In this episode of Rule Breaker Investing, Motley Fool co-founder David Gardner answers questions about investing and shares some inspirational stories from listeners. Discover why dividends and profits aren't tied to each other. Learn about dividend yields. David fields questions on investing in expensive stocks and much more.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on April 28, 2020.
David Gardner: April is nearly over. A lovely month, many years, for those of us in the Northern hemisphere. An unforgettable month, this particular year. In the midst of a global pandemic, the stock market rarely has better months. The S&P 500 up 12% for April as I speak. And, of course, many of our Rule Breakers stocks are up way more than that. 5 Stocks for the Coronavirus, anyone? I picked those earlier this month and wow! We've never seen a Five-Stock Sampler zing like that one has zinged or zung. And so, we're left to think back on April, what to make of it?
That seems as appropriate a time as any to have a mailbag episode. Your questions, my best answers, only on this week's Rule Breaker Investing.
Welcome back on Rule Breaker Investing. This is the fifth Wednesday of April, so it's been a long month and a long month for this podcast. We usually don't have five weeks of Rule Breaker Investing in a given month, but we do in April 2020. We started this month with James Clear; boy! That seems like a long time ago, and yet, it's very still fresh on my mind, I hope you enjoyed my interview with the author of the wonderful book Atomic Habits.
I'll say for my own part, I started to jog the day after I talked to James. I was starting a new habit of my own, I've managed to keep that up with the old Couch to 5K [C25K] app throughout the month of April. So, trying to get in a little bit better shape here before I turn 54 next month. So, that was a good new habit for me. But yeah, James Clear really speaking to us about the power of our habits, the good ones and the bad ones, and trying to get more of the former and less of the latter. And techniques in order to do that. And James, it was great to be with you and I look forward to having you on sometime in the future.
And the week following Atomic Habits, it was April 8th, 5 Stocks for the Coronavirus. I mentioned those at the top. The stock market is up 4.8% since I picked those five stocks on April 8th. I'm taping this show 20 days later, that's right, we record on Tuesday afternoons. So, in 20 days, those 5 Stocks for the Coronavirus are up 25.6% against the market's 4.8%. If you want to round that, we're up 21% if you want to round those, less than three weeks later, as I speak to you here this week on Rule Breaker Investing. So, it has been a remarkable performance, all five of those stocks beating the market.
The worst of them, Peloton, up 10%. The best of them, Roku, up 37%. But all five of them up double-digits, pounding the market. It wasn't easy to be buying stocks on April 8th of 2020, I hope some of you were, I know some of you do. In fact, we'll be talking a little bit about that later in this mailbag.
What a wonderful discipline it is to have a regular repeating approach to investing, where you mechanically dollar-cost average your salary or lump sums into the market in good times and in bad. And looking backwards, you'll notice that it probably didn't feel great, some of the best entry points you'll ever get as an investor, those times didn't feel great, and April 2020 would have been one of them. So, that first week or so of April, nobody liked stocks very much, it didn't feel great for me to have to pick five at the time, but boy! Just a few weeks later, am I happy to see their performance.
Now, I'm the first to say, we're not going to over-celebrate three weeks of performance, we'll see where the market is in three months or, more important, three years, that's how long we track these samplers. So, I'll look forward to seeing how 5 Stocks for the Coronavirus looks once Coronavirus is, mercifully, done.
But as I've sometimes said in the past, short-term performance does count in the sense that if we're talking about baseball, which I sure hope does come back in 2020, I don't know if it is, but there's no substitute if you're playing a nine-inning game for getting something like a 7:1 lead after one or two innings. So, usually a good indicator of winning later is winning early, but we will see.
And then, over the last two weeks, two weeks ago, it was Dividend Investing taking over the podcast with Buck Hartzell and Robert Brokamp. And then, last week we reviewed three past Five-Stock Samplers. After all, if you're going to pick them, you should be reviewing them. I don't just mean on our podcast, I mean for you, yourself. And frankly, for all those pundits out there on television or in financial newsletters, I think, everybody should be reviewing performance. That should be paramount for all of us at the end of the day. I often subscribe to this idea, it is about results. And so, I was pleased to present those results of the past three years of April stock samplers on last week's podcast.
Well, that was then and this is now. And as I got together my eight points for this week's podcast, I started noticing a theme running a little bit through them, which is reminding me of the mailbag I did in January of 2019. Now, if you're a regular listener, you know we do a mailbag every month and they might start to run together in your mind, they sometimes do for me, but I do remember, in particular, the January 2019 mailbag, because investors will remember the fourth quarter of 2018, and oh, my golly! What a bad quarter that was for stocks. I remember my portfolio was down 20% or so in just one quarter, which feels a lot worse than how my portfolio has done in the last quarter or so, ironically.
And so, as we started January 2019, I said, it's time for a little chicken soup on this podcast. Do you remember those chicken soup books? Chicken soup for the soul and stories told in a long-running book series, kind of, like the dummies books, but they were the chicken soup books, and they were just inspirational stories for different types of people or different occasions and so, I believe my talented producer, Rick Engdahl, called the January mailbag Chicken Soup for a Fool and that's, kind of, how this one feels for me in April 2020.
I think we all benefit from encouragement in good times and in bad, but especially in bad. And so, a number of the points that I've gotten and that I get to share with you this week are going to be from people telling inspirational stories. And it's my pleasure to share your stories out with our increasingly large Motley Fool listenership.
Well, most of our mailbags over the last couple of years, I'd like to start with some hot takes from Twitter. I'm going to do that to start this one, but first let me just mention upfront that this is also a month where I like to go back and reflect on how this podcast is doing. So, if you haven't already, I hope you'll subscribe to Rule Breaker Investing on iTunes and Spotify or Google Play, you can follow us on Twitter at @RBIPodcast. You can follow me on Twitter, if you like, @DavidGFool, but finally, I hope you'll give us a review. Throw me some stars.
Looking back on this month, what jumped out to you for good or for bad? I'd like to hear your constructive criticism just like I like to hear your praise. Let us know how we're doing, I read every comment. So, leave a review for Rule Breaker Investing on your favorite podcast distributor site of choice; iTunes is the one I look at.
Alright. So, some hot takes from Twitter, this one from @levi_wardell. Levi, you say, "I thoroughly enjoyed the dividend investing podcast. My question about dividends, why don't companies tie their dividend to a certain portion of profits? If profits are down, so is the dividend payment; if profits vanish, so does the dividend. Thanks."
Well, thank you for that, Levi. And the short answer is that companies' results vary too much from one year to the next for them to make a certain portion of their profits that year in dividends. You know, an important part of dividends and Dividend Aristocrats, we talked about that earlier this month, I'll be talking about them a little later this show, an important element is that consistency, people who want dividend payments, kind of, rely on them being consistent and maybe slightly increasing from one year to the next. So, if companies were to make a certain portion of their profits, which fly up and down from one year to the next, and 2020 is going to be a great example of that. If companies tied their dividends to profits, they would lose that consistency and a lot of investors.
Thank you for that, Levi. Next one up, this one comes from @New49. "So proud that my 12-year-old son woke up this morning explaining he reread The Motley Fool Investment Guide for Teens and tabbed our pages that he wanted to discuss. Changing family history!"
Well, that one made me really happy. I know Rick and our whole team loved reading that. Thank you very much @New49. To think that you're changing your family history by getting your kids to think at earlier ages about the importance of investing and finding great companies, boy! That makes me really glad we started The Motley Fool 27 years ago. And since I'm about to turn 54 next month, when I deduct 27, I still only get to 27. So, I'm delighted to know @New49 that you are working with a 12-year-old. Congratulations to you both.
The next one comes from @Christian_Belko. "@RBIPodcast was happy to donate to the effort for The Motley Fool today. Was able to use some money from the proceeds of e-meringue to help cover the cost. 😉 Seriously though, great job and I enjoy being a part of a worthwhile cause! #FoolOn."
Well, thank you very much, Christian. For those who may not know, The Motley Fool, instead of doing an April Fool's joke, which we've done every year for the past 26 years as a company on our website. And many of you will remember stories back in the day, e-meringue, one of our better April Fools jokes of all time. Anyway, this year we thought that wasn't the most appropriate thing we could do, so instead our company decided, my brother Tom and I decided on behalf of our company, to donate $1 million from The Motley Fool's balance sheet. Real cash straight out to New York City. And a number of you listened, watched and joined in. Christian Belko, you're obviously one of them.
Yes, tens of thousands of dollars also came in from Motley Fool listeners and members to help supplement our investment in New York, our donation. Christian, thank you so much for joining in with us.
And how about just one more, this one from @TheNoCubeZone. This might have been my favorite tweet that went out supporting this podcast or mentioning us in the last month. In March, @TheNoCubeZone said, "We are shouting out some of our favorite content creators that we draw inspiration from. Follow this thread for the list, don't forget to check out episode 3 on The New [No] (sic) Cube Zone!" Now, I'm happy to promote The No Cube Zone, which I take to be a podcast about board games, supporting people who are content creators and designers and part of the board game scene.
And I was delighted that on day 27, as The No Cube Zone shouted out some of its favorite content creators, they found our podcast. This is what they wrote, "Day 27: going a bit off the board game content creators, but stay with me here. @TheMotleyFool has a series of podcasts I found because Rule Breaker Investing podcast was interviewing Rob Daviau." Now, Rob Daviau is a game designer of great repute. Rob was on this podcast about three or four years ago. I love that The No Cube Zone listened in and found us that way. They go on with this tweet. "I started listening to the Rule Breaker Investing podcast because of it and really liked it. I now listen to Motley Fool Answers and @MotleyFoolMoney along with the Rule Breaker Investing podcast I enjoy, because they make news and stocks fun but are also very informative. If you haven't checked them out, I would recommend any of these!"
So, boy! @TheNoCubeZone, did that make me happy to think there is that kind of crossover between the board gaming world and the world of investing and that the Rule Breaker podcast is bringing those together. I don't know that that would make sense for any other podcast, so I kind of feel like this is a hapax legomenon moment for this podcast. Anyway, great to hear that shout-out and thank you so much.
Alright. Well, without further ado, eight items this month. Rule Breaker Mailbag item No. 1, this one comes from Bill Davis. "David, thank you for using my question in the podcast and then going on to devote a full episode to dividend investing. I found it very interesting, I hope that other listeners did also. As you noted in the mailbag episode, when you read my January 24th question."
And I should mention that, yes, just a few months ago, Bill was on the January mailbag where he asked for dividend investing, we turned it into a poll and that ended up bringing Buck Hartzell and Robert Brokamp on the show to talk dividends, two weeks ago. So, here we have the progenitor -- I'll return to Bill's note in a sec -- but this is just a reminder that, yeah, you really do drive the content for the show, especially the mailbag. So, when I hear from you that you'd like us to do more of this or less of that, it truly influences what we do from one week or month to the next. So, Bill, great job getting us talking dividends.
You go on to say, well, you said, "Dividend investing is outside the usual Rule Breaker territory ... " Bill says, " ... I knew that but submitted the question nevertheless, mainly because the Rule Breaker Investing podcast sometimes seems like a good space to address the storytelling and narrative aspects of investing, gives us a chance to see how the narrative of a company's life gives expression to the company's philosophy or strategy and their problem solving." I really like this thinking, Bill. "Obviously a strong company that takes a turn and falls out of Dividend Aristocrat status, they've had a rather dramatic story that can give us broader insights into how other, even non-dividend companies craft their own business approach. So, the question was intended to drive in that direction." Bill writes, "I'm sorry, if it was less than clear, but I'm grateful for the episode we got out of it. Thank you very much. Sending big love and gratitude to everyone at The Fool. Your mission to make the world smarter, happier and richer is certainly touching and helping me in my life. Then again, you're also helping to educate, amuse and enrich me. I hope you will all continue to be safe and healthy. Sincerely yours, Bill Davis."
Well, Bill, thank you. Thank you, of course, for those kind words. And, yes, you know The Motley Fool's purpose, you articulated it very well, not just with your words at the end, but indeed with your action, which was to lean-in, listen, give us some feedback, give us a topic and something that a lot of people enjoy. In fact, there are a few more mailbag items about dividends, so this clearly touched a nerve in a good way, and Bill, that's because of you. So, thank you very much for that effort.
I also appreciate your point about how we can learn from the stories of these companies and it helps us learn more about investing overall. I remember, one of the points that you wanted us to tease out, and I think Buck did a good job with this, you wanted us to talk about those fallen Aristocrats. So, Buck Hartzell was talking some about General Electric, and in an earlier era, General Motors, the generals, companies that have fallen, because in a lot of ways they just fail to innovate. They got big and slow. They were lumbering around as businesses and they weren't able to move with the changing times, and that ultimately undermined their dividends which they had to cut or get rid of.
So, these are good examples and reminders of us, I think anyway for me as a Rule Breaker, the power of innovation and continuing to innovate. That research and development budget, R&D as a percent of revenues, these are all things that really do matter. And even though it feels like innovation would be removed or divorced from dividends, in fact, it's what gives rise to those companies' abilities to pay their dividends. So, Bill, thank you again for inspiring that episode earlier this month, Dividends on Rule Breaker Investing.
Alright. Rule Breaker Mailbag item No. 2, yeah, let's stick with dividends. This one's from Davor Baros, it might be Barrosh depending on which nationality Davor you sport, but anyway, thank you for this. Now, you said, "Hello, David, there's definitely some truth in the saying, "the best way to learn about a topic is to teach it to someone else." With this downturn in the market, I've been telling my brother to get some dividend yielding stocks at a discount. I was telling him that by buying now, he will be locking a higher dividend percent yield forever. However, over time I became unsure of my argument. What is the proper Foolish way of thinking? And if the temporary yield percent increase should be considered when deciding to buy?"
Then Davor gives an example, he said, "If you have a stock typically costing, let's say, $100 a share and it's giving you $2.50 a share or 2.5% dividend yield, during this crash, let's say, the stock goes down to a $50 stock price, so that same yield $2.50 as a percentage of $50," this is basic math, some of us can do this in our heads, some of us you need me to give you the answer, we're here to serve all kinds here. "That same yield is now 5%. So, presuming the company keeps that same payout, do I consider that 5% dividend return forever, even if the stock goes up?" So, are you locking in that dividend yield forever, in so many words, Davor is asking, "Help me stay Foolish in my thinking."
Well, sure, I'm happy to give you a couple of pointers here on dividends, Davor. First of all, the dividend yield is ever fluctuating. So, from one day to the next, from one month to the next, if you have a same dividend payout, in your example $2.50 a share, well, as that stock moves up and down from $100 to $50 back to $75, the dividend yield is always changing. When you bought the stock, that day, that moment, you did, kind of, lock-in, assuming that the dividend is secure, an interest rate, a dividend rate of return, a yield on your investment. But certainly, if the stock goes back from $50 to $100 and your brother buys more shares there, he's only getting a 2.5% yield at that moment.
Of course, prices aren't the only thing that change, dividends themselves change. And we talked about Dividend Aristocrats, companies that have distinguished themselves by paying bigger dividends from one year to the next over long periods of time. So, that's going to change your yield as well. So, no, I wouldn't say you're ever locking in a permanent yield or interest rate of return on owning that stock forever. When you buy a stock it's ever changing. It is certainly true at the moment that you bought it over the year ahead from that moment, you'll be getting something like that rate of return as a dividend, but things are going to keep changing.
And last thing I'll say here is, a lot of people invest in these companies because they like to take the dividend they're paid and make it a reinvestment right back into the stock itself. So, rather than use the income, if you don't need the income, a lot of people like to DRIP, as they say, a Dividend Reinvestment Plan; that's a pretty bad acronym, DRIP for Dividend Reinvestment Plans. But a lot of people who love their dividends just like to buy more shares of that company and keep investing in it over time. So, that's a great way to make your yield really count and your money grow over time too.
Anyway, I hope that's fairly straightforward, Davor, and congratulations on getting your brother thinking about these things and I hope I've liberated you to realize it's not about a permanent locked-in rate of return forever.
Alright. Rule Breaker Mailbag item No. 3. Now, this is from somebody whose name I recognize, because I have seen [...] on Investor Island, our mobile game, in fact, he is one of the most accomplished and best players of Investor Island and helped us test it early on. So, your #AtLastPlaceLenny, a real misnomer. Len, by no means are you anywhere near last place, humble and perhaps Foolish on your account to refer to yourself that way. But let me share your note, I really love this.
So, "Hello, David, my name is Len. I've been a Rule Breaker for about a year. I'm a listener of all The Motley Fool podcasts, I really enjoy them. I've learned so much, I read your book, listened to you for several years before I finally moved a large section of my RRSP from mutual funds to a direct investing account."
Now, for those who would not recognize that acronym, I can't even break it down for you without googling it, which I'm not going to do, because I want to keep moving this week. But I can tell you that [Brans] Len is a Canadian, because the Canadians have their RRSPs.
Anyway, going from mutual funds to a direct investing account. For Len that was about two years ago. He says, "I initially focused on Canadian dividend funds -- speaking of dividends -- I was 42 years old and wanted to start to build a portfolio that would be income for me when I retire. It made sense to me to own companies that are paying me. I've been meaning to write to you for a while now just to share my story even if it wasn't read on air. I think you emit such a welcoming aura that people just want to connect, so that's what I'm doing."
Len goes on to ask a question about tracking dividends on his spreadsheet, not that interesting for a mailbag, but, Len, I want you to know, I'm going to have somebody follow-up directly with you by email to answer that question. I just wanted to share your story.
So, you go on to say, "I never felt like I was a Rule Breaker, I always viewed myself as a dividend guy and pretty conservative. However, your positive outlook with your view on business and the world as a whole just resonates with me. The dividends I own mostly are all in the red, partly because of the new environment we're in ... " Well, I certainly understand that, " ... but mostly because I pick stocks that had high yields. Well, the yields were a little too high, those stocks dropped when they cut their dividends." Len says, "I'm left holding the bag, but I'm practicing patience and hoping they come back."
And I'll just insert that we can imagine many of the Canadian companies are going to be natural resources companies, oil, mining, these kinds of companies dominate a lot of the Canadian economy, especially the dividend payers, and yeah, a lot of those companies are hurting right now and I'm sorry to hear that.
Len goes on, "I also used a couple of hot tips from a friend of a friend, I've lost in those cases as well. So, a year ago I thought enough was enough. I decided I would purchase your Rule Breakers services. Part of me felt you deserved to get something from me as I was using all your free tools to help me learn as much as I could about the markets. Most of my winners are stock picks you have made. When the COVID-19 was just bubbling out in early February, I went back to work in the oil and gas industry and I am in the Bay of Bengal off the coast of India." And that's where Len is presently writing from. He goes on, "I am into week 11 as I write this, I normally only do 4- to 6-week trips. The end is not in sight for me as India is in total lockdown. International travel is very limited, I'm nowhere near an International Airport. So, what I've been doing to keep me sane is buying a small amount of stocks each Monday. I don't care if the price is going up or coming down, I have a list of your Best Buys Now, I pick my favorite on that Monday and I deploy a small amount of my cash to that stock. It's truly the calmest I have ever been when buying stocks."
I just love hearing that, Len.
"I normally would be scared and waiting for the right price. This approach has taken all the anxiety out of the equation. Unfortunately, my broker does charge me $10 a trade, so my cost basis on such a small amount, generally $500, is 2%. I plan to call him when I get home, try to get that down lower. Now, Canada hasn't caught on to no fee trading. Anyway, in conclusion ... " Len writes " ... I also plan to start up accounts for my 14- and 9-year-old daughters, hoping to start wealth for them at an early age, maybe spark an interest in them that I wish I had many years ago."
"I've always been a spreadsheet enthusiast, I love tracking and estimating my wealth when I retire. I've always said, if I were to have dinner with three celebrities, I would pick Ellen DeGeneres, Dwayne Johnson and you. [laughs] I consider you a celebrity even if you do not." Well, I do not. I certainly can't class myself with Ellen DeGeneres or Dwayne Johnson, I think, in any way, shape or form, except perhaps, in your mind, Len, and I'm very flattered by that. "I like positive people," he says. "I think that could make for some very fun conversation. Boy! That would be a great supper. Thank you for helping me begin to achieve what I hope to be a very rewarding portfolio, and for being a positive influence and all your products and advice. Take care! Len."
Who notes in his postscript, he's just outside the top ten on Investor Island, wondering if he's played any of the analysts that he's gotten to meet through Motley Fool Live in recent weeks. He says, "You should get your staff to post somewhere on your website what handle they're using. Love the game."
Well, thank you very much for that, Len. You know, this was a delightful Rule Breaker Mailbag item to share. In particular, Len, I think about how far removed you are from your family and your normal life, so I wish you the very best. I think about your family and your daughters who'd probably love to have their dad home, but I also think about the effort you're going to make when you do get home to start getting them more engaged on this topic and to think about your own engagement over the last year, it's really inspiring. And to think that you're just mechanically making those purchases over time into some of the best companies of our time. And I know you've made some pretty good investments over the last few weeks, and I think that's going to become very evident, if not already, in the coming years. So, Lenny [...] I wish you the very best, and for me you'll never be Last Place Lenny.
Alright. Rule Breaker Mailbag item No. 4. Well, thank you very much, Caroline, for this wonderful note, how could I not share this one? This is admittedly pretty frivolous relative to the last few. But you start with "Board games until 4:00 AM, you're my hero 😊. I'm often up at that hour too, but everyone else is sound asleep." Caroline writes. "If you don't mind my asking, who do you get to stay up until 4:00 AM with you to
"Listening to you on Motley Fool Live TV right now. Would have called in, and only have audio so can't ask this question in the Q&A. Thanks, Caroline." And she helps me by saying, "You pronounce it the way Neil Diamond does." So. Yeah, I know I nailed that sweet Caroline. "On lockdown ... " she writes, " ... in NYC."
Well, this is a pretty quick answer for me, Caroline. I have over the course of my life cultivated friends who love two things. One, board games; and two, staying up at night. So, yes, I have a small cadre of friends that will hang out with me, not often till 4:00 AM. The reason you're writing in about that is, because I think I just mentioned it aloud on this podcast a few weeks ago that I was a little tired that particular week, because I had stayed up till, presumably 4:00 AM, playing board games.
The reason I can't even remember for sure is because that's not unusual for me, that might happen a couple of times a month, especially it seems like during these last eight weeks, I've played a lot of board games now with friends and family. My family members tend to go to sleep around midnight. It takes a special friend or two to keep duking it out with me well past midnight. So, yes, not typical for me, although, Caroline, I realize it is very idiosyncratic among most of the adult population. Happy to number you in my company.
I want to mention for you, in passing, one of my favorite words in the English language, you know, I keep a list of my 20 or 25 favorite words, this is on it, part of the reason I love this word is A. it's very obscure and B. it's very personal, maybe you'll like it as well, lucubration or lucubrate, verb, which means; my recollection, I'm not looking at dictionary right now, but it means to work late at night by candlelight, to lucubrate. So, if you think about Lucs, light, the Latin root, that's where lucubrate comes from. So, yeah, what a great word, to lucubrate, to work late at night by candlelight.
In my case, a lot of that work is -- I like to say -- "all work and no play would make David a dull boy." So, lucubration. My favorite form of it, playing board games until about 4:00 AM. Thanks for the note, Caroline.
I should mention, she's referencing something that has been a remarkable development on our website over the past month. My brother Tom, our CEO, challenged us to do 24 hours of continuous programming using Zoom Video as a platform on our website, for our members. And we did that several weeks ago, we went from 9:00 AM all the way through to 9:00 AM the next day using some of our friends and resources at Motley Fool Germany, Motley Fool Japan. But mostly, a lot of our analysts, people that you may have gotten to know as writers or analysts over the years. If you're a member, I hope you've already found LiveChat.Fool.com. But boy! Have I enjoyed both being on it and appearing on a semi-regular basis, but also getting to see people like Morgan Housel at night or my brother Tom interviewing CEOs. So, this has been a wonderful development for us, April 2020, we would not have started this were it not for COVID-19, and yet, once COVID-19 is a distant memory, I have a feeling Motley Fool Live might still be going.
It's been a great development for members and a great reason to join as a member, because you basically now have a new TV cable channel, it's just on our website and it's for you. We typically do programming, weekdays from 9:00 AM through to 9:00 PM. You can listen to it in the background, it's very interactive, it's often question-driven. So, just like I'm answering your questions on this mailbag, one hour a month through this podcast. Well, we're doing that every day it seems for members at LiveChat.Fool.com.
Alright. Rule Breaker Mailbag item No. 5. This one from Andy Spiewak. Andy writes, "Greetings from a fellow former resident of Southborough." And Andy I believe you're referring to Southborough, Massachusetts. That is where I went to prep school, it was a boarding school. So, I spent three years of my life as a teenager, sleeping in or around Southborough, Massachusetts. My alma mater is St. Mark's School in Southborough, Massachusetts. Andy, perhaps you are a fellow grad or at least a former Southborough resident. So, little shout-out back in the hood to Southborough, Mass.
Andy goes on, "I hope you're doing well in these tough times." Well, thank you, Andy. I'm happy to say I and my immediate family members and friends are, for the most part, I have heard of a few friends who've gotten COVID-19, in every case have recovered from it. So, very lucky to be able to say that. I hope that's true of you and yours as well.
You go on, "My question is regarding your recommended strategy for investing into expensive stocks which cost more than my biweekly contribution into my brokerage account. For example ... " Andy says, " ... if I'm putting $200 a paycheck into my brokerage, but would like to invest in something like Amazon or Google [Alphabet] of course, Amazon trades over $2,000 a share. So, if you're putting aside $200 every paycheck, you have to wait 10 paychecks or so before you could buy a share." Andy goes on, "It would take months to be able to save up enough to get a share, and during this time-period I wouldn't be invested every two weeks as you typically recommend. So, would you buy cheaper stocks and sell them once you have enough for one share of the more expensive stock or would you leave the cash uninvested? I know this is becoming much less of an issue with fractional shares becoming more prevalent, but wanted to see if you had some ideas and the best way to handle this situation?"
Andy, great question. Yes, as you know, increasingly brokerages are offering fractional shares. So, if you don't already have a broker who does this, and my broker, Schwab, doesn't do this yet but they've committed to doing so, I think, in 2020. Increasingly, this is the thing all of us should be able to avail ourselves of. And if you really are intent on this, you could certainly move your money to a broker that does have this feature today. There's nothing set in stone that says you can't change where your account resides. But with all that said, if you like your broker and you just can't buy fractional shares right now, I don't think there's any reason you have to buy Amazon or any of the companies that have big share prices. There are lots of great companies, stocks that I regularly recommend in Motley Fool Rule Breakers and Motley Fool Stock Advisor that are $200 a share or less. So, I'm probably a bigger fan of regular consistent investing and just getting into great stocks, than I am of waiting 10 paychecks just to buy one share of a stock like Amazon, if in fact you cannot use fractional share purchases through your broker.
That doesn't mean, by the way, that I favor small-price stocks, you know that I don't like penny stocks at all. And certainly, a lot of the stocks that I recommend typically are trading somewhere between $20 and let's say $100 a share, but that gives any member of Motley Fool Rule Breakers or Motley Fool Stock Advisor dozens of different great companies to become a part-owner of, if you find that the amount that you're saving per paycheck can't buy you a share of a bigger company.
So, again, I think there are lots of paths, lots of ways to approach investing. Typically, I love the fractional share buy. So, you can buy any stock, Amazon, sure, Alphabet, or a stock like Zynga, which is a recent Motley Fool Stock Advisor purchase that's a much cheaper price per share. In the end, it's not about the price per share of stocks, I know you know this Andy, but I want to make sure all of our listeners do. I try to pretend, with Warren Buffett, that every stock is priced at $100 per share, just do that in your mind. Okay, now which one do you want to buy? So, it becomes about the company, not about the share price.
Alright, Rule Breaker Mailbag item No. 6. This one comes from PT Lathrop or Lathrope. PT, you write. "Hi, David, I applied for a position with The Fool. I'm deeply honored to say I was considered; I did not get the position YET, but I have been invited to join the next group of freelancers in the onboarding and orientation. I was told in the interview that, both, you and Tom read my cover letter. It's from the heart, and if you'd like to read it during this month's mailbag, I think it can give a spark to all who are in or out of work. As always, PT."
Well, PT, you sent a couple of good notes in and a question or two that I'm not going to speak to this week, but I did want to share your cover letter, because I thought it was great. And sure enough, my brother Tom and I did, as our team let you know, read it and we enjoyed it. And so, now let me share it on Rule Breaker Investing.
PT wrote in this cover letter: "Why do we invest? For our children and grandchildren, because we love and celebrate ownership, to manifest our best vision of the future? Yes, and a hundred other reasons besides. How do we invest? How do we invest better? We build and foster a community, a culture and brand, a brand that is a community, a community that is a brand. This community -- he's referring to The Motley Fool community -- always together, always motley, strives to educate, amuze and enrich the world around it and aim higher. It makes the world smarter, happier and richer, its power is in its culture and approach, purpose-driven, it is unconfined by tradition, norms and expectations. Make a mobile gaming app, cast pods, caps newsletters, MFAM Fool you and Fool me, anything to help our purpose be."
Well, that first paragraph is just riffing on a bunch of the topics and concepts that's like, the greatest hits, looking back at Rule Breaker Investing, this podcast, over the last five years and a lot of the things that we talk about. Purpose-driven companies, the power of culture, certainly, motley and what's your motley and making the world smarter, happier and richer. Really appreciate all of those, PT.
And I'm skipping down to the meat of this. Although, you had some more great catch phrases in there, like, "we invest our dollars to see our best vision of the future," but really now we get to who you are. "For the past decade ... " you write, " ... I've given my time to the National Park Service, a purpose-driven organization tasked with protecting whales, sheep, dinosaur bones and battlefields for the enjoyment of future generations. Time is a funny thing .... " PT writes, " ... you can give it, but you can never receive it. Even when others give you their time, you still end up with less. I'm proud of the work I do and do not need a new position, I think it's time for me to consider diversifying my time portfolio. That is, I still have plenty of time capital to allocate and I have some causes, some purposes on my watchlist. I'm ready to back up the truck and put on the clothes of The Motley Fool."
Your final paragraph, wonderful, it reads, "And in no way would I be turning my back on my current mission, a world that is smarter, happier and richer is likely a world that is also more supportive and more caring to our public lands and to our fellow species. I'm applying specifically for an editorial position. I write for work and for fun. Modern park rangers spend little time rescuing bears." I guess that makes sense, but, oh, my gosh, the scales are now falling from my eyes, PT, [laughs] it does make sense though. "Modern park rangers spend little time rescuing bears; we spend a lot of time cultivating brand and inviting others into our mission through various media. I've attached two writing samples, one about MGM Resorts, as requested, another published in Ranger Magazine about Isle Royale National Park. My background is a peculiar one to join the financial services industry, but I know you'll find me to be contagiously creative, energetic, purpose-driven, team-oriented, willing to fail, willing to fix, eager to help, always learning. Fool on!" And PT put a little jester cap icon on that cover letter as well.
Well, PT, it was my pleasure to share that. Definitely kind of a chicken soup moment for this week's podcast and this month. You know, the cover letter has often been an important thing that we look at to distinguish candidates who apply for The Motley Fool. We have a lot of open positions today, Careers.Fool.com is a way to see what are the list of positions. PT has certainly done that; I'm sharing this out with everybody who's listening right now. And, yeah, I'm often told by our people team that some of our best applicants are our podcast listeners. Why? Because you really know us pretty well, you know our brand and our purpose, you often have a history with The Motley Fool and that's going to put you in a much better position than somebody who's just clicked us randomly on LinkedIn and forwarded their resume.
So, while this sounds like didn't lead directly to that first position, PT, it sounds like you're being onboarded as a contract writer and that makes me very happy.
But most of all, I just wanted to share out the motley array of different backgrounds. Yeah, we're very open to park rangers writing for us at The Motley Fool. That's true of so many of us. Of course, my brother Tom and I started the company as English majors. There's no presumption you need to have an MBA or have been a finance major. Really, there's just a hope that you have a heart for investing and a heart for the world, and that you have a brain, that you have a lot of intellectual curiosity and that you can truly help make our membership smarter, happier and richer, whether we're trying to do that every week through this podcast or through so many articles written by so many contractors worldwide every day for The Fool. PT, it sounds like you'll shortly be joining our ranks. Thanks for sharing.
Alright. Well, two more this week, and Rule Breaker Mailbag item No. 7 comes from Avery Pemberton-Smith. And, Avery, while we've never met, I just, I have to believe you're British. I mean, how could you be named Avery Pemberton-Smith and not be from the United Kingdom. Now, I could be wrong but I'm just going to guess that.
Alright this one reads, "Dear David, and fellow Fools, I was thinking about companies that have been outperforming over time, particularly, the FAANG stocks, and that's spelled this time F-A-A-N-G stocks or is it ... " Avery writes, " ... or is it F-A-A-A-N now, I'm really not too sure. And though I am still a fan, I think this acronym is beginning to show its age. It may be time for a new acronym, a new collection of technology companies transforming our era. With that I bring you ... "
And I'm going to pause it right there, we're going to go to Avery's list, his new acronym in a minute, but let me first say that this is a subject near-and-dear to my heart. Now, longer time listeners may be able to remember their way back to July 11th of 2018, I really enjoyed doing that podcast that day, it's entitled A Rule Breaker looks at FAANG Stocks. Now, I highly recommend, I think this is going to be one of those that stands the test of time, that particular week's podcast, because I have a lot of fun with language, I always will, on any podcast that I do, as somebody who loves the language and looks very carefully and scrutinizes what words we're using, the diction that we're choosing to talk about our world, our investing world, or stocks or whatever it is, what words are you choosing to use. So, anytime somebody starts rocking an acronym around a certain number of stocks, that's going to arouse some interest for me.
But in particular, I found myself a little cynical about this phrase FAANG stocks. And in fact, in that podcast I use an acronym to make the six points that I make in that podcast, and I'm having a lot of fun back then, because at that point people said, well, Microsoft should also be included in that august group. So, people were starting to suggest it should be F-A-A-N-M-G. And I was asking aloud, perhaps rhetorically, "How do we pronounce that?" And I decided, it should also just be called FAANG with the silent "M." So, it was really already getting silly almost two years ago, in my mind, but I used F-A-A-N-M-G, to make six points each starting with the letter.
And point No. 3, which was the "second A" for those keeping score at home, was about acronyms themselves and how revealing, I think, they can be about our thought processes. In fact, I'm on our site, Transcripts.Fool.com, where you can go for past Motley Fool podcasts and find transcripts of them, especially, if you're willing to scroll sometimes well back into the past. And so, I'm literally reading the transcript of that podcast, that day's podcast. And I said, the first thing that acronyms reveal to me is, since we can't keep the acronym constant, [laughs] probably the system is more dynamic, and less zero-sum than most of us would be led to believe. And a little later I say, the key point here is that acronyms reveal, they reveal that we really can put our arms around any given set of companies because we'd be excluding others when the letters don't fit or the numbers start changing.
The big joke I was making two years ago was how well Priceline had performed at that time. Priceline, a "P." And I was saying actually, PNNA is the new FANG. That was my hashtag I was rocking on social media that month to confuse people. Everyone was like, "Well, what's PNNA, what's the P?" Well, Priceline had well outperformed companies, like Apple, which was one of the As, depending on our timeframe even Amazon was well outperforming Netflix, which is a great stock. So, even the FANG stocks themselves had been exceeded, in my mind, by a very prominent company, Priceline, which had a big market cap and just wasn't included in somebody's initial silly acronym that they invented for hot stocks everyone should be talking about.
And, in fact, at the time Priceline was changing its name. Today you'll know it as Booking Holdings. I hope you're a shareholder, it's been one of my better performers over the years, it's up 57X for Stock Advisor members who have held it for almost two decades. Now, it's been a monster. But I was saying, well, maybe BNNA is the new PNNA, because Priceline is about to become Booking Holdings.
One other thing I said at the time was that another thing acronyms are real for me, just my own opinion here, I can't back it up with data, it's just pure intuition, but I'm going to submit to you that I think that most of the people who actually frame things up in this way, you know, who say things like FANG stocks, who search the internet for the phrase "FANG stocks" or listen for it in articles or on television, I'm going to submit to you that most of the people who frame things up this way don't actually have very good returns or results in those stocks themselves. Because in my experience people who start acronym-ising up a basket of stocks probably are there to trade it or talk about it or see what's hot, I doubt that they have preexisting positions in those companies, in our case, measured in decades, and we've owned all of them for a long time.
So, in my experience, people who are on the hunt for FANG stocks probably themselves, I hope this doesn't sound too [...] but probably themselves don't really have real positions or intend to have them in those stocks.
Alright. So, a brief rant. It's always fun for me to go back and think about a past podcast about two years ago now, what I was saying back then about FANG stocks, now let's return to the present day once again. And so, I just want to read, again, what Avery was saying, because he said, "And though I'm still a fan, I think this acronym is beginning [laughs] to show its age." You say, Avery, it may be time for a new acronym, and so here you go, you've got the next one for us. It is five stocks, five letters, this is your opinion I'll read it out for our listener base: Shopify, Tesla, Amazon, Roku and Zoom.
Now, anybody who was listening carefully and was playing the acronym game, probably can realize that spells STARZ. STARZ reminds you of that old cable channel, in fact, that was a previous stock pick of mine in Motley Fool Rule Breakers, merged with Lions Gate, hasn't been a great performer ever since then, but stars STARZ. And certainly, if we're looking to create a relevant, modern-day acronym, I think that STARZ, Avery, is every bit as good as FANG or BNNA or PNNA or anything else.
In fact, each of those companies is an active recommendation of mine, and some have been very recent, like Zoom, and some were among my first stock picks ever made on the internet, like Amazon. But I like each of those companies, so how could I not be a big fan of STARZ?
Well, Avery, concludes, I say this with vigor as though I had found these shining gems myself, but in actuality, it was The Motley Fool that led me to these STARZ for that I'm eternally grateful from the bottom of my heart. Thank you, Avery Pemberton-Smith. Thank you, Avery.
You close with, "If my unconventional spelling of STARZ is off-putting in any way, please note that Zoom and Slack are interchangeable."
Well, Slack is not actually one of my active stock picks, although it's a company I admire, but I think even the postscript reminds us that the world is too dynamic for some steady state acronym that should guide our dollars in the most optimal way. So, that's why I love what we do in Motley Fool Rule Breakers and Motley Fool Stock Advisor, every single month we have another pick or two for you that's a new idea. We also have our Best Buys Now, five or 10 stocks from our existing base within Stock Advisor or within Rule Breakers, five or 10 stocks that we favor over the next three plus years. They're not new picks, they are old pics that we like just as much now.
And then, of course, we have our starter stocks which are being released for both services this month as well; something of particular interest to newer members. So, I much prefer having a universe of coverage, a scorecard of great companies, and not trying to be silly with my letters. The silliest I ever get with my letters, really, is when I pick an arbitrary letter like the letter "T" and name an entire Five-Stock Sampler Stocks That Got Trouble with a capital T and that rhymes with PF, which stands for Fool, well, spelled unconventionally. So, yes, we certainly have fun with it, but I wouldn't spend a lot of time acronym-izing my way to stock market glory.
And I'm a little cynical, I have to admit in closing, not with you, Avery, I love what you've done there, but with people who seriously walk about and talk about FANG stocks. I have to admit, I'm looking at you askance.
Which brings me this week to my final Rule Breaker Mailbag item, which is No. 8. And, Mark Alderman, thanks for this note. "David, I was elated and humbled when you read my last note and named it an "Epic." It was June 26th mailbag Switching On." That was the title of that month's mailbag. Thank you, Mark, for that.
"I come to you with another story that I think is worth writing to you about. Again, it's not short, but also ... " say Mark, " ... it's not terribly long." Side note: This story fits on one page of printed paper. Now, occasionally I'm getting notes that are running two or three pages long. It's very rare that I'm going to share those on mailbag, so for some of my correspondence, first of all, thank you, any time you write a heartfelt note of several pages, but realize it's probably not going to make the mailbag, because, hey, I like to do six, seven, eight items and it's hard to fit long stories into a mailbag format.
Anyway, Mark is also a good example to us, because he is a return visitor on the mailbag. He tells good stories pretty succinctly. And, Mark, I love this one. So, Mark says, "I often talk to my friends about investing. And while trying not to be too pushy, I tell them they can take control of their money and invest themselves; they don't have to pay someone else to do it for them, and it's a lot more fun. I have had friends go as far as open a brokerage account, but never fund it. They're hesitant to take that next step."
Mark goes on, "Then there's my friend Derek. Derek was eager to learn and jumped right in. He started in January and we met a few times to discuss the basic Fool principles, such as, buying great companies and holding on to them, not being afraid to buy at their all-time highs, etc. I also mentioned to listen to as much of The Fool podcasts as he could and take the time to learn. Well, he jumped right in. He started by listening to podcasts, reading some articles, opened a brokerage, funded it and bought some stocks. And then, COVID-19 happened. He immediately lost money. And while he was a bit taken aback, he remained positive, was smart and methodical, and most importantly, he stayed calm. Even though he was in the red, he already saw what the possibilities could be when you pick great companies, such as, Shopify, The Trade Desk, Etsy, and so many others. Instead of panicking and selling everything when the market drops substantially, he bought more. He added to his winners, didn't sell other companies that were beaten down, because he still believed in them and his reasons for buying them hadn't changed, and he continues to do so."
"To sum up, even during this "down time" he is up 17%. Needless to say, he cannot wait to experience a bull market. [laughs] He listens to The Fool podcast, follows analysts on Twitter, reads a lot, continues to enjoy the ride of investing and learning. And while his ultimate goal is to provide more opportunities for his beautiful wife, Erica, and three young children, Michael, Ruby and Viviana, he's having a blast learning about businesses and taking control of what he invests in."
Mark concludes, "I think this is an important message. While I have loved it, it's difficult to convince others that they too can do it themselves; even in a volatile market like this. It's awesome to see my friend having success and I know it will only get better and I just wish more would take that next step so they, too, could experience the greatest builder of wealth. Once again, I cannot thank you and your team enough for the encouragement and help while Derek and I invest on. The Zoom Videos ... " that's speaking to our Motley Fool Live channel which I mentioned earlier, " ... and all the extra information you guys are providing during COVID-19 has been amazing, please keep them coming, hopefully, we will see you at Fool Fest in the future." That's our annual member gathering, it's going virtual this year, understandably. "Hope everyone at The Fool and their families are safe and healthy during this time. Invest on! and Fool on! Mark Alderman."
Well, Mark to you and yours, invest on! and Fool on! as well. To Derek and his family, one of our newest investors investing in such an amazing time and doing it exactly right. I say to you, Sir, invest on! and Fool on! And, of course, to the dozens and dozens and thousands of listeners listening into Motley Fool podcasts every week, I say to you all as well, here at the end of April 2020, you've just lived through something pretty amazing, it's going to continue, we'll stay in it together, keep learning together and I hope, keep making the best decisions for your capital and mine. So, to all of you, to you dear listener, I say invest on! and Fool on!
