The 5-Stock Set That Ended David Gardner's Wild Winning Streak

Motley Fool co-founder David Gardner regularly offers listeners to the Rule Breakers podcast sets of five stocks that he thinks will beat the market, usually over a specified period of years (because though we recommend buying stocks for the very long term, you can't wait forever to see if you're getting the result you want). And because investing honestly and successfully demands that you keep score, he checks back in annually to see how those picks are performing.

Thus far, he has had a remarkable streak: Every one of his 14 sets of stocks has beaten the market at every annual review. But no more. The group he picked last year at this time under the theme of "stocks riding the bull market" has stuck a fork in #RBIStreak. But painful though it may be, he reviews how iRobot (IRBT -1.17%), Pegasystems (PEGA -1.10%), Impinj (PI -3.99%), Wayfair (W -2.06%), and Zillow (ZG 0.36%) (Z 0.24%) performed over the past year.

A full transcript follows the video.

This video was recorded on June 20, 2018.

David Gardner: Five stocks picked a year ago. Now, I already mentioned this. If you're a regular listener, you know that there's an amazing Rule Breaker Investing podcast streak. I've picked five stocks for years now, and every single one of them, the 14 that we've done, were all beating the market. The question is, would the #RBIStreak stay alive?

I'm going to tell you right now; the streak is over. I'm not going to bury my lede, I'm going to go with the headline. This is a podcast partly about winners and losers. Sometimes we need to be ready to be surprised, even if we thought we'd found excellence and we're having fun scoring the global challenge of the five stock samplers. If you have all of the elements of this podcast in your head now, you can appreciate what I'm about to do here. I want to review, let's check the score on five stocks riding the bull market.

These stocks were picked on June 21st of 2017. You could say, you can definitely accuse me, if you'd like, of hot dogging it a little bit. If you go back and listen to last year's podcast this week, you'll see that I was intentionally picking stocks that had already had monster runs. Because of my belief, which I've conveyed throughout this podcast and many others, that generally the winners keep on winning in life, and you want to add to your winners, I admittedly was maybe hot dogging it a little bit, because I was saying a year ago, "People think the bull market's over. People think that stocks that have already had a big run can't continue." I was saying, "Watch me. Let's pick five stocks that have already done great through this bull market, they're riding the bull market, and let's pick them to beat the market for the few years ahead." Here we are, one year later. What were they, how are they doing?

The first one up is iRobot. iRobot, I picked at $98 this week last year. Today, iRobot is at $78. It's down 20% -- $98 down to $78, rounding. The stock market, for score comparison, over the last year is up 14%. It's been a wonderful last 12 months. The market's average gain, as I know you already know, is about 10% a year, here in the U.S., anyways. So, 14%, that's a better-than-average 12 months. The good news is that the bull market has continued. The bad news is, my stocks that I had selected to ride this bull market, not enough of them have done that over this last 12 months, iRobot being one. So, we start with iRobot down 20%, but since the market was up 14%, that's a -34% for stock No. 1.

Stock No. 2: Pegasystems, ticker symbol PEGA. Pegasystems is a company that, for a long time, that has been in the AI business. This is an important technology. This is a small-cap company. It can't bring the kinds of Google-like resources to AI. Google is the one that created AlphaGo, the amazing game-playing AI beating the world's Go champion. That's not going to come from Pegasystems.

But, it's been a wonderful company and an out-performer. Alan Trefler, the CEO, a chess master himself. Pegasystems, over the last year, from $59 a year ago to $60 today. It's up $1! That equals about 2% rounded. The market, of course, up 14%, so that stock is 12% behind the market. That's now a -46%, for those scoring at home.

Let's go to stock No. 3. This is when things go from bad to worse. The company is Impinj, its ticker symbol is PI. This is a company that allows people to manage their RFID chips. You might have a little chip in all of your different products or all of your trucks. You're basically trying to keep count of stuff by adding RFID chips to them. You can manage that whole infrastructure and system through Impinj's platform.

The company does it very well, but it was a stock riding high a year ago and things slowed down. Some of the business we were hoping to see hasn't yet come through. Impinj has dropped from $55 one year ago -- this is what happens, my friends, when you're negatively surprised -- to $22 today. Ouch! That's a 60% drop. Again, the market is up 14%, so that's a -74%. Added to our -46%, we're now, after these first three stocks, down 120%. It's about to get a little bit better, but not better enough.

Stock No. 4 is Wayfair. Ticker symbol is W -- yep, that's right! It's basically an internet play that somehow scored one of the precious one-letter ticker symbols that are available out there. Wayfair, just W. Wayfair is a company that competes with Amazon, but not across all categories. Really, Wayfair is about furniture and furnishings. For example, maybe you have a child that's going to be moving into a dorm this coming fall. They might want a bed frame. You could order a bed from Wayfair for that child. The company does great e-commerce. It's hard to compete, if you're Amazon, with this company, because these are bigger things to ship, and Wayfair really specializes in that.

The stock a year ago, $75 a share. Today, $112. That's a wonderful 49% gain for a stock that had already run up a lot and was riding the bull market and continues to do so very well. 49% ahead minus the market's 14% is a plus 35%. That brings our -120% down to -85%.

The final company, one of my favorites, a company I'll continue to favor for years going forward, and that would be Zillow. Zillow, a year ago, was at $47.50. The ticker symbol is Z or ZG, depending on which of the two flavors of shares we're talking about; it's the same company, though. $47.50. Today, $63. So, Zillow up 33%. Another great company riding the bull market. If you deduct the market's 14% from that, you get a plus 19%.

That brings us to the final total for these five stocks after their first year of -66%. Now, if you divide that by five, what that's telling us is that the average company in this five-stock sampler has underperformed the market by 13%. In other words, the market over the last year is up 14%. These companies average being up 1%.

I have to say, I'm obviously disappointed. A couple of real clunkers there. I will say, going forward, I continue to be confident. I like all five of these companies. I certainly haven't soured on any of them. Impinj might be the one, both the poorest performer and the one I have the least confidence in. But, going forward, I'm going to continue to favor this approach of finding the winners, though the #RBIStreak has now ended, sadly. We're 14 for 15. I'm not going to learn too well any lessons from this one, because my belief that we should find excellence, buy excellence, add to excellence over time, sell mediocrity, that's how we're going to invest, is not shaken at all by this one-year under-performance for these companies.

Best of wishes in the year ahead to iRobot, Pegasystems, Impinj, Wayfair, Zillow, and all of the many other companies that you and I are invested in, many of which I've mentioned during this podcast. Thank you for sharing this World Cup moment with me. We've had some winning and, indeed, in this podcast, we've had some losing. That feels very apropos of the World Cup.