In this episode of Motley Fool Answers, Robert Brokamp and Alison Southwick are joined by Matt Argersinger of Million Dollar Portfolio and Supernova to talk about the powerful and popular FAANG stocks, which over the longer term -- and particularly, the last five years -- have delivered stellar returns to shareholders. But the past few months have brought trouble and upheaval to the tech sector, and public response to privacy problems could put a crimp in the progress of companies like Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG).
Meanwhile, President Trump's attacks on Amazon.com (NASDAQ:AMZN) have landed at least on the e-commerce giant's stock price. The trio dissect the recent situations for those three, as well as Apple (NASDAQ:AAPL) and Netflix (NASDAQ:NFLX), and more broadly, ponder whether they will be -- as a group -- the best stocks to hold for the next decade. But first, in this week's "What's Up, Bro" segment, they consider a slightly heretical idea for a company with a mission of getting people financially ready for retirement: What if you don't really want to retire at all?
A full transcript follows the video.
This video was recorded on April 17, 2018.
Alison Southwick: This is Motley Fool Answers! I'm Alison Southwick and I'm joined, as always, by Robert Brokamp, personal finance expert here at The Motley Fool. Hi, Bro!
Robert Brokamp: Well, hello, Alison!
Southwick: How are you doing?
Brokamp: Just groovy. How are you?
Southwick: Awesome! In this week's episode we're going to talk about the tumultuous times for tech stocks and what the possibility of increased privacy regulations means for companies like Facebook, Google, and all those ... with the help of Matt Argersinger. Bro is also going to try to talk you into considering an unretirement. Right?
Brokamp: It's true.
Southwick: All that and more on this week's episode of Motley Fool Answers.
Southwick: So, Bro, what's up?
Brokamp: Well, Alison, when many workers think of retirement [visions of travel, adventure, and full-time leisure might dance in their heads], the reality of retirement can be quite different, and that's the takeaway from a recent The New York Times article entitled Many Americans Try Retirement, Then Change Their Minds.
The article starts out with the tale of Sue Ellen King, who is a nurse who retired in 2015 at the age of 66. Her retirement lasted a whole three months.
Brokamp: From the article, a quote: "Days spent organizing recipes and photos, and lunching with friends, proved less engaging than expected." I hope her friends didn't read that article, by the way.
Southwick: Like, thanks.
Brokamp: When her hand-picked replacement needed a maternity leave, Ms. King jumped at the chance to return for three months, now back at work in a part-time position she designed all for herself. She calls herself a "failed retiree."
This phenomenon has come to be known as "unretirement." According to a 2010 study from Nicole Mastis of Harvard Medical School, more than a quarter of retirees eventually return to work. And a 2017 study from the RAND Corporation found that almost 40% of workers over age 65 had at one point been retired, but then they returned to work.
So, why do they go back to work?
For many, obviously, money is an issue, especially after the Great Recession and the stock market decline that we saw back from 2007 to 2009; but for many others, finances were not a factor. According to Dr. Mastis, the reasons often have to do with a sense of purpose, opportunities to use your brain, and social engagement. And because we're living longer [we're generally in pretty good shape and our jobs are less physically tasking than they were in previous generations], it's pretty reasonable for people to work into their 70s.
The article also quoted Michelle Wallace who had this to say about life after retirement. "I felt like I was free-floating, bobbing along on the ocean. I felt very ungrounded." Now at age 69 she works part-time for a small business that helps government researchers and she says she never plans to try retirement again. The bottom line is people should seriously consider working past traditional retirement age for plenty of non-financial reasons.
That said, working just a little longer can do wonders for your financial security, which brings us to our second item of the day, a study released in January entitled, The Power of Working Longer, by Gila Bronshtein, Jason Scott, John Shoven, and Sita Slavov. The main takeaway, here, is that working just six months longer has the same impact on your standard of living in retirement as having saved an additional 1% of your earnings for the past 30 years. It's amazing. It all comes down to just delaying Social Security, having a bigger nest egg [because you have more years to continue to it and you're letting it grow for a little longer], and having a shorter retirement because you're delaying your retirement.
So, put it all together. Before you retire, put some thought into whether that's really what you want to do. It might be that you want to consider other possibilities -- working just part-time instead of full-time retirement, or, if you're so burnt out from your job, consider a new career that you'd enjoy doing well into your seventies.
Southwick: Spring has not been kind to the FAANG stocks. Here's a fun stat courtesy of Aswath Damodaran. "Collectively the FAANG stocks lost $282 billion in market capitalization between March 15 and April 2," [just a couple of weeks, there], "and contributed significantly to the drop in the equity markets. To put that in perspective, the market capitalization lost in just these four companies was greater than the total value of all cryptocurrencies [...] at the start of April 2018."
Whaaat? Today we're going to check in on some of our favorite tech stocks like Facebook, Google, and Amazon, since we know that many of our listeners own at least one of them, and we have Matt Argersinger to help us. Hi, Matt!
Matt Argersinger: Hi, guys!
Southwick: Thanks for joining us!
Southwick: You are an analyst here at The Motley Fool. What services do you work on?
Argersinger: I currently work on Million Dollar Portfolio. Supernova. I do some stuff for our services in Germany, so I've been a bunch of different places. Wherever they want me to work, I'm kind of like, "Yeah, sure. Why not?"
Southwick: You'll go there.
Argersinger: If you'll have me, I'll be there.
Brokamp: Can you write a good article in German? Is your German that good?
Argersinger: No, I still have to write in English and then get it translated, so I'm pretty lame.
Brokamp: I'm still impressed! Still impressed.
Argersinger: Well, thank you!
Southwick: We're going to start with Facebook because it starts the word, but they've had the biggest news in the last couple of weeks.
Brokamp: They've been in the news.
Argersinger: But before we go to Facebook, can I just add a little more context to the whole FAANG thing?
Brokamp: Please do.
Argersinger: I know they're down, recently, but look at this. Over the last five years -- and I'm using the five-FAANG version [the FAANG], which includes Apple -- the five FAANG stocks are up 500%, on average, and if you just go back three years ago, when I think FAANG became a thing, they're up over 200%. So, they've had a bad few weeks, but this has been one heck of a place to invest.
Brokamp: It really has.
Argersinger: All right. Go ahead!
Southwick: I look at you and you're pesky, but don't forget we're long-term investors, here, at The Motley Fool.
Argersinger: Context! Context!
Southwick: We are going to turn this into more of a long-term conversation, because I'm pretty interested to start talking a bit about what Facebook is going through. Of course, Mark Zuckerberg testified on Capitol Hill last week. The company, Cambridge Analytica, harvested the data of up to 87 million Facebook users, so everyone on Capitol Hill wanted their five minutes to ask him some questions. How do you think it went?
Argersinger: Well, for Facebook [and Zuckerberg, in general], I think it went a lot better than they could have hoped. I think Zuckerberg was really well prepared. He came across well prepared. As robotic, as ever, but he did a good job. The best meme I saw online, by the way, was him [as the character, Data, from Star Trek].
Brokamp: Yes, that was pretty up there.
Argersinger: It was pretty good. I said, "Man, that's pretty effective." To put all this together, you have to go back to 2014 when this all started. Aleksandr Kogan was a researcher at Cambridge University in London. He got permission from Facebook, like a lot of apps and a lot of people do, to pull data from Facebook. He happened to be doing it using a personality quiz that he came up with.
Southwick: Well, I'm looking at my Facebook feed and there's this, "What kind of dog are you?" And I'm like, "OK, I'll take that personality quiz." Then I click on it and it takes me somewhere and then I answer questions. Something like that.
Southwick: I'm a Pug, by the way, in case you're wondering.
Argersinger: Oh, cool!
Southwick: That's my dog personality.
Argersinger: Good to know. And one of the things this app did, which a lot of the apps do, is they ask users to consent to the app [accessing their data] and the data of their friends on Facebook. So, taking the app, you probably clicked on some permissions and said, "Yeah, sure. Why not? Do it." So around 300,000 people, or so, took this quiz back in 2014 and 2015. It doesn't seem like a big number, but when you connect all the friends of these 300,000-odd people, it ballooned this number that initially was 50 million and now it's become 87 million, including Mark Zuckerberg's data...
Brokamp: That's right.
Argersinger: Maybe he took the quiz -- I don't know -- but they got his data, as well, and that was actually OK at the time.
What happened is this Kogan fellow in some way or another [and the details are still murky] ended up selling or licensing this data to Cambridge Analytica, which has a bit of a storied past itself. I'm not going to go into it because it's a little bit of a political rabbit hole...
Southwick: You don't need to go into the politics of it.
Argersinger: You can google it if you want. They ended up acquiring this data of these 87 million Facebook users and used it [for targeted conservative political ads] in the 2016 election. That is the scandal, so to speak. Cambridge Analytica, who was working with Kogan, misrepresented and misused the data outside the scope of what Facebook thought the data was going to be used for.
But, this has been going on for many years. Many apps -- I would say thousands of apps -- have taken the same exact approach, and it wasn't really until this happened in 2015 [when Facebook found out about it], that they really walled off the garden and became much more secure about the way apps and programs use, or scrape, Facebook data.
None of this came out until recently, which caused this big scandal, and now people are thinking, "Oh, my God, my user data and profile have been used in nefarious ways." It caused this big hubbub and that's how he ended up in Congress.
Southwick: I feel like I'm one of the few people who is shrugging this off. Is that fair? I know how Facebook makes money. Facebook makes money by delivering me ads that they think I'm going to like based on my profile and all the information that I give it, and then it delivers back, "Well, you might be interested in buying this." So, knowing that, I'm not that outraged, but maybe I need to be. Do I need to be more outraged?
Argersinger: Alison, I think right there you demonstrated that you know more than the average senator or congressman. You're right to shrug it off a little bit, because [and maybe I'm a glass half-full kind of a guy], I happen to think that most people who use Facebook by getting into the network, [posting] things, having events, and setting up relationships with people realize that you're giving up some of your security [some of your behavior to Facebook], which makes money, like you said, via ads. I feel like most people get that, and maybe the hubbub around this is just a little overdramatic.
Southwick: But, on Capitol Hill, Mark Zuckerberg and other Silicon Valley people whose opinions matter on this are saying that yes, there probably should be increased regulation on online privacy and what companies can retain from us. At the same time, it's next month that GDPR privacy standards are going to go into effect in Europe.
Southwick: That means if companies do business with Europeans -- Europeans have the right "to be forgotten" in Europe. You have the right to say, "No, don't keep any data on me. You never get to keep any data on me." In the U.S. it's not like that. We can't say, "No, you can't remember me." You can delete cookies, or you can do whatever.
So, companies like Facebook say their customers are not me. I know that I'm not Facebook's customer. I am Facebook's product and the customers are actually their advertisers. I am not a Facebook investor, but if I were, how concerned do I need to be that the company that depends on making money off of my data is suddenly going to have less data to sell?
Brokamp: The privacy rule and the lack of trust or lower amount of trust that people have in Facebook I think is going to affect how many people use Facebook.
Argersinger: I think there will be an effect. I guess I just don't know how big it's going to be. I don't think most people are necessarily going to change their behavior that much on Facebook. You've got to remember. The power of Facebook and the competitive advantage of Facebook is the network effect. The size of the network.
I don't really use Facebook very much, but if you've been using Facebook for years and you've got friends, relationships, and photos, [I don't know it's an option to] suddenly delete all that, switch everything off, and not use Facebook anymore.
Southwick: Do you guys know anyone that's quit Facebook because of this?
Argersinger: I personally don't.
Brokamp: Not personally. I've read about people doing it, but I don't know.
Southwick: They exist. There are dozens of us!
Argersinger: Honestly, with all this I can see someone stepping away from Facebook for two weeks, but I guarantee you something's going to pop up on their phone. They're going to leave a message and they'll say, "OK, well someone's just done something. I'm going to check it out and see what's going on..."
Southwick: Just go check in and see what's going on.
Argersinger: ... and they're right back in. I think the bigger issue -- I think what Congress is more worried about -- is just the influence that Facebook has and these other companies we're going to talk about have now, given how big they are. Given how many users are using them. Where the data's ending up. I'm not sure Congress wants to get in the business of regulating Facebook to the extent where they can't make money on user data.
Where it gets murkier to me is something Zuckerberg said during the hearings. He seems to evoke that Facebook owns or is responsible for the data -- the content on its platform -- which I thought was a really surprising admission if it is an admission. One thing you worry about with Facebook is what the line is between free speech and hate speech. What the line is between news and opinion.
Southwick: Facts and truth.
Argersinger: Right. Fake news and lies, and all of this. Facebook has never had to deal with that tension until, obviously, the last year or two, and I think especially now that's something they're going to be worried about. I feel like that's a risk factor for Facebook as an investor and one I didn't think a lot about until the recent election and what's gone on since. That, I think, is where there's going to be some problems with how Facebook uses, maintains, secures, and shares data now and in the future.
Southwick: There was an interesting exchange during the Zuckerberg testimony where Lindsey Graham asked, "Who's your biggest competitor?" He was probably trying to raise the question of whether Facebook is a monopoly. And Zuckerberg had this long answer where he was saying, "Well, we look at it in three different categories." But my brain immediately thought Google. Google's your biggest competitor.
I think Lindsey Graham was looking at it from the perspective of what other social network there is out there for people like me to use. I guess to some extent they have to worry about remaining competitive in that space, but Google also relies largely on advertising revenue.
Southwick: Let's move on and talk about them. How's Google doing these days?
Argersinger: Google has already been in the crosshairs of regulation. They recently paid a huge fine to the EU -- unrelated to their business -- but more for privacy concerns. But I think Google is a great point to look at, because Alphabet/ Google, in a way, have many more touchpoints in our daily lives than Facebook even has. I wouldn't say it's a competitor to Facebook. To me the competitor to Facebook is Instagram, which Facebook owns...
Southwick: They own.
Argersinger: ... so if you think about it in terms of social networks, there really isn't a viable competitor to Facebook. I even think is more of a social media site than a social network site. What they're competing on is your time -- your time online and what you're doing with your phone -- and I think they're a very viable competitor in terms of email, YouTube, search. AlI that they're doing. E-commerce. Shopping online. Searching to buy things. Payments.
There are a lot of touchpoints that Alphabet has to deal with and you're right. Their core intellectual property is just like Facebook's. It's your data. It's your search. It's what you're looking for. It's things you're writing about in your emails. Alphabet has access to all that, and they use it to monetize their business, as well. I think they're just as much in the crosshairs as Facebook is, and they already have been. They've already paid the piper in a lot of ways and they probably will more in the future now that Facebook has come under scrutiny.
Southwick: Let's move on but stick with the headlines. While everyone else is going after Facebook, Trump has his sights elsewhere. Rumour has it. Who's in the headlines? People close to him say that he is obsessed with Amazon and not in a good way. He tweeted that the company was ripping off the postal service and should pay millions more than they do, and Amazon stock fell 7% after that tweet. Were you surprised by that?
Argersinger: I guess I was surprised.
Southwick: One tweet sends it down 7%.
Argersinger: It's amazing when you can have that kind of effect. He's the president of the United States, but it is still such a large company.
Southwick: And the tweet wasn't even accurate.
Argersinger: Well, right. And to use Trump's own words against him, I would say a lot of it is just fake news. The idea that Amazon doesn't pay sales tax, for example. They do pay sales tax on all the things they sell. They actually pay more sales tax than they're supposed to.
Until the Supreme Court decides later this year, the law currently says that unless you have a physical presence in a state, you don't have to pay sales tax. It goes back to catalogs and things like that. Amazon doesn't exactly have a physical presence in every state, yet they pay sales tax on all their inventory in every state that they sell goods. So, they're actually doing more than they should do by the letter of the law.
Where sales taxes are being paid for the most part are on Amazon's third-party sellers. If you're a third-party seller [which by and large are small businesses who go on Amazon], you might be buying shoes from a small retailer in Kentucky who isn't required, right now, to charge you sales tax. I don't even know if Kentucky has a sales tax. I should probably pick a different state. But that's how it's working.
If that's what Trump is going after, then he's making an argument against small-to-midsize businesses, in a way. He's not really making an argument against Amazon, which already is paying sales tax, so that argument falls by the wayside.
As to the whole postal service argument, the postal service has come out and said, "No, no. We have a great relationship with Amazon. In fact, we make a lot of money on Amazon. In fact, packages are the biggest growth engine of our business. Where the post office is losing money is on first class mail.
Southwick: E-mail! You should get that on email! And Slack!
Argersinger: Right. And not to harp on it too much, but then there's the bluster about Amazon's caused Main Street to suffer. All these small businesses are closing. Well, no. Amazon, as we just talked about, is an enabler of small business. But even beyond that, that's [what's been said about] Walmart, Target, and Costco for decades -- that they've taken away the mom and pop general store.
You can tell I'm a little more passionate about this one. I just think the attacks are unfair. I know politics isn't our bag at The Fool, but I've got a feeling that Jeff Bezos's ownership of The Washington Post might have a small role to play. A tiny role. We don't have to get into it.
Southwick: I think Bezos has remained silent on the issue. I have not seen that he has responded, so I imagine he just wants this to blow over. Bezos is too busy making money.
Argersinger: Or flying to Mars. You're right.
Southwick: He's got too much going on. But bottom line, you're not too concerned about Trump's war with Amazon.
Argersinger: No, no, because anything Trump does to limit Amazon's business or change its relationship with the post office, or even it's DoD contracts with Amazon Web Services, he's got to understand that he's going to be affecting a lot of other businesses including Walmart, who has a big online presence in how they do business. I feel like this is all personal against Amazon, Jeff Bezos and, yes, I expect it to blow over.
Southwick: What do you think the chances are that Amazon H2Q is coming to D.C.?
Argersinger: I think the D.C. area [so Maryland, D.C., Virginia] is at the top two or three. It just makes too much sense.
Southwick: I hope they don't come here.
Argersinger: You don't? I hope they do!
Southwick: No! Are you kidding? It's hard enough to buy a house.
Southwick: Or drive down the highway.
Argersinger: All the traffic. I know.
Brokamp: You're going to be competing with those people to try to buy a house. Goodness! And child care? Goodness gracious!
Southwick: One of the spots that Alexandria pitched is Eisenhower.
Argersinger: All right.
Southwick: Which you can see from our office. I'm so upset about this.
Argersinger: They're going to have a softball team. It's on. Between them and The Motley Fool.
Southwick: Oh, there's so many more of them. But we are strong. We are a strong company.
Argersinger: Really strong.
Southwick: Obviously, I'm not going in order of the acronym, but now we're going to move on to Apple. From what I can tell, Apple has just continued to chug along. I remember when I first came to The Fool, Apple was all you could talk about. Every headline on Fool.com had Apple in it. Anything Apple did everyone was talking about all the time and it was hyper scrutiny. But I feel like that's died down a bit in the last year. Am I wrong?
Argersinger: No, I think you're right. I think Apple, by all accounts from a business perspective, is doing much better than I ever thought they would do at this point. In other words, a few years ago when Apple hit its apex in terms of mindshare investing and hit that huge market cap, it was like how much bigger can it get?
Eventually, with competing phones, how can they still be charging these high prices for these iPhones that they have? And guess what? They have been able to do that, which has been remarkable. If you look at the average selling price of the iPhone, it hasn't really budged. In fact, it's gone a little bit higher in recent years. They're still commanding a ton of pricing power.
At the same time, the services side of the business is better than it's ever been. Apple Music has become a major force against Spotify, people are engaging with Apple Services, and Apple has this incredible business where they take 20-30% of the revenue from these apps -- from the apps that people make that end up in iTunes -- and that's an incredible business. That monopoly, so to speak, has yet to be challenged.
By the way, it's hard to draw direct links with what we've talked about with Facebook and Google. We've got to remember that Apple controlling the phone also has a tremendous amount of data on you. What apps do you use? How do you use them? How do you use your phone? What do you do online and offline? It's stuff that they were criticizing Mark Zuckerberg on Facebook about, but Apple probably has much more data around that.
Now, Tim Cook has been really upfront in saying that user privacy and data security is paramount to us, and we don't engage in licensing or selling of user data. We would never do that. But at the same time, they have the extraordinary responsibility of just the hundreds of millions of people around the world who own and use iPhones, and Apple knows all of that.
So, it's a responsibility that they've borne very well and the business, like you said, is just chugging along.
Southwick: I think people believe that when Steve Jobs died the innovations leveled off at Apple. It doesn't look like that when you look at the stock price, but it feels like it's been a while since we've had a big step forward from Apple.
Argersinger: Right. The Apple Watch has sort of gotten better.
Southwick: Let's call up Apple's ad team. We've got a new slogan for you. "It's gotten better."
Argersinger: There have been innovations. Apple Pay is a major point of sale, now, which is very powerful for them. In terms of the "must have," you'd think at this point with augmented reality or TVs and things like that, there would have been some bigger breakthroughs. There really hasn't been. And if anything, the risk has gotten a little bit bigger because they're more dependent on the iPhone today in terms of their sales and profits than they've ever been as a company. You can say that's a great thing because the iPhone is a great phone. It's still popular. As we talked about, they've been able to maintain the pricing power.
But you worry as an investor that down the road the phone becomes just a commodity, and it doesn't matter if I have a Google Pixel phone.
Southwick: Yes, an Android-based device.
Argersinger: Or an Android-based device. Or a Samsung. It isn't going to matter so much. It's more about the software. Apple is emphasizing that, but still, that iPhone is so influential on the business.
Southwick: It must be, because it feels like Apple keeps having these "it's better than it was before" products and not really coming out with anything awesome, but yet you wouldn't know that by looking at the stock price, because it's just been going up and up.
Southwick: Let's move on to Netflix. Meanwhile over at Netflix, from what I can tell, all they are doing is plowing massive amounts of money into content creation. Is that the headline for Netflix?
Argersinger: You got it right. That's essentially been Netflix's business for years. Ever since they made the transition to streaming away from the DVD by mail business, it's really been about how much cash they can generate and how much they can plow into new content [or license more content] for their library.
You can't argue about what Netflix has done. The amount of original content that Netflix has, now, is just extraordinary. It feels like only a few years ago when House of Cards came out. They had some other original content, but that was like the first big show that Netflix plowed a lot of resources into. Kevin Spacey. It was a big splash.
I don't know how much you guys use Netflix, but it feels like there's a new show on Netflix every week. Some of them are really good, and they've won a lot of awards. And as long as that's the case, then I look at Netflix with roughly 130 million global subscribers and a massive content production engine. I read that Martin Scorsese is now making a movie for them. And they've got a Lord of the Rings... Oh, that's Amazon. Sorry. See, it gets confusing!
Southwick: It does get confusing.
Argersinger: But there's a lot of talent that's gravitating toward Netflix as the platform to make shows and movies, and as long as that's the case, I can only see that subscriber number growing bigger.
Now, I mentioned Amazon. There's competition, now. Amazon's a major force, now, in doing their own content in Prime Video. YouTube -- YouTube Red. YouTube's investing a lot in original content, now, too.
Southwick: Disney's going to create its own streaming service.
Argersinger: Last week ESPN launched the ESPN app which is out there, now, and so it's got original sports programming that you couldn't find just on the networks. You mentioned Disney. And Hulu's a big force, now. Disney is going to be taking a majority stake in Hulu via the 21st Century Fox acquisition if that goes through. There's a lot of competition, now, but the nice thing about the streaming business is I feel like it's not a winner-take-all business. I feel like Netflix is going to carve out market share. Hulu's going to do that. Amazon is. And the trend toward video streaming is so strong around the globe that I think Netflix is still a long-term winner in the space for sure.
Brokamp: One thing all these companies have in common, with the exception of Netflix, is that they are among the top 10 stocks in the S&P 500. Netflix isn't that far behind. As more money goes toward indexing, more money goes into these companies and they get bigger. Do you see anything about the interplay between these companies and indexing?
Argersinger: You know, that is a good point.
Brokamp: Because even if you think you don't own these stocks, chances are if you own a mutual fund, you own these stocks.
Argersinger: Absolutely. Any kind of general market ETF, you're in these. What I tend to think about and worry about is not so much the interplay between how much money is flowing to ETFs so it's automatically getting allocated to these companies, but just in history, even before we had ETFs, it's never been a great investment to buy [all] the biggest companies of any era.
I'm going to get these wrong, but if you go back just to the mid-90s, I think the biggest companies were General Motors, General Electric, ExxonMobil, IBM. And I think Microsoft was up there, too. But if you had bought all of those, then, you hadn't done very well as an investor. You probably underperformed.
Today if I look at Amazon, Alphabet, Facebook, Apple and all the biggest companies, I don't know how I'd feel if I bought all these and held them for the next 10 years. They might not be the best investments. Generally, it's going to be smaller companies and ones that aren't as heralded that are going to be the ones to outperform [and not necessarily the biggest companies in the market], even though we love the FAANGs. We absolutely love the FAANGs.
Brokamp: Well, the past decade has been one of the best decades to be an investor, and a lot of it is attributed to these stocks. I just recently read an article that said it's great that the past decade has been one of the best. The problem is history says that following a great decade is a not-so-great decade.
Brokamp: And it often can be broken down to the best stocks of the previous decade are not the best stocks for the subsequent decade.
Argersinger: Yes, I think that's it. So, as money continues to flow, at some point I feel that with the tremendous outperformance of these companies that we've seen [I mentioned 500% in the last five years and 200% in the last three years], we can't possibly expect those type of returns coming forward.
Southwick: I should probably close with a disclaimer. The Motley Fool may have formal recommendations for or against the stocks we talked about today. Don't buy or sell stocks based solely on what you heard here on the show.
Matt, do you want to stick around for a little game of "Naming Things is Hard?"
Argersinger: Yeah, sure!
Southwick: Whatever that means.
Southwick: Naming things is hard, I think we can all agree, so of the FAANG stocks...
Brokamp: You're not googling answers, are you?
Argersinger: No, no, no.
Southwick: He better not be googling answers. Of the FAANG stocks, it turns out, as far as I could tell, only Apple is still going by the name that it was originally called. Here's the story behind it. Steve Jobs decided on the name Apple because he was on a fruitarian diet [of course], and he had just come back from an apple farm. He thought the name sounded fun, spirited, and not intimidating. I agree. Apple is a good name for a computer company, right?
Southwick: But only if it were that easy. Many of our listeners will remember that Apple also happened to be the name of the Beatles holding company and record label, and they did not like this, so they sued them. You guys know this, right?
Argersinger: I do, yes.
Southwick: So, they ended up settling in 1981 for $80,000 on the agreement that Apple Computer would not enter the music business. We all know Apple kept to that. That never happened.
Argersinger: 30 years later.
Southwick: 30 years later. And then Apple Records would never enter the computer business. Many lawsuits and settlements were to follow. So, let's see if you can match the original names of the FAANG stocks to the current names we know and love. We're going to start with an easy one. Who wants to go first?
Brokamp: Matt, you go first.
Brokamp: You have a far greater chance of getting it right, anyway.
Southwick: This is an incredibly easy one because the original name was The Facebook.
Argersinger: Yes, of course.
Southwick: Yes, originally it was called The Facebook, but they dropped the "the" when they bought the domain Facebook.com.
Brokamp: Got it.
Southwick: Are you ready?
Southwick: This one is so perfect for you: BackRub.
Brokamp: Am I supposed to name which company or are you asking for something?
Southwick: Which FAANG stock now? Which FAANG stock was BackRub?
Argersinger: That's a tough one.
Southwick: No. Google. I mean, Alphabet. In 1996, Page and Brin nicknamed their company BackRub because the name comes from the system of checking backlinks in order to determine the importance of the rank of a website. In September of 2007, they were like, "Maybe we need a better name. Let's brainstorm." They had a brainstorming session and they wanted to come up with a word that could relate to indexing a large amount of data, so someone suggested Google, which I believe is the No. 1 with one hundred zeros after it.
Southwick: A googol is spelled G-O-O-G-O-L, but the person looking to see if that domain was available accidentally misspelled it G-O-O-G-L-E, and they were like, "Oh, that looks cool, too!"
Brokamp: Well, there you go.
Southwick: I got that story from a guy at Stanford who was like, "I have seen the telling of how the name came, and it's been wrong, so I'm going to set the record straight." Are you ready, Matt?
Argersinger: I'm ready.
Argersinger: I know it. Amazon.
Southwick: Yes! So, if you read The Everything Store, you already know the story. Originally the company was registered as Cadabra, as in abracadabra. Unfortunately, a lawyer misheard it and said, "cadaver?" They were like, "Oh, wait. Maybe that's not a good name." They went back to the drawing board. Bezos and his wife came up with the name Relentless.com. People thought it sounded a little sinister, but Bezos liked it so much that he still bought the URL and to this day Relentless.com redirects to Amazon.com.
Brokamp: What do you know!
Rick Engdahl: Did J.K. Rowling know that story?
Engdahl: Because avracadavra is obviously abracadabra, and avracadavra is the spell that kills people. She had the same cadavra/ cadabra thing going on there.
Southwick: Yeah? I don't know.
Engdahl: I was hoping for a better reaction than that.
Southwick: I don't know!
Brokamp: You can tell there's a lot of Harry Potter fans in this room.
Argersinger: Not so much.
Southwick: Are you ready? Kibble.com.
Brokamp: Well, I guess it's got to be Netflix.
Southwick: It is Netflix! The backstory, here, comes from a co-founder, Marc Randolph, on Fortune. He said that while he was busy putting together legal documents to set up the company, he needed a code name or at least a placeholder, and a mentor gave him two pieces of advice. First, pick a name that's so bad you won't be tempted to use it when you run into difficulties finding your real domain name, and second, pick something meaningful because it's a great way to start aligning everyone around what you think is important.
Kibble reminded him of a Madison Avenue saying: No matter how good the advertising, it's not a success if the dogs don't eat the dogfood. The idea being that you must have both product and promotion in order to have a successful company. So, there you go!
Brokamp: How'd they switch to Netflix? Do we know that?
Southwick: I don't. I imagine it was just like...
Argersinger: It's the internet...
Southwick: ... and movies.
Argersinger: ... plus "flix." Home.
Brokamp: But as we all remember, Netflix started off... you ordered DVDs through the mail.
Southwick: But you had to order them through the internet.
Brokamp: You did have to go on the internet, that's true. It's crazy, because that really wasn't that long ago. You got your DVD, you watched your three episodes of Lost and then you couldn't wait to get the next DVD.
Argersinger: That's right. They still do it. You can't really sign up for it anymore, but if you'd been a DVD by mail subscriber, you can still do it.
Brokamp: You can still get it.
Southwick: Those were good times. That's the show! Matt, thanks for joining us!
Argersinger: Thanks, guys! It was fun!
Southwick: It is fun. I enjoy having you on the show. Our email is Answers@Fool.com. Our April mailbag episode is coming up and Jason Moser will be joining us, so if you have any investing-related questions or stock-related questions, he's your man and we want to hear it. Again, email us at Answers@Fool.com.
The show is edited abracadabra-lyly by J.K. Rowling fan Rick Engdahl. 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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Alison Southwick owns shares of Costco Wholesale and Walt Disney. Matthew Argersinger owns shares of Alphabet (C shares), Amazon, Apple, Netflix, and Walt Disney. Robert Brokamp, CFP owns shares of Facebook. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, Netflix, and Walt Disney. The Motley Fool is short shares of IBM and 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 and The New York Times. The Motley Fool has a disclosure policy.