On this week's Rule Breakers podcast, Motley Fool co-founder David Gardner picks another set of five stocks he recommends putting in your portfolio -- this time, with the idea that they'll be outperforming three or more years from now. His theme du jour: companies that offer you "and" instead of "or." In Gardner's view, most of the time you can have your cake and eat it, too. These five companies exemplify that philosophy.
A full transcript follows the video.
This video was recorded on Nov. 22, 2017.
David Gardner: Welcome back to Rule Breaker Investing. Well, I certainly had a lot of fun last week. As I think I said last week, if you had half as much fun as I did putting together the Pet Peeves, Vol. II podcast, then that means you had a lot of fun.
It's time to return to, well, a little bit more of our regular programming here on Rule Breaker Investing, because every nine or 10 podcasts, I pick five new stocks. Five new stock picks looking three-plus years ahead, in this case, and that's what we're going to do this week.
I was thinking about what kind of framework or theme did I want to do as I attempt to educate, to amuse, and to enrich you. Speaking of frameworks, that's The Motley Fool framework. We're here to educate, to amuse, and to enrich. So what would be a good framework to educate, to amuse, and to enrich my listeners this week when it comes to picking a stock?
And then it came to me. There was a headline on Twitter -- an article that one of my friends had put up there -- and the headline simply read, "To Promote Happiness, Choose Time Over Money." I didn't actually read the article. Maybe you do that sometimes, too. You might be reacting to things on social media without necessarily even having read them. For me, all I needed to do with that one was just read the title to make a quick point: "To Promote Happiness, Choose Time Over Money." And I think I tweeted back something to the effect of, "False choice. Take both!"
In my experience -- I hope yours, too -- the more money you have, the more time you have. It's not something where you have to take time instead of money. In fact, since time is the dearest commodity of all, far more valuable than money, the best way to build time is to become financially independent -- is to make more money however you are doing it. Through your salary, through your investing.
To promote happiness, choose time over money. I say, "Choose both!"
I think a lot of us have heard the phrase before -- I decided to look up the origin of this one -- "having your cake and eating it, too." Now the classic line is actually, "you can't have your cake and eat it," and I have to admit, though I've used that phrase many times before, I didn't exactly know what it meant.
To be clear, when you say you can't have your cake and eat it, it means you can't have a cake in front of you, eat all of it, and then say, "I still have a cake." If you eat the cake that's sitting in front of you, it's gone, the analogy goes. You can't have your cake.
And by the way, an early recording of that phrase is apparently in a letter on the 14th of March 1538, sent from Thomas, Duke of Norfolk to Thomas Cromwell as -- and here was the line -- "A man cannot have his cake and eat his cake." This concept -- that line -- that line is about 450 years old, but the concept is more like 4,500 years old.
People say, "I'd rather be lucky than good." I say back, "I'd like to be both good and lucky." In fact, one of my baseball heroes, Branch Rickey, who oversaw the Los Angeles Dodgers for a good part of the last century, used to say, "Luck is the residue of design." Luck isn't just this thing that is a completely random force out there. Some people say you make your own luck in this life. I'd like to be both good and lucky. I don't think that's a trade-off. I don't like a trade-off mentality.
Some people might say to you, as a younger person, "Hey, would you like to marry somebody who's smart or good-looking?" The answer is, again, both. And it turns out, there are people out there, and I hope you found one of those people. We can find people who are both smart and good-looking, and other things, besides. Resist the trade-off mentality.
Conscious capitalism, which I've talked about a fair amount on this podcast and probably always will, promises that you have a bunch of different stakeholders. Rather than pick one of them -- let's say shareholders and attempt to just maximize their value with a trade-off mentality -- I've got all these stakeholders, I've got my customers, I've got my employees, I've got my shareholders, I've got my partners and suppliers, I've got the community. Which one do I create a win for? The answer is, all of them, as it turns out. Don't just pick one of them and try to maximize their value.
Stewart Friedman wrote a good book called Total Leadership. Like a lot of good business-oriented books, I didn't finish it. I'm sure the book was worthy of my finishing it, but I had to buy four more books and read them. Half of them, anyway, as well. Stewart Friedman, in his good book, Total Leadership, said, "Here's the wrong framework." Think trade-off mentality, again, my fellow Fools. "Here's the wrong framework. Work-life balance. That's the wrong phrase."
A lot of people have this in their heads. They see a seesaw. One side is work, and if you sit down too hard on that, all of a sudden you're neglecting life. You're neglecting your family. Maybe your hobbies. Yourself, in some cases. You sat down too hard on the seesaw side that says work, and then you hop over frenetically to the other, and you take a seat on life.
But the problem with that is you're spending too much time away from work. That vacation went too long. Your mentality wandered away from your work, and now you're suffering at the office. And if you have that in your head, this work-life balance, you're using a framework where you'll never really feel secure, will you? You'll always be asking, "Am I balancing things correctly?" And Stewart Friedman in his book says that's the wrong metaphor.
A better way of thinking of it, he says, is think of the areas that really matter to you. Let's start with ourselves and our own happiness and health. So... you. You count, certainly. How about your family? Those around you? They count for a lot, too. Another dynamic might be, yeah, your professional life. And then another one -- let's go with a fourth one -- might be your community, or the world at large. It might be your neighborhood. It might be civic engagements that you have. Or maybe you're thinking locally, but acting globally, reversing the old saw. There's a fourth thing there, too.
There's you, there's your family and friends, there's your work, and then there's the world at large around you. How about, Stewart Friedman says, how about thinking and trying to create a win across all four of those dynamics with everything that you do?
And by the way, it's not very easy. It's not always easy to figure out how to create a "win to the sixth" for those who know conscious capitalism's metaphor. Or hear a "win to the fourth power," thinking of you, your family, your work, and your community. But by asking that question, and by seeking creative problem solving toward the right answers, you're going to be slightly more awesome, even if you don't get there. You're going to be slightly more awesome.
To promote happiness, you don't have to choose time over money. Choose both. If you'd rather be lucky than good. I don't know about you... I'd like to be both. I think we'd love to find people who are good-looking and smart to be our friends, our spouses, our partners, and so on.
Now it must be said before we hit my five-stock sampler list this week -- it must be said that some things are zero sum out there. For example, if we take ourselves back to ancient Rome, and you're the gladiator, and they're going to be releasing a lion into the arena and it's just you vs. the lion -- whoever walks away wins -- that's zero sum. It's going to be hard to create a win to the multiple powers with that one. Some things are zero sum.
A lot of games are framed up as there will be a winner and there will be a loser. As much college basketball as I begin to watch around this time of year -- once again for the next four months and always a lovely time of year for me -- I know that there will be one winner and one loser of every one of those games.
Some things are zero sum, but it turns out, fewer things than we think are zero sum. And when people say, "Hey, who's going to win the online video battle, Netflix or Amazon (AMZN +0.53%)?" the answer is both.
One of the better books that I've read in 2017, a book called Crucial Conversations. I bet some of you know this book. Crucial Conversations coaches you, the reader, to refuse -- and it even uses this phrase -- refuse the fool's choice. Now this is not capital-f Fool. This is small-f fool. Refuse the fool's choice.
And the fool's choice is this idea that there's a conversation you may want or need to have with somebody in your life. It might be a friend of yours and you're having to choose, you think, between telling them the truth and losing a friend, or never saying anything, and keeping that friend.
The authors of Crucial Conversations say that's the fool's choice. Refuse that choice. It's not a trade-off. You can both be truthful with somebody and retain them as a friend, and we've written a book, Crucial Conversations, to teach you how to do just that. Resist the trade-off mentality. OK, I think I've made my point.
And by the way, I think it fits very well with Thanksgiving, here in the United States of America this week, because my own tendency -- and I've said this a lot before on the podcast -- is toward abundance, not toward trade-offs. And I think one thing I love about Thanksgiving is that we celebrate the season of bounty and we give gratitude, but it's often for abundance, and that's what I want in my life and I want for you as my listener and my fellow Fool.
And abundance often comes from saying, "I don't want one or the other. I want both. I want all of these things." And even if you don't get them in life just realizing that -- breaking out of that box that other people have built up around them in their own mentalities -- breaking out of that and going for multiple wins across multiple dimensions will, again, make you slightly more awesome.
All right, let's look at five companies that in some way fit this metaphor. That fit this framework. And let's hope that, by buying and holding these stocks as of this week going forward the next three-plus years, they'll make our portfolios slightly more awesome.
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Stock No. 1: All right, stock No. 1. And how could I not start off with this one? Let me ask you, dear listener, and maybe you understand now, the game that we're playing. I'm going to give you a choice here. You can either have the No. 1 company globally in e-commerce, or you can have the No. 1 leader in cloud-computing storage today. Which one would you take?
And I think you know the punchline. The answer is both. Because, fortunately, Jeff Bezos had a vision that encompassed both of those things. Somebody who started just saying we're going to sell books online. We're going to start this online store. A lot of people thought it was just going to be books. "Earth's Biggest Bookstore." That was their initial tag line at Amazon.
Well, Amazon is the No. 1 global e-commerce player -- although it's got some rivals these days when we look toward China. But not only is Amazon a global force in e-commerce, but it's also a global force in cloud computing, thanks to Amazon Web Services. And forget about that. I already mentioned earlier they're a competitive player in streaming video. And Amazon Prime is something that they didn't have to do, but they pulled a page from Costco with that.
We're looking at a company that is the ultimate "win to the sixth" kind of a company, because they're solving across lots of different fronts for lots of different wins for all of their stakeholders, shareholders certainly included. Stock No. 1 is Amazon. You can only have one here. Would you rather have the No. 1 e-commerce player or the No. 1 player in cloud-computing storage?
Stock No. 2: This one comes from a slightly different framework. We're not looking at the company itself to avoid the trade-off mentality as we just did with Amazon. We looked at the company there first. For No. 2, I want to step outside 10,000 feet higher and look down at the stock market for a second, and then we're going to pick our stock.
A lot of people say that you have to balance risk vs. reward. The idea is very traditional, and I understand the very conventional thinking behind this. Sometimes, conventional thinking is good, and sometimes, it's conventional wisdom that makes fools want to rush in.
The conventional thinking goes, the higher the risk, the higher the reward. You can either go for a low-risk and then probably low-reward stock, or maybe a high-risk, high-reward stock. And you kind of feel like the person back on that seesaw with your work-life balance trying to figure out whether you should go with the low-risk, low-reward one or the high-risk, high-reward one.
But I think one thing we've demonstrated at Motley Fool Rule Breakers and at Motley Fool Supernova and Stock Advisor -- and that I've been trying to prove out over the last 15 years, or so, with our stock picking -- is that you can pick a low-risk stock that is a strong market outperformer.
By the way, the opposite exists, as well. You can definitely find stocks out there -- this is easy to see -- that are very high risk and that are very poor market performers. Poor typical prospects. I would say penny stocks come quickly to mind when I think of an entire genre of failed investments.
Whether it was Apple (AAPL +1.18%), or a company like Alphabet (GOOGL +2.53%) (GOOG +2.92%), or MercadoLibre -- all companies that I've mentioned a lot -- these are all very low-risk companies if you're familiar with our risk-rating framework, which I've certainly spent three past podcasts putting together for you. You can go back and listen through our full 25-point risk system, the risk-rating system that we apply to the stock picks that we make.
And every one of those companies I just mentioned -- Apple, Alphabet, and MercadoLibre -- score around a four, five, or six. And on a zero to 25 system -- where a lower risk rating is lower, risk four, five, or six is very low -- those have been substantial market outperformers.
Don't start getting yourself in that little box that you can't find safer companies that are dramatic market outperformers. You can, so stock No. 2 -- this is one that's not nearly as well known and not nearly as big, but I like this one a lot -- let's go with CBOE Global Markets (CBOE +0.59%). CBOE (Chicago Board of Exchange) is a company that trades options and futures. It's CBOE on the Nasdaq. This has been a successful stock pick for us the last few years in Motley Fool Stock Advisor, and it has a risk rating of just six. I like it a lot!
And not only that, but if you've ever heard of BATS Global -- sometimes I see BATS, perhaps ironically or not ironically, at all, advertised at baseball games -- BATS is an equities exchange. It's kind of an internet-based way to trade stocks and CBOE Global Markets has bought BATS out, so now CBOE allows you to trade options, futures, and equities.
This is one of those businesses that's really hard to compete against. They're going to be around a long time, and last I checked, trading volume typically rises over time. You have a company that's a leader within its markets that will be very hard to displace doing relevant things in this world. CBOE -- lower risk and a market beater.
Stock No. 3: This idea comes from my producer, Rick Engdahl, because Rick and I were talking. I said, "Rick, I have four stocks this week. I know I'm going to do four. What's a fifth one that's going to fit this?" We talked before the podcast about the framework -- avoiding the trade-off mentality and companies that break you out of that -- and Rick said, "Well, what about Match Group (MTCH +0.00%)?"
And by the way, we're doing these alphabetically this week, so Amazon, CBOE and now "M," Match Group.
"What about Match Group?" You would have thought starting out as Match.com -- the long-standing dating site and one that typically attracts, I'd say, younger professional to middle-aged kinds of people, since Match.com's been around for 10 to 20 years now -- the people who were using it 10 or 20 years ago might still be using it today depending, which means they're a little bit older. It probably skews a little bit more toward what we'll call the "LinkedIn of dating sites." Match.com.
But Match Group said, "Well, we don't actually have to just choose between older professionals meeting each other and young teenagers. We can do both." And as I talked about a few weeks ago on Rule Breaker Investing, the No. 1 grossing app today on the App Store for Apple is Tinder. And Tinder, with its Tinder Basic and Tinder Gold, and its number of tiers, now is a very lucrative business aimed at younger and more casual relationships.
The visionary management at Match Group saw they didn't have to just go for one demographic, or psychographic, or the other. They could do both. And not only that, if you've studied Match Group, you know they've got about 40 or so different sites with all different kinds of people being targeted for the very human thing of meeting somebody else that might become a friend, a lover, a spouse, a partner. That thing between us humans that will never end -- connection -- and using the internet to bring that together, and being the category leader within its space. There you go. Match Group.
Stock No. 4: Well, let me ask you before I present this company. Would you rather have a co-founder of a company who was a trained electrical engineer -- a brilliant one -- because this is going to be a tech company, a technology company -- or would you like to have a highly capable executive in that co-founder? Which one would you rather have? You can't have both.
And I think you know by now we're having a little fun here, because you can have both, and there are probably numerous examples of people who are both. But the one I'm going to focus on with stock No. 4 is Jensen Huang, who is the CEO and co-founder of NVIDIA (NVDA +5.93%), which is among the more successful companies of our time.
Jensen Huang -- who was born in Asia, but educated in the United States of America -- had this idea that the future of computing -- and he was thinking this like 20 years ago now -- would go from CPUs to GPUs. From traditional chips of the sort [from] IBM, and then Digital, and then Intel -- the long history of the growth of the brains inside our machines, the new evolution, would be toward graphical. Graphics processing units. That rather than just have something inside your computer that's crunching through all the calculations. It would actually be on the graphics card of that computer.
And so, he founded NVIDIA. I think the year was 1993 -- ironically, the same year we founded The Motley Fool. Jensen Huang has been a little bit more successful than we have here at The Motley Fool, judged by market cap. But would you rather have a company that's a chipmaker, or that's a leader in AI?
And fortunately, I'm happy to say with NVODOA, you can have both. NVIDIA today enables computers to see, hear, understand, and learn. They basically have a CEO in Huang who recognized you could start hooking up computers to cameras -- all those cameras that are everywhere in our society -- you could do that.
And you could actually start creating smart grids, smart cities, and have a better understanding of traffic by having computers see and hear. And then, because you can start parallel processing -- you can hook 20 of these computers together and build something stronger -- they can start to understand, and the computers can then go on to learn.
And so NVIDIA, today, having started as a maker of graphics cards for video games -- video games, the killer app for Nvidia 20 or 25 years ago -- today is powering autonomous vehicles, which will start to make their way onto our highways increasingly in the next 10 years, and a whole host of other applications for artificial intelligence.
He was just named Fortune's Businessperson of the Year. Now that's not always the best sign for those who know the Sports Illustrated curse, where you put somebody on the cover because they just won the Super Bowl and then they lose all their games the next year. When you put somebody on the cover, sometimes it means [they're] at the peak. I hope that's not the case. I do remember Reed Hastings being named -- it was either Fortune or Forbes -- as Businessperson of the Year in 2011, and shortly thereafter the Qwikster saga ensued, so that wasn't great timing, but Reed Hastings is a great CEO.
Anyway, Jensen Huang is, in fact, the Fortune Businessperson of the Year, and that stock, over the last two years, has gone from $30 to right about $200. We've held that stock for 12 years now, very patiently, having bought at $6. It's been an awesome investment for Motley Fool Stock Advisor members, but we're not looking backwards, my fellow Fools. We're looking forward, so I'm picking Nvidia, now, with Jensen Huang on the cover, for the next three-plus years. Nvidia, stock No. 4.
Stock No. 5: And let's close it out with our final stock for this five-stock sampler for this edition of Rule Breaker Investing. Let me ask you... which do you think is the better model for higher education going forward? Bricks and mortar or online learning? And this is a tough one because we've watched the internet disrupt bricks and mortar -- disrupt how society works -- in so many different industries and applications over the course of the last 20 years. So many different ways that the internet has changed how we do business and how we live today.
But one of the few bastions, one of the few strongholds to prevent any kind of, it seems, strongly meaningful internet disruption has been higher education. And when you consider that [in] higher education, typically tuition rates have been rising something like 3%-7% annually for a couple of decades now, it seems unsustainable. It doesn't seem possible that we can keep paying how much we're already paying for tuitions, especially for private colleges these days. But even for public colleges, it doesn't seem that that can continue, so you'd think, at some point, the internet will disrupt higher education.
But then you go to an SEC football game, as I did a few months ago. Or you walk around a beautiful, vibrant campus. I bet you have one, or maybe more than one at least within 50 miles surrounding you somewhere in this world. And you walk around a campus like that and you're like, "How could the internet ever take this away? The camaraderie? The spirit? The face-to-face? The learning? How could this experience of attending an American university for four years... how could that be replaced by the internet?"
And here's the thing. You don't necessarily have to frame it up as just one or the other, because stock No. 5 is 2U (TWOU +0.00%). The ticker symbol is TWOU. This is a company that is enabling people, distance learners, to attend these four-year universities, but doing so online.
2U contracts with some of the better-known, more esteemed colleges and universities of our time, often looking at graduate schools, as well. 2U enables people who couldn't attend Berkeley, or Georgetown University, or University of North Carolina business school -- who couldn't attend because they don't live anywhere near those places or just didn't have the time necessary -- by putting a camera in that classroom and enrolling you in that course, and having you pay tuition just like you are a student, but through distance. Through distance learning.
And so 2U's business model basically partners with these institutions, usually for 10-year periods. It partners with them and says, "Hey, we're going to bring you even more students than you presently have, and we'll split the tuition. We'll take some, you take some. We're going to bring you new students." More people are getting educated. It doesn't have to be that it's just bricks and mortar, or just an online university. It turns out -- thanks to the work of CEO Chip Paucek and his company -- it turns out you can do both.
And I'm not suggesting that's an ultimate answer, or that's the endgame for higher education. I think Chip Paucek, the CEO, would be the first to say, "Let's see how it all evolves." But again, we're not talking about certainties, here. We're talking about avoiding the trade-off mentality. That's how I started talking this week, and that's how I'm closing it down.
If there's just one cake and you eat it, surely you're right that you can't have your cake and eat it, too. But a lot of people, a lot of times in my experience, think there is just one cake, and so think you can't have your cake and eat it. But as it turns out, there are a lot more cakes than that. They just needed to swivel around 360 degrees, or maybe look higher or lower, or have an extra conversation with somebody they'd never met before.
And discover -- maybe even listen -- to this week's Rule Breaker Investing podcast. Maybe for the first time. Some new first-time listeners this week, maybe, discover that the world was wider, deeper, and broader than you thought, and it turns out you can find somebody who's both smart and good-looking.
Well, thanks for joining with me, smart and good-looking Fools. Happy Thanksgiving, especially to all those here in the United States of America. I hope you have a wonderful time with family.
Next week is, of course, Rule Breaker Investing Mailbag. Don't be shy. Reach out. [email protected] is the email address, or just tweet us @RBIPodcast and we'll get to do our umpteenth -- I always love them -- our umpteenth Mailbag. In the meantime, 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.
