Who's that at the door? A witch? An astronaut? A scientist? A biker? Well, we're giving out treats from the Rule Breaker Investing Halloween mailbag, as an array of listeners come to share their Foolishness with Motley Fool co-founder David Gardner. We'll also learn a great trick to help you look past a recently scary market.
A full transcript follows the video.
This video was recorded on Oct. 31, 2018.
David Gardner: Well, it's Halloween! If my math is right, that means if we keep doing this podcast for seven years, one year out of seven we'll actually be broadcasting on Halloween and that is this podcast. So I guess I should tell my favorite Halloween story from my youth -- with my brother Tom Gardner.
So Tom and I were in the back of our car driving to get a costume. Our mom was driving up front. We were going to the five-and-dime store. Yup, that's a phrase we used back then; the five-and-dime store. Think of the big box retailers these days. It was probably like a Woolworth back then and we were just trying to get our Halloween costume.
And I went and I found one. It was a see-through. I could see a scary mask. I picked that one up. I believe Tom picked up like an astronaut -- he had sort of an astronaut costume. It was one of those where the costume is folded underneath the mask, and it's all in a cellophane, cardboard box. We went through, and we bought those, and we got in the backseat of our car again and we drove home.
And as we started to drive home, I flipped my box over and I saw a horrendous phrase. It's a girls', five to seven.
I was probably about seven years old and the idea that I'd picked up a girls' costume for a seven-year-old boy; this was about the biggest mistake I think I could have made, and so I began to whine. I began to say to my mom up front, "Mom, I didn't mean to get this. I don't want this one."
And as a lot of parents -- and now a parent myself, I can understand this -- my mother was probably tired. It had been a long day for her. So once we got home she said, "I'll make this right." And in so many words, she simply switched costumes. I was the older child. My brother Tom -- if I was seven, that means he was about five. He probably didn't care too much.
And so that Halloween, Gardner family pictures will show that Dave, the seven-year-old was an astronaut, a costume he was pretty happy about. And who's that witch? Who's the little five-year-old witch? Oh, that would be Dave's brother, Tom.
Gardner: And welcome back to Rule Breaker Investing! Yup, a true story from my youth and my producer, Rick, asked, "Is there not some lesson or message from the story?" And I guess the clearest thing that comes through to me for that story is just injustice. It was completely unfair. Tom had made a great selection of the astronaut costume and I had a scary mask that I thought was good. And it just doesn't seem right that in Gardner family pictures, now, looking 45 years later, we say, "Who was the little witch that year?"
All right, yup, it is the last Wednesday of the month. It happens to be Halloween. I think we've already covered that, but it's also Mailbag on this podcast. It's been a very wonderful and rich month, here, on the Rule Breaker Investing podcast. One thing I like to do is I like to go back and just see what we did over the course of the month.
This month started with "Get Started Investing!" And indeed next week we're going to close out that two-part series with "Get Started Investing!" [Part 2/2]. A lot of you have written us emails, RBI@Fool.com, and we're going to comb through those and close out that two-part series, really trying to get as many people around you started investing as possible. So I'm looking forward to that next week. But that's how we kicked off this month.
Then we had The League of Extraordinary Stock Pickers. We had "200 Stock Advisor Picks Later" [my thoughts two weeks ago], and then "Great Quotes, Vol. 9" last week and now here we are, the fifth podcast of this month. Yup, the math worked out. Five podcasts in one month. It's time for your Rule Breaker Investing Mailbag.
And I thought maybe we should do some thematic thing. [Sound of thunder] Maybe beyond just the cold open I did with my favorite Halloween story of my youth [sound of a bat], maybe we should go with sound effects [thunder] [sound of monster] [phonograph needle skipping off record].
And then we thought, do we really want to bother our listeners with that all podcast long? So that might be the only scary sounds that you hear this week. We'll see what else Rick might have in store. With that said, I thought maybe I should go with like 13 items, because 13 is a scary number. I don't know if we're going to be able to count up that high. I do have a lot of mailbag items. I'm going to go through them as fast as I can. We'll see what we get to, and I like to start off our Mailbag every last Wednesday of the month with my Hot Takes section, looking at some of the tweets that came in for our podcast. I've got four cued up this week.
The first one comes from Chris McCullough, @NorthBoyChris. Chris said, "David, please square this circle. 'Let your winners run,' which is certainly something that I say a lot on this show. That line. Square that with -- and then he quotes a different line, 'Please take this moment to make sure your portfolio is diversified enough that no one stock's bad day is enough to keep you up at night.'" Probably something else I've said a lot on this podcast, before. So Chris says, "Hey, square that circle, please, because they sound like they contradict each other." Let me try, as best as I can, to square that circle.
When I say let your winners run, it does, more often that not, mean that you're going to end up with some imbalance in your portfolio. And on the other hand, when I say make sure that you're diversified enough so that no one's stock having a really bad day makes you feel too bad at night, I think that there's a middle ground, there, where you're making sure, on the one hand, that you do, rule No. 1, let your winners run high.
We've talked about that on this podcast. The six traits, the six hows, of Rule Breaker Investing. Rule No. 1, let your winners run high, does mean you're going to end up with some imbalance, but I don't want it to be too much for you. For some of us, a stock that, let's say, is 25% of your whole portfolio; for some of us that's way too much. You should never have -- for a lot of us -- a stock that's one-quarter of your net worth just riding on one company.
On the other hand, through vast portions of my adult life I've had situations like that in my portfolio. AOL, back in the day, was a monster stock. I know there's still some AOL shareholders out there. I'm not sure you own shares, anymore, since Verizon, I think, bought AOL. But for a long time, AOL was a monster winner and then for a long time it was kind of a dud. But if you go back to those glory days of the 1990s, I had a pretty imbalanced portfolio. And stocks, more recently like Netflix, are pretty good at unbalancing my portfolio.
Now, I'm OK with that. The percentages that I'm talking about in my own life work for me, so we're not all one-size-fits-all investors. There's no cookie-cutter answer, here, that really nails it; but Chris, I'm glad that you brought those two things together because I do strongly believe in both of them. I would just say if there needs to be a compromise between those two concepts of letting your winners run high and then not having an imbalanced portfolio, then we should all be trying to hit that golden mean along with Aristotle as best we can. Thank you, Chris!1
The next Hot Take in from Andrew Legget, @AndrewLegget, a Fool AU employee. Andrew, great to hear from you and thanks for writing in! You said, "Can't recommend the latest @RBIPodcast enough. Every investor should encourage at least one non-investor to listen to it so they can also start their profitable journey." Thank you very much, Andrew! I agree. That was the purpose of "Get Started Investing!"
I think a lot of people who listen to my podcast on a weekly basis -- or really any Motley Fool podcast -- probably have at least some investment already in the game or you're interested enough that you're listening to an investment podcast. But there are so many people who are not listening to Motley Fool investment podcasts. And even if they don't want to listen to our podcasts, I sure hope they want to get started investing, so that was the point of that kick-off of that series starting this month and yes, as I already mentioned, we're going to close it out next month. So thank you, Andrew! We agree. Share it out!
@annemariebnyc below shared out @EricMiltonH. "Shared this week's @RBIPodcast podcast on how to begin investing." It sounds like one of our listeners shared with Anne Marie this podcast. She goes on to say, "I'm so glad that I learned and have been investing myself for over a year. Everybody needs to know this information." Thank you, Anne Marie! We agree. Great to have you with us!
And finally @farleykj. Ken Farley wrote in, "How remarkably timely this was. Just weeks ago my niece was asking me for advice on investing and how to get started. I explained some of these types of things as well as some of my dumb mistakes." And then he quotes Joseph Conrad, the novelist: "Oh the glamour of youth!" And thank you, Ken, for sharing that out, as well. So yes, it's really a month of getting started investing.
It's also a month that's been tough for the stock market. I mean, I've had a significant sell-off in my portfolio. I don't know about yours. I'm sure we'll talk about that a little bit later during this podcast. But it's ironic that I picked this month to get started investing when the stock market's been far more volatile than usual.
But, you know what? You just never know what's going to come around the corner when it comes to the stock market "if you're only looking around the corner." I hope most of us will learn it's not about just what's around the corner. It's actually about making a lifetime commitment to being an Investor. Getting started investing isn't just something that you're doing, here, in October, hoping we have a good fall. Nope. You're getting started investing for life, and it gets better the longer you do it. And I promise you that's the case.
So for a lot of new investors -- a lot of new Fools this week -- I'm really excited if you're tuning into this podcast and I hope you'll enjoy our podcast. Closing it out with "Getting Started Investing!" [2/2] next week.
With that said, let's get to our Mailbag items.
And I know often on this podcast I try to save the best for last. I think that's just good design. That's why people take Top 10 lists and they count they down [10, 9, 8, 7, 6...]. It's much better than going [1, 2, 3...]. Casey Kasem -- it was always counting down the hits, but we were counting up to see what the No. 1 Billboard record was this month or whatever it was. That's the way to do shows. But I'm just not doing that this week. I'm going with my best, my favorite right-off-the-top. Lisa Warden, thank you for this note!
Mailbag Item No. 1: "Dear Fools," Lisa writes. "In your most recent podcast I was so impressed by your market-crushing returns and felt so lucky to be a Fool for over 10 years. My 10-year returns actually match yours because I used to buy every recommendation in your newsletter. I try to hold them as long as I can. I'm getting much better at it over time. I also like the fact that David's a good storyteller. It's fun to listen to the podcast, as well as happy for the amazing returns your services deliver.
"I have two fun stories to tell," Lisa says. "I tweeted the following story, but I'd still like to tell it again. Here it is.
"Recently I had a similar experience like David's in the Conscious Capitalism CEO conference. I walked into the Medtronic Science & Technology Conference recently. The presenter asked, 'Who's heard of Tencent [TCEHY]? Who's heard of Tencent?' Lisa says no one raised their hand. The room was so quiet you could hear a pin drop. "I couldn't believe that no one could answer such a simple question, so I raised my hand confidently and said, 'I have!' and I also own the stock. The company owns WeChat."
Lisa goes on, "Now I heard that noise of acknowledgement. A lot of people had actually heard of or used WeChat. Everyone turned around looking at me with admiration, I thought. So because of The Motley Fool," Lisa said, "I have had many moments like this. I often walk around with my husband, point to a business, and say that I own the stock. That one. Like let's say Cintas [CTAS], which is a company that makes outfits and uniforms for professionals. Or Starbucks [SBUX] -- I think we all know what that company does. Chipotle, Lululemon, and so on. I own that company. I recognize that brand, or that store, or that product, and I can tell you something about it."
And then Lisa continues. "Just recently I found that my son's company works for me. My son is a big-time visual DJ in Los Angeles. After graduating from UCLA among many things that he does he makes video and also does live mixing for the Drake Party." A party, I'm sorry to say, I've personally have never been invited to.
She goes on, "A few weeks ago I decided to attend one of these parties where my son was live mixing the videos he and his partners made. When I walked into the venue, Hollywood Palladium in Hollywood, California I noticed that everyone who worked there was wearing a Live Nation t-shirt. Later I found out that Live Nation [LYV] owns 40% of Insomniac Events which hires my son's company to make those videos. I have to say I'm a proud owner of [LYV] stock and now glad that my son works for me.
"Keep doing the good work," Lisa closes. "I have a colleague, here, at Medtronic who signed up for the Rule Breakers service after he's heard me talking about stocks. Sincerely, Lisa Wharton."
Well, sincerely back to you, Lisa. I don't think I have to add additional commentary on this particular Mailbag item. Those are just two great stories. We love stories on this show and you tell stories well, yourself. Really fun and I'm glad to know that your son -- after you've worked for him for probably a good deal of his life -- it's good to know he's working for you.
Mailbag Item No. 2: From Drake to Drake. Yeah! As soon as I saw Adam Drake had written me, I had to make this follow right after the Drake Party that Lisa just introduced us to, so thank you for writing in, Adam Drake. You said, "Hi, my name is Adam Drake and I just finished listening to your Part 1 of 'Get Started Investing!' I've been listening to your podcast for a few months, now. Been much more involved in investing for just about a year and a half, now. You discussed in your podcast how to invest $100, $1,000, or $10,000 into the market."
I'll pause for a second and say that's exactly right, Adam. That's how we did the podcast. We decided that "Get Started Investing!" means one thing if you have $100. It might mean something different if you have $10,000, so we tried to cover a range.
Anyway, he goes on. "But one thing that wasn't discussed about those numbers is how quick do you invest them. For example, my father is a subscriber to The Motley Fool. He's seen my interest in stocks, funds, investing, etc. He's talked about giving me a certain amount to invest in the market to see what I could do with it, and in five years he takes his money back, and I get to keep what I gained." He goes on to say, "Awesome dad." I know.
"Anyway, my question is if I were to have, say, the $10,000 all at once that I could put into the market immediately, do I invest all of it right away on that day? I'm split on it because one thing you guys talk about a lot, and I hear from a lot of investors is not trying to time the market but having time in the market; so one part of me says put it all in immediately so that it has time to grow. But then the other part of me has been watching the stocks I'm interested in for over a year, now, and there definitely are times of dips. So if I had that $10,000 would it be foolish to drop $5,000 right away in the ones I've researched and hold onto the other $5,000, etc. from there?"
Well, let me just tackle that one right away. A great question, Adam. Very understandable. And I like to think I'm pretty good at talking out of both sides of my mouth and let's see if I can do that in answering your question, Adam.
On the one hand I want to say to you that most studies suggest -- and indeed, logic suggests -- that if the stock market tends to go up over time, the longer you wait [the longer you don't put dollars that you have into the market], the less likely you are to do maximally well. You want to get dollars right in the market right away because chances are from one day, or month, or indeed year, or five-year period to the next that it will rise over the course of time.
Look at a graph of the Dow Jones Industrial Average over the last century [one of my favorite images] and you're going to see it starts in the lower left. In over a hundred years it goes to the upper right. So if you wait -- if you dollar-cost average or move slowly into stocks -- you're probably paying an opportunity cost for waiting. That's out one side of my mouth. Now let me go to the other side of my mouth.
What I want to say to you here, on this side of my mouth, is that some of us just don't feel that psychologically willing to put it all in at once. It's very understandable. We're toe-dippers. We think in terms of grays or being incremental. Why does the world need to be so binary all the time? Just buy or just sell. Black and white. No, there's a lot of grays.
And so we've often said for people who feel that psychologically, they just don't want to commit all at once like that, because after all, if you'd done that two weeks ago; well the stock market sold off pretty well in the last two weeks, so you'd be a little bit bummed, right now. But again, we're not just looking around the corner, here. We're making a lifetime commitment to investing, so we're not going to get too hung up on that.
But out of this side of my mouth to close, I want you to know that we've often talked in the past about buying in thirds. That means take a third of your amount of money. Let's say you have $10,000. Take $3,333 and invest it, let's say, right now. Invest one-third of it right now in the stocks that you want to buy.
And then make a decision ahead of time -- make a commitment -- to take that next tranche of $3,333 and invest it at the next increment. Let's just say it will be a month and a half from now. 45 days from now. So here we are at the end of October, so we're saying mid-December. We'll just say December 15th. I don't care where the market is or what you're feeling. You take that second tranche and then you add it with your first one. You buy some more stocks.
And then that last third you could buy in the new year. Let's just say the first of February or something like that. I'm just giving an example of how we've often coached people who don't feel comfortable going all in at once. Who don't want to hear the other side of my mouth saying, "Hey, you should get your money into the market. The longer you wait, the poorer you'll probably do." And so I hope between these two answers, you have at least one that works for you, if not both.
And I want to close by saying I've done both in my life. Most of the time I just try to put my money into the stock market and not wait; but sometimes, if I want a bigger position or I believe in a company, or something like that, but I would hate to be the guy who buys at the top and then a month later I'm like, "Why did I buy that day," then I could just buy in thirds and it makes me feel very comfortable.
And often I'll say, to close [which I already said about 30 seconds ago], but now to double close, let me just say that [because I double close a lot on this podcast] part of the beauty of investing in thirds, for me anyway, is it's always felt like a win no matter what happens. Let's see if I can play this psychological trick on you.
So you put that third in, that $3,333, and the market goes up from there. What do you start saying? Well, what I start saying is, "You know what? I was feeling a little cowardly. I'm darn glad I got some in right away, though. I might have waited, but I didn't. I put in some of my money and look, it's already up." That should make you feel really good and give you some positive endorphins or whatever those things are that go in our brains and make us happy. That's one thing.
On the other hand, let's say the stock market drops. Well, here's the way that this is also a win for you. "You know what? I only put one-third in. The majority of what I have still is out of the market. I'm glad that I showed some patience since the market dropped."
I really do feel like you can create a psychological win either way. If you're coldly mathematical, you should have just put it all in at once. So Adam Drake, I hope that helped. And by the way, great Dad!
Mailbag Item No. 3: This one comes from Anthony Corcoran. He's got a great Twitter handle -- @UroOncologist. Excellent. A man doing important work and I'm sure a lot of people are grateful for your work. Thank you, Anthony!
You start, "Training as a urologic oncologist performing robotic prostate, kidney, and bladder removals, I bought Intuitive Surgical [ISRG], but sold it after it went from $500 to $600." This is before a split. This is pre-split, but from $500 to $600 he made 20% of his money. That's never bad unless it kept going up, which I think Intuitive has.
Anthony, you go on. "I figured my field had adopted it and I simply 'missed the boat.' There were no more gains to be had. $500 to $600 and I'd better sell to 'lock in gains.'" I like how you're using some of the phrases that people frequently use around trading.
"Fast forward," Anthony says, "to May 2017, the month I became a Fool. I know this, because that's the month when NVIDIA took off. Prior to this date, I was a fool, not paying attention to the world around me. The surgical robot I'd trained on for years to master the chip powering the car I loved," Anthony goes on, "were innovations that represented my best hopes for our future, but it all just didn't register at the time.
"More productive than listening to Howard Stern on my hour-long commute, I decided to check out the podcast section in my Tesla and found you and your team. I'd been thinking about how to invest and discovered the chip powering my Tesla was an NVIDIA [NVDA] chip. I wanted to invest but was unsure. I became a Stock Advisor and Rule Breakers member and based on the Best Buys Now I purchased NVIDIA and Netflix and I haven't looked back.
"Since then I've purchased 50 individual stocks," [that is tremendous], in rollover IRAs and brokerage accounts, and am beating the market by 27% overall. 46% in my brokerage account. All Stock Advisor and Rule Breakers recommendations," he says, except Square. Thank you, Jason Moser." [A shout-out to JMo there]. "A sincere thank you.
"On to my question. I love The Market Cap Game Show," that we play with Matthew Argersinger once a quarter. He goes, "#IGotEtsy," so that means Anthony correctly guessed Etsy (NASDAQ:ETSY). Etsy is a company, a very fine Rule Breakers stock that Matt just continues never to be able to guess the correct market cap for. So if you #IGotEtsy, that means you outdid my friend Matt. Good job Anthony!
"I got Etsy. Thinking about stocks based on market cap is a game changer for me. You've taught me to think about the market cap and not the price of the stock. What confuses me, then, is if the market cap is such an important metric, why is P/E ratio always quoted as the gold standard for valuation? It seems to me if the price of the stock means little compared to the overall market cap, it should be some sort of market cap to earnings ratio that we all care about. Can you explain this? Can you come up with a new Foolish metric?" Signed, Anthony Corcoran. @UroOncologist. Thank you, Anthony!
Let me just pull a few things apart here. First of all, we do love market cap. That's why I made a game show around it and I love that you love it and you're learning from it. It's a great metric. Market caps, again, [are] just kind of the overall price tag of a company. What it would take to buy that company.
Now technically it's not what it would take to buy the company because some companies have debt; so when you buy that company, you're buying the debt along with it. Or some companies have a lot of cash, and so even though you're paying whatever you did for the stock, if you take out the cash, then that changes the number a little bit.
"Enterprise value" is a number that people use, often, to describe how much something's actually worth when you're factoring, let's say, the debt in addition to the price tag of the company. But, anyway, I like market cap because it's just kind of simple and I want you to know, Anthony, that basically market cap over earnings is the price-to-earnings ratio of a company. I'm not going to get too deeply into the weeds, here.
But the price per share of a company's stock -- let's say a stock's trading at $100 -- if it has earnings per share of $4 a share, then that's a price-to-earnings ratio of $25. Similarly, whatever the company's market cap is, it's going to be 25x the gross amount of earnings that that company has. So what you're describing, there, is actually how the price-to-earnings ratio works. So the market cap, as a multiple of the earnings, itself, is kind of that price-to-earnings ratio that you're talking about.
Price-to-earnings ratio breaks things down into per share. What's the price per share of the stock? If you took all the earnings of the company and divided it by the number of shares, what's the earnings-per-share of the stock? So you're actually seeing the same ratio. I'm glad that you noticed that. I'm glad you're poking your head up, looking around, and starting to learn more about these things. I do agree that price-to-earnings ratio is, on the one hand, overrated.
A lot of people are always thinking that there's some good number of price-to-earnings ratio you should pay. Like some people will say to never buy a stock that's trading at more than 25x earnings, so people have parameters in their head about what P/E ratios they're willing to pay for companies.
But in my experience, it's far better to think long term and ask yourself, "What is the market cap of this company and how big could I see it becoming?" So if a company like Etsy is somewhere around $4 billion a share today, if you're looking at the market cap, how big could that be? Well, what are some other retailers out there and how big are they?
Well, Best Buy. Maybe one day Etsy could grow up and become Best Buy. Best Buy, of course, bricks and mortar. Etsy more of an online, e-commerce company, but Best Buy, these days, is worth about $21 billion, so you could say, "Hey, if that ever happened to Etsy, the stock at $4 billion today, that would be a five-bagger from here. I could make 5x my money."
Now eBay, which is maybe a little bit better of a comparison, because that is an e-commerce company, is $26 billion today. That's its market cap. Of course Amazon.com is worth a lot more than that, but Etsy's a much smaller idea. As much as we love Etsy compared to Amazon, there's no Etsy Web Services in the cloud, for example.
So, I like market cap. You know that I like market cap. We've made a game show of it. I think it's a wonderful way for more of us to think smarter about how we can see our companies growing up or not over the course of time and give a good estimate in terms of where we could ultimately see those stock prices.
Again, it's really what venture capitalists do. They say, "How much is this small company worth today, how big could I see this becoming down the road, and what's my multiple that I could get?" That's the VC mentality and you betcha, as Rule Breaker investors that's how we think. Thank you, Anthony, for your lovely note!
By the way, I should mention that we've done this podcast every single week since July of 2015. I kind of lost track, but that's something like 173 or 174 consecutive weeks without ever taking a break. I am doing this particular podcast with a temperature of about 100 degrees Fahrenheit, so the show must go on. I'm feeling a little punchy at this point in the podcast. I'm possibly TMI'ing here by telling you that I'm sick as I do this one, but Rick is keeping his distance from me, we're having fun, and we're making sure that every week without fail we bring you Rule Breaker Investing podcast.
Mailbag Item No. 4: Now this one comes from [Nick] S. in Holland and I'm going to spell his last name. S-T-Ö-P-L-E-R. But I looked this up, and I believe that umlaut, at least in Dutch, is called a trema, not an umlaut. And I do try to pronounce every word on this podcast accurately. That means since I have people listening around the world, you're often giving me your name and I hope I'm not doing too bad a job of it.
I just decided to seek some help internally, so I dropped a note on Slack to my fellow Fools earlier and I just said, "Hey, how do you pronounce S-T-Ö-P-L-E-R in Dutch?" And my friend, Amber Knutson here at The Motley Fool said, "Well, I just googled this and here's a guy with that name. Here's a video and here's how it's pronounced."
And then all of a sudden I realized, "Wait! That's the very guy who wrote me. That video that Amber just sent me is my guy Nick Stöpler! Because in the course of this note you're going to hear Nick is a pro bike rider. He's got some fans and some of those fans do videos about him, so Nick, thank you for your question. I hope I didn't do too bad a job pronouncing your name. Here is your question."
"Hi, David. Hi, all. Greetings from a fellow Fool from Holland who's been thus far outperforming the market. Thank you for all the content you're providing via your services. I'm very happy with them and use the Stock Screener as my first filter to pick my stocks. I'm aiming to beat David in his performance in the future. As a pro bike rider, I listen to your podcasts while out training."
Nick goes on. "Like you, my strategy is buy and hold. With regards to super long term, what percentage," Nick asks, "of listed companies are still around and what does this mean for the buy-and-hold strategy? For example, companies founded in the early 1900s. Those companies along the way might have been great businesses to own, but how many of those are still around? Eventually don't disruptive technologies and industries take out a lot of this business in the super long term?"
So boiling it down, Nick's question, he says, is this. "What does this mean for one's investments? Would you not have to sell at some point? In the end, how many businesses," Nick Stöpler asks, "have a turn of life?"
And the answer is not many. I think there's a Japanese company that's been around 800 years or something. That might be the longest-running for-profit business in the world. And certainly we have, both in Europe and the U.S., companies that have been around for more than a hundred years. Or if you're beer company, some of those have been around for several hundred years, because beer is timeless. But it is certainly true, Nick, and all my fellow Fools, that many companies end up not living for as long as you or I might want them to live in our portfolios.
However, do remember why in some cases they disappear. It's not because these companies become irrelevant. They're the buggy whip makers and then unfortunately, here come cars and so we don't need buggy whips anymore. Or the people who used to make ice blocks and then refrigeration shows up and runs us all out of business. Certainly that does happen. Technology does displace other technologies and improves over the course of time, and as fellow Rule Breakers we're always on the hunt. We want to own the companies that disrupt whole industries. We very often do and we've talked about those companies almost every week on this podcast. We love those Rule Breakers.
But Nick, a lot of these companies actually just get bought out by another company. I mean, I'll give you a pretty good example from last week. Red Hat (NYSE:RHT) is a tremendous company. For those who understand what Linux is, Red Hat is the open source solution for Linux and the Linux community.
An open source business -- an amazing business -- making a few billion dollars off of something that was free; that's really hard to do in life and that's what Red Hat has been doing. They're a total value-add for the Linux community. Constantly upgrading Linux, being a caretaker of it, and trying to add more value than any other players out there in the open source software world.
So IBM came along -- you probably heard this -- and snapped them up at a premium of over 60% from one day to the next. On an otherwise very bad stock market day, Red Hat was up. The ticker symbol [RHAT]. It was on my watchlist. I had my team write it up about a month ago and now I'm really regretting that I didn't make it my new pick in Motley Fool Stock Advisor.
But, at the same time, just realize that Red Hat is now gone. You might think, "Doesn't that mean that it didn't end well?" And the answer is it ended very well. Just got bought out by another company. So a lot of companies, in fact, get bought out. Companies like Pixar and Marvel, which Disney bought out from me. Some of my best and most favorite picks in Motley Fool Stock Advisor. They don't exist anymore as independent companies, but they're part of a bigger company.
So just realize that I don't think any stock probably should be held forever. Once companies get either really large to the point that they're not innovating, or if some new technology comes along and disrupts them; yeah, we do try to sell out ahead of those things or not keep owning stocks forever.
But keep in mind. Even the ones that we buy as small acorns and eventually grow into huge oaks -- even those companies can be worth holding onto for your whole life long, because even when they get to be this lumbering, big oak -- what they usually start to do is pay dividends. They start dropping more acorns your way as a fellow shareholder.
And so, in our experience, this can be a wonderful way. You watch your Rule Breaker grow up and become a Rule Maker, and if you could hold that stock all the way through, I think you'll often be pleased. I hope that that answer makes some sense. A lot of the companies that were around in the original Dow Jones now aren't there anymore.
General Electric is no longer on the Dow Jones Industrial Average, even though it is still around today. A lot of those companies ended up being great companies, but they got acquired by somebody else or the world changed in one way, shape or form. Some companies get taken private, these days, as well. Just realize there are lots of ways for things to play out. It doesn't just mean when a stock disappears that it died or was bad.
I hope that makes sense and Nick, good luck on your pro bike career! We are definitely pulling for you on this side of the pond. You've got a lot of Fools cheering you on, and I hope I didn't do too bad a job pronouncing your name. Thank you for writing in!
Mailbag Item No. 5: This one comes from Anthony U. Thanks for writing in, Anthony. You say, "Hi, there. Thanks for a great episode on investing." That's probably our "Get Started Investing!" episode. He said, "For a background on me, I'm a 28-year-old. I grew up with immigrant parents that don't know anything about investing and weren't able to teach me anything. Here are my questions that came from that episode and there are three of them."
Your first question is, "If my use case is to buy stocks that I want to hold onto for a long time, why would I use any service besides Robinhood? Robinhood has no fees as opposed to other services like E*Trade."
Well, my answer back, Anthony, is without being intimately familiar with Robinhood or really any of the brokers. We all probably use at least one of them. I happen to use Schwab, but in general my experience is that if you're going to pay more fees than zero, you're probably going to be getting additional services.
I think at Charles Schwab there's a lot of financial planning. There's a lot of different financial instruments that they have that I can buy through them. So I think that's why I pay up a little bit more for Schwab, but for a lot of people using Robinhood these days it's a mobile app on your phone. It's a wonderful way to get this new generation of millennials invested. Yes, you're paying nothing for your commissions and I vote for that all day long, every day.
So as long as you're happy with Robinhood, I don't think you need to seek out others that offer more fees until or if you start to wonder are there more services that I might need? For example, if you have a child [maybe you already have], but you're 28 years old. Maybe that hasn't happened yet. You might all of a sudden want to open up a 529 account and I don't know how helpful this or that broker, or an online app might be to help you get squared away on those things. I think that's kind of how the world works. If you're paying fees, presumably the services are ones you value.
But we do come from an era where people were way overpaying for commissions for services that they did not value. That's when we started The Motley Fool, in the early 1990s. That's when we were really going after Wall Street in the first decade of our company because there were so many things that were wrong. So many rip-offs for investors. I'm happy to say the world has gotten a lot better for you and me, in no smart part to things like Robinhood, which is like a way to buy stocks for free these days. Again, we like that, here, at The Motley Fool.
Your second question. You said, "I started investing three months ago after a friend told me about Motley Fool Stock Advisor. I've only invested in stocks that have been recommended through Stock Advisor. I hope it works out. But why doesn't Matt pick stocks using Stock Advisor? It makes me have less faith in the product when a Fool employee doesn't use their own product. It's like a Google employee using Yahoo! Mail."
Well, to answer question No. 2, Anthony, I don't have Matt with me, here. I don't remember Matt saying this, but I think maybe what you took from Matt was that Matt doesn't work on Stock Advisor anymore. He once did work on my Stock Advisor team and certainly he was doing research and helping me make the picks or think through Best Buys Now.
But Matt has moved onto Motley Fool Supernova more recently, and so that's where he dedicates his time. And Motley Fool Supernova is a portfolio service that builds portfolios for our members who want a real-money portfolio that they can follow and match but uses Motley Fool Stock Advisor and Rule Breakers to pick stocks for those portfolios. So let me assure you Matt is a big fan of Motley Fool Stock Advisor. I'm sure he looks in, if not every day, at least several times a week. I'm pretty sure we're eating our own dog food, here, at The Motley Fool. A lot of us use Stock Advisor.
And then your final question is, "What do you think of robo-advising," Anthony writes, like Betterment? "Does Stock Advisor have a better track record? Is it a good tool to use? I currently am splitting my investing between Stock Advisor stocks and Betterment. And the nice thing about Betterment," Anthony says, "is that someone else is doing the work for me and I get to 'set it and forget it.' Whereas with my Stock Advisor stocks I'm checking multiple times a day and worrying if I should be selling or buying more." That was your final question, question No. 3.
And Anthony, it's another great question. My feelings back are we're doing something very different with Motley Fool Stock Advisor than Betterment. Betterment is not a service that I've used personally, but my understanding of it is that Betterment is there to help get people, often younger people, started investing, usually in ETFs and funds.
Unless things have changed radically, I'm pretty sure Betterment and platforms like it, and robo-advising platforms typically don't advise you buying stocks directly. In fact, most of them are just indexing. They don't have opinions on individual stocks; whereas we're radically different, here, at Rule Breaker Investing.
This podcast and the services we have at The Motley Fool; we love selecting individual stocks. We believe you'll be rewarded by following Stock Advisor because we pick this one, not that one. We don't think that all companies are equal, and especially in a world where lots of people are just kind of mailing it in with their ETFs and indexing, they're buying a little bit of every company.
And here's the bad news. Not all those companies are great companies. The good news, though, is that by selecting filters; things like Motley Fool Stock Advisor filter the world for you and help you find the great companies, even if we're wrong sometimes [it turns out something like GoPro hasn't been that great and that's been one of my dog stock picks]. And Rule Breakers, certainly you're going to be rewarded, we've found more often than not, by selecting individual stocks in a world where many other people, the vast majority, are using things like Betterment.
Now that's not to cast dispersions of Betterment. It's a very helpful service for people who, in many cases, don't want to spend any time at all thinking about their finances. They just want to have a simple platform. They can go in, "set it and forget it," as you mentioned.
But we have found in our experience -- 25 years at The Motley Fool -- that you can be vastly rewarded for, in fact, leaning in and selecting individual stocks. And I'm not just talking about the returns that you get. I think you become a much more observant person. I think you grow. Your intelligence, your awareness of new technologies and cultural changes, by really asking with Lisa Wharton, who led off this week's podcast, "What is that company? I own some of that company."
Those are the Fools -- in my experience -- the people who notice a lot more about the world because they have invested in the world. They're not just buying a little bit of everything and saying, "I don't care about this. Let me go do my job." They're saying, by contrast, "Part of life, part of the beauty and fun of this whole thing, is paying attention, and buying pieces of things that I admire. Trying to make my portfolio reflect my best vision for our future."
So for a lot of us Fools, we specifically select individual stocks because it's fun and we will be rewarded. We should be more than if we were just, as I've often said, "mailing it in." Anyway, mini rant concluded. Anthony U., thank you for writing in! Three excellent questions!
Mailbag Item No. 6: And yes, let's go overseas once again. Sam Larson, you're writing in I believe from the U.K. You're a native New Zealander, though, and you say this. "I'm a native of New Zealand living in the U.K. for 18 years. Brexit's thrown the country into turmoil and as a remain voter, I've often become caught up in what they call 'Project Fear.'
"However, listening to you and your guest speakers has had a big impact on my outlook, which is increasingly positive and keen to see the positive opportunities in this process." And these are Rule Breaker Investing podcast guests. "Speakers such as Selim Bassoul." That's the Middleby CEO. "Ed Freeman," the Conscious Capitalist. "Kevin Kelly," the author of the book, The Inevitable and the co-founder of Wired. "Steven Pinker," the Harvard academic who reminds us in his book, Enlightenment Now, that things are really getting better. "And Les McKeown."
Yup, Sam calls out Les, as well, the author of Predictable Success. "All of these have inspired me to think about the future in a more positive light and it's taught me a lot about businesses, futurism, and I guess business psychology. Love the show. Keep it up." Sam Larson.
Well, thank you Sam, for sharing your sentiment! And I think it's really important. I think it's especially contrarian, these days, to think that things are getting better and not worse. I think a lot of people think the opposite. I did see Steven Pinker. I'm a fan of his. You already mentioned him in your note. And yes, we had him on this podcast earlier this year. It was an excellent, almost hour-long conversation with Steven Pinker.
But I just saw him tweet out this week. In fact, it says October 28th, so just a few days ago he wrote, "Part of a growing realization that journalism currently has a negativity bias which not only causes depression and anxiety, and turns people off from the news, but creates an inaccurate understanding of the world, with baleful consequences such as fatalism and radicalism."
So that's a strong statement from Steven Pinker, but I think there's a lot of truth in what he says, which is why I retweeted that that day. And I think you and I, Sam, are just reminded that if we remain optimistic, and we really do with Pinker count data around us, how much better is longevity these days than one generation ago?
And even though there's still a sad amount of poverty in the world, there's a lot less than there was a generation ago, and the list goes on of amazing improvements in health and technology. I mean, electric cars these days, so much better than the cars of my youth. It's pretty remarkable how the world, in my opinion, is getting better almost every day.
But as Kevin Kelly has said, just in a little way. And that's why he says we're not living in a utopia, a perfect world. He also says we're not living in a dystopia. Kevin Kelly, on this podcast, about a year ago said this we're living in what he calls a protopia. That means it's getting a little bit better every day, but in ways that are so small and almost invisible that from one day to the next we can't really see it.
It's only when you step away and look back 30 years ago and think about the technologies you were using then, there was no such thing as a smartphone back then. I do remember my first car phone. It was pretty large to hoist that up onto my shoulder while I was driving my car. It wasn't probably very safe, but that's where mobile phones were located back then. They started, in a lot of cases, just in people's cars. Anyway, how much better have things gotten in that one little area and then a thousand others?
So yes, I do believe, and this also speaks to Anthony's question earlier about why pick stocks vs. Betterment, I truly believe you will be lavishly rewarded for your patience and your optimism if you just maintain both.
Mailbag Item No. 7: And the last one this week. Mailbag Item No. 7. This one comes from Ben Adams. Ben writes, "Hi, David. Given the recent market pullback and resultant impact on my and undoubtedly every other Rule Breaker's portfolio..." I'm going to pause the text, there, for a sec. Absolutely, Ben. My portfolio has been pretty much whacked. I think I'm down about 15-20% just in the last month or so. That's a pretty bad month. And so, I'm glad you wrote, because I wanted to speak to this at least briefly on this particular episode.
Anyway, you continue. "I thought I would share my story of how I've learnt to embrace market volatility and control my emotion. I graduated university in 2006. That's college for you Americans." I now imagine that I should have been faking my British accent because Ben is very likely from the U.K., but I don't know. Maybe he's Australian, as well. Anyway, Ben, I'm going to go with U.K., but I'm going to stick with my American accent as I read.
"And diligently," you wrote, "began saving in an ISA cash account," like a Roth IRA. Yup, pretty sure this is Great Britain. "I'm a pretty disciplined guy. Automated this right away. Shopping around for the best rates, I'm content watching my modest savings trickle upward." Again, that was as of 2006. That's how Ben got started.
Now fast forward to 2009. He writes, "Financial crisis. I lose my job. Thankfully, I had followed my dad's advice and ensured I had an emergency savings fund. Thanks, Dad! However, around this time I realized that all the news seems to focus on the stock market and I begin to take an interest in this 'financial apocalypse' happening before my eyes.
"Fast forward, now, to summer of 2012. By now I've watched the market grow for a couple of years. I've continued to save and I'm ready to make my first investment. I'm a digital designer, and 3D printing comes with the territory. I see its potential. I buy 3D Systems.
"The very next day it drops by 6%. I'm the worst investor in the world. I hold, and by the end of the year, I can't believe my luck. I'm the best investor in the world." Yup, 3D Systems which has been, overall, an underperformer for me as a Stock Advisor pick [and] a very volatile one, but at one point it was a monster winner. It certainly had a great 2012, so well done, sir!
"Over time," Ben goes on, "I begin to diversify, adding the likes of GoPro. Some graphene stock I'd read about online. It seemed like a good idea at the time," he writes. "I'd always plotted the progress of my savings in a spreadsheet, which until now had been a pretty linear, if unexciting climb upwards. I watched my portfolio daily and berate and congratulate myself with every twist and turn of Mr. Market." Again, that's Ben in 2012. Now 2014.
"I get into Rule Breakers. This, of course, dramatically improves my stock picking, but just as importantly, thanks to the wisdom of you and your team, I begin to realize the importance of controlling my emotions, and I realize that when you have a long-term mindset, the daily movements really don't matter.
"So, here's what I decided to do," Ben says, "and still do to this day. I make a rule with myself. Unless actively buying more stocks, I'm only allowed to check my portfolio balance once a week before the market opens on a Monday morning. This figure gets recorded in my trusty spreadsheet. This data is converted into a line graph showing my progress against time, but here's the kicker," Ben says. "The only figures informing the line graph are the mid-year and end of year, so just two figures a year.
"And guess what? My line graph is pleasingly stable, so whenever the market bounces dramatically [either up or down], I take a look at this chart and remind myself it doesn't really matter. I can look back at weekly figures going back 12 years if I want to see previous volatility that I've survived, or I can turn off the financial news, look at my line graph, and just smile. Oh, and guess what? I still hold 3D Systems and GoPro," and I'm glad you're able to smile because those have been two of my poorer stock picks, but then thank you for sharing. He goes on to say simply, "Many thanks to you and your team. I hope this thought may be of use to my fellow Rule Breakers. Fool on!" Ben Adams.
Well, Ben, I can't think of a better note to close on, because it's been a very volatile week; really a very volatile month for the stock market, and yet now I realize you haven't even noticed. I mean, you're just checking in early Monday mornings, seeing where your portfolio is. That's it for the week. And then only twice a year do you type in your spreadsheet and plot a line graph of how you're doing. And I think that that is a very healthy approach to the market.
As I've often said in the past, I love to follow the markets just like I follow sports teams. Teams that I enjoy. Sports from one day to the next. I love following statistics, and the box scores in the news. It's the same for me with the stock market, but just like with sports, I'm not changing my favorite team based on what just happened in the last game, and if we have a bad season, like a bad bear market, I'm going to be staying with that team all the way through, and I've been richly rewarded for doing so.
And Ben, now I can see I'm not the only one who gets it. I never thought I was but it's a delight to see you and your journey that you're sharing with us now 12 years later from where you've been, and I call you, sir, a Fool. I dub the Fool from across the pond. Thank you, Ben Adams! It's a delight to be able to call you a fellow Rule Breaker.
That's it for the month of October. Thank you very much for joining us all October on Rule Breaker Investing. As I mentioned, next week it's going to be "Get Started Investing!" [Part 2/2]. I'm going to be bringing my talented team back. We're going to be adding a Canadian friend of ours and we're going to nail as many of your great questions about getting started investing [as soon as] possible. And you know what? It's a great time to get started investing. 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.