In this episode of Rule Breaker Investing mailbag, Motley Fool co-founder David Gardner answers listeners' questions about investing, diversification, and more. If something bad happens in the world, and a stock goes up, should you own that stock? He also talks about the value of holding shares through thick and thin and one well-known but initially less appreciated stock that has done well over the long term.
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This video was recorded on June 23, 2020.
David Gardner: Something bad happens in the world, and you own a stock and it goes up, how does that make you feel? And should you own that stock? Well, let's talk about that. And, Tesla's (TSLA -1.15%) stock crossed $200 per share in 2014. It went mostly sideways for five full years. The market was rising, Elon Musk's stock was not. And whether you were a Tesla investor or a Tesla hater, or somewhere in between, it was objectively true that by the summer of 2019, yep, just last summer, it had dropped below $200 per share where it had been five years earlier. Today, it's at $1,000. Are there other examples of epic sideways movements requiring patience? I'm going to share another. And finally, what television character does my voice and cadence most [laughs] resemble? Well, at least in the eyes and ears of a listener. Well, does that sound like a Motley show? It sure should. These items and more, it must be mailbag, only on this week's Rule Breaker Investing.
And welcome back to Rule Breaker Investing. It is the final week of June 2020. Now, it still doesn't feel that way to me, I don't know about you; we're recording, as we normally do, on Tuesday afternoon, this time June 23rd. I feel like there's an entire week of June left, but based on how we publish, we publish Rule Breaker Investing every single Wednesday, and we always make mailbag the final Wednesday of a month. And this is the final Wednesday of June, because next Wednesday will be the 1st of July, so yep, it is mailbag. And one of the things I typically do at the start of a mailbag is, I like to look back and see what ground we covered in the month that was. So, there were three previous shows this June, we let it off with Essays From Yesterday Vol. 1; and then, Five Stocks For America, my newest five-stock sampler, including a review of two other samplers on that June 10th podcast; and then, last week, it was the market cap gameshow, our most recent installment, Vol. 12, with Dan Kline and Tim Beyers this time.
And as usual, I like to lead off with hot takes from Twitter, reflecting on what we did together this month. Let's go, last-in first-out, in other words, let's start with last week's show. Jono Winkler @JonoWinkler on Twitter, "I scored pretty average. But now that @aaronbush100 wasn't on this show, we can see what normal people score." [laughs]
And thank you for that, Jono. Yep, we let superstar market cap gameshow player Aaron Bush take a break this round, our Ken from Jeopardy, [laughs] if you will, and we brought in two wonderful new personalities, Dan Kline and Tim Beyers, who've done such great work on Motley Fool Live, which is basically Fool TV, it's the new television channel you can find at Live.Fool.com, if you're a member; this is a members-only thing. And, both, Tim and Dan have been so much fun on Motley Fool Live. I knew they'd be fun on the market cap gameshow and I hope you had fun as well, because at the end of the day, we have thousands and thousands of players, not just two. And how you do and how you score and tweeting that out is fun. So, thanks for that Jono Winkler.
And then, yep, the week before, it was Five Stocks For America, that was a really interesting one, it was a creative act on my part, I was trying to think what am I going to do with this Five-Stock Sampler for June? And then I thought back to a past podcast where we talked about what are America's core values. Which feels like a great question to be asking here in 2020. And so, having previously answered that I then picked the stock for each of those five core values.
And @Sisu_Runner, Matt, you wrote, "Thank you, @RBIPodcast and @DavidGFool for your America-themed five stock sampler. Liberty. Enterprise. Justice. Resilience. Kindness. Ideals that we need to work for all of "We the People." And a first... " Matt writes, "... I already own three of the five selections."
Well, I'm glad to hear that, Matt. I'm also glad to know to note that, you know, that we're never about short-term scoring here, and yet, everything counts. So, it is fun to note that Five-Stock Sampler, just two weeks later, is already beating the market by seven percentage points, pulled up most of all by Etsy. Etsy, I made my enterprise stock. Yep, enterprise. By the way, enterprise will be a theme later in the show.
And another fun feature of that podcast was the review of two past Five-Stock Samplers, and at the time, one of them was coming due. That means, when I pick five stocks in a Five-Stock Sampler, I typically make it a three-year game that we're playing, and I check in after year one and year two and year three to see how those stocks have done and what we can learn from it. And if you were listening a couple of weeks ago, you'll remember that Five Stocks Riding the Bull Market was a couple percentage points behind the market averages, and you know I'm always trying to beat the market, not just with Five-Stock Samplers, but in life, that's the ruler, that's the measure of so much of my work. And, of course, I wanted to beat the market with those five stocks. And as it turned out, and by the way if you follow me on Twitter, @DavidGFool, you probably saw me crowing a little bit about this. Those stocks, when the market closed last week, and ended the three years of Five Stocks Riding The Bull Market, sure enough, those five stocks had ended up beating the market. And it wasn't even close, it was a remarkable 10-day period, Five Stocks Riding The Bull Market, officially closed out on June 19th, of 2020, 39.3% was the average gain of those stocks; the market, 27%. They ended up winning by more than 12%. So, a great three-year run. Well, for at least some of those stocks, most particularly, Wayfair, which was the monster that pulled those five up. But I appreciate some of the tweets that I got about this.
James Chen @jameschen810. You wrote, "I am SO GLAD this particular sampler ended up beating the market. I mean, of all your samplers the title of this sampler has got to be the one that is most representative of your "Winners Win" slogan."
And, James, I really appreciate that point. Yes, it's worth remembering that those Five Stocks Riding The Bull Market were intentionally selected at all-time highs three years ago, when the market itself was at an all-time high. So, I had fun with that at the time, I made a point with that that we like to add to stocks that are winning, we're not afraid of stocks that are at an all-time high. So, all five of those stocks, those stocks that just ended up beating the market by more than 12 percentage points, rising 39% on average as a group. Yep, those stocks were at all-time highs. So, you're right, James.
And @TimIsaacs1, you said, "It proves so well that it is possible to achieve market-beating returns by buying stocks at all-time highs." Tim, you go on, "This is counter-intuitive to many, who are looking at 52-week lows to snap up their next 'bargain'. Thanks, David #WinnersWin"
And @StockPact, "Congrats @DavidGFool! I was rooting for you! Isn't it astounding that the 3-year trek... " hmm... trek! That will come back a little bit later in the show,"... that the 3-year trek for this group came down to the very last week? While almost always sensible, diversification can produce funny results over short time periods."
And I'm glad you point that out, I want to double underline that every Five-Stock Sampler that I'm picking, those are stocks I like beyond just the three years, of course, but in my case, we would be spending all of every one of the RBI podcasts, if we were just reviewing past Five-Stock Samplers, if I were picking them for 7, 8, 9, 12 years, there wouldn't be time to get a word in edgewise. So, yes, I make it a three-year game, but every one of those stocks that closed out last week, Five Stocks Riding The Bull Market, or that I picked for Five Stocks for America, all of those are stocks I intend to hold for years and years. And most of them have cost-basis well lower than where I picked them for a Five-Stock Sampler. So, I want to make sure everybody knows, we're in this for the long haul, even if these samplers sometimes just last three years.
All right. A couple of more Twitter hot takes. Yep, if we go back one week before, I was reading essays that I'd written years ago, hoping that they would still feel fresh and relevant, and partly enjoying the time had passed and we could see how the world has changed and what the meaning of those words might be in 2020 even if they were written in 2005. And I asked you, my dear listenership, should I keep doing this? Is this a series that you'd like to recur in the future? And I'm happy to say, maybe you were just trying not to hurt my feelings, but all I heard were good words of affirmation and people saying, yes, please do that again.
@hodges_ "David, we never heard why you stopped writing the essays at the beginning of each monthly newsletter. I really enjoyed the lookback at old essays, please do it again."
You're right, Hodges. During that podcast, I mentioned that I had stopped writing for a reason, I was going to say, and then guess what, I never got back and said [laughs] the reason on the podcast. My fault.
Don Karpick @TokyoBoiler, you said, "@DavidGFool I never heard why you stopped doing essays even though you said you would let us know. I thought I had missed it so I listened again. Essays were great! Please make it a regular event."
Well, thank you for that, Don and Hodges. Yeah, here's the short story behind that. So, indeed, every one of The Motley Fool newsletters. And back then they were newsletters; we're talking about paper back in the day. So, Motley Fool Rule Breakers and Motley Fool Stock Advisor would open up with the opening page and it was an essay. And I would write it, if it was Rule Breakers, or Tom and I rotated for Motley Fool Stock Advisor. And we did that for years and years.
I have to admit, even though I think of myself as a writer, and I've written a lot, I need deadlines and I don't really write out of intrinsic motivation. I will double underline that, I need deadlines. So, when some years ago our services began to shift to being electronic and we started to drop the idea of making them paper newsletters, at that point, there was no longer, kind of, a front page that needed to have an essay anymore, we were becoming digital services. And so, as it turns out, people weren't clicking as much on the essays. And my team started saying, "Hey, Dave, just so you know, the positioning is no longer what it was for the essays. They're not getting the clicks as much anymore. Do you want to still write them?" And I thought about it, and I thought, no. [laughs] I don't want to still write them. Because I think I was being told that I didn't have to work so hard. And more importantly, this all timed up with the debut of this podcast. And so, at the time, since Rule Breaker Investing started as a podcast in July of 2015 -- yep, we're just on the doorstep of our fifth anniversary -- I started realizing, yes, I could keep writing essays or I could come at you for 45 minutes or so every single week. And so, I don't really have many regrets about no longer writing essays, because I feel as if I'm reaching a lot more of you with a lot more every month as it is.
So, that was the short story I meant to tell about what happened to the essays.
Now, to close, I'm very grateful that I wrote so much over the years. And I was trying to write things that would stand up and stand the test of time, just like we've tried to do in our books, like The Motley Fool Investment Guide. And so, it was very pleasurable for me to hear back from many of you that you enjoy essays like "Tastes Great, Less Filling," which I featured in the first week of this month's podcast.
The last hot take from Twitter I want to share, I just love this, it's from @leftlateral, "Hi, David. I'm a member of Motley Fool. I started an experiment last month. Instead of smoking packs of cigarettes, what's going to happen if I buy one share of Alkermes (sic) [ALK] every week. I noticed that you'd recommended Alkermes when the price was $61 a long time ago. The first share I bought was $30."
So, why do I love this tweet? Well, for two reasons. The first is, I am so delighted to think that somebody is forgoing smoking, which is not healthy for us, and instead putting that money toward a stock investment. I think that is a huge win. But I'm also delighted to think that you're investing in Alkermes. By the way, the ticker symbol is ALKS. Alkermes is a biotechnology company that develops innovative medicines designed to yield better outcomes, largely in the area of addictive diseases, serious diseases. So, great pick.
Now, I have to say, it hasn't been a great pick for me. Alkermes, as the stock, I first picked in September of 2016, it is down 62%. It has been a big-time loser. So, anyway, I'm happy, @leftlateral, that since this is a stock I recommended around $50, you're buying it at $30. And I trust and hope that it will beat the market from here, it remains an active recommendation in Motley Fool Stock Advisor. I know one thing, you're going to be a lot healthier as a consequence of this decision, so congratulations.
So, there it is, the month from Twitter. Again, we're @RBIPodcast on Twitter. I'm @DavidGFool, if you want to follow me. Thanks for all the tweets and the thoughts. And also, thanks for the reviews. I always appreciate anybody who wants to take the time to let us know how we're doing, maybe you're on iTunes, you login and leave a review for our podcast or Google Play or Spotify. We really appreciate that. And as I've said in the past, I read them all, and I [laughs] have to share this one from Tanya Ferguson, which just came in last week.
"I highly enjoy listening to David and using both Stock Advisor and Rule Breakers," says Tanya. "Thank you, David, for teaching me to hold on to stocks in the long-term, expanding my knowledge on companies I never knew. I'm beating the market this year by over 35% currently." Wow! "Regardless of the results, The Motley Fool is transparent unlike other services. They have fun at what they do, and frankly, I enjoy everything about The Fool as well." She concludes, "Thanks for making the world smarter, happier and richer, go Blue Devils." [laughs]
That's largely the reason I was reading that, because you got that little shot in there, which I really, I hope you're hearing me, Tanya. I really appreciate the humor. A lot of you may not know that I went to the University of North Carolina, Chapel Hill, I'm a Tar Heel; our archrival is Duke, and so anybody who can get a little jab in here-and-there, even in a nice review on iTunes, should do so. I think that's a lot of fun.
All right. Rule Breaker mailbag item No. 1 this month. This one comes from Joe Hildebrand. Joe, I really appreciate this note. "David, the following note is not meant to judge your views, but more to seek to understand, as I'm trying to get a better understanding of mine. Earlier today, and after the market closed for the day, I opened up my spreadsheet on Google [Alphabet] Drive to see how my portfolio did during the day's trading session" Joe inserts.
By the way, this is the sheet that was heavily posted on Fool forums, and we mentioned it here on the podcast as well, after the discontinuation of the scorecard tool that we had on our site last year. Joe says, "I was not originally a big fan of this spreadsheet. It was very manual, but I've now come to love the versatility." Well, I'm really glad to hear that. Yep, that was created by Brian Withers, a longtime Motley Fool volunteer and staffer, and-a-many, Brian, are enjoying your spreadsheet.
Anyway, Joe goes on, "I have the display sorted by my total value. And typically, my overall gains or losses can be attributed to my top 10 holdings. Today, though, was different, as it took a holding outside my top 20 to drive the results for the day. That stock was Axon Enterprise, ticker symbol AAXN, because it rose 18%." Joe goes on, "I quickly became conflicted, since a large majority of that gain is a direct result of the nationwide protests over George Floyd's death. I originally purchased Axon over two years ago after either a Rule Breaker Investing podcast or recommendation. And I believe the body camera and subscription service would lead to a more accountable police force which would increase trust in their actions. While I still think that is true, a day like this makes me question if I want to continue to own a company that succeeds after events and civil unrest that have transpired the last couple of days. Tomorrow... " Joe writes. And by the way this was written a few weeks ago. "Tomorrow is still hours away, but I believe I do not want to be an owner of a company like this and I'll be selling my shares in the morning. I prefer my capital to be invested in companies that succeed when bringing value and happiness to customers and not the pain and dissatisfaction of citizens. Curious of your views, especially with how passionate you are about conscious capitalism. Thanks, Joe Hildebrand."
So, yep, as I said at the top of the podcast, something bad happens in the world, you own a stock, it goes up, how does that make you feel and should you own that stock? Well, this is a great note, because it was written so sincerely by somebody acting on his convictions, and it opens up a conversation that I think is important. And while I'll just be making a small contribution this week to a much bigger issue nationwide, here it is for what it's worth.
So, three quick thoughts for you, Joe. No. 1, make your portfolio reflect your best vision for our future. I've said that many times, I'll say it many more times. So, that's what I hear you doing and I think that's great. Whatever I would have done, I certainly admire your intentions here to align your money with your values. You know, it was the first time I wrote about socially responsible investing, which was the phrase back in the 1990s, some people still rock that today, but we hear ESG, we hear conscious capitalism, lots of other concepts, very similar though. The first time I wrote that chapter in The Motley Fool Investment Guide. Tom and I split chapters, and I guess I drew the short or long straw, depending on your viewpoint. So, I wrote about it, and what I said, in effect, in that chapter was, make your portfolio [laughs] reflect your best vision for our future.
Each of us has a different viewpoint in terms of what is wholesome and what adds value to the world. Some of us probably are flat out wrong about our ideas on a given topic or a company, some of us are wildly right, some of us won't know whether we're right or wrong till more time passes and we can see what's happening, but all of us can do our best to make our money align with what we believe in the world. And I think it's very cynical to invest in any other way.
I also said in that chapter of The Motley Fool Investment Guide, this is a little bit of a contrarian angle, that I'm not a big fan of socially responsible mutual funds. Now, a lot of people would say, well, what do you mean, Dave? You love conscious capitalism and what about ESG funds and all the rest? And the point I was making then, and I'll make the same point I guess here more than 25 years later, is that, if you really are socially responsible, if you're really concerned about this, does it really make sense to give your money over to some fund managers you'll never meet, who's investing according to some principles or traits or a list that you might not have vetted yourself and you might not fully agree with?
So, for people, who in my mind are kind of mailing it in by just putting their money into socially responsible funds, I might ask somewhat provocatively, is that responsible? Now, not everybody wants to invest directly in stocks and certainly there are some great ESG funds and others out there. So, by no means am I a critic of the industry, I'm just here to be a provocateur and help you think toward your best self, whoever you are and what you're thinking. And so, Joe, for you to have acted as you mentioned in your note, on your principles, I think is great. That was thought No. 1.
Thought No. 2 is, I feel as if Axon Enterprise is part of the solution. This is just my viewpoint. I think we all want more transparency from our police. That's what Axon does. Body cameras and video recordings, which are used 90% or more of the time these days by police. When I grew up, such technology didn't exist and there was no real transparency, further you'll probably recognize that Axon Enterprise, having formerly been named TASER, is the company behind the Taser technology. Now, Taser is controversial for some. There have been occasional deaths that have been explained potentially as a result of the Taser electricity, although those are pretty rare, if you do the numbers overall. I like Tasers, because they're not bullets, they're not even rubber bullets, it's an electric shock to apprehend somebody, it saves lives every day when a Taser is used in place of a gun. I like that, but I realize many of us may have different feelings here.
So, thought No. 2 is Joe, I personally disagree with you. That's why I have Axon as a company, not only is it a winning Rule Breaker stock, it was one of my Five Stocks For America earlier this month. I think I actually picked that subsequent to you writing your note, I'm curious what you thought of that, but I'd be the first to say that if you didn't think much of it, don't buy the stock, [laughs] or ignore the sampler.
And finally, my third thought, and this is just a little bit broader, I guess. And I'm going to call this point, do you have a ___ friend? Do you have a ___ friend? Fill in the blank. I think it's as helpful as possible to collect as many friends with as many different backgrounds, viewpoints and experiences as possible. I think that's a worthy way to go through life. Collecting friends. Do you have a ___ friend? So here I might say, do you have a police friend? I have a few friends who are police officers. I've really appreciated hearing their viewpoint. It aligns with a lot of the people protesting against the police, but it's also held by people who are, in many cases, putting their lives on the line every day for you and for me and making the world safer.
Now, it's always a shame when bad apples really spoil the public's view of things. And in my experience, our media will typically find the bad actors and make them drive the headlines. Enron was a far more written about stock, back in those days, than whatever we were picking in Motley Fool Stock Advisor, which I think has done better as a 20-year old than Enron. But nevertheless, Enron tends to imprint itself on a lot of people's minds when they think about bad business or they just think about the stock market.
Well, I was influenced as a young guy when I had a full summer internship with the police department in Rochester, New York. So, that was a summer where I got to see things I've never seen before. I got to empathize. I got to understand how hard it is to be a police officer. Their divorce rate is much higher than the American divorce rate today. Levels of alcoholism and stress are much higher. And these are all, a lot of them, are the good people, because in my experience, most people who enter the police force are doing it out of a positive motivation, and indeed, do a lot of heroic, in many cases, and important things in small and big ways every day.
So, I have a police friend. And I hope everybody listening to me right now has a police friend. If you don't, I would suggest you make a police friend and hear their viewpoint. Here are some other friends I have; I hope you do too. I have some Black friends; I have some White friends. I have some transgender friends; that's thanks to my company. I have some rich friends. I have some poor friends. And, sure enough, I have Democrat friends and I have Republican friends. I live here in the nation's capital, all of them are all around me even though I'm not much for the political world myself.
You're darn right I have a very diverse group of friends who have different minds on a lot of different topics. Maybe the reason that tolerance is so important for me, or kindness, is for me, an American core value, or forgiveness. We need a little bit more of that today right alongside accountability. Maybe the reason I'm more centrist in my leanings is because I've tried to get to know as many different types of people as possible. I try to have as many ___ friends as possible. So, I'll just rhetorically conclude this point by asking each of us, if you find that you disagree with a group of people but you can't identify a friend that you have in that group of people, whatever type of group we're talking about, I would suggest you make a ___ friend. And by the way, this isn't following someone on Twitter, although I suppose you can start that way. This is a real relationship. I'm talking about a friendship.
All right. Rule Breaker mailbag item No. 2, this comes from Frank Di Pietro. "On a recent Motley Fool TV episode David mentioned, amid all the volatility around COVID-19 in the market, that he has not made a trade in 2020. Wondering if he would share with the Rule Breaker podcast audience, as it says a lot about his style of investing and the true meaning of what it means to invest and hold shares through thick-and-thin?"
Well, Frank, I was happy to introduce that to this conversation this week. And I don't have to say that much about it, because I do feel as if these are things that not only do I say on a regular basis but are true of my actions as well. But since I think I made a real point of mentioning that on Fool TV Live.Fool.com. For instance, you were watching me that day, you wanted to make sure I said it in front of my podcast audience as well. So, yeah, I haven't made a single trade [laughs] in 2020. I hope that sounds neither heroic nor shamefully embarrassing. It's just a statement of fact. It reminds me that I tend to lump up my purchases and just do them a few times a year. There's no real rhyme or reason to it. I'm not ever trying to time the market. I think the main thing you wanted me to say, Frank, is that I haven't traded in or out, I've just held the same companies. And it didn't feel good at all when the market went down 35 percentage points in 32 days. The biggest, fastest drop, I believe, in American stock market history. You all were here with me, if you were a listener back then. We processed these things together week by week, therefore we've had amazing good feelings since the stock market has pretty much fully recovered for a lot of us from that incredibly bad drop.
Now, the world hasn't recovered, not nearly. And where the stock market goes next, I'm never going to be the one to say. But, Frank, I think you just wanted me to remind people that just buying to hold and doing that and not feeling like you need to be a hero at the lows or jump out just before the market drops, but instead making a lifetime commitment to the stock market, which is often how I describe what I do or how we describe investing at The Motley Fool. A lifetime commitment to the market means that you stick with your stocks through thick and through thin, we've seen a lot of both of those here in 2020. But especially, from where I look now, look backward, we've had a remarkable time in 2020 for Rule Breaker Investing. In fact, it was Five Stocks for The Coronavirus April 8th, 2020. Hope you got to hear me back then, hope you bought these five stocks, because this is the best-performing Five-Stock Sampler in a short time period that I've ever had and may ever have. Those five stocks, with the market up 14% from April 8th, those five stocks are up between 43% and 144%. Three of them have basically doubled, and it's less than three months later. The way you get these returns is by making your portfolio reflect your best vision for our future, looking for the innovators, being ready to evolve with changes in the world, and buying to hold. So, thank you Frank Di Pietro. I know you've exhibited that in your own career as an investor.
All right. Rule Breaker mailbag item No. 3, this one comes from Vince Granieri, Fool4ZTribe, I believe that's your screen name on our Fool forums. Vince, thanks for this note. "David, suffer this Fool, if you will, for the disjointed missive that follows. First, heartfelt kudos to The Motley Fool, to you and Tom, for expressing tangible leadership in these trying times. While I was mega-impressed by the announcement." This was outlined in our June 4th podcast that we had allocated $100,000 to encourage our employees "to support equality, justice and peace in a way that's meaningful to them." And by the way, that was a decision that our CEO, my brother, Tom, and our leadership team made, to give each of our employees $250 that they could donate to anything that they felt "supported equality, justice and peace in a way meaningful to them."
Vince goes on to say, "Your fingerprints are evident in the positive expression of that very mission," but you go on to say, "I did not see a way to join you directly. And then it happened, a routine call among the associates of the virtual company that I founded... " Vince writes "... was derailed by political comments that fractured my team. I needed to bring them back together. As I listened to the podcast when you encouraged us to follow suit, I thought, of course, that's one way to drive home my feelings about the gravity of this situation. So, the next morning, I began my conference call with the team by outlining the terms of the challenge. Each of my associates will receive $100 extra in their next paycheck to support equality, justice and peace in a way that's meaningful to them. A good deed to offset their poor past judgment and remind them how fortunate we are to be a cohesive team if we're able to stand above the events around us and commit to each other's success."
Well, Vince goes on, "In that same June 4th podcast, you read your old essay comparing investing to wine. How interesting, as I am, hopefully, a Foolish investor but also a self-proclaimed [laughs] wine snob, the good kind. After a heart attack, almost 10 years ago... " Vince writes, "... I had to make lots of lifestyle changes. The only good thing I could do more of was to drink wine, [laughs] so it began. And as you pointed out, it could be intimidating to make choices of, both, individual wines and individual stocks. Over time, however, both can be quite gratifying if you look beyond conventional wisdom. No one can hope to beat the market. Well, we now know otherwise, thanks in large part to The Motley Fool. Analogous to that in the world of wine is the notion that red wines are best if aged for many years, and white wines should be enjoyed immediately."
Vince goes on to say, "In fact, there are some beautiful white wines, the German Riesling Spätlese being my favorite of this group, that can be aged for decades longer than the finest red wines. So, I close with a toast to you and all Fools, may we age like fine wine, growing smarter, happier and richer as the years go by. Fool on!"
That beautiful note, Vince, speaks for itself.
Rule Breaker mailbag item No. 4. This one comes from David Lurie. I'm going to guess, it's Lurie. It is spelled L-U-R-I-E, and I know you're from Canada, David, so it might just be Lori, but I'm just going "Laurier."
"Hi, David G., longtime listener from Canada here." One David to another. "You've spoken many times about the Gardner-Kretzmann Continuum, but I have a question about how GKC applies to managing a portfolio of stocks for a husband and wife or for a family?" David goes on to say, "Let's say I'm 50, and I have a portfolio of 50 stocks. So, I have a GKC of one." Well, I know many of my listeners have been listening for a couple of years or more. So, you know what the GKC is, but we have so many new Fools here in 2020. So, I'm going to pause briefly to explain this acronym.
I always like to explain almost any acronym I use in writing. It's always good as a writer to introduce the full phrase before making it an acronym [laughs] if you're going to go on and use that throughout the rest of your essay. So, I'm going to do the same thing here on this podcast. So, the Gardner-Kretzmann Continuum, which is humorously named and I won't even bother to explain that, I just want to explain the concept here. The concept is that we generally favor having as many stocks or investments in your portfolio as your age. So, that means if you're 17 years old, and I'm so glad you're listening to me if you're 17 years old, because you've got +70 years of compounding ahead, and all the rest of us are jealous of you young Fools. If you're 17 years old, I think it'd be great if you have about 17 stocks in your portfolio. If you're 54, like me, turns out I actually have just about exactly 54 stocks in my portfolio.
So, if you're mathematically inclined, we're doing simple math here, it's a ratio. In the numerator is the number of stocks or investments that you have in your portfolio and the denominator it's your age. And it should be one or higher; the ratio should be one or higher. You should have at least as many stocks as your age. I'm going to get back to David's note in a sec, I'm not going to explain further, but I think it should be self-evident that we favor diversification. And so, we think it's great, over the course of a life, to add more and more stocks and further diversify yourself, so you're not overweighted on any one or even five or 10 stocks, you end up with a big robust portfolio of abundance. Which puts a big smile on my face when I think about that with so many Fools having done that worldwide here over the last 25 years, and we're only just getting started, right Fools?
Anyway, back to David, "My work here is done, right, but wait... " he says. Again, he's 50, he's got a portfolio of 50 stocks, "... but wait, my wife is also 50, and so she has stocks in her name as well. Would you recommend we have 100 stocks between us, 50 X 2, in order to maintain a GKC of one, based on our aggregate age, or would you see that as too much diversification? I know your mileage may vary, but what do you think about this for your family? Thanks, as always, David Lurie."
Well, since you're asking me, I'll tell you that I think it's just fine to make you and your wife a single unit and say that your portfolio should have 50 or more investments in it. I definitely don't think that a full family needs to sum up all of their ages and have that many investments in a portfolio. Now, I won't gainsay, if somebody wanted to do that or they really like to be highly, highly diversified or if in a marital relationship you end up with one of you really wanting to take a certain angle to the market or you're having friendly competition, I think it's great to have your own stocks and maybe your own GKCs, but for the most part, I think of my family portfolios as supporting my family. And so, for this reason, I'm very comfortable just thinking we're at about 54 stocks, since I'm about 54, even though it's there to support others besides me.
But you know me well, David, because you anticipate what I would have said in closing and I'll still say it anyway, [laughs] your mileage may vary.
All right. Rule Breaker mailbag item No. 5. This one is from Rich Schwartz. Thanks for this note, Rich. "David, I wrote to you last November, which you read on your Thanksgiving podcast. As I recall, you saved it for last, which I took to mean it was the best note you received that week."
Well, I think that's fair to assume that, Rich. You know that one of my goals is always to save the best for last, not just in life, but also for podcasts. And so, it's typical that I save, well, I won't even say the best, just something special, I like to have a special. You remember how Steve Jobs would say, "Oh, but wait," right near the end of a presentation and then he'd show the amazing thing that Apple was about to do next at the end, that's kind of what I've always tried to do on this podcast. So, yes, Rich, delighted to know I saved you to last, it was a great note.
You go on to say, "In any event, as a follow-up, I wanted to let you know that the Schwartz-Fool Continuum is now 100%." Now, you're having fun with that, because all you really mean by that 100% is that all of your kids are now investors, that's the 100% you were shooting for. "My older son... " Rich, you write now, "... aged 27, also has the investment bug, but has shown to be a more conservative investor than his now 23-year-old younger brother. And while it pleased me that he followed my lead and was in fact investing, I was concerned that he was being a bit too conservative given his age and missing out on what I consider to be the single most important factor in investing, that is time. I've been encouraging him to look into The Trade Desk, ticker symbol, TTD, but he was always reluctant as it had already performed brilliantly in the past few years and "now just wasn't the right time." Rich goes on to say, "I know that gets my goat as well. After some additional prodding, [laughs] I convinced him that the very best time to invest in a quality company like The Trade Desk was now." Sounds familiar. "So, about two months ago, he took the plunge and made a small investment in The Trade Desk and has been rewarded spectacularly. He listens to your Rule Breaker Investing podcast. We regularly discuss what you and your guests have spoken about, so he's now been converted and is now truly a Fool. Thank you."
Rick Engdahl, I believe that deserves a sound effect.
"But that is not the principal reason I'm writing to you today. I write to you today to let you know that in only the four or so years that I've been a Fool, I am smarter, happier and richer. I make a comfortable salary as an attorney, but I didn't always. As a young parent of two boys managing a mortgage, two cars, along with all that goes with these things, I was always concerned that I would never get ahead financially. I worked hard, but my financial future was not at all clear to me back then. Having weathered an expensive divorce, both financially and emotionally, I'm pleased to say that I've gotten to a place I never thought possible, smarter, happier and richer. I no longer have to sweat out the ups and downs of the market, a once-in-a-lifetime pandemic, racial discord, and mass marches and protests in the streets across our country, and for that matter the world, as my financial position and future are now secure. So, thank you for helping me and my family get there. The Motley Fool made all the difference. With that in mind, I wanted to note that notwithstanding my relative success with investing, to my knowledge I've never experienced a spiffy-pop. As a result, I felt a bit left out, but I have experienced something else that's deserving of acknowledgment and it happened again just yesterday."
Well, let me pause there and just mention for all of our new listeners, if you don't know what a spiffy-pop is, google "spiffy-pop" on the internet. I believe you'll find, I hope, a Motley Fool Fool.com page which will explain that it's when you make more money in a single day of a stock than you paid for that stock way back when. So, if a stock just jumped from $100 to $135 in a great 35% gain in a single day, congratulations, if that happens to you, from $100 to $135, and your original cost basis for that stock, we'll just say, was $27. So, the stock went up $35 per share and you only paid $27, that is a spiffy-pop.
Back to Rich's note. "Yesterday alone, my portfolio grew in one day more than I made in my first year out of law school. That's my first true full-time position. The year was 1986 and I was making $32,200 in my first post law school job. Yesterday alone my portfolio increased about $34,000." Wow! That's so great, Rich. "So, I think we need to name this for all those Fools like me who haven't yet experienced a spiffy-pop, I'm thinking Schwartz-pop. What do you think? [laughs] I know, very snappy name, but I'll leave the final decision to you." Well, very gracious of you, Rich.
In your postscript you said, "Hey, it just hit me, it could be a Rich-pop, that could work as well. Anyway, I look forward to hearing whether you adopt the Schwartz-pop moniker for this event, which like a spiffy-pop should only be recognized 12 times. Thanks very much again for all you do, peace and happiness to you and yours."
Well, to you and yours as well, Rich. And I love that your sons are investing and listening right along with you. Congratulations.
I love that spiffy-pops have given rise to other forms of pops. The one spiffy-pop new form I don't like is the spiffy-drop which is the name we give to [laughs] when a stock loses more in a single day than you paid for it. So, for example, if that stock went from $100 to $65, that's a $35 drop, you paid $27, that's a spiffy-drop. I will note though, at least as far as spiffy-drops go, they really only happened when you've had an incredible stock that's risen a lot. And so, if it sells off after earnings or has a really bad day, you can experience a spiffy-drop, but typically those are experienced by people who already had spiffy-pops in that stock.
Anyway, I like the Schwartz-pop. My memory is not great, Rich, so I might forget it, but I would ask you to help remember it. I'm pretty sure you are going to remember what a Schwartz-pop is, and I hope that you're conveying that to your family and your kids and your kids' kids. And the more good kinds of pops in this world, we could all use some more of that today. So, thanks for a great note, Rich Schwartz.
All right. Rule Breaker mailbag item No. 6. I think we have three more, six, seven and eight. Here we go. "Hi, David, one of the biggest lessons I've learned since listening to the Rule Breakers investing podcast is to keep adding to your winners." This one comes from Jed Lauren, by the way. It looks to me, if I'm puzzling this acronym out right/correctly, looks like you're majoring in chemistry at Carleton University, a Bachelor of Science in Chemistry.
So, Jed, you went on from there. "I was wondering if you could talk about how you decide whether an underperforming stock is a true loser or if the company is just in a prolonged period of being underappreciated by the market? I know Tesla had a long stretch where the stock didn't do anything before finally exploding at the end of last year. Could you maybe talk about another instance where you knew a stock had a bright future despite its stock indicating that it may be a loser?"
Well, this is one of my favorite topics, Jed, because anybody who invests over the only term that counts, the long-term, probably has lots of stories, if you just spend a little time going back and looking at a stock that you've held for five, 10 or 15 years, there are all kinds of stories baked into that graph, and emotional dynamics and things happening in the world at large, and good and bad earnings, new innovations, new competitors showing up that tip these stocks up and down.
And sometimes, even for a dynamic company like Tesla, as you mentioned, it can tread water for five years. And that's exactly what Tesla did, Tesla crossed $200 per share in 2014, and it pretty much swam sideways, it had some nice ups in the years after that, but five years later, it dropped below $200 per share. And so, those of us who own Tesla, and I'm one of them, we're probably wondering, wow! The market years of 2014 to '19 were outstanding, here's my Tesla stock behind where it was in 2014. Well, as you well know, Jed and as many of my listeners will, especially the shareholders among us, Tesla stock, even though last summer it was below $200 per share, it's now at $1,000 per share as we record. So, it has truly exploded. Our cost for Motley Fool Rule Breakers is around $31 per share, so it has been a true winner for those who subscribe to Rule Breakers and buy and follow on the advice that we give you not to sell, etc.
But you asked, are there some other stocks like that? And sure, here's one. One of our biggest winners, one of my biggest winners and yet I don't talk about it that much, we tend to talk about things like Netflix and Amazon, and we're just mentioning Tesla. But on April 15th, Tax Day of 2005, I recommended ticker symbol NVDA, a little company, and it was kind of little back then, known as NVIDIA (NVDA -3.26%), to my Motley Fool Stock Advisor members. The stock was at $6.55 per share. Now, let's follow it from Tax Day of 2005 to today and see what those 15 years look like together, shall we Jed?
So, fast-forward two years later, it's October of 2007, the stock has gone from $6.55 to $40. It was a big-time winner, a six-bagger. In just about two years, we were riding high and feeling great. Remember the Great Recession 2008-2009. Well, unfortunately, NVIDIA got whacked, and the stock by the end of 2008, again, it had been $40 in October 2007, was down below $6. So, that six-bagger that we racked up in two years, all of a sudden, we gave all that away and more, and we were underwater.
And let's fast forward six years now, from the end of 2008 to the end of 2014. The stock was at $20. So, 2014, it's now nine years later, we're still happy, right, the stock has gone from $6.5 up to $20, but it was at $40 in 2007, and seven years later it was half that.
All right, let's keep letting some more time pass. The stock goes on to cross $40 once again in 2016, for the first time since 2007. 2016 was a really good year for NVIDIA. It went up from $30 at the start of the year to $90 to close the year. It was the No. 1 performing stock on the S&P 500.
In one of my more Foolish moments, and I love doing this, and I think you all know this, and Five Stocks Riding The Bull Market partly illustrates this, but I decided, since there was a lot of fanfare, that NVIDIA, this Motley Fool Stock Advisor holding, that we had for 11 years and counting, our cost was $6.5, the stock was at $90, it was the No. 1 performer on the S&P 500. I decided what stock should I rerecommend as my first stock pick of 2017? And I decided, let's go with NVIDIA. Yep, winners-win, right? And I'm happy to report that that rerecommendation has done really well. It was at $90 then, by the end of 2017 that year, it was at $210. So, that's right, ladies and gentlemen, and Fools everywhere. The stock that was the No. 1 performer in 2016, tripling in the S&P 500, then went on to more than double the year after. And boy! Weren't we happy, until 2018, when the stock which had hit $280, I hope all these numbers aren't too hard to follow in your mind, you can always look at a stock graph of NVIDIA from 2005 to '20 to see the full picture. But the stock was at $280, and do you remember all the hope about cryptocurrency and how NVIDIA, in part, had a big part of its business riding on the crypto industry. Well, as crypto started to show it didn't have the extreme growth and relevance for society today that a lot of people hoped that it might by then, really crushed NVIDIA stock. And in fact, autonomous cars, and think about Tesla's performance in 2019 wasn't great either. And NVIDIA stock dropped from $280 to $120 in 2018.
Well, as we speak at the market close today, the stock was right around $380 per share. So, Jed, that to me, is one of my favorite less talked about stories about a quiet mega-winner that we've had for Motley Fool Stock Advisor members. You can only enjoy that, though, if you were there for all 15 years of that ride. And think, in particular, about October 2007, $40 per share, it wouldn't cross there until 2016, nine years later. We've held all the way through. The stock is now a +55-bagger for those of us patient and Foolish enough to believe and to hold.
All right. Rule Breaker mailbag item No. 7, one of those inspirational stories I love to share. And then, maybe a little silliness for mailbag item No. 8. This one comes from Randy Chevrier in Stillwater, Oklahoma.
"David and Tom, I've been a subscriber of various Motley Fool products since 2004. That's when my wife heard me complain that the market timer I was following at the time expected to see a number of years of sideways market movement and I just didn't like the prospects. So, she says, "What about those guys in the newspaper, The Motley Fool?" I checked you out, I subscribed to Stock Advisor in April 2004, I've been a Fool ever since."
I'm going to pause for a sec to just say that a lot of you will be aware and a lot will not that The Motley Fool has had a syndicated newspaper column for more than two decades. Our wonderful partner, Universal Press Syndicate and Andrews McMeel, is a company that syndicates Doonesbury and Dilbert and maybe some of your favorite op-ed writers. Yep, they've also been syndicated The Motley Fool all the way through. And while newspapers aren't as big a business today, they're still out there. And The Motley Fool might be in your local paper. It's a delight, Randy, to hear that you found us in the Tulsa World, back in the day, and here we are 16 years later talking about it.
Anyway, Randy goes on to say, "I've tried other Motley Fool services with mixed results, but I've come to find that I appreciate most of the stock picking services: Stock Advisor, Rule Breakers, finding Supernova or the Moneymakers portfolio. Those are better suited for those like me who want an almost hands-off approach to creating a portfolio. So, between Stock Advisor, Rule Breakers and Total Income, I find the right balance of finding stocks for long-term appreciation and those that are now setting me up for producing income as we near retirement."
He goes on to add, and I can't do this for a podcast, but he goes on to add a graph that demonstrates why he appreciates the appreciation of their portfolio over the last 16 years. And it's one of those graphs that starts in the lower left and it amps up over the course of time. It's kind of sideways for years and years, right, but it's one of those that steeply starts rising as the power of compounding kicks in. And, Randy, on this graph you point out with some red arrows and inscriptions here and there, that you started investing in companies, you weren't afraid of investing in downturns, and you mark that somewhere around 2004. That's when you joined The Motley Fool. And despite doomsday predictions that you were hearing in 2009, you marked it up there, you kept holding, and the word that comes through is hold, hold, hold.
Back to your note, "The courage it took to hold in March of 2009 has been the best lesson in my investment life. The results of the gains following that downturn gave me courage to hold during a downturn following a huge bull market when everyone said it's over. Well, that downturn ended Christmas Eve 2018, and then COVID-19 hit and all might be lost, I had the courage... " Randy writes, "... to hold, even buy to some extent. Fortunately, that's paid off through today. It might not pay off for the next three years, but I'll bet it pays off two of those three years." Says Randy with a 😉.
"While the chart might have gone up some, if I hadn't found The Foolish way of investing, I don't know I would have had the courage to hold during those three tough times." The chart includes saving, but nothing extreme, just regular IRA contributions. And those skipped a few tough years. "I love investing The Foolish way, because I get to learn about companies and get to learn about myself better. I'm just getting able to really let my winners run and ignore my weeds. And as I near the time that we're going to be divesting during retirement, I look forward to learning more on how to do that best. The Total Income service and The Motley Fool Answers podcast, they've been great teachers so far. I suspect I'll be visiting Rule Your Retirement soon."
Randy concludes, "All this to say thank you for writing articles and placing them in the Tulsa World for my wife to suggest to me for investing advice. Even though she has no desire to learn about investing herself, she does ask me to talk stocks when she can't go to sleep. [laughs] Thanks for following your desire to make the world and me smarter, happier and richer. Fool on! Sincerely, Randy Chevrier. Stillwater, Oklahoma."
Well, I love that note, Randy, because I love what you did, right? It's you who are holding, and it's you, all of our fellow Fools worldwide, people hearing me right now, people who may hear this podcast years from now, you're the one making the decisions. We're just providing advice. We're giving you our best shot and we're trying to model good behavior and we're coaching and teaching all the way through. And I think I can say fairly that as much as I love my work, my favorite part of my work is this podcast I do every week. But you're the one who decided to hold, you're the one who toughed it out through 2008-2009, etc. So, congratulations to you, because, yes, haven't you learned a lot about yourself and aren't you pleased by so much of what you learned, and look at the outcome and the results that you're getting.
I also want to put in a quick note of thanks to Selena Maranjian, who's a longtime Motley Fool staffer, and for years and years has written that column that goes out to papers. So, Tom and Dave were never writing the syndicated column. It wasn't by David Gardner and Tom Gardner, like our books. No, it was The Motley Fool syndicated column. And Selena Maranjian, one of the most Foolish people I know, somebody who helped write The Motley Fool Investing Guide for Teens, it's Selena's work that made that book possible. She is a wonderful Fool. And so, I'm guessing, Randy, you had never heard of Selena before, but I hope you know her now. You've got a new friend.
And now, well, best for last, you make the call. Rule Breaker mailbag item No. 8. I loved this. This is from John Keller. John writes, "I've been a TMF subscriber for many years and a podcast listener over the past three to four years. One of the podcasts I listen to and love is Rule Breaker Investing." Well, thank you, John. "I've always found David Gardner's voice interesting. His cadence is different from many other hosts, and I found myself wondering where I have heard this cadence before? And then it dawned on me... " John writes, "... William Shatner, AKA, Captain James Tiberius Kirk of the Starship Enterprise, had a similar cadence and pace to his voice. It's not an earth-shattering observation... " John writes, "... but one I found interesting nonetheless. Thanks for all you do and keep it going."
Well, I don't know if anybody else agrees with John, I know I'm in too deep myself to even be able to tell, I sure did watch a lot of Star Trek growing up, I've been a lifelong Trekkie. I wouldn't be great at Trekkie trivia quizzes, because there are so many Treks; I can't even keep up. There's the new streaming one on CBS. I haven't even watched that one yet. Oh! And I'm not even talking about Piccard, which is another one that I haven't watched. And so, there is so much Star Trek, but, wow! I sure did watch all of the original show. And I think I watched them [laughs] in reruns over and over. As a kid born in 1966, growing up in the 70s, yeah, I remember a new Star Trek would come out and I'd be, like, yeah, that's the one I saw three years ago, right, because the show, I think, lasted for just three seasons, and so they just kept repeating them. And so, at the age of seven and 10 and 13, I'd see the same one over and over. And so, maybe William Shatner's cadence and pace started to play into my own mind. I certainly am a fan of Priceline. William Shatner revisited us later in a new form, the front man for Priceline. I think a lot of us will remember those ads. And boy! has Booking Holdings been an incredible stock pick for us in Motley Fool Stock Advisor. So, these things might be interrelated.
John, I really don't know what to say about this. In fact, I think the only thing I can say is to pick three of Captain Kirk's greatest lines and simply close this week's podcast by saying them. Now, I haven't gone on YouTube and I don't exactly know how he pitched these lines, I can't hear them in my mind's ear, but perhaps my cadence or pace will either, on the one hand, oddly mimic James Tiberius Kirk, or on the other hand, do something completely [laughs] different and probably much worse than what he did with these very lines on the original Star Trek show.
So, three great lines, here they are. The first one comes from the Corbomite Maneuver, Season 1, episode 10, here it is. "You know the greatest danger facing us is ourselves, an irrational fear of the unknown, but there's no such thing as the unknown only things temporarily hidden, temporarily not understood."
And then from Day of the Dove, Season 3, Episode 7. "There's another way to survive, mutual trust and help." And boy! Isn't that a good message for 2020; Star Trek, timeless.
And then this one to close, this one comes from Season 3, Episode 13, Elaan of Troyius. "The prejudices people feel about each other disappear when they get to know each other."