryl is the person who brings Funfetti to all of our lives, and not just in cupcake form, so I think I've asked the perfect person in, because I don't know of anybody who cares more about making things good for other people than you.
Palting: I appreciate you saying that. It's an entire team of people, here, who work really hard to make sure every Fool, whether they're applying for a role, visiting the office, getting to know us as a company is enjoying their time with us and feeling that Foolish experience.
Specifically to answer David's question about receiving feedback specifically after being rejected, we actually try extremely hard to give our candidates a clear and concise reason. It can be something as short as we looked at a candidate who had more experience in a certain software, or a certain hardware. We may have filled the role internally.
At the end of the line, and at the end of every applicant's journey, we hope that we end on a great note, regardless of the outcome. And as hard as it is for a candidate to hear rejection, we always want to make sure that at the end of the day, they are still a fan of The Motley Fool.
When you apply to The Motley Fool, you're probably a fan of us. You probably are familiar with us. And if you aren't, you do look at us. And so we are always so grateful for the amount of applicants that we get. And to show our respect and to show our gratitude we actually don't, on our recruiting team, use any keyword scrapers. We don't use any machines that automatically search resumes and cover letters for keywords and then put them into buckets. We read each application by hand, front to back, and that does take a lot of time, but to us it's worth it because we're trying to give our candidates as personalized an experience as possible. Sometimes that means our answers to feedback and emails can't be as long as we'd like them to or as detailed as we'd like them to...
Gardner: I kind of understand that. This is me as a business owner, and we're co-owners because everybody here at The Fool owns some of The Fool. So part of it I recognize. There's going to be some time as our finite, dearest resource and we have to figure out how best to use it. We probably can't do everything that we want to do in every case. Now is this something where if a candidate is turned down and reaches out very directly to us, would we provide feedback if asked?
Palting: If asked we try, and we try very hard to do so. We actually meet with the entire hiring team. If they come in onsite and they interview with a dozen or so Fools, we get together. We take notes. We say, "OK, what are we looking for at this specific time in the company's vision? When we're thinking about the future of the company? What are we looking for?" Because we're so lucky to get so many capable, passionate applicants. And by the end of the interview process, it's down to the nitty-gritty details of who is better for this role at this time. It's hard. Decisions at the end are so hard.
Gardner: It's pretty painful. Every year [I'm going to make up these numbers -- you actually know them] it's something like 800 applicants for our summer internships and we have about 12, which means we're turning away hundreds and hundreds of people. Sometimes they're like kids and I was their soccer coach, or they were related to me. That's just the reality of life, sometimes, is that we don't have all of the things that we want to do for people.
But in closing, Cheryl, is any kind of follow-up generated by David Kasserman dropping this note to us?
Palting: Absolutely. David, you can expect an email from me very soon. Check your inbox. I will be there whether you like it or not.
Gardner: And Cheryl, more generally, I can't not say goodbye to you without pointing out that we do continue to hire, here, at The Motley Fool.
Palting: Yes. We're always hiring and we're always so grateful for the amount of applicants and passionate people that we have, here, at The Fool. And it just gives us even more drive to do better because instances like this just remind us there's always room for improvement. We can always do better. We can always get more and more feedback and continue to innovate and improve our processes.
Gardner: Cheryl Palting, thank you very much. What is the website I can check for job listings?
Gardner: OK, Cheryl. Thank you and thanks for injecting a little bit of Funfetti into this podcast.
Palting: Thank you for having me.
Mailbag Item No. 9: This one comes from David G. It's very short and very sweet. David writes, "Hey, David. Should we break up Facebook? Should we break up Amazon? I'm reading this some in the headlines these days."
Well, thanks, and yes, this is one of those questions that I've written to myself because I wanted to speak to it on this week's Mailbag. I'm seeing quite a lot of talk these days about the idea that we should break up these big internet giants, and I do feel like I want to speak to this very briefly.
In fact I'm reading a headline from a USA Today opinion piece this week that said, "Break up the Google-Facebook-Amazon web monopoly," which makes me smile a little bit because that was three companies and the word monopoly was used which sounds like it should just be one to me.
But a few things. First of all, I generally don't want us to mess with companies that are doing [and I'm going to say this word] great. Not just good -- great things in the world. I think that Facebook has 2 billion people using it because what it's done is great over the last 10 years, and I think the same thing is true of Amazon over the last 20, and I think that Google and Alphabet, these are great companies.
These are not companies that are typically mis serving their customers. In fact the reason, at the heart of it, that they're so successful is because they're doing so well by their customers. So I'm not a big fan of thinking that just because something is big or powerful that it should be broken up.
I say they're winning for all their stakeholders. We're shareholders in these companies, as well as pleased customers. I think the people who don't like them are often their competitors, and I realize that's a dynamic of the political world that can happen where you start saying, "Well, break them up because we can't compete with them."
But so long as I see something doing really good stuff in this world, I realize every company is faulty. They have some faults, but these things are becoming almost universal services in some ways, and I realize that sounds like maybe we should break them up, but for that reason and a couple of others I'm about to give you I'm not a big fan of that.
The second thing I want to say is that there's this thing called the stock market, and at the stock market no one need feel disenfranchised, because feel free to become a part owner, if you like, so that as these companies prosper, it will be your company that's prospering. You can, too. You can even short that company through the stock market, instead, because if you find a poor company doing, let's say, unsustainable or maybe even fraudulent work out there in this world; well, as that company fails, then you will prosper, too. So the beauty of public companies is that we can all be part owners of them. We need not feel as if they are in some way harming us.
And then finally, I do want to put in a word for a global viewpoint, because I think ultimately one of the most harmful things that we can do [this is me speaking to my fellow Americans] to really harm American competitiveness worldwide would be for us to start saying, "Hey, let's break up the best performers, the most successful and effective performers of capitalism that we have in this country. Let's break them up."
I was at a meeting of CEOs earlier this week, and one of them who works in the software industry said, "You know, if you're China, you are rooting on this kind of thing really hard. You might even be backing politicians or sentiment that advocates this sort of thing. Break up Google. Break up Facebook. Break up Amazon. Because if you can disrupt America's greatest contributions to global capitalism, then that fractionalization can really help your own competitiveness. So I think sometimes we need to step away from it and take the big view. That's where I am. Thanks for your question, David G.
Mailbag Items No. 10 and 11: Mailbag Items No. 10 and 11 as we get near the close of what maybe we'll remember as Variety Hour here at Rule Breaker Investing, and this is just a lovely sentiment. It comes from Don Sampson. Don writes, "Dear David and Chris," [Chris Hill he includes in this]. "I've been a Foolish subscriber for almost 10 years. I've enjoyed listening to every podcast of Market Foolery and Rule Breaker Investing.
One of the most important Foolish lessons is certainly let your winners run. Obviously a very well performing stock that continues to increase in value will become a larger and larger portion of a portfolio. There is some risk in this very happy situation," Don writes. "The performance of an entire portfolio will become increasingly dependent on the price of only a few high-flying stocks. The reason most investors sell at least a portion of their winners is to remain diversified in order to guard against the negative impact of a high-flyer coming back to Earth.
"But diversification should not be seen as a goal in itself," Don asserts. "If mitigating risk by owning a very diversified portfolio is your objective, you should avoid individual stocks and just buy an index fund. This will guarantee that your portfolio will not lag the market. It will also guarantee that your portfolio will never beat the market.
"Every investor who puts his or her money in individual stocks hopes for a multibagger. There is no way to be certain that you will ever invest in a 10-bagger or 20-bagger, but there is a way to know for sure that you will never own a 10-bagger. Sell your two-baggers and three-baggers. Thanks to you both. Keep up the good work. Don Sampson." We'll let that one stand on its own. Thank you, Don.
And finally this month, in keeping with just reading something and not commenting on it, I wanted to close with Martin Triggs and this lovely note. "Greetings, David, Fool team, and fellow RBers. The RB podcast is always one of the highlights of my week. Thank you David and team, and engaged listeners for helping making this invaluable free service of colorful, deep investment wisdom better week by week." Well, that's very kind of you. Thank you, Martin.
"My reading list this past summer included books mentioned and recommended on this podcast. They were A More Beautiful Question by Warren Berger, The Medici Effect by Frans Johansson, and It's Not What You Sell, It's What You Stand For by Roy Spence. Amazing reads. While not direct investing books, they nevertheless were the best and freshest investing books I've ever read. They make me appreciate and celebrate the beauty and even profundity of great businesses.
"My investment approach and understanding has certainly evolved, improved, and become more Foolish. Thank you. My question this week..." Well he goes on with a question asking about our Rule Breakers six investing traits and where they came from, but because this has already been an epically long Mailbag, I probably don't want to start answering that question.
I'll say this, though, Martin. A couple of weeks ago I started asking you and other fellow listeners to help us assemble what I'm just calling [this is the working phrase] the rule breaker starter kit. I asked you to tell me your favorite episodes. And some of the episodes that many of you sent in speak directly to Martin's question about the six traits of rule breaking, but beyond just those, we got a wonderful outpouring of support and help. And I no longer have to ask this podcast for anybody to send in anymore because we've gotten, already, so many good suggestions.
So to Martin and to all of you who wrote in this week and all of the other weeks, besides, thank you very much for all you do on behalf of all of us here at The Motley Fool, especially Rule Breakers among us and this podcast, and to think Martin, that you were reflecting on business books that I suggested and pointing out that they were some of the best investing books you could read reminds me to mention that next week's show I'll be featuring an interview with the author of one of those three books whose name is Roy Spence.
Martin, you know who Roy is, but many others may not. He wrote, It's Not What You Sell, It's What You Stand For. He's the founder of a wonderful Texas marketing and branding firm called GSD&M. He's also just great fun to listen to, so get psyched because next week Martin and everybody else, it's going to be time for Roy Spence. In the meantime, thanks for staying with me all of this variety hour at Rule Breaker Investing. 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.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Aaron Bush owns shares of Alphabet (C shares), Amazon, Baidu, Facebook, Momo, Netflix, and Twitter. David Gardner owns shares of Alphabet (A and C shares), Amazon, Baidu, Facebook, Match Group, and Netflix. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Amazon, Baidu, Facebook, Netflix, Twitter, and Verizon Communications. The Motley Fool recommends Match Group, Momo, and T-Mobile US. The Motley Fool has a disclosure policy.
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