According to Thomas Edison, "Genius is 1% inspiration, 99% perspiration," but even so, inspiration is a vital ingredient. And for this Rule Breaker Investing podcast, host David Gardner can thank two different inspiring individuals for their contributions. First, Michael Bloomberg, whose 2016 commencement address at the University of Michigan sparked David to base his five May 2016 stock recommendations on the idea that humanity is exiting the industrial age and entering the information age. We'll see how they're doing relative to the market.
And second, the inspiring CEO of Middleby Corp. (MIDD -1.60%), Selim Bassoul, who has over the past two decades left an indelible stamp on that business. His mission when he arrived there wasn't just to build better kitchen equipment -- it was to build a better corporate culture. But as you'll learn from the interview, he did both.
A full transcript follows the video.
This video was recorded on May 9, 2018.
David Gardner: Welcome back to Rule Breaker Investing!
Got a special show lined up for you. This is Conscious Capitalism Month for Rule Breaker Investing. I hope you enjoyed my interviews last week, first with Raj Sisodia and Alexander McCobin of Conscious Capitalism fame, and then the weekend extra with my friend Ed Freeman. What a delight it was to share those three with you and the message that business, maybe in contrast to what you often hear, is arguably the most powerful way to elevate humanity.
The beauty of capitalism well done is it's a win-win-win-win situation. Businesses offering products and services that you and I like enough that we would actually pay for them. Enabling those businesses to expand as they take in our payments and hire people. We hope creating great places to work. And then if you're a partner or supplier, you're excited to work with that business.
And if you're a shareholder of those businesses, they tend to do awfully well over time, and I think we've demonstrated that very consistently at The Motley Fool, picking stocks through Stock Advisor. My picks through Rule Breakers over the years. Lots of you, I know, are already members. But if you're not a member, I hope you'll think about joining one of our services.
The most obvious starter service for most people is our cheapest entry-level service -- you can often find it for less than $100 a year -- Motley Fool Stock Advisor, and many of the companies that I talk about on this podcast were, in fact, first picked by me, or my brother Tom, or somebody else through one of our services. Oftentimes Motley Fool Stock Advisor, our longest-running service, destroying the stock market averages since March of 2002.
In fact, [I just spoke] at Princeton University as part of their Last Lectures Series just earlier this week. This is a series of lectures where people come in from the outside and speak to graduating seniors who somehow block out some extra time away from their senior theses, and wrapping up the end of their school years, to come and hear a lecture. I really enjoyed speaking to the kids this week about Conscious Capitalism. About thinking about what wins in business and why business is such a wonderful thing to help elevate humanity when it's done right.
Now, certainly there are many examples of business done wrong, both historically [especially historically], but certainly in the modern day, as well. Those aren't the companies I would suggest you invest in. That's not what we're about at The Motley Fool. And I know you with your Fool cap and me with mine, that working together as we always have we'll continue to find the great ones and continue to invest in them.
Now, speaking of great ones, I have two great things for you this week. The first is we're going to review, as I always do, past stocks picked on this show. Two years ago, this week, I picked five stocks which I labeled "5 Winners in a Thinking World." The big question is whether they have won and what can we learn from that? That's exciting item No. 1 this week.
Exciting item No. 2 is that I'm joined by one of my favorite CEOs, Selim Bassoul of Middleby Corporation. Again, many people in the world have never heard of Middleby Corporation, and yet if you're an investor, especially if you're a Motley Fool Rule Breakers member, I bet you may already be invested in Middleby Corporation; the maker, initially, of commercial ovens for kitchens of pizza joints and all kinds of restaurants.
But increasingly, as it acquires and grows other companies, whether it's Viking [going into the homes], or more automated types of futuristic ovens, Middleby Corporation is the leader, both domestically and, I think, worldwide. My brother first discovered [Selim] when he picked the stock for Motley Fool Hidden Gems about 14 years ago. Selim Bassoul is one of our favorite people [not just in business, but one of our favorite people], and it will be a delight to share my brief interview with Selim at the Conscious Capitalism Conference in Dallas this month. That's what I have on tap for you.
But before I start our review of "5 Winners in a Thinking World," I just want to recall one thing that I was able to share with the Princeton seniors this week, and it was something that I read out on an earlier mailbag this year. It was either January or February. Can't quite remember, but I love it so much I want to share it again. It's about the power of saving. It's a short anecdote and, again, if you're a regular, devoted listener [and if so, God bless you], you might already remember this one, and yet I think this is one of those that bears repeating, and not just to graduating seniors at one university, but how about all universities.
This was the story from one of our longtime members, Dave, whose screen name is DaGecko in The Fool community, and this was the story that he told about how he learned to save as a young military officer. Here it is just one more time.
"Back in 1975," Dave wrote, "one of my instructors took a few minutes to talk about finances. He had a recommendation. He suggested that when we graduated we take five dollars of our $625 per month that we were going to receive as Second Lieutenants and save it; and do so without fail or changing the amount every paycheck until we were promoted to First Lieutenant. He asked us how much we would have.
"Well, knowing it would take two years until we were promoted, we quickly figured [24 times 5] plus interest would be about $125. He commented that yes, it would not be much, but the goal of the first two years was to develop the habit of saving. He then suggested that upon getting a raise [and actually two raises, because we got one for the promotion and one for two years of service], that we save half of that increase and use the rest to pay additional taxes and increase our standard of living.
"He pointed out that if we could make ends meet on a Second Lieutenant's salary in our 24th month, then we could make it during the 25th month on that amount plus half of the increase. He said to do this throughout our career and we would have a sizable sum by the time we retired. It made sense to me," Dave wrote.
He went on. "I did not have a career of military service, but I followed his advice with my civilian pay. When I was about 55, my wife and I went out with another couple and the husband asked if we had saved anything, yet, for retirement. He said they were concerned, as they had not yet started. I related the story of my instructor's suggestion and said we were probably saving about 40% of my gross salary. They were shocked.
"The next day I came home, and my wife greeted me with music to any husband's ear. She said, 'You're right!' I had no idea of what she was speaking and was almost afraid to ask about what I was right about. She said that when she'd heard my story she thought it was quite an exaggeration to say 40%. She said she'd never added it up; but did so that morning. We had some money going here, and some going there. She was shocked to find out it added up to 42%."
You know, two years ago this week when I did my "5 Winners in a Thinking World" show, one of the things I said on that show, since I listened to it again in preparation for this one, is that a wonderful thing takes place once you start saving and then investing and, of course, investing Foolishly, and enjoying the successes that you will surely have done patiently over time.
And the wonderful thing that happens is as you start doing well -- as your money starts making money on its own through the stock market as you start doing well -- guess what happens? You start being inspired to save more money as you start to realize your money can make money at quite a decent clip. In fact, a 10% or so annualized return is pretty sweet, and we have a record of beating that through this podcast and a lot of our work, here, at The Motley Fool. Once you start doing that, you're like, "Man, I want to save more dollars because those are going to be worth even more down the line, benefiting me, my family, and the world at large."
That's the wonderful dynamic that I hope every graduating senior, this important month in their lives, recognizes, and even if it's just saying to a son or daughter, niece or nephew, granddaughter or grandson, "Honey, save five dollars this year." In other words, be a net saver. And it's really hard with lots of student debt. And so, I understand in those contexts, it's not as easy.
But how about that aspirational five dollars that our friend, Dave, and his instructor talked about 40 or so years ago? That would be such a great thing, because it establishes the habit of saving, and when you connect that in to the practice of Foolish investing, it's a pretty devastating one-two combo punch. Wham!
Let's start reviewing two years ago.
The first thing you need to know -- this is the way I like to start my reviews -- is to note how the market has done in the last two years since May 4, 2016 when "5 Winners in a Thinking World" aired, and I'm just taking the closing prices from that day. And the stock market from 05/04/16 through 05/07/18 [Monday's close], the market is up 30.2%. That has been a great two years.
You and I know that the market tends to average around 10% a year. Two years with a little compounding wouldn't be much more than 20%, so this has been an above-average period, and a great time to be invested. And, you know, a lot of people two years ago were saying, "Market's going to sell off. It's going to be really bad in 2016 because it's been so good the previous years."
And yet look what's happened. Let's not look backward. Let's look forward and let's look with the eyes of history as our guide. Yes, the stock market will sell off one year in three, and definitely there will be [and have been] some down times, so let's not get too carried away with trying to guess where the market's headed based on where it's been.
Now, the five stocks were "5 Winners in a Thinking World." I was positing two years ago this week that the world has moved. I was quoting Michael Bloomberg, entrepreneur and politician. He was talking about how historically humans had started as an agrarian species after our hunter-gatherer phase, so for thousands of years we were farmers. And then for a couple of hundred years, we entered the industrial age.
But then he said [and, in fact, this was in his speech to graduating seniors at the University of Michigan a few years ago], that now we're entering the age of information. We're no longer farming as much. We're no longer as much about factory production. Now we're about the life of the mind, and the possibilities.
And so, inspired by that, I looked across the 200 or so active recommendations which I've made in Motley Fool Stock Advisor and Motley Fool Rule Breakers, all brought together in what we call Motley Fool Supernova [a service I hope many of you are enjoying]. And I looked across those 200 and I said, "Which are five companies that will benefit from this increasingly [thinking] world that we're living in?"
And I also said, "I'm not going to pick the obvious ones," two years ago. I said, "I could definitely pick Alphabet, because Google of searching and all the life of the mind that's baked into that company. Or some of the other big companies like Amazon." I said, "I'm going to restrict myself from taking those obvious, big internet players. Let's look for five other kinds of companies." And here's what they are and here's how they've done.
Stock No. 1: The first one up, alphabetically, is Celgene (CELG). The ticker symbol is CELG. Celgene, two years ago, was at $101 a share. Celgene, as of Monday's market close was down to $84.57. So, not such a great stock pick of mine. Celgene down 16%. The market up 30%. So, we're going to have to log a minus 46% to start this review of my stocks from five years ago, as Celgene has dropped a little and the market, as we've already established, has done quite well.
In case you don't know Celgene, C-E-L-G-E-N-E, this is a company that is really the worldwide leader in fighting blood cancer. Its drug, Revlimid, is the big dog and continues to be really relevant; however, the possibility of it running out of its patent and being copied by cheaper upstarts has given the market pause as it looks at Celgene stock.
So, I turned to one of my fellow analysts, Karl Thiel, and he shared that and a little bit more with you. For those of us who are interested in Celgene, Karl wrote [and I'm just going to read it out, here], "Celgene has for years, now, and without any significant stumble, put up a great financial performance. It has posted" -- get this -- "double-digit revenue growth every year since 1996. Even recent concerns about newer products like Otezla, struggling against competition, has been overblown. After a difficult quarter last year, they rebounded.
"But since so much rides on Revlimid, on track for $9.5 billion in sales this year, fears about patent expiration trumped pretty much all other concerns and, more recently, investor confidence has been shaken by some bad luck or unforced errors [a botched application for Ozanimod], an expected blockbuster in multiple sclerosis. Also, the failure of a late-stage Crohn's disease drug. Even some disappointment with a Revlimid label expansion. Management insists revenue will reach $19-20 billion by 2020, but investors worry what will happen next.
"Our feeling," Karl writes, "is that even with stumbles and setbacks, the company is setting itself up well for the post-Revlimid world. It bought Juno," [which is another one of our Rule Breakers stock picks]. "It owns a piece of what is perhaps Bluebird Bio's most exciting drug, a CAR T immunotherapy drug for myeloma." By the way, Bluebird Bio is also a Rule Breakers recommendation.
By the way, I call this Foolretsu sometimes. You may be familiar with the Japanese concept of keiretsu, where companies that might have the same capitalists backing them start to work with each other in sort of a networked, competitively advantaged way. Well, I see here, maybe, a new emerging term that I've used some over the years ... a Foolretsu ... when some of our recommendations, unbeknownst to us being to work together.
Anyway, to close Karl's thoughts and then we'll go to the next stock. "Long term, we're very confident that the company will succeed, grow, and prove to be undervalued. The problem is the transition is so uncertain, no one can be sure of when Revlimid generic competition starts. The worst case is the year 2020, with 2024 being more likely and 2026 being definitely. We can't be sure of every pipeline program, so there's definitely a bumpy road ahead as there can be with any biotech, even a gigantic one like this one." So, there's a little bit of a look back and forward at Celgene, which has started with a minus 46% in the loss column. Let's go to stock No. 2.
Stock No. 2: Stock No. 2's ticker symbol is [DIS]. Do you know what that one is? I bet you do. It's Disney (DIS -3.20%). Disney two years ago this week -- think about all the Disney Star Wars movies. Think about Marvel. Infinity War. All those other Marvel movies. Think about Disney Princesses. Expansions with its theme parks. Think about all those toys produced. Think about the genius that Bob Iger has brought to overseeing this company. Two years ago, Disney was at $103.70. As of Monday's close this week, it is down to $102.48, so not down very much. Down 1%.
But down 1% when the market was up 30% has me with a little egg on my face. Just a little. It's not just a yellow egg, because this is The Motley Fool, so it's kind of a multicolored spatter of egg on my face as I look backward, now, at my "5 Winners in a Thinking World" and see Celgene down 46% to the market and Disney down 31% to the market. So, if you're keeping score at home [and darn it, I sure hope you will], I'm going take it out to one more decimal. I'm down 77.8%. We'll call that a minus 78 after these two picks.
I'm not going to spend as much time on Disney. It's a much better-known company than Celgene and some of these others. I think we can all continue to say that this is an iconic brand. This is a great, very profitable company. It is a massive company, far larger than any of the others on this list. It's a company that has guaranteed movie hits going forward about as far as I can see. Far more visibility than any other company in its industry. It's got all the great brands. It's got great management.
It does have that ESPN legacy model which continues to drag the company down some [both in terms of its results and in terms of external perception of Disney], and I think that explains, in part, the underperformance.
Disney I originally recommended not ever as Disney. The reason that it appears multiple times on Motley Fool Stock Advisor and has been a mega winner for our members is that I recommended Pixar a few times and Disney bought Pixar. And even more times than a few I recommended Marvel [since way back in the day when that first Spider-Man movie came out]. Those have been just tremendous performers, but I have six positions in Motley Fool Stock Advisor on Disney, and none of them was ever picked as Disney.
So, it kind of hurts that the stock which I picked in June of 2002 and is up 54x for our members since then; that this stock would underperform for my podcast over the last couple of years and put me deep in the hole at minus 78% before we hit our final three stocks.
And before we get to those next three stocks, I want to mention [and again, if you're a regular listener you know this] that I have, I think, an unblemished record of always beating the market with all my five-stock samplers that I've done since July of 2015 on this show. In other words, we're something like 14 and 0, and right now we're staring at the possibility that we might have our first loss; although, I will point out we're only two years in with this group of five stocks and I was picking them for three-plus years. The big question at this point is will Rule Breaker Investing -- will this podcast -- keep the streak alive?
Stock No. 3: Stock No. 3's ticker symbol is SPLK. The company is Splunk (SPLK -3.34%). In a world of big data, think about a thinking world and how much data we're generating. Splunk is one of those big data companies whose tools allow people to conduct better business intelligence. What are people clicking on? How are they using your website? Splunk creates colorful pictures for employees right out there on the front lines and in the field, giving infographics and other industry-leading forms of help through its core business.
Splunk is also a company with kind of a silly name, and one of my six Rule Breaker attributes is always when a company has a brand and within a space where you could just be Big Data, Inc. [BDI, let's say], this company has a little bit more personality and pep. Often a good sign of a potential Rule Breaker, and that has been Splunk.
Now, before I tell you how Splunk's done in the last two years, I should note that before I picked it two years ago, it had done something unusual for one of my picks, because it had dropped 25% in the few months leading up to me picking it two years ago. Kind of a disappointment. The company that had been public for several years -- a good Rule Breaker pick -- was in the midst of a sell-off.
Two years ago, it tipped the scales at $49 a share. On Monday it closed at $109.94. We could round that to $110, but I'll leave it hardcore and make it $109.94. That is a 124.4% gain, and that's 94% ahead of the market. So that minus 78% we were looking at just a few minutes ago all of a sudden just tipped to plus 16%.
So, where has Splunk come from and where is it going? Well, for this one I tapped another one of my analysts, Simon Erickson, and I'm going to give you a little extra, just like I did for Celgene. These are lesser-known companies to many of us [Celgene and Splunk], and I'd love for you to get to know a company like this one a little bit better. After all, it's been pretty lucrative to be a Splunk shareholder these last couple of years and we like it going forward.
When I asked Simon what had happened, he said, "Well, the need for monitoring machine data is increasing, so think of Splunk as providing the peripheral vision for a company to understand how they're actually operating. They can keep an eye on their weblogs to detect hackers and malware. They can monitor equipment performance to keep them safe. They can optimize IT performance of the data center."
And Simon says that one of his favorite use cases is how they're slicing data for Domino's, so they're monitoring in real time what pizzas people buy regionally and using that to inform their marketing promotions. There's a ton of data available out there. Companies need Splunk to find both problems and opportunities that they didn't even know they should be looking for.
I'm going to skip some of his numbers, here. If you're a Rule Breakers member, you're getting this, anyway, but they're basically getting more from existing customers which is really helping their margins. They are a cloud-based company, as well.
"And probably the most exciting development for Splunk shareholders is that they've integrated into Amazon's AWS, Amazon Web Services, and Google's cloud environments. As an example, Splunk is now powering the Amazon Echo. I'm not going to say her name and trigger it if you're listening to this podcast over that machine [the Amazon Echo, for business]. So, customers are aggressively moving their applications to the cloud and now they can use Splunk to index all that machine data that they generate and in real time."
And now back to me. Thank you, Simon, for that. That truly, to me, sounds like a winner in an increasingly thinking world. A quick side note. This company will report its first quarter earnings on May 24. So, Splunk [SPLK].
Stock No. 4: Before I say the name of this one, I'll just mention that it had declined 70% in the year leading up to me picking it two years ago on this podcast. And I teased you, if you were listening back then, by mentioning it's a name and a platform that we all know. Whether or not you use it, it is pretty much and was a household name back then. I would say it's only even more popular today. The ticker symbol is TWTR and that means it's Twitter (TWTR 2.57%).
Two years ago, Twitter was trading at $14.85. Today it's trading at $31.33. So, I was kind of on the precipice whether I'd beat the market or not. The game's not over yet, but Splunk took us over the hump and Twitter just stacked on [well, it's up 111%] 81% ahead of the market. Thank you, Twitter.
And the biggest change for Twitter is, of course, that its last couple of quarters it's been profitable, and I think that's something you could have foreseen. This is a stock pick we've had in for years. It's been up and down. Down for quite a while more than up.
But what I have always loved about Twitter is that it passes my "snap test." That's a phrase I've used many times before on this podcast. Our snap test is if you were to snap your fingers and cause a company [and its products or services] to just disappear overnight, and the whole world wakes up the next day, the question the snap test has for us is would anyone notice? Would anyone care?
And when you can give an emphatic yes to that; that always for me speaks to the potential strength of a stock, even a beaten-down one, which is what Twitter was. Down 70% before we picked it here for you two years ago. Twitter up 111% since then. The company has definitely become only more relevant. Only more solid. It had quite a run through the election. It has some popular politicians who tweet out. Whether or not you follow those tweets, there's something for everybody on Twitter.
I use Twitter every day just to track some of the authors and people that I admire and see what they're thinking and sometimes doing. I love Twitter and I would recommend it to you as a user if you're not already. It's been a great stock in recent years and I like it a lot over the next five years.
Stock No. 5: And that brings us to stock No. 5 before we start getting the stage cleared for Selim Bassoul. To close it out, here, the final stock is Zillow (ZG -2.15%) (Z -2.05%). The ticker symbol back then was [Z]. It's also [ZG] if you like. It's the same company. Just different classes of shares.
Zillow two years ago was trading at $28. I'm absolutely delighted to let you know that as of Monday's close, it closed at $55.91. I'm tempted to round that to $56, so I would have a straight double from $28 to $56, but we'll keep it true. It's up 99.7% over the last two years. Just to do some quick math, then, you add its 70% of outperformance and this group of five stocks, despite the dark start that we got, is up 167% over the market.
In other words, the market has averaged a 30.2% gain over the last two years, and these five stocks have averaged a 63.5% gain. If you want to annualize those [and why not, because it's kind of fun], those two-year annualized returns for the market 14.1% and for "5 Winners in a Thinking World," despite a couple of clunkers, so far [and, again, this game's not over], that group is up 27.9% annualized, keeping [#TheRBIPodcastStreak] alive.
Just a little bit about Zillow since it's been a hero stock. Really the last three have each just about doubled over the last two years. Rick Munarriz, one of my friends and fellow analysts, and a past guest on this show, says the stock has now more than made back the hit it took when it surprised investors by announcing that it would be expanding its Zillow Instant Offers segment, where it essentially buys and flips houses, which was announced in mid-April, just a few weeks ago. This week's quarterly report shows that Zillow's core business is growing just fine. Premier Agent revenue accounting for more than two-thirds of its entire business these days, matched the 22% growth in revenue for the quarter.
Traffic always a big thing for Zillow. Traffic across its collection of sites up 15% over the past year. There will be acquisitions, or in the case of Zillow Instant Offers, new potentially questionable ventures that may seem to be distracting, but Zillow is proving that it can still explore related revenue streams without neglecting its bread and butter business.
It remains to be seen if realtors will get ticked off if the platform that they lean on for leads starts turning into a rival, but Zillow has shown in the past that it can get the balance right. Zillow's guidance for 2018 calls for revenue growth of about 22-23% before accounting for its new-home segment, etc. This is a company that, like many of these I also own, I have good thoughts about for the year three, five going forward.
In fact, even though when I did this two years ago Zillow was the smallest of these five companies by market cap, in some ways, it has the strongest competitive advantage of any of them. When I think of Zillow, if that's the Coca-Cola of the industry, it's really unclear to me if there is a meaningful Pepsi.
Well, enough with reviewing stocks that have crushed the market over the last couple of years. Let's next move to the other delight that I have for you this week, and that is our friend Selim Bassoul.
One of my favorite people in business, Selim Bassoul is chairman of the board of directors and chief executive officer of The Middleby Corporation. As I mentioned earlier in the show, a leading developer and manufacturer of commercial cooking equipment, and food processing and packaging equipment.
Mr. Bassoul is responsible for the strategic direction of the company and leading the senior management team. And, as you'll find out from our interview, at least two more things. First of all, he's responsible, in many ways, for a hugely winning stock over the last decade plus and he's a gentleman with a really interesting backstory.
Without further ado, Selim Bassoul.
Gardner: It was, I'm going to say, February of 2013. My brother came back from an interview he'd done with a public company CEO and he insisted that all his executive team watch the full 60-plus minutes of this privately taped video interview that we eventually shared with our members. But Tom was so passionate about it. He said, "I insist that all of my direct reports watch this." It was an interview with Selim Bassoul, the CEO of Middleby.
And Selim Bassoul I'm very pleased to have with me here on Rule Breaker Investing. Selim, I watched that video, I loved it, and then I noticed that no Motley Fool service at that moment was actively recommending Middleby stock. Hidden Gems Tom had started, found your company early on, and had a great run with it; but, somebody had sold it, I think, at some point. And so, I said, "I'm going to recommend Middleby for Rule Breakers".
That was one month after, so it was March of 2013. The stock right then was around $49. Today it's around $125. It's been an awfully good five years. Selim, thank you for all that you've done [not just for investors and Rule Breaker members listening right now], but through your business for the world at large, and I want to try to talk about each of those three things as quickly as we can.
Let me start by asking. How did Middleby start?
Selim Bassoul: Well, it started in the '80s by Bill Whitman. It was a company that had good brands. They were selling everything to everybody. They had ovens, and refrigerators, and mixers. And it was a company like everybody, a "me too" company. Almost growing (unclear 31:52). Not a lot of innovation and there was a lot of turnover. We had a lot of turnover of employees. There were a lot of turnovers of customers. We did not have a process. There was no culture.
In fact, the smartest thing that Bill Whitman did was to hire me. He went and recruited me...
Bassoul: ...to come in and change his company and change the culture.
Gardner: What year was that, Selim?
Bassoul: It was in 1996. And he gave me free hand to set a new culture. And that's lesson No. 1. Lesson No. 1 is surround yourself with the best. When you are struggling and sinking, the best thing is to go find the best. At the time I was a rising star in the food equipment business. He approached me, and he said, "Selim, I want you. I want you to come in." Lesson No. 2 is to give full empowerment to your employees to do what they need to do. No. 3 is he said to me, "Selim, we do not have a culture. Create a culture."
Gardner: And Selim, you came as a rising star from another company. Did you borrow anything from that experience? What did you learn and what is the culture that you've now created? And the number I think is right -- 22 years later.
Bassoul: David, I learned from being in healthcare that you cannot survive without speed, agility, and innovation. You can't. In healthcare, those are the three major factors of being able to be relevant. And I adapted that in every one of our businesses. Speed -- speed of execution. Speed of innovation. Agility -- remaining lean and efficient and agile.
And No. 3 is just innovation. You have to innovate. You have to be ahead of your customers.
Gardner: Selim, as I think about the success that Middleby's had, you have been a master of acquiring other companies. You have great organic growth, and a wonderful vision. We're going to talk about your vision for the world at large in a little bit, but sticking with Middleby, here, you have grown the company through any number of acquisitions over years now. Integrating them.
And the way that I cast it -- as we wrote up your stock five years ago -- tell me if we have this right. We always have things a little wrong, so correct me here, Selim. I was saying that Bassoul has this wonderful story that he can tell talented, up-and-coming companies.
He said, "You're great. I like you. If I like you you'll stay on and be within the leadership, but two things we can offer you. No. 1, we can make you global. Many of you are smaller companies or regional companies. We can take you and make you much bigger. And No. 2, we are a technology company, ourselves. We can improve your technology, so we can make you better and bigger."
That, as it turns out, has been a siren song for dozens of companies that you've acquired over the years. Is that an accurate portrayal of the company? I know it's not fully accurate. What else needs to be said?
Bassoul: I think this is quite accurate. I will go back and tell you what we do not do. We do not buy markets or competitors. We buy technology innovation. If you aim to acquire a market or to take out a competitor, you will always fail, so that has never been our model. A lot of people come to me and say, "Selim, but if you buy this market, it's easy." I'd say, "We can grow in the market organically. We don't need to buy somebody."
No. 2: What we always do is find the people that fit us. They should be disruptive in their own world and they need to have a culture of winning.
And the third is a culture of empowerment. So, I look at lots of entrepreneurs and I find that a lot of them have technology, they have a winning culture, but they are not able to empower their people. They have such control that they become control freaks. And many times, I walk away from this, because then the culture doesn't work for us.
We do not embrace control freaks. It doesn't work. When you have only three layers of separation between me and the lowest-ranking employees, you have to create a lot of autonomy, otherwise we cannot do our job. We cannot grow.
Gardner: Maybe the hardest thing to do in business is to acquire something else. A different culture. Even if it's a like-minded culture, ultimately, it's a separate group of people. You've not met them before. All of a sudden, they're part of you. And so, this is not a fair question, but why would we ask fair questions on Rule Breaker Investing? Selim, could you give a 90-second or so short course, maybe with three points? A master class for those of us who would like to do our acquisitions better. How have you made it work? Ninety seconds or so.
Bassoul: No. 1 is to make sure that you are able to get a return on your investment. That's No. 1. It's not how much you pay. It's how much you get back in terms of return. Our format is simple. We like to get back our cash in five years or less. Including synergy and everything else, if I pay $100 million for an acquisition, I want to get back all my cash in five years or less.
No. 2, I want to be able to know that this company I can take globally. We do not buy regional players. At the end, this is not what we need. We need scale.
No. 3, we need to make sure that the management team can stay with us; not only the founder or the family that owned it or the owner, but deep in the organization, because we want to have people on the bench. If we cannot keep that management team, we'll not buy that company irrespective of how good they are.
Gardner: That's really interesting. And many people take an opposite approach. I remember John Mackey of Whole Foods often says it's very hard for us as an acquisitive company [Whole Foods, over the course of a few decades], to let those CEOs in place. Usually when he buys, he lets them know that's going to be their last day on the job for that company.
Of course, Warren Buffett, sounding a lot more like Selim Bassoul, here, prefers to find those great managers and put them in place. I guess it can work either way. We each need to find what is the music, what is the rhythm that works for us, and that's a brilliant master class in 90 seconds. Thank you, Selim.
Now I want to broaden things briefly. Selim, you speak beautiful English, but the discerning listener will notice that Selim has an accent that he speaks with. Not everybody knows your story, and we don't have the time it deserves to hear your full story but, Selim, could you talk a little bit about where you came from and your family growing up?
Bassoul: I grew up in Beirut, Lebanon from a modest upbringing. My father was an Olympic swimmer. My aunt was a Catholic nun and she was considered the Mother Teresa of Lebanon. And I grew up in an environment of love and passion. My father was passionate about being the best. He became an Olympic swimmer and my aunt created so much good around not only Lebanon but around the Middle East, so there was a lot of excellence in what my family [did].
However, the Civil War broke and we became refugees ourselves. We were in the wrong part of town, and we were overnight displaced.
Gardner: How old were you at that time?
Bassoul: A teenager. I was 15 or 16. And that taught me a big lesson. One, the world can change on you on a dime. Here we come from a lower-middle class with the home we're living in to overnight being asked or forced to leave our neighborhood and basically our community, and we became homeless. No home. We had to be dispersed. Split up, [broken] up as family, and go and find refuge among other family members in the other part of town. For a year it was tough.
And I remember my father talking to my mother and saying, "I have only twenty dollars in my pocket. What do I do? We have three children." And I will never forget that, and I opted that I would never be poor again.
Gardner: And briefly, what was the process by which you wound up in the United States of America?
Bassoul: I ended up one, outperforming at American University of Beirut. I graduated with distinction. I was one of the valedictorians at the college, at the university. And then I started working with Ernst & Young at the time. It was called Ernst & Whinney in Beirut, and I became a rising star.
And then I applied. I always wanted to come to the U.S. to learn business. It was my dream. So, I had a scholarship to go to the London School of Economics or to study in England, and I always wanted to go to the United States. When I applied to MBA, I got accepted at Northwestern, and that's what drove me to come to the U.S. Not hoping to stay here. Thinking that I would go back to the Middle East to work in the oil industry, or work in consulting. Maybe joining back with Ernst & Whinney or Ernst & Young.
But I stayed. And then I went up to China. I went up to Asia. I went back to the Middle East. So, oneI've been in emerging markets and that's reshaped my thinking, watching the emerging markets.
Gardner: Selim, for you business is not just a calling. It's an opportunity not just to maximize shareholder value [and you've done a very fine job of that], but to reach outside of your own company and help the world. Could you describe, briefly [you told a great story, here, at the Conscious Capitalism Conference], about developing an oven for people who are in tough straits?
Bassoul: I always wanted to change the world in a small way. If not in a big way, in a small way. I wanted to follow in the footsteps of my aunt. She did great work. I kept my antennas open, and I always did philanthropic work, like all of us. We did charity work. We helped in scholarships. We helped community colleges. We helped people in need, whether it's neighbors or distant family friends, or whatever. But I wanted something big. I wanted to affect thousands of people. So, I'd been looking for that thing.
Ultimately, I found it was the refugees, and it was core competency. We do ovens. I found out that those refugees have nothing. They lost everything. They are fetching wood. And then from there I found out that there are 3 billion people on Earth that cook on open fires, and 450,000 of them die of toxic smoke.
For me, this was a big calling. Taking my core competency, going out on the ground, and finding technology the way we find our customers to provide those people a sliver of hope. A dignified life.
Gardner: And you've given away how many ovens?
Bassoul: Thousands, right now. We've given them in Lebanon to refugees. Syrian refugee camps. In Turkey. The hurricane that hit Puerto Rico. And to Haiti. And I think now we're going back into India, and Africa, and I would like to go to the refugee camp of Rohingya in Bangladesh, because there is a need there.
I watch on TV those same things you do. There are a lot of people, today, that have lost a lot of things, and I want to help, at least with one accessory, which is the oven.
Gardner: Selim Bassoul, thank you for what you are and what you do!
Bassoul: Thank you!
Gardner: And now coming out of that interview, what I love about so much of our work at The Motley Fool is not only are we focused on finding for you the winners over the only term that for me counts, which is the long term; but how about the human interest behind the people that make the great businesses of today work?
Yes, much ink is spilled on big personalities like Elon Musk or Jeff Bezos; but the Selim Bassouls of the world have a great story to tell, too. It's funny. As I was looking through Wikipedia to see what I could read about Selim's background; he doesn't even have a Wikipedia page, and yet here's a guy, now that you've gotten to know him, who deserves, I think, a lot more attention and I bet will get it in the coming years.
Just a few housekeeping notes to close. First of all, we've got a Rule Breakers extra for you. That's right. As part of Conscious Capitalism Month, I had a dynamic conversation with a few younger entrepreneurs. Maybe a little bit lesser-known bright lights from the Conscious Capitalism world. You're going to get to meet them this weekend.
If you have a little extra time for us this week [20 minutes or so], and you're looking for something fun on the weekend, this one gets a little racy. So, if that attracts you, you're definitely going to want to listen this weekend. On the other hand, if you tend to listen to Rule Breaker Investing with your kids, you might occasionally want to think about putting your hand over their ear for what's coming up this weekend. It's a fun, lively conversation with three Conscious Capitalism entrepreneurs that I know you're going to enjoy.
And next week we're going to go back to one of my favorite series, and that's our Great Quotes series. I'm going to be pulling quotes that I think are inspirational, thoughtful, challenging, interesting, and I'm going to specifically be pulling them from the Conscious Capitalism Conference that I attended earlier this month in Dallas. It's going to be the "All Conscious Capitalism Quotes" edition on next week's Rule Breaker Investing podcast.
In the meantime, have a great week. Maybe see you this weekend. 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.