Back in September, Alison Southwick and Robert Brokamp reviewed five things that might rightfully lead an investor to dump a stock, even when there's not necessarily anything wrong with the company or the equity.
This week on the Motley Fool Answers podcast, they're back as promised with five more, presented with a bit of help from Million Dollar Portfolio's Jason Moser. But unlike last episode, when it was you -- and your investment needs -- that might have changed, now they're tackling things that companies do that take the love out of your relationship. Plus, a rent-versus-buy "Answers Answers" question, and three financial lessons you can learn from the late, great Hollywood icon Elizabeth Taylor.
A full transcript follows the video.
This video was recorded on Nov. 14, 2017.
Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick, and I'm joined, as always, by Robert Brokamp, personal-finance expert and clean-shaven man here at The Motley Fool.
Robert Brokamp: Oh, yeah!
Southwick: And I also have Jason Moser, but more on that later. As promised, we're back with five more reasons to break up with an investment, and this time it's not on you. We'll also answer your question about buying versus renting a house, and we'll learn three money lessons from Elizabeth Taylor. All that and more on this week's episode of Motley Fool Answers.
Southwick: It's time for "Answers Answers," and before we get into the question I should remind everyone that Jason Moser is joining us in-studio today.
Jason Moser: Hey, hey!
Southwick: So, you're going to have some thoughts on this "Answers Answers," right?
Moser: I've got thoughts on all sorts of things, Alison, but yeah. I can offer some thoughts on these things, too.
Southwick: So, the good news for Mattai is that he's getting twice the advice...
Brokamp: That's true.
Southwick: For the same low, low price...
Southwick: ... of free.
Moser: More value. Value add. In the investing world, that's what we call a margin booster right there.
Southwick: Yeah, well...
Southwick: You get what you pay for, Mattai. So here we go. He writes, "My taxable portfolio is up around 100%, which I am thankful for, but now I have a dilemma. My wife and I are considering moving to Dallas. We are homeowners, here, in Colorado, and would like to keep our house and rent, which means that I would need to sell the stocks in the taxable portfolio to buy a home in Dallas. But I'm not sure if or when we are moving. I would need to find a job. Should I keep the stocks or sell them?"
Brokamp: Well, I'll give my thoughts on it and then we'll see what Jason says. First of all, I would say do not sell the stocks, because it sounds like there's a good bit of uncertainty about what you're going to do. And even if you decide to move to Dallas, I would recommend that you rent for a while. You don't know if you're going to like Dallas. Maybe you're familiar with Dallas, but generally when you move to a new city...
Southwick: [Laughter] I take it you're not a fan of Dallas.
Brokamp: No, no! I've never been to Dallas.
Southwick: Don't lock that down.
Moser: It's a very big place.
Brokamp: I've never been to Dallas. What I'm saying is if you're moving to a new city with a new job, you don't want to buy. Rent for a while. You may not like the job. You may not like the city. Plus, if you live there for a year, you'll get a taste of the neighborhoods. The schools. You'll get a better idea of where you want to live, even if you want to stay. Then I would buy. So that's my take on it. Jason, I'm interested in your take, not only because you're a smart guy, but because you're someone who kept a house in another state as a rental.
Moser: I did, but more on that later, Bro. It's interesting, your take on renting first. In theory, I agree with you. Now I will offer the caveat that when we moved up here in 2010, when I accepted the job here, we were looking for a house to buy immediately. We didn't want to rent because we didn't want to have to move twice, basically. So there were some stocks that I actually had to sell to help with the down payment because the cost of living up here is significantly more.
Now we had a home in Georgia. We decided to keep that and rent it out, because we didn't need to sell it. We had some equity in the home and we thought, "Let's give renting it out a shot and see how that goes, and if it works out OK, then fine." We had someone in the area who helped keep eyes on the house for us. We ended up renting it out for about seven years...
Southwick: Oh, wow.
Moser: And then we recently moved at the beginning of this year, so we sold that house and sold our other house up here to combine everything into the one house that we bought here. But going back to the original point that you made in the uncertainty that seems to be prevalent, here, I agree. I think with that level of uncertainty, I wouldn't do anything so permanent as selling all of those stocks because it doesn't sound like they are fully committed, yet, on what they want to do.
And I think that's the beauty of renting and why, ultimately, I would agree with that, is because renting gives you plenty of options. And if you're unsure of moving there, and then you decide to do it, who knows if you're really going to like it. Maybe the job isn't what you thought it would be, but renting gives you those options whereas buying doesn't. And selling those stocks, especially if you're 100% up, there's going to be some capital gains to pay. You'll probably be able to offset that a little bit with some of the closing costs from buying a house, but I don't think that ultimately works out in your favor. Until you have some real conviction there, leave yourself as many choices as possible.
Brokamp: Did you have any uncertainty about whether you would like your job at The Fool?
Moser: I really didn't.
Brokamp: Was it due to the Fool Buddy program?
Moser: It was...
Southwick: Were you his buddy?
Moser: Where is this leading? Yes, exactly. He was my Fool Buddy. I didn't know that coming up here. It was so funny. When he came up to my desk, he was like, "Uh, hi! You must be Jason." And I'm like, "You're Bro!"
Moser: I knew who he was because I was a member before I came to work here, and I knew I would love it. I was really hoping to get the job up here. I had a good feeling I would like it and want to stay. And plus, my wife already works up here, anyway, so it just all worked out.
Brokamp: That's true.
Southwick: As promised, we're back with five more reasons to break up with your investments. This was like, I don't know, two or three weeks ago. I'll bet listeners forgot that we promised we were going to be back with five more reasons, but we're back. We remembered. Because the last time we talked about it, we gave you five reasons to break up with a stock. Well, it's not necessarily the stock's fault, right? For example...
Brokamp: You need the money in the next few years, so you shouldn't have that money in the stock market, or maybe a single stock has become too big of a position in your portfolio, so you're selling it just to keep a little more balance in your portfolio.
Southwick: There you go. So this week we brought Jason Moser in to help us when you need to break up with a stock... because, really, it's the stock and not you!
Moser: And that happens. Very often.
Southwick: It does, and so we've got five breakup lines that you can use to break up with your stocks which are good reasons, or mutual funds. Shall we just get into it?
Moser: Let's rock.
Southwick: All right. The first breakup line is, "You keep forgetting my birthday. And our anniversary. And my name!"
Brokamp: And here we're talking about management missteps.
Moser: Oh, and there are just so many shining examples out there of this. It's easy to be a critic because there are so many bad situations out there. We have all sorts of criticisms that we offer management. We also have to recognize the fact it's not an easy job running a public company.
Now with that said, a couple of easy, recent examples here, now that we're just getting out of earnings season are Under Armour (NYSE:UAA) (NYSE:UA) and also Chipotle Mexican Grill (NYSE:CMG). These are two companies that are very popular recommendations in the Foolish universe. And my service that I work on, Million Dollar Portfolio, many people probably know that is a real-money portfolio that we manage for our members, so we're making real-time buys and sells.
And right now, we actually have Under Armour and Chipotle on hold because of a plethora of management missteps that have taken place over the past year. We can use Under Armour just as an example because I think it's so easy to sort of point toward the company that had so much success so quickly. And it seemed like quarter in and quarter out they could do no wrong and the stuff was flying off the shelves, and so they didn't really have to do much.
And so I think CEO Kevin Plank took that a little bit for granted. Probably was a little bit cocky. They made some, I think, poor investments. There was some reckless spending going on.
Southwick: Like what?
Moser: Well, the connected fitness stuff I think is the easiest example. They blew somewhere in the neighborhood of $400 million on some connected fitness apps in the name of more data, which would then allow them to build more equipment and apparel that their customers want. That's just not playing out as well as I think they thought it would, and it took their balance sheet from a position of strength, where they didn't really have any debt, to a position of weakness, where they now have about $800 million in net debt.
So there have been some management missteps that played out on the stock. Any of you listeners out there, who own Under Armour shares, I feel your pain, because I own those shares, too. We still own them in Million Dollar Portfolio, but they are on hold, and it is something I got a lot of questions after this quarter. "I really want to sell these shares. What do you recommend?"
And I just thought, "Well, everybody's situation is unique." Make sure you take 24 hours to step back, try to remove the emotions from the situation. Understand "Do you need to sell" and "Do you want to sell." Those are two very different things. We're hopeful that they'll turn it around. It has been a successful company to date, but definitely some management missteps that have played out on the stock.
Brokamp: Whenever you look at a company, you're going to find an example of a mistake or two. A classic example is Amazon (NASDAQ:AMZN) and its attempt to make a phone.
Southwick: Netflix and Qwikster.
Moser: Netflix and Qwikster. That's another good one.
Brokamp: Exactly. Every company should be trying new things. Experimenting. And just by their nature many of those are going to fail. So how do you know when you have a series of things that are not just nice, little bets that didn't work out, but there's a real sign that management is losing its touch.
Moser: I think that's a very good question. We'll use the Amazon example here, to where we knew that the Fire phone was most likely not going to gain any traction. It's also very much in line with Jeff Bezos' culture there at Amazon -- to try lots of things. Even though the Fire phone may not succeed, some of the technology or ideas that go into it could help the business in other ways down the road, particularly as they're developing home assistance with Alexa and whatnot.
That was very much in line with their M.O. I think with Under Armour, they were doing a lot of things that weren't quite in line with what had led them to be so successful in the first place.
I'm glad you mentioned Netflix, because I made the observation that maybe this is Kevin Plank's Reed Hastings moment, in a good way. Maybe this is sort of the humbling event that forces him to step back, take a look, and realize that he needs to get some diverse opinions on an executive team, there, to help him move that business forward.
I think if it's something that's in line with the company culture, that's one thing. If it's something that makes you scratch your head and think, "Hmm. That just doesn't really seem like it makes a whole heck of a lot of sense," that's when you put it under the microscope. And for us in Million Dollar Portfolio, we've laid out a few things that we're going to be paying attention to in the next year to assess whether they are taking that step back, reassessing, and getting the business going back in the right direction.
Brokamp: One of the lines we often use around here is Warren Buffett's favorite holding period is forever.
Brokamp: And ironically, that was made in reference to a couple of companies. One of them was Freddie Mac, which they ended up selling. He sold it within a decade or so. And one of the reasons was along the lines of what you said. He saw them doing things that were outside of their circle of competence. Wasn't within their business line. He was like, "OK, there's too much going on here. I'm going to sell these shares."
Moser: And holding forever is kind of romantic, and it's great if you can find that situation. The way that information travels today versus when Warren Buffett was really coming up in the investing world is a far different world. Information is not difficult to come by. It used to be very difficult to come by, and so there was a big reward for going down to that library at the S&P and sticking your nose in the books. I don't know that it's wise to adopt the "we just want to own forever," because I think that we need to do a better job of educating people on when and how to sell.
Southwick: Which is the whole point of this show!
Moser: I see what you did there.
Southwick: I didn't do anything. Do we want to talk about how queso is not saving Chipotle? I haven't tried the queso, but I hear it's awful.
Moser: I've tried it. Like, I'm not a queso expert. It's just, you know, eh.
Rick Engdahl: It's fine.
Moser: It's queso. It's not bad. I'd get it again. I guess maybe people have higher expectations than I do. I'm not a queso expert. I would rather have that than queso you get at Taco Bell. But I don't go to Taco Bell, either. So I don't know. I guess everybody's just got an opinion. Whatever.
Southwick: Just shut up and eat your queso.
Moser: The queso's definitely not going to save what they've got to work on.
Southwick: Well, what do you think they've got to work on, aside from not poisoning people? I think they've got that probably under control now.
Moser: You know, it's one thing for them to self-assess and say that half of their store base doesn't meet their internal standards. They feel like they are not to the level of cleanliness... or the service isn't to the level that they expect. So at least if you can self-diagnose that's fine. Now, what you have to do is then fix it. And to this point, it doesn't seem like they've really fixed it. But I would also argue that from an investor's perspective Chipotle is never going to garner the multiple, the premium valuation that it used to.
Southwick: Oh, I just heard a lot of hearts break. A lot of our listeners were just like, "Wait! What?"
Moser: It's not 10 years ago. There are far more imitators out there. Like Chipotle 10 years ago was very unique.
Southwick: There's a lot more delicious food trucks.
Moser: And now it's not. You have all sorts of different choices. And so, a good example is by our house there is a Chipotle and it used to be kind of the only concept there. Now there's a Five Guys, there's a Chick-fil-A, and there's a Cava all right there in the same area.
Brokamp: And a Cafe Rio. Oh, man.
Moser: And so there you go. There are just so many choices out there.
Southwick: Cafe Rio, if you're interested, we will take your advertising dollars because Bro has thoughts on that.
Brokamp: Oh man, it's good.
Moser: It clearly affects their traffic and, for a restaurant, traffic is the pot of gold at the end of the rainbow. You're looking to figure out any which way you can to boost that traffic. So, they're going to be able to open more stores, but I don't ever think they're going to be a stock that trades for 50 times earnings ever again.
Southwick: Yes, none of the other concepts ever took off, either.
Moser: No, which was funny, because ShopHouse I thought was really good. It was very tasty. I guess it just didn't resonate with consumers' fickle demands. And Pizzeria Locale -- I don't even know what the deal is there. They've got three or four of them, but it's pizza. Like, you can just open those things en masse, right? Everybody likes pizza, even bad pizza. It's still pizza!
Southwick: The next breakup line. Are we ready?
Brokamp: We're ready.
Southwick: "I don't like who you're becoming."
Brokamp: And here we are talking about sell when CEO succession concerns you.
Moser: Well, CEO succession is something that should concern everyone. The shining example here is Walt Disney. Disney is a very popular investment, again, in our Foolish universe. It's one that we own in Million Dollar Portfolio. Bob Iger is the CEO currently and has witnessed just tremendous success. And he's been the inspiration behind those three acquisitions that have really done so well for them in Pixar, and Marvel, and Lucasfilm.
So the question is when is he going to leave and who's going to take his place, because he should have been gone a couple of years ago.
Southwick: Because he wanted to or because people wanted him out?
Moser: No, he's just been saying it was time and I'm going to retire. And he would postpone it again, and again, and again because I don't think they have quite found who they feel comfortable with taking his place. Whoever does take his place is going to have some serious shoes to fill.
A lot of ideas out there. Sheryl Sandberg is possibly someone who could jump in there. She has plenty of great experience at Facebook and it would be a job I think she'd do pretty well. But who knows? At this point he's going to be around for a little while longer and it's going to be a big question mark as to who fills his shoes, because they're going to have a tremendous act to follow, especially with all the trouble that ESPN is having.
Southwick: Sometimes companies will announce that so and so is stepping down. Here's who's coming in and the stock will fall or maybe rise depending on who the person is. What are some of the keys to good succession and advanced planning?
Moser: In a lot of cases it's OK to see a COO take the place of the CEO. The COO typically knows the business pretty intimately and has seen a lot of what's going on at that CEO level. But that doesn't always work out, and I think McDonald's (NYSE:MCD) is a good example, here, where Don Thompson, who was the former COO jumped in to fill the role once their CEO retired. I think he lasted for about a year. He just didn't perform and wasn't able to do what the company needed him to do.
He was quickly ousted and Steve Easterbrook, who was brought in, has just made a world of difference. I mean, McDonald's has really performed well. The stock is up 75% or so since he took the CEO reins a couple of years ago. So, it's a good example, there, where you don't always quite nail it from the start, but sometimes you've got to go through a couple to make sure you get the right fit.
Southwick: Do you think internal is usually more successful than an external succession?
Moser: I don't have any actual statistics to back up my feelings.
Southwick: Oh well, let's not let that get in that way. I mean, come on!
Moser: Let's not rely on reality. I think that internal very often, while it seems good on paper, can also be problematic because they've been there for a while and the company has been operating under those same sorts of guidelines, even though that internal future CEO was there in a lower position.
So, it depends really on the state of the business before that person takes over. Craig Jelinek, who took over for Jim Sinegal at Costco, I think had a pretty good situation. He just had to jump in behind the wheel and keep steering the car down the road. Costco's got some problems that are market-related, not really so much related to them. It's more of how Amazon is changing the space. But I think a lot of that just depends on how the company's doing when the CEO is being replaced.
Southwick: And our next breakup line is, "You're not growing as a human being." Or I guess as a company. Whatever. You see what we're trying to do, here.
Brokamp: And this is sell if a platform shift threatens an investment.
Moser: And technology, I think, is the poster child for this. Platform shifts are just the name of the game, there. You mentioned a good one before, Alison, where BlackBerry had its lunch eaten by Apple, or Apple ate BlackBerry's lunch.
Brokamp: But even before that there was Palm, and Handspring. I mean, the whole story of the handheld device...
Southwick: Motorola and...
Brokamp: It's amazing.
Moser: So, you've seen a lot of that Nokia (NYSE:NOK). Who's that? When you're walk in with a Nokia, people are like, "What?" They don't even know what Nokia is, but we all had a Nokia at some point.
Southwick: We all had the candy bar phone. We all had a Nokia phone.
Moser: But that's the nature of technology, right?
Southwick: It's kind of the nature of the world. The buggy whip, for example. I mean, we are always moving forward.
Moser: I think it's amazing to see what e-commerce has done in such a short time, and I think that Amazon is the company that has led that movement. It's not to say that Amazon is the only company benefiting from it, but certainly Amazon has really helped sort of spearhead the way.
And it just goes to show you how really smart Jeff Bezos was to make those investments so early on. I think a lot of people really questioned "I'm not going to buy something on a computer. I'm not going to put my credit card on the computer. No way. That's my security," and everything.
Gradually consumer behavior shifts, and now they recognize the fact that we, consumers, care about convenience. We care about loyalty. We care about free shipping. And that is data. Study after study shows people care about free shipping more than their children in a lot of cases. You look at something like Amazon, and Bezos has built a model around that and it's worked out pretty well.
Southwick: There must be times in the history of the world where a company is losing market share.
Southwick: They're losing to some flashy new technology coming in, but then they did successfully pivot. That has to have happened at least once in the history of the world.
Brokamp: Well, we've mentioned one, although currently it's not doing so well. Nokia was originally... Anyone...? A lumber company.
Brokamp: In Finland.
Brokamp: Yeah. The company's almost 100 years old.
Brokamp: It just came up with different ways to do things.
Moser: Well, McDonald's. All day breakfast! I mean, that's a pivot. Everybody was leaving McDonald's and going to Chipotle, Alison.
Southwick: That's a really brave move, yeah. To have the fortitude to put that on the boardroom table is very exciting.
Moser: I will use Wal-Mart here as an example of a company that I think a lot of people early on were counting out.
Moser: Talk about market share or look at just the rate of sales in its retail growth. You look at the pace of sales for Amazon vs. the pace of sales for Wal-Mart and clearly Wal-Mart was getting killed. But I think they made some moves, partly in acquisition. Buying some internet properties. Partly on trying to mimic what Amazon's been doing.
They have a tremendous physical infrastructure and if they can build out the logistics expertise, they can certainly participate in that e-commerce environment and they are. I think that's a company that was a little bit slow to adapt, but they definitely have and they're still around because of it.
Southwick: But it sounds like the examples are few and far between.
Moser: They are the exceptions and not the rule. Look at Facebook and Myspace. Why did Facebook displace Myspace? I really don't know.
Southwick: I don't know, either.
Moser: But what we're seeing now is the behavior of kids out there. They're not really interested in having a Facebook page. Now, granted they are setting up an Instagram page, but that just goes to show you the shrewd acquisition skills that Mark Zuckerberg has in buying Instagram when he did. I think he recognized, even early on, that the best strategy in this space is to own as many of those social apps as possible. That's why he tried to buy Snap. Tried to buy Twitter. And probably they would have better lives if they had gone ahead and just accepted the deals. But here we are.
Southwick: Our fourth breakup line is, "You're just not performing when I need you to."
Brokamp: And here we're talking about bidding adieu to bad funds, and I'll take this one. I'm talking about mutual funds, of course. And generally speaking, if you have a fund that has underperformed a relevant index fund over the last five years, you should probably get rid of it. So, if you own, for example, a large-cap value fund and it has not beaten a large-cap value index fund, there's no reason to continue holding onto that.
And one of the biggest examples -- and this is one that many Fools experienced because this is a fund that was in our 401(k) for many years -- was a fund called the Fairholme Fund run by Bruce Berkowitz. In 2010 Morningstar named him Manager of the Decade. So, from 2000 to the end of 2009, do you want to take a guess at what kind of performance you saw from the average large-cap fund?
Moser: What was the date again?
Brokamp: 2000 to 2009. Basically, the first decade of this century. The average large-cap blend fund.
Moser: I've got to believe it was...
Southwick: It must have been pretty good, right?
Moser: On an annualized basis?
Brokamp: Yes. That included the .com crash and the Great Recession.
Moser: That's right. The Great Recession was in there, too.
Southwick: So 2000 to 2010, the average annualized returns of a large-cap mutual fund.
Brokamp: I'll just tell you: 0.01%.
Southwick: Wait! What?
Moser: Because you had the .com crash and the Great Recession in there.
Brokamp: Right. And by the end of 2009 we were just recovering from that. So basically those funds made no money. Fairholme averaged 13.2% a year.
Brokamp: It did fabulously, so Bruce Berkowitz doing well performing, but also just a smart, articulate guy. Someone you could look at and say, "He's like a young Warren Buffett. Very wise." The type of guy you would want managing your money. Like I said, we had it in The Motley Fool 401(k). I had some of this fund. Then in 2011, the market made only 2%. He lost 32%.
Brokamp: Over the last decade, his fund has been in the bottom 2% of funds. Over the last five years, the bottom 1% of funds.
Southwick: What's his strategy? Do we know?
Brokamp: Well, he became overly concentrated in certain stocks. Some of those did well. Some of them didn't. For example, one that hasn't done well, Sears. Fannie Mae. And the problem is he also was concentrated in AIG, which did well for a while, depending on when you look at it.
But because when a fund starts doing poorly everyone wants their money, it forces the manager to have to sell stocks. And because he had all these preferreds in Fannie Mae that were illiquid, and because he owned so much of Sears, he couldn't sell those without impacting the price of those, so he had to sell all the other things. He was also highly concentrated in a real estate company called St. Joe's down in Florida. So basically, that's what happened.
It's a classic example of how past performance just isn't a reliable indicator of future performance when it comes to a mutual fund, and you have to stay on top of it. And if they're not keeping up over a five-year period, it's time to say goodbye.
Moser: The other thing about the past -- and I really can't emphasize this enough -- think about how different things are now than they were in the past 10, 20 years ago. Technology has just changed everything. So, you can't look back 20 years ago and compare. It's apples to oranges. It's not fair. You have to really hit the reset button and just consider, how do I feel like things are going to shake out in this technology-driven world, because it just wasn't that way 20 years ago.
When I graduated from college, email was just becoming a novel concept. They didn't have internet. It's a little bit of a different story now.
Southwick: All right. Our final breakup line is, "I don't like your mother."
Brokamp: Here we're talking about a story when the company that you own becomes acquired and you're not necessarily comfortable with the company that is doing the acquiring.
Moser: Yeah, well, I think a very polarizing investment, not really here, but just in the investing world, is Amazon. I think a lot of people out there may not think that what Jeff Bezos is doing is sustainable. He spends too much money. Amazon doesn't make any money. It's just razor-thin margins. It's not a profitable business. And then lo and behold, Amazon acquires Whole Foods. And so maybe people who were investing in Whole Foods because they felt like they were investing in a company that was more in line with their values and their ethics, and sort of the way they would like to see food go, being a part of Amazon, now perhaps they don't feel as comfortable being a part of a company like that.
And that's everybody's sort of line they have to draw on their own. It's not to say you're right or wrong, but if your company is acquired by another company, one of two things is going to happen. That acquisition is either just going to be a cash acquisition and you don't have to worry about this, or that acquisition is going to result in getting shares of the acquirer. And if you do get shares of the acquirer, then you have to consider whether or not you want to hang onto them.
Now I believe Amazon just acquired Whole Foods for cash, so I don't believe there was any sort of position like that; but it's just an example that you have to be able to look at the acquiring company and say, "Am I onboard with what they are doing? Is this something I would invest in today, acquisition notwithstanding?" And I think for everybody they have to make that decision for themselves.
Southwick: What's your bottom-line advice if someone is thinking, "Oh, I need to sell some stocks," or "maybe I should sell this stock."
Moser: It all becomes a question of why you feel like you need to sell, and there are a lot of different reasons to do it. I think that once you identify the reason why you may need to do it, what I like to do is I like to enforce a 24-hour sort of moratorium. I can't do anything for 24 hours. What I want to do, ultimately, is remove all emotion from this. I want to make sure I'm making a decision based on just sound reasoning and good thinking.
So whatever you do, don't be hasty. If you feel like you've come to a decision, give yourself 24 hours to pull back, think about it again, deliberate it. Make sure you feel like you're making a smart decision that's not based on emotions. I think it's very easy -- with how quickly information travels and the way that we can trade online -- people make emotional decisions, and very rarely are they actually good ones. I think investing is something where you are better served when you remove the emotions from the equation. It's not easy to do, but you can do it.
Southwick: Jason, thank you so much for joining us today!
Moser: Thanks for having me!
Southwick: It's always a joy to have you!
Moser: It's always a pleasure to be here!
Southwick: Thinking of breakups, Elizabeth Taylor loved getting married. Eight times, in fact. She also loved getting divorced. She was even married to the same man and divorced the same man twice. The drama that surrounded her life overshadowed the fact that she was actually pretty savvy with money.
Brokamp: Was she?
Southwick: Do you want to learn all about it?
Brokamp: I would love to.
Southwick: Because today I am going to present you with three money lessons from Elizabeth Taylor.
Brokamp: Oh, great!
Southwick: Lesson No. 1 is make the most of your brand. When she died in 2011 at the age of 79, she was believed to be worth roughly $600 million.
Brokamp: Holy cow!
Southwick: Where do you think her money came from, Bro?
Brokamp: I don't know. I'm actually listening to this new podcast that's about the history of early Hollywood. This is a series about Boris Karloff and Bela Lugosi, and it sounded to me like actors and actresses back then didn't have any rights, so I would assume like royalties of some kind, but I don't know if they had any rights back then.
Southwick: No, you're right. So back in the early days she would refer to herself as "MGM chattel," because until 1961 she was under a studio contract, which means she made not very much money or had much control over her life. And while she was the first woman to make $1 million for her title role in Cleopatra, her real money came from her entrepreneurism.
Southwick: She recognized that, funny thing, she wasn't getting a lot of roles in her late 40s and 50s, and she needed another source of income. So according to Bloomberg, Elizabeth Taylor was the first celebrity to really capitalize on her brand. It started with her perfume in 1991. Do you remember what it was called?
Brokamp: I don't. Eau de Michael Jackson?
Southwick: White Diamonds.
Brokamp: Oh, really?
Southwick: Yeah. It was followed by a costume jewelry company and other branding plays, so how successful was she? Well, at least in the case of White Diamonds, it raked in $77 million in sales the year before she died.
Brokamp: Holy cow! I vaguely remember commercials about this.
Southwick: So even now, six years after her death, her estate is still raking in $8 million a year from all of the branding. A little bit from the residuals, but yeah.
Brokamp: Wow! That's impressive.
Southwick: All right, next lesson. Lesson No. 2. Always be hustling! Elizabeth Taylor's final wedding was to Larry Fortensky in 1991. I'm sure you remember this.
Brokamp: Wasn't he like the butler or something like that?
Southwick: No, he was 20 years her junior, and he was a construction worker that she met at the Betty Ford Clinic. And the tabloids went bananas, as they had her whole life. The wedding was at Michael Jackson's Neverland Ranch, because they were very good friends, and it cost between $1.5 [million] and $2.0 million.
Southwick: Apparently Michael Jackson actually footed the bill. And here's a side note -- a little mini-lesson from Elizabeth Taylor. She has a history of receiving very nice gifts from friends, including a 69-carat Cartier diamond ring. It was given to her by Richard Burton and he paid $1.5 million for it in 1969.
Southwick: So, yeah. Let's head back to the wedding. Here we are on the wedding day. It's a veritable Who's Who of celebrities including Liza Minnelli, Eddie Murphy, Nancy Reagan, Macaulay Culkin.
Brokamp: Of course.
Southwick: It was the early '90s. This is who you're going to get. A dozen helicopters flew overhead to get photos, and one determined paparazzo actually parachuted into the ceremony to get pictures.
Brokamp: Did he get arrested? Shot down?
Southwick: I hope so. What does Elizabeth Taylor do? She capitalizes on all this excitement and she sells her wedding photos to People magazine for $1 million and then uses the money to start an AIDS charity.
Brokamp: Oh! That's cool!
Southwick: I know! That's why I'm telling you about it. Last lesson, and this one is near and dear to your heart. As we mentioned before, Elizabeth Taylor was reportedly worth upwards of $600 million when she died, which included $150 million in jewelry...
Southwick: ... the aforementioned $1.5 million ring that she got in the '60s. She also had real estate that was worth at least $130 million, and we don't know a lot about what she passed on to her heirs because it was in a revocable living trust. Now Larry Fortenski, her last husband, admitted that she left him roughly about $800,000. You might assume that a nasty fight erupted, right? Because she's like super wealthy, and tons of kids, and tons of grandkids? Nope. Not so. The estate was settled peacefully, and only Larry had the loose lips. The rumor is that most of the money went to her children, grandchildren, and charities, but they all lived happily ever after honoring her legacy.
Brokamp: Right. So, as we talked about in the previous episode about estate planning horror stories, anything you pass on via a will eventually becomes public because a will is a public document. If you do it via trust, you can maintain a lot more privacy.
Southwick: There you go. I also have a bonus lesson. Do you want to hear my bonus lesson?
Brokamp: That would be grand!
Southwick: So, Elizabeth Taylor's life was always under scrutiny and in the public eye. If you think Jolie-Pitt-Aniston was a huge mess -- remember when Angelina Jolie and Brad Pitt like cheated, and yeah, yeah. Huge deal. It has nothing on when Eddie Fisher left Debbie Reynolds for Elizabeth Taylor.
Brokamp: Carrie Fisher's parents, yes.
Brokamp: Can you tell the story about that? That was scandalous.
Southwick: Yes. Debbie Reynolds and Eddie Fisher were best friends with Elizabeth Taylor and Mike Todd. Mike Todd was Eddie Fisher's best friend. They all hung out together. They did everything together. So, Mike Todd dies in a plane crash. It was something sudden. And as Carrie Fisher puts it, her father rushed to Elizabeth's side, gradually moving to her front. In a very short amount of time, Eddie leaves Debbie Reynolds and he marries Elizabeth Taylor. So, Elizabeth Taylor was always in the tabloids: for her marriages, her divorces, having the audacity to get old and gain a little weight. So, in an interview I once saw, she was asked by the reporter if all the criticism in the press bothers her. And she replied, "They didn't get me in my home." Have you ever heard that phrase before?
Southwick: I had never heard that phrase before, either. But basically, it was her saying they don't know what really bothers me. Their words don't hurt me because they don't know me well enough. And I just love how she was taking back the power. Like the Pope once condemned her and Richard Burton's wedding. And what did she say? Well, this was an indirect response to the Pope, but the idea that [he] didn't get me in my home and she's just going to keep on moving forward and being awesome Elizabeth Taylor. Marry whoever she wants.
So that is my extra bonus lesson. It's not about money, but it's the idea of don't let them get you in your home.
Brokamp: That's great!
Southwick: Had you ever heard that before? You had.
Engdahl: It's vaguely familiar, yes.
Southwick: I'd never heard it before. I love it. OK. That's the show! It's edited revocably by Rick Engdahl. Our email is email@example.com. For Robert Brokamp, I'm Alison Southwick. Stay Foolish, everybody!
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Alison Southwick owns shares of Costco Wholesale and Walt Disney. Jason Moser owns shares of Apple, Chipotle Mexican Grill, Twitter, Under Armour (A Shares), Under Armour (C Shares), and Walt Disney. Robert Brokamp, CFP owns shares of Facebook and Nokia. The Motley Fool owns shares of and recommends Amazon, Apple, Chipotle Mexican Grill, Facebook, Twitter, Under Armour (A Shares), Under Armour (C Shares), and Walt Disney. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.