In this episode of Rule Breaker Investing: Mailbag, Motley Fool co-founder David Gardner is joined by a Motley array of guests to go through some listeners tweets and emails. There are some listener suggestions and inspirational stories of success. David answers a listener's question about what might happen to cloud stocks when things revert more toward normal. Our hosts share advice to young investors and entrepreneurs. Also, learn what a spiffy-pop is 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 September 29, 2020.
David Gardner: Zoom stock has been zooming. Zoom with a ZM, mind you. Has any ticker symbol been misquoted or miss-clicked more frequently in 2020? That's right, the Zoom we're all using has the ticker symbol just ZM.
And speaking of zooming, the stock went from about $300/share to $450/share in a single day to kick off this month. That triggered a huge round of spiffy-pops among our membership. Now, do you know what a spiffy-pop is? Wait! Some of you don't. We'll talk about that. Plus, advice to new investors. And you come here on the final Wednesday of every month to hear inspirational stories that are going to blow you away and remind you of the good in this world and in the act of investing Foolishly of breaking the rules, don't you. Well, we got that too, in spades.
And finally, really how long is too long for a Rule Breaker Investing podcast? Last month's mailbag clocked in at a record, either an amazing or dubious achievement, depending on your point-of-view, of 1 hour and 12 minutes. I don't think we're going to do that this week, but how much is too much? Only on this week's Rule Breaker Investing.
Welcome back to Rule Breaker Investing. Thanks so much for joining me this week. It's been a special month here at Rule Breaker Investing. In fact, this is our sixth podcast [laughs] of the month. I had to exhale extra there, because we're used to doing maybe, you know, four a month, like, one each week. But September happened to have five weeks, and we just so happen to have one of the better living entrepreneurs with his new book this past weekend, John Mackey, with his book Conscious Leadership, I really enjoyed that conversation.
So, yeah, this is our sixth podcast of the month. If you're listening, you like us, you really like us. Thanks. I always like to review where we came from. So, the very first week of this month, I did my most recent 5-Stock Sampler. 5 Stocks Indistinguishable from Magic, that was on September 2nd, and here we are right at the end of September. The first several weeks were not great for that new 5-Stock Sampler. Now, we're not playing the first few weeks game; I think everybody understands that. And yet, I think everything counts, every day counts. And so, I still track the performance of all of my 5-Stock Samplers. This one started down, and yet, as I woke up this morning and got ready to do this podcast, I saw that it had crossed into market-beating territory, becoming of the 26 historic 5-Stock Samplers, one of the 23 that have, or are, beating the market. So, a little bit of magic to start my morning here. 5 Stocks Indistinguishable from Magic.
We did a lot of Review-a-palooza! looking back at 5-Stock Samplers of yore earlier this month, like, 5 Stocks for the Next Five Years, our very first one ever picked. We, of course, did Company Culture Tips two weeks ago, and the Market Cap Game Show last week. So, wow! That is a motley month of podcasting. [laughs] Those are completely different angles.
And that's one of the things I try to do with the show, mix it up every week; it keeps it fun for me, hope it makes it fun for you.
Well, as a mailbag, this is, of course, one of those episodes where I have a cavalcade of guest stars coming in and joining me. I haven't done that with every mailbag this Summer, occasionally I decided to just do it by myself, here by my lonesome in my den with my trusty pal Rick Engdahl producing all the way through. But this time I thought, you know, it's about to be October, we're in Autumn, it's time to get back to something like regular, so we're going to have some guest stars coming along. But I typically start mailbags with hot takes from Twitter, and that's how this one starts.
And I've got a few for you. The first one is from @UyAyv; Uy, AyV. And I'm just going to read this out short, but this is why we do what we do, a great way to start this podcast. "Your team has taught me so much! Thank you for fulfilling my dream of being a stock investor. As an immigrant from 2009 with no more than $2,000; your team helped me grow my net worth to 6 figures. Fool on!"
Well, Fool on! to you @UyAyv. I love that story. And that is why we do what we do. When I say "we," it really is a tango. We're doing what we can to help you, but you are the one who saved the money, you are the one who chose this stock not that one. Financial freedom is unlocked if we're an accessory, we're kind of The Fool, right, you are the king or the queen, and we're The Fools whispering our best, our sage advice, trying to mix in some humor into your ear. But it's the actions that you take every day, month, and year that end up contributing to your destiny. I am delighted to hear that one. Keep up the great work.
All right. Another hot take from Twitter. @fools_gd. Well, this must be a member of our home team, not of our staff but just a fan out there on Twitter. Because if you rock the Fool word in your Twitter handle, typically that means you're one of the big fans of The Fools. So, thank you ShipOfFoolsGD. You said, "@RBIPodcast these company culture podcasts kill me. I'm not ready to move to Alexandria, but man! I want to work for a company like @themotleyfool."
Well, thank you very much for that. I really did enjoy that company culture podcast, and in fact, Lee Burbage will be joining me briefly in a little while as one of my guest stars this week with a little bit more company culture tips. Again, working from home edition was the theme earlier this month. Thank you, @fools_gd.
And then @Leonthefixer "@DavidGFool really enjoyed the Rule Breaker podcast extra this weekend with John Mackey, CEO of Whole Foods. As touched on by John in the episode, sleep is so important and its role misunderstood. So, if I may ... " Leon adds, " ... an idea for next year's Authors in August, Matt Walker @sleepdiplomat ... " that's Matt on Twitter " ... the author of the book, Why We Sleep."
Well, Leon, I hear you, and I will purchase that on my Kindle, see if I can get through it by next August. And if it seems worthy relative to the others I'm thinking of at the time, you may well hear from Matt Walker in this podcast sometime in 2021. Thanks for the suggestion.
All right. Well, that's it for the tweets I'm sharing directly. I will say, a lot of you are reporting pretty good numbers from our Market Cap Game Show, 7 out of 10, 8 out of 10. Even Avery Pemberton Smith writing in with a 9 out of 10. It does seem like the stumper out of this quarter's round was maybe Oracle, several of you mentioned that as one that you didn't get right. Oracle's market cap, as we speak on this particular podcast, right around $178 billion. So, depending on your viewpoint, that either sounds like not enough for a company that has dominated the database industry for so very long. Larry Ellison's vehicle, a company that has made some good buyouts over the course of time. For example, NetSuite, one of our Rule Breakers stocks, got bought back by Oracle. So, you might have thought that feels a little low. On the other hand, the stock has been a little sleepy. I have to admit, I didn't know it was at or near all-time highs. So, maybe for some of you, you were thinking the opposite, maybe it's been doing better than you were thinking.
Anyway, thanks, of course, for playing along at home once again this quarter, four times a year, the Market Cap Game Show on Rule Breaker Investing.
And then, well, I'm not going to bother reading this exchange, but I want to thank my Producer, Rick Engdahl, because he forwarded an exchange from Twitter that was fully in Norwegian between three friends, I'm going to say, Aksel, Bjorn and Ivan. And they were basically talking about, in Norway, their local newspaper doing what appears to have been a one-month stock picking contest. And these three Foolish fellows were, kind of, flicking it back-and-forth, talking about how that's probably not the best kind of a contest for a newspaper to be running, [laughs] if you're really trying to teach people and get them interested in the stock market. I think it was Bjorn or Ivan, maybe who pointed out that, on this podcast we pick 5-Stock Samplers for three years, that might be a better thing. But then they also pointed out, that's probably not that exciting for a newspaper to do a three-year contest.
Well, that reminds us that as exciting as I might find Rule Breaker Investing, I sure hope you do too, it can look awfully boring to some other people in the world, since we're having to show patience.
All right, let's crank it up here. Rule Breaker mailbag item No. 1. Now, I got a lot of Twitter commentary about this, but I'm really just going to focus on this note written into RBI, RBI@Fool.com, which is of course our email address. And this is from my biggest fan. Now, longtime listeners will remember, Jum, whose name I briefly butchered, which was really unfortunate since she said she's my biggest fan. And in one of those podcasts I got her name wrong. But, Jum, it's great to hear from you again. And this speaks to how long or not this podcast should be.
Now, a little bit of backstory. As I mentioned at the top, a month ago we did a mailbag, it was I believe the longest this podcast had ever been. I think it was an hour and 12 minutes, give or take. Generally, I say to you, I'm hoping to hit about 45 minutes each week. It feels like a nice jog. It shouldn't be a jog and a slog or a marathon. And so I had to wonder aloud earlier this month, you know, was that too much, how much is too much? One of the things I've learned as a public speaker is, you want to leave them wanting more. And I'm not sure an hour and 12 leaves any of my fellow Fools wanting more.
Well, here's Jum's note, Rule Breaker mailbag item No. 1. "Dear, David, if I could listen to what you have to offer in a podcast all day long, I would." Now, let me pause right there and say, I will never make a podcast all day long. And that is very kind. This is, of course, for my self-acknowledged biggest fan, so I think you'd want Jum to be saying this. I'm not saying anybody else needs to feel this, but I'll be welcoming Rick Engdahl, my producer, to discuss this very shortly. She goes on, "So, I have absolutely no objection to long podcasts from you and your team. It is heartwarming, but not at all surprising to me that you asked us if it's OK for you to produce a longer podcast when it's your time and energy you put into it for us Fools." Well, that is, again, very kind of you, Jum, but I do want to make it clear. My time or Rick's time of an hour and 15 minutes -- by the way, Rick spends a lot more time than that producing this podcast. But our time is nothing when you multiply how many people are listening for how much time. So, I really do think it is about your time, because I try to multiply what we're doing and understand the implications.
Anyway, she goes on to close, "This is one of many reasons why [laughs] I am your biggest fan. Your humility and thoughtfulness are admirable, I love every minute. I appreciate all your time answering our questions, putting together very thoughtful contents in each and every one of your podcast episodes. Thank you very much for all that you do. Stay safe and well." Well, thank you for that, Jum, Fool on!
All right, so, Rick, I want to welcome you on, because I think, while I wanted to share Jum, because she's my biggest fan, we got about nine other responses, both, emails and Tweets. And, Rick, I think it was about 10-for-10 for people saying, hey, that was fine, that long is great. And I wanted to have you on, Rick, because I feel like you're the one who pays the penalty for that kind of sentiment.
Rick Engdahl: You know, I searched through all the emails several times trying to find anybody to dissent and say, no, stop making them so long, but I couldn't find any. So, I felt compelled to send you all of those ones that said it was OK. I guess it's really my fault, as the editor I could make them short, I could cut you off, but you know, as one of my favorite quotes, as Mark Twain once said, I didn't have time to write you a short letter, so I wrote you a long one. That's pretty much my life.
Gardner: I appreciate that, Rick. Whether we're an hour and 12 minutes or 42 minutes, which is what we are a lot of the weeks, I think our mailbags run long. But you are always taking a lot more than that and cutting it down, because I like to stop and restart, I like to give my guests an opportunity to do that themselves. I'm always searching for the most juice, I want to have the best end product. As I learned from my NPR days, Rick, I do feel like you are the one who pays the penalty week-in and week-out. Shorter is what you deliver every week regardless of how long it actually was. So, I want to make sure I thank you again for all of that work. And I'm sorry that 10 out of 10 didn't come back saying, can you just make it, like, half that.
Engdahl: It's OK now, since my wife made me put a bed in my studio, so.
Gardner: [laughs] All right. Well, thank you Rick Engdahl. Thank you, Jum, and thank you everybody who wrote in. This will definitely not go to my head. I have my own standard where I try to bring it in under an hour every week. Mailbags, admittedly, or author interviews sometimes go over that, but you know, I feel like less is more. And I do want to leave you wanting more, so let's just move to the next darn point.
Rule Breaker mailbag item No. 2. This one comes from Nishant Dhumane. Thank you so much for taking the time to write. Here it is. "Hi, David, and Rule Breaker Investing team, I've been a Stock Advisor member for over four years now. In fact, I completed four years last month. I've learned a lot from you and other analysts in your team at The Motley Fool. Starting from a small position with no investing knowledge whatsoever, I've come a long way with your help. I appreciate it immensely, and wanted to thank you. Another great news that I want to share is, I celebrated my first spiffy-pop on Zoom." That's right, ticker symbol, I think we're clear on this, ZM. "As it grew around 40% today, well over my average cost price per share."
Well, I referenced this at the top of the podcast, Zoom stock made an amazing one-day move earlier this month. I'll talk about it a little bit more, including now, but that was one of the distinctive moments of September 2020. Especially because my brother, Tom, who first picked Zoom last Summer, i.e., 2019, and then I hopped on the wagon somewhere around March of this year. As a consequence, a lot of members, many of our listeners have owned this stock. And frankly, we're really glad that you do, because there have been few stocks that have held anything like a candle to the burnishing flame of Zoom; it certainly exceeded my expectations in every way.
Now, Nishant goes on to say. "While I've held on to my investing portfolio through the market volatility in the last few months, I've enjoyed a good deal of growth, beating the market indices quite comfortably, with a winky emoji. A question popped up in my head regarding the cloud-based companies like Zoom or Twilio, The Trade Desk, Shopify, etc., since the onset of the lockdown and the spurt in working from home and entertainment needs of people staying at home."
Nishant writes, "A lot of these stocks have gained quite a lot with strong quarterly results despite the economy in general not doing so well. Assuming that the COVID outbreak comes under control by the end of 2020, which it absolutely should for the benefit of all. And we all agree with that, yesterday, whether or not it's going to happen tomorrow, we'll see. And looking ahead into the first half of 2021, as things settle down, people start to resume their normal lives, getting back to work and school, how do you think these stocks will or should behave? Do you think there will be a slight correction ... " mmm... that word " ... as maybe their customers pullback and revert to older ways of operating their businesses, or do you think this is a trend that we, as people, will continue to follow for a much longer time? I hope you'll be able to help me with your insight on this topic."
Well, Nishant, here I go with my best shot, I'm going to speak out both sides of my mouth, as I want to do. The left, not to say the right side is right, or the left is incorrect; I'm just going with left, all right. The left side of my mouth is saying, yes, these stocks have accelerated far beyond my own expectations, and I think what anybody should reasonably expect. In fact, after Zoom made that remarkable move earlier this month, it gave most of that one-day move, which was almost 40% in a single day, back over the subsequent two weeks. I'm then happy to tell you that, and you already know this because you own Zoom stock, that it's pretty much come back. In fact, as we record right now, it's at $470, which is above where it finished that amazing day when it basically moved from about $300 to about $450 in a day or two.
But what are we doing here talking about days or weeks, [laughs] let alone months, when we're actually invested for years and years, as we've demonstrated since starting The Motley Fool on America Online? The first day was August 4th, 1994 when we put our own real money out in front of people and said, we're going to tell you all our transactions, we're going to transparently score ourselves, watch us aim to beat the market. And indeed, we have for many, many years over the last 27, and when you add it all up, you do really well over time.
But, Nishant, that's the key here; time. I do feel as if 2020 has sped up stocks like Twilio, The Trade Desk, Shopify, the other ones that you mentioned. So, I could easily see them giving back substantial portions of their gains in the next 12 months. So, out the left side of my mouth, I'm letting you know that if and when that happens, I'm not going to say you heard it here first, people have been forecasting doom for these stocks throughout 2020. And yet, I'm glad that we've owned them, recommended them. I'm glad that they've spiffy-popped for you, because we're not playing the 2020 game, right, we're playing the game of years and years.
So, out of that side of my mouth I'm telling you, a lot of it could be given back, and if it does, I'll certainly be disappointed. But I'll also be pinching myself, because Zoom started this year at $80/share, and it's at $470, and we're just about to start October. So, even if it got cut-in-half from $470 down to $235, that's a triple from where it started 2020.
Now, I realize that would be a small consolation to somebody who just bought at $470 to watch it get cut-in-half from here, but that's the way these stocks can act; and I'm going to be the last one ever to predict. So, that's the left side of my mouth.
Now, out the right side of my mouth, I will say, I do think the world has changed. I do think that some industries are going away. And I do think that some new upstarts, newcomers, Rule Breakers, if you will, are here to stay. And so, whether Zoom gets clocked a 50% drop in 2021, likely will not affect my overall approach to the stock or my feelings about our world. I think, as I've said numerous times here in 2020 on Rule Breaker Investing, I think we're seeing a bifurcation, we're seeing the market split between companies that are ready to be digital, and to be leaders in a future world that increasingly uses digital for more and more things. I think that's a firm break with the past, it's an acceleration of trends already in place.
And then, of course, there are other companies, I think of oil companies, in particular, that are not in a great place, as their industry continues, probably, to reduce in size and they may over time increasingly vanish from the world. And I'm not just thinking of oil companies, I'm thinking of some retail companies; how many bankruptcies have there been this year? Other industries too. So I think, per usual, we need to be thinking about the future, we need to be living in the future looking backwards to now and making decisions that work for where the world's headed.
So, out the right side of my mouth, I say, I do think these companies are for real and I'm darn glad that you own that one and that we own these kinds of companies which we'll plan to hold for three years, if not three decades. Thank you, Nishant.
All right. Rule Breaker mailbag item No. 3. And yeah, why not, let's have him back. Lee Burbage from The Motley Fool's People and Culture Team. Lee, so much fun doing the Company Culture Tips: Work from Home Edition with you and Kara earlier this month. And some good feedback, including what I already shared at the top of the show.
Lee Burbage: Thanks for having me.
Gardner: You bet. Now, we got this question from Scott Franklin, who's -- maybe it's a screen name or it might be from Twitter, Go Bucks! Ohio. So, I'm thinking this is an Ohio State Buckeyes fan, if that colors your answer at all here, Lee. Otherwise, I don't think it's relevant. He writes a really thoughtful and short note.
He says, "Dear David, Kara, and Lee. What tools are used at The Motley Fool to track work-from-home productivity?" Scott goes on, "As an essential employee at my firm," which he defines as not working from home, so this is a gentleman who's going to the office, essential employee, whatever this firm is, Scott says, "It's frustrating to wait hours to a day or two for a response from our remote employees at our company. How does The Fool balance trust versus accountability?"
Burbage: Well, I'm not sure if Scott's going to love how I start my answer, because I feel I should tell him that I'm originally from Clemson, South Carolina and count myself a Clemson Tiger. So, we've got some memories he and I can share together. But what I would tell him I think is what I tell new Fools on their very first day. So, I like to meet new Fools when they start and give them a tour of the office or in this world, just a little bit of a Zoom talk about the history of our company, and how we roll. And one of the things I mention to those new Fools is, we are a performance culture, and it could be a little confusing to hear of all the fun things we do and all the trust and autonomy and so forth. But what turns out is, if you do a great job, if you are a high-performer, then the rest is really up to you, how much time you take off, where you work from, that sort of thing.
So, for us, whether people were in an office or now working virtually, the goalposts have not moved. Our level of high performance was not adjusted, to some extent we've had to be patient and supportive for those people who are maybe managing a suddenly difficult home situation, given the pandemic. We have big hearts and we want to be patient in those zones. But in terms of, like, people getting things done, we still expect that regardless of where you are.
Gardner: So, if Scott were an employee at our company and he came to you and said, hey, Lee, listen, I'm trying to work with these people remotely and they're just consistently slow, like, I'm trying to get my work done as, in this case, an essential employee, and I can't get my work done. How would you advise him to proceed?
Burbage: So, I think he's making a mistake of linking the location of the work with the work output. You could probably substitute in a lot of different things, like, Rick takes too much vacation, so he's not getting his work done. My schedule is different from Bob's, and Bob's not getting his work done, Bob works from home and he's not getting his work, right? So, whatever that reason is, I would encourage you instead to focus on the work, what the goals are and whether they're being achieved or not. The other factor, I'm guessing, is kind of what enters into our head and we start blaming things.
So, normally if a manager were to come to me, for instance, and say, so and so is taking too much vacation. I would say, it sounds to me like something that they're doing is unacceptable and you're tagging that then to the reason. Let's focus on the work. Now, it could be that it's because they're at home and they're distracted or they're in a different time zone or whatever, we can address those things. But I would focus on the work, I would focus on what the goals are and hold people to those high expectations. There's a phrase, inspect what you expect, and I like to say, inspect and celebrate what you expect. So, make sure you're looking at setting goals, holding people accountable for them, and then as a company, celebrating the people who are performing at a high level. Normally, people pay attention to that and they'll get on board.
Gardner: Really well-put, Lee. I was just thinking about John Mackey's book Conscious Leadership which, of course, was the subject of our weekend extra. And he makes the point, and I've read it in other books, and I know you know this one too. He says, as leaders, hey, let's catch people doing something right. It's something that doesn't often come top of mind to us as we look for the flaws around us and try to figure out how to fix the problems that we see, but you know, catching people doing something right is an awfully great attribute or tendency, probably, of some of the best managers and leaders, agreed?
Burbage: Agreed. Yeah. Continue to celebrate the things you want, and you'd be surprised how much more frequently those things happen.
Gardner: Well, Lee, I caught you doing something right when you and Kara joined me earlier this month on the culture tips podcast. And JLJ, that would be Joe Linda Johnson, appreciated your appearance as well, she wrote us, in conclusion here, Lee, and then I'll let you get off to your busy life.
She said, "Thank you, David, Kara, and Lee. Thoroughly enjoyed yesterday's podcast." This was written a couple of weeks ago. "I listened to the first half at about 7:00 AM this morning and immediately implemented a tip for a 2:30 all-staff meeting. Tremendously positive responses!!!" She closed. "Just-in-time info, always appreciated."
So, Lee, I think she and I both caught you and Kara doing something right, giving great advice here on the podcast. Thank you.
Burbage: Thanks for having me.
Gardner: All right. Rule Breaker mailbag item No. 4. And I'm happy to invite my friend Anand Chokkavelu. Anand, welcome.
Anand Chokkavelu: Thanks, David. Great to be here.
Gardner: Now, this is not your first time on the podcast, right? We've been on together once or twice before over the years, yes?
Chokkavelu: Feels like it, I don't think on a podcast, but certainly talked many, many times over the years.
Gardner: Oh, my gosh! So, if this is your debut on Rule Breaker Investing, I'm delighted that we're having this moment. Anand, how long have you been at The Fool?
Chokkavelu: 15 years.
Gardner: That's great. And could you describe what you came initially to do and then what your role is today?
Chokkavelu: Yeah, I came in the finance department, doing basically Excel modeling things. And now I'm in the editorial department, where I've been most of the time.
Gardner: And that's spectacular, just a reminder to me of how many Fools come in doing one thing and end up doing something quite different. I had forgotten about your Excel past, but I bet you're still pretty good with Excel, Anand, is that fair to say?
Chokkavelu: That's probably not fair to say, but I'll take it. [laughs]
Gardner: [laughs] Well, Anand, you've graciously come on to speak to Dr. Reed Levine and his note. Let's do it. Here we go, Rule Breaker mailbag item No. 4. "Hello! I'm not sure how to route this to the proper person or department," Dr. Levine writes. "I'm a Motley Fool Stock Advisor member and a physician. In addition to my patient care duties, I teach at University of Southern Cal and work as a consultant for the medical board, and I've done work with several medical device and pharmaceutical companies over the years. I'm always interested when I read your site's articles regarding healthcare companies, though not infrequently I note either overt errors." This hurts me to read, Anand, I don't know about you, I don't know if you're having an emotional response. But I'm going to take that one again. "I note either overt errors (I'm happy to say not that common) in understanding some scientific issue or misunderstandings, or missing some key bit of information more commonly." So, he goes on, I was wondering if there was a role that I could play as a consultant for The Motley Fool, being available to your researchers and writers to answer or explain medical concepts or issues to make them more efficient and accurate in their understanding of the sometimes confusing and -- boy! don't I agree with that -- medical topics."
Dr. Levine closes "I'm also happy to provide more in-depth discussions about the areas of my particular expertise, which is pain management and neurology, which are two fields which are ripe for innovation by a number of companies going forward. Happy to provide a CV and chat. I look forward to hearing from you, Dr. Reed Levine."
Anand, you and I were talking about this note off-air beforehand, what was the first thing that came to mind as you read that note?
Chokkavelu: It just boggles my mind all the time how amazing our members are and how talented and accomplished they are, and part of our community because of it.
Gardner: Absolutely. And, in fact, two things amaze both of us, I know. Not only their degree of expertise and professionalism across a huge diversity of fields, but also their enjoyment and willingness to help, they're just good hearts. That means a lot to us. And of course, whether or not we ever could afford to hire Dr. Levine, that's a separate topic, but I'll say this, it's a pleasure to consistently, it seems, hire the kinds of people who want to help.
So, Anand, you and I discussed this a little bit. First of all, do you think we get it right 100% of the time on our Motley Fool free articles or our premium articles about any stock?
Chokkavelu: Absolutely not, it's always a learning process, right, and we just try to keep doing better, right?
Gardner: Yes. And so, roughly how many articles come across our free Fool.com editorial desk on a daily basis?
Chokkavelu: About 100.
Gardner: That's a lot. And of those, what portion are involving technology that would be complex for the average person to understand without a good explanation? I'm obviously asking you to spitball this.
Chokkavelu: Yes. Probably half, when you discount, like, Starbucks, and Netflix and things like that, the other half are probably pretty complex.
Gardner: So, I guess two primary questions come to mind, Anand. The first is, if I am a reader, which I am, of our site, and I see something that's wrong, what should I do if I want to help you guys out and get something patched up to improve [laughs] what we're saying on our website?
Chokkavelu: Yeah, just send an email to Editorial@Fool.com, and we'll research the error, and if it's wrong, we'll put a note up at the top or the bottom to make sure that people know that we messed up.
Gardner: And I do see those errata and those corrections from time-to-time. I will say, I don't see it that often. I know, I don't think we're making frequent missteps, but maybe we're making mistakes that we're not noticing what medical experts are noticing. So, Editorial@Fool.com, a way that anybody can let us know that we have something wrong or could get something more right.
But then my second question, Anand, is, I mean, here's Dr. Levine, I don't know if you're about to drop him a note back, he left his email address, and hire him instantly as our consultant? I suspect there's more process to that, but more broadly and generally, if I am somebody who could give you an advisor perspective, subject matter expert interest, or let's just say I want to write articles myself at Fool.com, how would I reach out that way?
Chokkavelu: Yep. First of all, Dr. Levine, expect an email from me. We can talk to see if there's a mutual fit, and also dive into exactly what type of errors you're seeing in our stuff. So, we can know that going forward. And then generally, anyone can go to Careers.Fool.com, and you can see all of our open positions, which include our freelance writers. And as you could expect from a Motley community, a lot of our best writers, you would think it would be, hey, go to school, get an MBA, do investment banking, whatever you think the career path is, it's actually a bunch of folks from all walks of life, we've got an ex-cop, we've got lawyers, teachers, healthcare professionals such as Dr. Levine, just runs the gamut of our best writers just have a passion for diving into stocks and explaining them in a jargon-free way.
Gardner: Very well explained, Anand. There is a reason perhaps, we didn't intend at the time, that this company is called The Motley Fool, because it is such a ragtag group. Roughly how many contractors do we have, Anand, just give us a sense?
Chokkavelu: Sure. It's in the three digits. We probably have 50 writers who write a lot of articles every month.
Gardner: Yeah. And people helping out as editors, etc., and maybe even some future medical consultants. So, thank you, Anand, for joining your debut appearance on Rule Breaker Investing. I'm delighted that you had an opportunity to remind everybody listening of ways that they can help, because darn it! We need help.
You know, some of the worst mistakes ever made on our site had nothing to do with our articles or our language, it was some of the stocks that I've picked, [laughs] that we've all bought, in many cases, together and watched get crushed. So, we are full of mistakes, we acknowledge that we're Fools, that's kind of being human; at least as we see it. But we do try, still, to do our best each time and we know we can always do better.
Anand Chokkavelu, thank you very much for joining me for this Rule Breaker Investing podcast.
Chokkavelu: Thanks for having me.
Gardner: All right. Well, my cavalcade of guest stars continues. Normally they're coming to the actual studio we have in actual Fool HQ, and I'm able to say, oh! look who's in the studio, right across the glass from me, it's ____ this time. But as we all know, we're all in our dens or something like that at home. So, coming from her, is it den at home, Emily Flippen?
Emily Flippen: [laughs] It's coming from my one-bedroom apartment here in Maryland. So, it's my office, my den, my living room, my kitchen; it's all the same room. [laughs]
Gardner: That's awesome. And while you could certainly be in your PJs, Emily, because we all can, you do appear dressed and you're ready for Rule Breaker Investing here. I mean, let me ask this, do you have slippers on, is there any concession to informality or you're bringing it like you always do?
Flippen: I try to make sure that I'm getting dressed every day. But I may concede that I'm wearing fuzzy socks right now. It's a little chilly.
Gardner: [laughs] I hear you. Well, let's get started with mailbag item No. 6. Now, this is a question from Jamie Luco, it starts. "Hello, I'm Jamie. I'm 18 years old, a newer investor. I recently joined Motley Fool Stock Advisor; I plan on joining Rule Breakers in the near future." Well, good on you, Jamie, delighted to hear that. "Now that I've joined Stock Advisor, I found many stocks that I think would be smart to buy ... " But, Emily, Jamie writes, " ... but I don't know how much cash I should keep in my savings account and how much I should invest. How much of a young investor's portfolio should be in stocks or in cash? Appreciate everything you all do at The Motley Fool. Fool on! Jamie."
Flippen: Well, first of all, Jamie, you're way ahead of me when I was 18. Because I'll tell you one thing, cash burned a hole in my pocket [laughs] when I was younger, it still does to an extent, although I try to redirect some of that cash burn to investing [laughs] as opposed to spending. When I think about finance, this is really where it comes to the personal aspect of personal finance and investing; there's always aspects that are going to be unique to every individual. But in my opinion, I think everybody should have a certain amount of cash in savings just to be comfortable. We call it an emergency fund. You never want to be in a situation where you need money to pay rent, to fix your car, to buy an airplane ticket. Whatever it is, and you're forced to liquidate a good company, sell a good company just to pay for an everyday expense. So, always make sure, in my opinion, that you have some cash set aside. I think that's good basic personal finance.
But assuming that is the case and you're looking at your investing portfolio and you have money that you can allocate, buy companies with or you can have some cash sitting on the sidelines, I think wise investors will maybe tell you, have maybe 10%, 20% of your money sitting in cash, ready to jump on a good investment. I'm going to tell you otherwise though; I have 100% of my money invested. I'm young, I'm only 25, 26 years old myself. You're really young at 18 years old. So, in my opinion, if you have a really long investing horizon, there's no need to keep money in cash. You can buy great companies, hold them for the long-term. And if you're getting some sort of steady paycheck, maybe you're not, you're relatively young, but if you're getting some sort of steady income, then all the better. Whenever you get your paycheck, whenever you get money in, invest it right away, it prevents that bad, kind of, drug there of market timing, right, trying to predict when it is a good time to buy. I like to buy on a schedule and make sure that I'm always 100% invested.
Gardner: And that is a message entirely consistent, Emily, with the five-plus years of this podcast, because though you are younger and I am older, though you are female and I am male, even though we're kind of opposites in some ways, I do the exact same thing. And always have said, I think 100% is the best way to go if you're trying to maximize your returns over long periods of time. Now, the older we get, and I am 54, I think you start holding some back maybe. Like, in my case, we might want to get a vacation home at some point, right? You start to think, OK, our kids are in college, what are we going to do with this? You might not be 100% with your money all in stocks. I mean, obviously, I'm not even talking about real estate, I just mean stocks versus cash.
But, Emily, I think you gave the spot-on answer, especially for an 18-year-old. Let's go ahead and try to get as much of our savings and money into the stock market for the long-term as possible. You know, one of the things, it occurs to me to mention, Emily, is that these days you can buy fractional shares of stocks, and there are no commissions. Now, this is especially true of American investors, not necessarily true of other investors around the world. I hope everybody gets there. But doesn't that make it even easier for 18-year-old Jamie to get started with almost any amount of money?
Flippen: It does. And I'm not sure about Jamie or other people listening, I use Fidelity. The app allows me to easily buy and sell companies based on the dollar amount instead of shares. It really lowers the barrier of entry to companies that are really great investments. For a long time, people thought, maybe they couldn't afford a share of Apple or Amazon; I'm just throwing out some examples, [laughs] but it could be any great company; MercadoLibre, for instance. Maybe they thought these were too expensive on a per share basis. Now is the best time, in comparison to every year before, to be buying companies. You can buy $100 of a great company, even if that means that you're only getting a fraction of a share.
Gardner: Jamie, best wishes on your journey, very happy to be here at the start of it, giving you some of our best advice. All right, Emily, will you stay with me?
Flippen: I will.
Gardner: Excellent. How about two more? Let's do seven and eight together. Here's No. 7. Rule Breaker mailbag item No. 7. This is from Mark Cully. R. Mark Cully, if you will.
He says, "David, I enjoy listening to the Motley Fool podcasts, especially Rule Breakers and Motley Fool Answers." Wow! What's the common link there? How about Producer, Rick Engdahl, who is the Producer of both those podcasts. You can't see him right now, Mark, but he has his fists raised in the air, the Olympic champion running through the tape. So, thank you for that. He also says, "I'm a member of the Rule Breakers service." Well, thank you for that Mark. "You probably have answered this before, I apologize in advance for the redundancy." Well, that's actually, kind of, part of why we do mailbags. We do tend to answer and reanswer questions. Why? Because people still have them, and lots of people have these kinds of questions. Happy to speak to it, Mark. Okay. Mark says, "I own about 15 stocks." Here we go, Emily, he's got 15 stocks, with Amazon and Google -- or Alphabet, if you will -- as his largest holdings by percentage.
He goes on, "I usually buy two or three shares of a new stock." So, maybe put a flag in that, you might want to speak to that in a minute, Emily. He goes on to say, "So you can see how I would be overweight in high priced stocks. I'm fortunate or lucky ... " as the song Rock Around the Clock was, " ... to have some extra money to put to work in my investment portfolio, but ... " Mark concludes " ... I'm torn, as to whether I should buy more Amazon or Google or put more money in my other stocks, like, Etsy, Salesforce or MercadoLibre. What do you say? Thanks, as always, for helping small investors enjoy the fruits of capitalism and making our family richer, smarter, and more generous to causes we support." Love hearing that. "Best regards, R. Mark Cully." Emily, thoughts?
Flippen: Well, this is another listener who is really ahead of me in the game, because there is a level of discipline that comes with only having 15 stocks in your portfolio that I just fundamentally lack. I am terrible, because I love to buy shares of new companies, I am easily [laughs] distracted. But at The Motley Fool, we keep with the mentality of adding to our winners. And so, when you look at your portfolio and you see companies that have been historically great winners for you, possibly Amazon and Google, and you balance that against new companies; which could also be great winners, you talked about some of them, right, Etsy and MercadoLibre.
You have to look at your portfolio as a whole and ask yourself a couple of questions. One, am I comfortable with the sizes of the companies in my portfolio? As a general rule of thumb, and this is different for everybody, as a general rule of thumb, you never want to be overweight in one single company that's 10%, 20% of your portfolio, to the extent that that single stock's movement could dramatically [laughs] impact your returns. But at the same time, you also want to open up opportunities for yourself to get new companies.
And Google and Amazon, they're great companies, but they're not as growthy as companies like Etsy and MercadoLibre. So, in my opinion, it comes down to portfolio management. And I want to touch on the first part of that question, because it is an important aspect of that question, buying shares versus buying percentages. Stocks don't move in dollar volume, right? So, if you buy 100 shares of a stock that costs $1, and it goes up 10%, that is fundamentally no different than buying a single share of a company that is $100 and that stock moving 10%, right?
Gardner: Percentages, not points.
Flippen: Exactly. You want to think in percentages. So, when you're buying shares of companies, think about the dollars that you're allocating to them, not the number of shares that you're buying. Irrespective of that, I tend to be on the side of, I want great companies in my portfolio. When I see great companies, when they cross my desk, if you're a subscriber to Stock Advisor or Rule Breakers, whatever it may be, when you see great companies come across your desk, I tend to be on the side of, I want to buy shares, right? There's great minds behind that. David, you're one of those great minds behind those recommendations. But it is a portfolio question, you want to make sure you're not overweight in any single company, and you want to keep your portfolio to a size that is comfortable for you. For me, that might be larger, it's proven [laughs] to be a little bit larger than 15, but it's different for everyone.
Gardner: So, Emily, I know you've appeared numerous times in this podcast, I don't know if you've ever heard David Kretzmann join me, where we've talked about the Gardner-Kretzmann Continuum. Now, is that a phrase that you know?
Flippen: I'm pretty sure I have been on an episode where we have talked about this. But I have since forgotten what the continuum is.
Gardner: So, if you're comfortable relaying to our worldwide listenership your rough ratio, that would be fun, but not necessary. So, in the numerator of this ratio are the number of stocks that you own. So, if you were telling us that, in so many words, you have 31 stocks, that's the numerator. And then the denominator is your age. Which you're welcome to reveal or not, but we're not asking you about either of those numbers, it's the ratio. And the theory of the GKC is that, in general, we should have a ratio of 1.00 or higher. In other words, if you're 26, you should have 26 stocks; if you're 54, you should have 54 stocks or more. This is under the assumption that diversification is good, some of those positions may be highly imbalanced.
Emily Flippen, to the extent that you are ready to tell the world your GKC, what is it?
Flippen: [laughs] Well, I am blessed to have a calculator sitting right next to me on my desk. One of the perks of being an investor as my day job. I'm proud, I suppose, to admit that my ratio is 1.88. I am 25 years old, and I have about 47. That might be a little bit high for some investors; I feel comfortable with it though, I like my continuum ratio.
Gardner: I think that is great. And truly, in my mind, there is no number too high. The GKC exists to remind us, don't be too low, don't be underwater, don't be 54 years old, which is what I am, and have two stocks and be just banking it all on red or black, don't be a gambler. So, anyway, thanks for sharing that, Emily. And as always, of course, for being so accommodating and fun, which is what we all love about you, in part.
But something else I love about you is your willingness to embrace questions like Rule Breaker mailbag item No. 8. This one is a little technical. Emily, are you presently studying for a CFA?
Flippen: I am. I am studying for level two. The exam may happen in December; we'll see where we are in terms of the pandemic; if not December, then next May it will happen.
Gardner: Excellent. And CFA stands for Certified Financial Accountancy?
Flippen: [laughs] Kind of close, Chartered Financial Analyst.
Gardner: That's it, Chartered Financial Analyst. And it's kind of funny that I honestly, even though I rock the acronym all the time, it shows that I don't have one. I am not a chartered financial analyst. We have a bunch of them here at The Fool. And somebody like Jim Mueller has gone all the way through the program while being an employee. Emily, it sounds like you're in that tradition yourself.
Flippen: I am trying to. It was a goal that I had set out for myself before I was a Fool or at least a full-time Fool employee. And I've enjoyed studying for it, I have grown a lot as an analyst. I will not say that it's the best way to become the best stock picker. You get lots of really interesting information if you're interested in finance, if you're interested in investing, they will teach you a lot. But I also think you can learn a lot just by all the free resources out there, David. This podcast is one of them. So, it's truly amazing to me how much information is out there if you're studying for the exam or otherwise.
Gardner: And I never have. And I should mention, we have a number of CFAs at The Fool, we also have a bunch of CFPs; I do know that one pretty quickly off the top of my head, Certified Financial Planners. And these are people I'm delighted to be working with and have for years in some cases, because these are valuable additions and enhancements to our advice. So, I'm basically the stock picking Fool out there just, you know, trying to muddle my way through that with my next 5-Stock Sampler.
But Emily, the reason I'm delighted to have you here for Rule Breaker mailbag item No. 8 is, sometimes I get technical questions. And while I have my own guesses, I haven't necessarily studied. I'm an English major.
So, let's go now to Rule Breaker mailbag item No. 8. This is from Andy Courtwright, who's written in certainly before, a very active Fool. Andy, thank you for this note. "David, how does a company stock buyback affect the market cap of a stock?" So, before I'm going to go on with Andy's note here, Emily, we're talking about market cap, you are a Market Cap Game Show star, you know your market caps or at least most of them.
The market cap is, of course, taking a company's shares, the total number of shares, and multiplying it by a company's share price to come with the product, which is the market cap. And we love to talk market caps on this show, because it's a great way of understanding the sizings of companies out there. And if you're thinking about a company that you think one day could be a $10 billion market cap, and it's an $8 billion market cap today, that's not as attractive to me as if we're at a $1 billion market cap and we think it could get to $10 billion; that looks like a potential 10-bagger, that's why market caps matter.
But here, Emily, we have Andy asking about, when companies buy back their own shares. So, let me continue, "If a company ... " he says, " ... has 100 outstanding shares, at a price of $50/share, the market value or market cap is $5,000. If the company buys back 10 shares of its stock, is the new market cap 90 X 50, which equals $4,500? In other words, did the market cap decline, because the company bought back its own shares?" So, in closing, Andy says, "How does a company buyback influence our thinking about a stock, does it change our expectations regarding potential market cap growth?" He signs himself off, by the way as, "Loyal Stock Advisor member and Motley Fool podcast listener. Bullet No. 2, Gardner-Kretzmann Continuum score 0.71." And finally, "No. 3, average Market Cap Game Show score, 0.4;" which I believe is less than 1-in-10; he does say he needs to improve.
Emily, help us understand how stock buybacks affect the market cap of a stock?
Flippen: Sure. And that example, that example is accurate in the sense that if a company were to really [laughs] buyback 10% of its stock and nothing else changes, that's exactly what would happen to the market cap. But in reality, there's a couple of different things that prevent that from happening. The first one being, companies often don't buyback [laughs] upwards of 10% of all of their shares outstanding. When they do issue some sort of buyback program, it's smaller amounts of stock over longer periods of time. They could even be issuing shares, as counterintuitive as it sounds, they could even be issuing shares while they're issuing this buyback program.
So, there's very, very rare times at which you're issuing large amounts of buybacks that would significantly influence the market cap.
And if that even were to be the case, the price of the stock would likely adjust to reflect the new economic value of owning a single share. But since we talked about the CFA here, and since I'm in the process of studying for level two of the Chartered Financial Analyst exams, I have to bring it back to theory. And if you know anything about me, it's that I am terrible at economics, I have failed economics upwards of three times throughout my education history. I hate theories, I think they are so impractical, I hate learning about how things could exist in a fake world and then thinking to myself, but how does that matter for this world?
Here is a theory that paints a perfect world, but it actually is kind of relevant in this case. So, if you go back to the 1950s, there were two theorists who essentially came out with this conclusion that in a perfect world, you take away taxes, you take away transaction fees, you take away information asymmetry, essentially any decision made in the capital structure of the company doesn't change the economic value of the business itself. So, issuing a dividend, that's the same thing as a share buyback. Buying back shares through their capital, same thing as a dividend, there's no relevance of the dividend as a result. And ultimately, it's not really the case, because we all pay taxes, some of us pay transaction fees on when we buy and sell shares. And more importantly, there's often time there's a shield for the debt a company takes on. So, if they're issuing debt to buy back their shares, that can actually have a financial impact on the company.
But this is all to say that economically speaking, this doesn't mean much for the average investor. A company buying back shares, in my opinion, assuming your taxes are similar, it's not that different than a company issuing you a dividend, the underlying economics of the company and the business have been completely unchanged.
Gardner: From an empiricist, an empirical person herself, a little bit of theory. Emily, I'm glad that you rocked that on this podcast. So, I think the key thing, and you alluded to this earlier, Emily, is that often companies are issuing more shares, and we're not really paying too much attention to that, they're doing it to issue them as compensation for their employees, sometimes there could be bigger things like secondary offerings, but those will, by definition, change the market cap ever so slightly. But for the most part, these kinds of decisions don't make a big difference.
And, yeah, I do like how you pointed out, Emily, that if a company was strongly in the market buying back its own shares, while the share count would be declining, likely it will be pushing up the price because it's strongly in the market buying and so it kind of nets out.
Emily, before I let you go, first of all, thank you for joining me for three points this week. And some of our listeners are probably thinking about becoming chartered financial analysts. So, since you are working with the CFA Institute and they'd probably like a free advertisement, I'd like two things from you before you go. One, how about 15- to 30 seconds about why everybody should have a CFA? And then one tip to people who are actually serious about this, who are aspiring to it or maybe just starting it, that you've already learned that you could convey to aspirants?
Flippen: Great questions. I think you should consider the chartered financial analyst exams, and potentially getting your own CFA, if you are potentially making a career move. It's a great way to show potential employers that you're serious about studying finance, learning about a new industry. But I also want to make a plea to all the women listening out there. If you look at studies, women, especially in finance, not only are less likely to get credentials like the CFA, but have been underrepresented in the industry. I think part of the reason why I was really interested in getting my charter was -- in the process of getting my charter, I am not a charter holder right now -- was simply because there is a lack of representation in the industry. And maybe I felt like I had something to prove, not just to the people out there, but to myself as well, and it is something that I hope I will get it one day, and if I do, I will feel very proud of myself for that move.
So, I just want to acknowledge that as a big catalyst for me making the decision that I did. And you know, I'm eating my words now, because the moment we finish taping, I have to go study. [laughs] But it does keep me waking up nice and early in the morning.
Gardner: Well, we've all got our fingers crossed for you, Emily. Congratulations. As a betting person myself, I just bet, one day you're going to get it, maybe even on the first try, we'll see. Congratulations on already passing level one, by the way, which is a substantial commitment of time and expertise. And you've become a female at The Fool with CFA; I hope an ever-growing number.
Well, Emily, thanks a lot for your help on this podcast this week and Fool on!
Flippen: Thanks for having me.
Gardner: All right. Rule Breaker mailbag item No. 9. I'm going to say 9 of 10, I think we'll have a story to close. But in the meantime, I want to welcome my friend Michael Douglas to Rule Breaker Investing. Michael, how are you doing?
Michael Douglas: I am great, David, thank you for having me. And I wanted you to know, right before I got on there, I went ahead and took my Gardner-Kretzmann Continuum score, it's 0.77. So, I am 34 and I own 24 stocks.
Gardner: Well, that's remarkable. Now, while I said it's nice to be one or higher, for a lot of people, especially as we start younger, it's hard to get up to a big number of stocks at, like, the age of, let's say, 15, 18 or even 31. I would say, 24 stocks at 31 was probably more than I had, and impressive. More importantly, Michael, do you like the companies you're invested in?
Douglas: Oh, I love them. And that's actually why I don't have that many, because there are not that many companies that I love at any given moment. And so, I try to be really rigorous about pruning when I'm not as excited. A couple of years ago I sold out of a company, and then three weeks later it got acquired. And so, you know, naturally I missed out on quite a bit of upside. But I wrote this piece at the time actually explaining my thinking, which was that the problem wasn't that I got out "too early." It was that I got out too late. My thesis had changed nine months earlier and I hadn't, sort of, like done the rigorous, sort of, OK, I'm really not excited about this company anymore. And so, just kind of turning that story on its head a little bit.
Gardner: So, Foolish, that's what we do at The Motley Fool. I love it when we invert and surprise people with our contrary take on things. That's a great example. Michael, before I ask you question No. 9 here, could you just briefly share how long you've been at The Fool, what you came here doing, what you're doing now?
Douglas: Yeah, absolutely. So, I came to The Fool in January of 2014 as a healthcare analyst. So, I had a background in hospital consulting, and so there was this great opportunity to talk about hospitals, learn about biotech, and a lot of just really incredible and transformative work that's happening in healthcare. I mean, for me, healthcare has always been very personal. My parents are both healthcare professionals, or have been at one point or another in their lives. And so, just really understanding it, kind of, holistically from every side is just really helpful.
Nowadays, I work in our Membership business. And so, my job is to, kind of, drive member experience and think about ways to help our members grow their relationship with The Motley Fool overtime. And ensure that we're serving up the right solutions to help people solve their financial problems or leverage the financial opportunities that they're looking to focus on.
Gardner: That's great, Michael. And, yeah, it really is in our best interest, while we love everybody to buy every service that we ever offer; I mean, I guess we would have infinite money at that point, it wouldn't actually be very sustainable, would it? Because if somebody buys a product or a service that doesn't actually suit them or speak to them, then that's just a problem for everybody, because then they have to call our member services team, take up our time, we try to explain ourselves, we all realize, oops! That probably didn't make sense for you. We give them their money back, and it ends up being not the best use of everybody's time. So, Michael, thank you for that effort.
Douglas: Well, you're welcome. Thank you. And actually for me, it's also, you know, at an ethical level and from a business pragmatism level, it's just, if you create a good experience for people, good things happen, right? And if people love the product that they're in, then maybe they want to tell their friends about it, right? So, there's just a lot of -- I had an old boss at an old company who talked a lot about doing well by doing good. And I always found that to be just so powerful, and I'm sure he didn't invent it, I'm not sure who did, but I've really tried to, sort of, live my life that way. And this has been a great job for really being able to kind of focus on that idea.
Gardner: Well, thank you, Michael. And it's just a delight for me to think that you are doing that at our company today, how valuable that is, and that you have the right heart for it. So, thanks. And I'm really curious how you're going to respond to it, Rule Breaker mailbag item No. 9.
Now, this comes from Dan Ordower. I believe this is Dan's first appearance as a correspondent on the Rule Breaker Investing podcast, however, a number of times in the past, he's written a note. And I had 42 pages of emails and notes to read in preparation for this week's podcast. So, there's a lot to sift through and I have to say no, and not read the vast majority of what I get. So, Dan, thank you for what you've been sharing. But what I remember of past correspondences, and then we'll read yours now, is that you live in Israel, you're passionate about investing, you are a teacher -- I can't remember whether professionally or just as a helper to others. And you have really spread a love of investing, and very specifically, Motley Fool-style investing and Motley Fool service awareness to many people in your circle of influence. So, I'm going to start by saying thank you very much. That's what I remember, but then you wrote, this very thoughtful -- somewhat provocative -- note. And I thought, you know, I got to have my friend Michael Douglas on this to help us understand how we think about this.
So, here we go, Dan Ordower. "Dear Motley Fool, dear David, I live in Israel. I teach a seven-week investing course in Hebrew with a friend called Om Economic." I'm thinking, Michael, here Om, Om. I'm thinking that's where we're headed. And he uses the Stock Advisor and Rule Breakers services. "Many of my students sign up to your services." Wow! "I believe at least 100 by now." Double wow! "I have a few questions though weighing on my conscience. Upon being asked about sharing a service between friends, we said that if two friends want to each buy one Stock Advisor and one Rule Breaker and then share them, then we think that's fair. I myself share a few services with my brother. I am asking, in hindsight, for your permission. And if you feel that it is not good business, we will say that every student has to buy their own service. In addition, one student found a hack while signing up ... " Now, this is where we're going to be made better, I presume, Michael, by what we're about to learn, because there's a hack out there. I don't know if I should be reading this in public, but here we go. " ... a hack while signing up, that if you register without putting in your credit card details then the marketing team comes back with emails offering the service at a lower price. If there's a problem with this, then I will not support the practice, but the word ... " Dan says, " ... is out. We obviously charge for the course, we add our own content, such as tracking tools that I built, as well as mindfulness and other life hacks. It's simply an organized way to introduce The Motley Fool to Israeli Hebrew speakers. In conclusion, since our course uses website content heavily based on some of your services, I wanted to be transparent and to say how satisfied our new Israeli Fools are. If you feel there's a need for official affiliation and monetary remuneration from our side, I would love to discuss it. The way I see it it's win-win. We have an ethical oasis of content; you have new subscribers. I am very grateful for all you do, I'm a much better person and family man due to your guidance over the past 20 years, which has led to financial freedom for my family. Awaiting your response with a lighter conscience. Fool on! Thanks, Dan Ordower."
Michael Douglas, there's a lot there, maybe unpack a little bit of it, give us some insight.
Douglas: Sure, but first I just have to say, what a powerful signal of the benefit that people are seeing from The Motley Fool, right? And I think that just speaks to all the amazing work the company has done for very nearly three decades now. Quite a bit longer than I've been here. And I will say, you know, I was a paying Stock Advisor member before I came on staff here. And so, I can speak to the transformation that The Fool brought to my personal financial life right after I graduated from college and then in the years in between college and coming here. And of course, certainly quite a bit more since then.
Unfortunately, our subscriptions are sold on an individual basis and our terms and conditions specify that. But I've got a different solution for you, Dan, that will hopefully help you out, and it also gives you the opportunity potentially to earn some free Stock Advisor along the way. So, listen up. We recently launched a referral program for current Stock Advisor members. So, if you refer a friend or perhaps a student to Stock Advisor for a 30-day free trial, they get access for free for 30 days. And if they join, you get in return a free month added to your existing Stock Advisor membership.
Now, as you can imagine some terms and conditions apply, but the place we want to go is Refer.Fool.com, that's where the full details are laid out. And you want to send your friends to friends or students to Friends.Fool.com to start their free trial. And our hope is to enable people who love The Motley Fool to give the gift, sort of, if you will, in theory, of Stock Advisor, so that other people can try it out and learn from it, and then can decide what they want to do.
Gardner: Well, thank you for that, Michael. And first of all, I'm delighted that we have a referral program now in place. I think that's pretty recent and I thank you and your team for making that available. I've kind of always hoped for that, and so I'm just delighted that we have that. I feel like, in some ways, Dan is, at least in my mind, a level higher in terms of he's using it to teach and he's popularizing us now on foreign soil. And there might even be regulations or laws I'm not even aware of, so I'm not going to speak to that from a legal state. But I do feel as if, you know, maybe in future there's some opportunity at a more institutional level in some contexts to partner to make sharing or some greater form of referral possible. I will say we're not there yet, right? Michael, there's no plan that we have where somebody can teach what we're doing, receive remuneration for that and, like, textbooks, where I think students are still supposed to buy each their own textbooks, right, in general, isn't that how things are? Where you could share it out, any thoughts on that?
Douglas: You know, this is the first time I've come across a situation like this. So, Dan, also thank you for just giving me some food for thought. I think it's interesting and I definitely think it is something that's worth us looking into some more. As you noted, David, we only launched this referral program earlier this month or in the month of September. And so, that's sort of Phase I. But I do think it's worth us looking into some more, whether there are opportunities to work with people and, kind of, support something more along the lines of what Dan is suggesting. And I will go ahead and put that on my to-do list to discuss with our legal Fools and some of our other folks.
Gardner: And I guess there is the one other thing, briefly, to talk about, Michael, which is the hack. And which is, hey, if you just do this, you get a better price. So, I think, in general, this has been true not just of The Motley Fool in different contexts over the years, but of so many [laughs] subscription-based business models. I think that if you threaten to cancel your Sports Illustrated, back in the day, they might say, hey, what if you pay a few bucks less, or if you threaten to cancel your credit card, your credit card company. As we've often counseled people to do, they might give you a better rate. I think the reason that ever works is because not that many people do it.
Is it fair to say, Michael, if everybody was trying a hack, all of a sudden, the companies that are offering subscription models at different prices would start to seal that off and end it altogether? So, there's something about ethics there that we each have to answer our own question, something about gamesmanship. And, hey, I'm renegotiating with my credit card company, what's bad about that, I don't know if you have any thoughts that you want to share in conclusion on that one.
Douglas: Yeah, great comments, David, and thank you for calling that out. I negotiated with my internet service provider whenever my contract runs out every two years. And I have popcorned between Verizon and Comcast over the years, specifically to get a better deal each time, right? And that's because, you know, the reason that they do that, they make their intro pricing so much lower than their, sort of, renewal pricing, if you will, is because they know that most people are not me and are not willing to spend the two hours negotiating and going through the miserable call menu to save a couple of hundred bucks. But I'm totally willing to do that. And the same thing with credit card companies, right? And actually, you see this with some of the credit card, as credit card hacking has become more popular as a concept, you've seen actually a lot of the card companies begin to find ways to kind of tighten down the regulations and figure out ways to make their benefits less generous so that they're not just, you know, paying for other people's vacations and not making any money back on their end. So, it is interesting that, sort of, constant escalation almost, sort of, between the consumer and the company.
To your point, yes, usually a tactic like that works in the margins, because it's on the margins, and because there aren't that many people who follow through on a particular piece of it. I'm not terribly familiar with this precise part of it, so I'm going to have to look into it on my end, and just see how marginal it actually is. But as far as I'm concerned, if a business is willing to offer you a service at a certain price point and you get the chance to take advantage of that price point, the businesses decided that it is worth it and you're getting the best deal you can. And my hat's off to anyone who puts through the effort, because I think that is valuable and I think negotiation and trying to find ways to make things work better for you is a good thing. Because at the end of the day, money is a force that can be used for a lot of causes, and every dollar that you save is a dollar that can go toward your (inaudible 01:09:31) financial freedom, it can go toward charity, it can go toward other good causes that you believe in and it can go toward your own business, it can do so much for a society. And so, I wouldn't dream of claiming that your counterparty, the business on the other end, is necessarily going to use that dollar better than you will.
Gardner: Well, thank you, Michael. I really appreciate you speaking to Dan's note. And, Dan, we want to thank you for all that you've done for a lot of people to introduce investing in their lives and make The Motley Fool part of their lives as well. So, I hope that's clear. Neither Michael nor I, last I saw, is employed as a lawyer at The Motley Fool. We also don't want to make the jobs of our lawyers harder. I do think people should be paying for services that are giving them benefit. I think part of the beauty of Motley Fool services relative to maybe your cable provider is, if you're doing your job right, and we're doing our job right, our services pay for themselves. Actually, they should pay more for themselves. So, I hope that we're living in a world of abundance where you feel like you want to subscribe to our services and not hack your way through. I realize we're all in different places, and that includes financially as well.
Anyway, Michael, you did a great job speaking to it, it's good to see you. And keep upping that GKC, baby, Fool on!
Douglas: [laughs] Thank, David.
Gardner: All right. And that now brings us to the end of things for this mailbag podcast. Closing out September 2020. Thank you, again, to all of my guests. And thank you, Daniel Trindade; Daniel, I hope I have your last name mostly right, for taking the time to write in from Dubai with this concluding thought this month.
"Hi, David. Good evening, it's Daniel from Dubai again." That means Daniel has written, indeed he has before to our mailbag. "I trust all is well with you and your loved ones. One more late-night writing to you from Dubai, as this might have been one of the most exciting days of my investing journey. Yes, I was gifted ... " Daniel writes, " ... with my first spiffy-pop." Now, I want to make sure before we continue that everyone knows what a spiffy-pop is, a lot of you do, but we have a lot of new listeners every week. And what Daniel is referring to is when a stock goes up more dollars per share in a single day then you paid for that stock when you bought that stock way back when. So, for example, if you bought Zoom for $100/share, that was like the cost basis the first day that you bought Zoom. And then later, let's say somewhere around the 1st of September 2020, the stock goes up in one day roughly from $300 to $450, which means it went up $150/share, and your cost for Zoom was $100/share, you'll see that you had an amazing pop that day. Not just any pop, that's a spiffy-pop, that's when your stock goes up more dollars in a single day then you paid for it in the first place. And that is a miracle, and turns out miracles really do happen.
And in fact, we've had dozens of spiffy-pops across our Motley Fool services for our members in the year 2020. And maybe none more so than what I started this episode with, and what has been a recurring theme of this episode, and that is ticker symbol ZM, and what it did at the start of this month.
Now, I have to admit, I wasn't even really paying that much attention, I was probably thinking about what are my 5 Stocks Indistinguishable from Magic, which is what I was doing somewhere around September 1st of this month. But clearly a sound was heard around the world, it was cheers from Motley Fool members everywhere. This is a very widely held stock, it's been volatile up-and-down at different points. But that was a spiffy-pop, and Daniel from Dubai experienced it as well as so many others hearing me right now. And he took the time to write in with this.
I've just realized, this is the first day of the month he writes, but this email might be more suitable for a mailbag episode, indeed it is, at the end of the month. "Nonetheless, I could not help writing to you to share my joy and excitement." Now, before I get into it, I'd like to ask you a few questions on how exactly to define a spiffy-pop. He writes. "I know a spiffy-pop happens when a stock goes up more in value in one single day than the original price you bought it for. With that in mind, I want your help in answering this, as an investment philosophy following the Rule Breakers traits ... " Daniel writes, " ... I always add to my winners. And most of the time I tend to buy more at higher prices. So, when counting a spiffy-pop, do I take into consideration each addition I made or the average cost basis or not?"
I'm just going to short-circuit it right there, the answer is, Daniel, and fellow Fools everywhere, feel free to just take your initial purchase of anything. Any time you took the time to save some money, click with your mouse or use your voice [laughs] these days or tapping your mobile phone, however you're trading, you took the time to risk that money by taking part-ownership in a stock. And then later, the stock rises by more than that, that is a spiffy-pop. So, yes, I'm glad to hear Daniel and many others, you're adding to your winners, you're therefore upping your cost basis, your average cost is rising, because you're maybe buying more as it goes up. I celebrate that first spiffy-pop, that first entrance, that first entry position for you. Don't worry about your average cost basis.
Now, if you want, you can focus on your average cost basis and counting your spiffy-pops from there, but really, from the first stock I ever picked in Rule Breakers or Stock Advisor that spiffy-popped, even if I rerecommended it at higher prices, I think about all of my fellow members who are buying that day at that price, and that is a spiffy-pop.
Now, I return to Daniel's text. "I will now tell you the story of my first spiffy-pop ever. When I first came across Zoom Video, if I remember well, it was in an article from one of The Motley Fool's contributors." So, think about my friend Anand Chokkavelu who joined us earlier. And Anand was talking about all of those writers who write all of those articles on Fool.com that turn people on to stocks in the first place. Well, Daniel was one such, and said he fell in love with the story of Eric Yuan -- he is, of course, the Chinese-born immigrant CEO here in the U.S. of Zoom Video -- his passion, his motivation behind the business. Daniel writes, " ... the solution he was bringing to the table and the culture he promoted within the company. I have to admit I did not follow one of your common bits of advice, which is to wait for a few quarters before you buy a company that's just gone public." Yes, that is kind of standard advice I have, although I'm happy to break that rule sometimes myself. Anyway, Daniel says, "I bought my first position in ZM on the day of the IPO 18 April, 2019, at a very overpriced ... " that's I think said with a smile on his face, " ... $63/share, which was at that point, of course, a pop, not a spiffy-pop, because it was just the first day of the IPO, but it definitely popped $63/share, of course, an all-time high on that first day."
Daniel goes on, "Then I added another four times to that position until June of last year. So, that's from April 2019 to June, when it had climbed to $95/share. Again, going against the Rule Breaker golden rule of never double-down, I did add more another five times, as it went down to $62/share [laughs] in December 2019. I have to say that having seen the live interview that your brother, Tom Gardner, did with Eric at the Capitol Discovery Summit ... " which was the name of one of our Motley Fool events, " ... that was a big influence and testimony to the confidence I already had in the company's moat and its leadership."
And I want to pause it right there and just say briefly that my brother, Tom Gardner, did an outstanding job, not just finding this company, which he did earlier than most, maybe not on the day of the IPO, congratulations Daniel and others, but Tom found it in the Summer of 2019. And beyond that, he did two important other things. First, he sought out the CEO and did a public interview with him -- well, for our members -- that's step No. 1. Outstanding. He, kind of, introduced Eric Yuan to many of us who'd never heard from Eric before.
And the second thing Tom did, is he recommended it in our services. He recommended it through multiple services in 2019 right into the Fall of last year. And boy! Tom ended up looking wonderfully, because how many Motley Fool members were buying well in advance of COVID or before most of the world had heard from Zoom.
So, again, thank you Tom Gardner, you also brought my attention to it, which I might speak about in a little while, but let me continue with Daniel's note here. "The position I had built ... " Again, I think Daniel had 10 add-ons, right, he added to this position 10 times. "The position I had built was bulky enough for what I consider to be the portfolio size I would like to allocate to Zoom. So ... " Daniel says, " ... I stopped buying for the time being. Most of your listeners know [laughs] what happened after that. Well, just last week ... " Again, this is written earlier this month. " ... Zoom was trading at sub-$300 prices. And you rerecommended it in Stock Advisor as a Best Buy Now. I decided it was time to buy more, as I saw this company becoming a synonym to video conferencing, exploding its client base, its net income, free cash flow and earnings per share. I added more on a position I had bought just nine months ago 80% cheaper." Did you hear that fellow Fools, Daniel had recently, nine months before paid 80% cheaper, but he had the guts to go, winners keep on winning, winners win, this looks like one to me, it doesn't always work, right, we all recognize that as well, but he did it. He said, "I don't think I would ever have done that if I didn't have the Rule Breaker DNA imprinted in my investor mind. Well, just last night, after earnings, Zoom popped some $75 afterhours." Then I'm fast-forwarding a little bit more, "Next day it pops a further $75, premarket." And then all of a sudden Daniel gets to celebrate basically two spiffy-pops on back-to-back days.
"Later on, close to midnight time ... " Again, this is from our Dubai Fool correspondent. So, midnight time GST, he writes, " ... the stock was trading at $453/share." A massive $128 gain above the previous day's closing price, a proper indisputable spiffy-pop. He said he was texting with a very good friend that he has, that he'd met, actually, at a Motley Fool summit last year. This friend lives in Singapore. "He'd already had his first spiffy-pop with Shopify a few weeks back, he was now enjoying his first with Zoom this very day. He told me I should count one spiffy-pop for each addition I had made to the stock. Please, David, tell me that's true, because if it is, I just had 10 spiffy-pops today."
Daniel, I have some bad news for you, I don't count spiffy-pops per positions, I just count it per stock. So, unfortunately, I'm going to have to suggest to you, you can play this game anyway you want to play it, house rules rule if you want, Daniel. But I would suggest that you just count it for that stock. You say, Zoom spiffy-popped for me that day. "Anyway, my friend called that a new event, he called it a spiffy cracker, that's what I wanted to share with you. Well, I hope you've enjoyed reading this so far," And I have, it's been a pleasure to share this at the end of this podcast with those still listening. I've certainly enjoyed my day. "I consider this my birthday gift in advance," Daniel, says, "I turned 42 on 7th of September" So, Happy Belated Birthday! "Tonight, after putting my kids to bed, I took my wife out for dinner to celebrate. I have to admit, I did not expect this to happen that fast in my life as an investor in international, for me, stocks. When I first saw the video of one of your opening speeches during a past FoolFest event asking, who knew what a spiffy-pop was, and more than half of the audience in that video, hundreds of people raised their hands, I was shocked. And then following up you asked, who had already had one, and almost the same amount of hands were lifted. I literally could not believe that such a remarkable event could be experienced by so many people. I was since then on a quest to be part of the club. I've learned so much from you and the whole Motley Fool team. I started to believe it was possible, even though "I had not seen it with my own eyes." Tonight, I can only feel amazed that it took me only two years and one month to have my first spiffy-pop. I leave here a testimony of someone who's smarter, happier, and richer because of you all. Keep safe, and wash your darn hands. Daniel Trindade."
Well, thank you, Daniel. When I read wonderful stories like that, I almost don't want to offer anything at the end, because they speak for themselves so well. But I guess I would just want to put a final note in here, which is that, I finally decided in March of this year, as COVID became clear, especially here in the U.S., that it was for real and it was setting in, I decided what in 2019 I had initially dismissed as kind of a commodity service, Zoom. Like, what separated Zoom in my mind from Skype or Facetime or BlueJeans, which was a European version of Zoom I had used, or any number of other free video services.
Video conferencing was a thing back in the 1980s when I started as an 18-year-old investor, there was an industry back then. And yet I started to realize, and certainly my brother Tom had realized it months before, that everything was coming to this platform, right place, right time. And so, even though I myself had watched the stock more than double at that point, I decided, you know what, I'm going to make it a new pick in Motley Fool Stock Advisor.
That day for me was March 19, 2019, the stock was at $123, way above where people like Daniel and my brother Tom had found it. And yet, what is one of the most important recurring lessons that I speak to again and again on this podcast, and why do I say it again and again, because it's so contrary still to most people's mentality, even though it had already been such a winner, and I thought at $123, I want to get all of our Stock Advisor members in. If anybody hadn't already bought with Tom, we're going to add that too. I want to make sure that's part of the public record for a stock that I picked too.
When it went to $150 a month later in April, I said, I'm rerecommending it, that's my best idea this month in April. I know you all have it lower, let's be buying here too. And so, it is with absolute pleasure that I noted in conclusion, that the day that Daniel was writing in, the stock was at about $450, by his birthday about a week later, it had dropped from $450 to $350, that's not included in this note, because it happened subsequent to his writing that for our mailbag, but if you're a Zoom shareholder, you watched it go from $450 back to $350 a week later. Today, as I speak, it's at about $470, it's fully retraced those losses, it's at new all-time highs. As I spoke to earlier in this podcast, I have no idea where it will be in 12 months, it could easily be half where it is today in six months. And darn it, if you've been a Fool investor, you should still be very happy, because even with that rate of return it has been remarkable.
Anyway, to close, by March cost basis at $123, it feels awfully great at $470, it was also on my 5 Stocks for Coronavirus, a pretty good sampler, at $470. And I hope that is making an important impression on a new generation of investors who might see investing differently than the way it was taught to many of us. It won't work every time, and these are charmed times indeed. But there are some timelessly important contrary lessons that break the rules of how people think about the markets that a lot of us have realized, have embraced and have profited as a consequence.
So, yeah, thank you, Daniel. I'm glad we made you smarter, happier, and richer. Fool on!