Why Investors Have to Be Willing to Lose

In this episode of Rule Breaker Investing, Motley Fool co-founder David Gardner is joined by Motley Fool analyst Rick Munarriz to share the results of the 5-Stock Sampler called 5 Stocks That Let You Eat Cake. Find out whether this sampler was a winner or a loser over its three-year run. David talks about how we are hardwired to worry about the downside and how, with the right mentality, you can create unlimited upside.

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 November 18, 2020.

David Gardner: Question for you. If I told you that you could buy stock in the worldwide leader of electronic commerce or that you could buy stock in the worldwide leader for cloud storage, which would you pick? What's the right answer? Well, if you're a dyed in the wool Fool, a Rule Breaker follower of some vintage, particularly thinking back to three years ago this week, you know the right answer, the right answer is both. And if I told you that you could buy stock in a worldwide leader for meeting other singles online amid a more mature and professional clientele, kind of, the LinkedIn for dating, or you could instead buy stock in a worldwide leader for meeting other singles among kids today, the millennials, Gen Z, doing it on their mobile phones, which would you pick? What's the right answer? Well, I think you now know.

This week we're going to share with you the results of 5 Stocks That Let You Eat Cake, that let you have things both ways, picked three years ago this week. And best for last, well, there's a related point, a single lesson at the end that I will share with you this week that may well be my favorite lesson of all.

Quick question for you, would you rather learn from your wins or your losses? Well, to learn from both, you'd need to have both wins and losses. And that's why we're going to close with losing to win. Only on this week's Rule Breaker Investing.

[...]

And welcome back to Rule Breaker Investing. What a month, what a month this is. I start to realize, there are two words that summarize our podcast this month; the words are "five" and "stocks." And why do I say that? Well, last week I had my newest 5-Stock Sampler, 5 Stocks That Will Press On, so that's a good reason to think of November as five stock's month, November 2020. But then again, each of the past three weeks, including this one, we're reviewing a past 5-Stock Sampler. So, more five stocks. And indeed, the first episode of this month was entitled Stock Stories, Vol. 5. Yep, it was volume five for stock stories where we also reviewed 5 Stocks for Conscious Capitalism. So, yes, we are here to review a 5-Stock Sampler once again today, and I'm going to be sharing with you my losing to win lesson, one of my favorite lessons to teach and reteach as the months and years go by. Always, of course, illustrated with real stories and real numbers. So, I'm really looking forward to it. I'm rubbing my hands together for this week's podcast, looking forward to bringing on my friend Rick Munarriz very shortly to talk through 5 Stocks That Let You Eat Cake, learning to avoid the trade-off mentality and say "both" whenever you can "yes." And as we learned in improv comedy, which I believe is also part of Rick Munarriz's background, we'll talk about that, yes, and a great approach to take not just to investing, but of course, to life.

I want to mention, before we get started, next week is the November 2020 mailbag. Maybe "five" and "stocks" will come back in some weird way next week's podcast. But if you've enjoyed this month, if you have any reflections on this month, we reviewed 5 Stocks for Conscious Capitalism, last week 5 Stocks That Got Trouble, this week 5 Stocks That Let You Eat Cake. We picked five new stocks last week, if you have any thoughts, inspirational stories or poems to share, yep, it's that time of the month again next week for the Rule Breaker Mailbag. Really looking forward to that, and to a week of Thanksgiving as well.

And let me conclude by saying, if you haven't already, I hope you'll subscribe to this podcast on iTunes or Spotify, Google Play, wherever you find podcasts. You can follow us on Twitter at @RBIPodcast. You can follow me on Twitter if you like, I'm @DavidGFool. My friend, Rick Munarriz, coming on in a sec, started on Twitter before most of us, certainly before me, because he's @Market. That's right, Rick actually just found no one had taken "market" yet, so he is @Market, which makes a lot of sense, since Rick has probably written more stories about the stock market than anybody in the last 20 years, and I include every news bureau you can think of. So, it'll be a delight to have @Market, and I'm @DavidGFool.

And finally, I hope you'll give us a review. So, on those podcast aggregator sites, iTunes, for example, throw me some stars, let us know how we're doing, I read every comment.

All right. Well, without further ado, chapter one of this week's podcast 5 Stocks That Let You Eat Cake. Now, this sampler was picked on November 22nd, 2017, and part of the fun of the samplers is, if you're ever feeling so motivated, you can go back and listen to that very podcast and what we were saying way back when, back on November 22nd, 2017. And I actually relistened to this one a little while ago, and it's probably one of my favorite sampler themes, because as I already tipped off at the top of the show, it's about finding things where you can have your cake and eat it too.

And I want to say a little bit more about that phrase in a second, but first, let me introduce my friend, reintroduce my friend, Rick Munarriz. Rick, great to have you back on Rule Breaker Investing.

Rick Munarriz: Thank you, it's great to be here, David.

Gardner: Rick, how long have you been at The Motley Fool?

Munarriz: Since 1995, so that's 25 years, so I have had my cake and I have eaten it too with The Motley Fool over the last 25 years.

Gardner: [laughs] And Rick, roughly how many stock market stories have you published to Fool.com. First of all, do you know the exact number? Do you track this?

Munarriz: I do not track them; I wish I did. I mean, I can tell you how many rollercoasters I've been on, it's 224, but I cannot tell you how many stories I've written, but it's somewhere around 25,000 at this point, definitely well over 20,000. It's been so long I did not track it early on ...

Gardner: ... 224 rollercoasters, though, Rick. I know you are a huge theme park aficionado, Disney shareholder. You and I first met on the grounds of Walt Disney World, and I think back fondly to that day outside the Rainforest Café. Ended up not being a great stock, let it rain we said, ticker symbol was RAIN, but losing to win is one of the themes of this week.

Munarriz: Uh-huh. Indeed, indeed. Yeah, that was in '97, right when it opened. So, yeah, it's definitely been a long time since Rainforest Cafe opened, a long time since I've known you, and a long time since I've been part of The Fool, and I'm grateful for. Definitely the last thing for sure, the last two things, not so much the Rainforest Cafe thing.

Gardner: [laughs] Well, our great fortune to hitch our wagon to Rick Munarriz's star over +20 years. Rick, you know that we love talking stocks, but you and I also love talking sports, so just very briefly, it's been a while since the Miami Dolphins had a very good football season. Things are going really well for your Dolphins this year, have you been to a game?

Munarriz: I have not been to a game. They're limiting attendance to, like, 12,000, 13,000 people. And I'm a season ticket holder, so they gave me the option, do you want to come to the games or you just want your deposit bankrolled till next year? And at the time, you know, this is Florida, this was like Summer, when cases were spiking here pretty badly. And I said, you know what, I'm just going to watch it on TV and just let my money ride till next year. I did not think the team would turn it around to be 6-3 right now, I'm sort of jealous that I'm not at any of these games. And I may decide to show up later in the year, you know, Tua is 3-0 since he took over as quarterback, definitely an interesting thing, but you know, just like everything else, you know, you can't have your cake and eat it too, you can't watch football in a stadium and be guaranteed that you will come home to your family clean. So, I will take my chances for my TV for now.

Gardner: [laughs] I'm glad that you mentioned that humorously, Rick. Yeah, I did look up and remind myself about the phrase, "can't have your cake and eat it too," and to be clear, when you say, you can't have your cake and eat it, it means, you can't have a cake in front of you. So, please picture this Fools, you can't have a cake in front of you then eat all of it and then say, I still have a cake. Nope, you can't do that. So, if you eat the cake that's sitting in front of you, it's gone, the analogy goes, you can't have your cake. So, I just wanted to drive home the etymology of the phrase before we get started.

But now, Rick, let's start. And our traditional approach to samplers, we go from worst to first. So, I'm looking over 5 Stocks That Let You Eat Cake, and I really regret picking two of them, [laughs] three years ago this week. The first one, and by far the worst performer, has been cut-in-half, which is also an amazingly great theme for the rest of the show as we'll find out in chapter two. But 2U (TWOU -9.71%), ticker symbol TWOU, the online learning platform, was at $66.76 on November 22nd, 2017, it's now down close to $33.25; that's down 50.2%. Now, the bogey we're competing against is the market, of course, the S&P 500, which over these three years is up 41.7%. So, we'll round that to $42, which means, with 2U, Rick, down 50%, and the market up 42%, we start -92% in the hole. Ouch!

Rick, what has been happening, or not, with 2U?

Munarriz: If this sounds like deja vu or deja 2U, it's because just last week in your podcast, you had Karl Thiel talking about 2U. And I'm going to try to get my story very different, so you're not hearing the same thing and let me try to spot it, but the theme that it was picked was because we're looking at higher learning. And of course, you think, well, there's bricks-and-mortar, like, traditional universities and those online education, you know, which one is the best and can you have both? And 2U, in this case, was a company that was basically a big man on both campuses.

It helps colleges and universities offer online programs, online degree programs, mostly online graduate school programs, and it has signed long-term deals with 75 different institutions of higher learning, and it offers about 160 different programs, and these are real schools, so we're talking about, you know, you can wear your Harvard or Georgetown alumni sweatshirt and pride, or in my case, the University of Miami, or in David's case UNC, all 2U partners. Knowing that you're affiliated with the genuine article; and not that that's important, because there's nothing wrong with University of Phoenix or Capella, or any these exclusively online institutions, but you're never going to see, you know, your team, University of Phoenix playing in the Rose Bowl or wind up in a March Madness bracket. So, there's always, kind of, this legitimacy to your college, and they can also reach out to you, of course, as an alumni, saying, hey, you know this is my college, they want me back. Even if they're just, you know, sort of, dusting you off to the virtual playground.

So, for 2U, this is a stock that when it was originally a Rule Breaker, it was in the $30s, which is where it is now, we just had the misfortune of making the sampler stock a year later after it had rallied with a lot of online education stocks. So, it all boiled down to one day where everything went wrong. You don't need to get a 2U degree over a course of several weeks or months, you can get one right now, go to just circle July 31st, 2019 on your calendar, and the stock plunged 65% in a single day. And obviously, that's pretty rough, because if you lose 65% of your value, you basically have to triple to get back where you were.

So, what happened on that day was they reported their second quarter results. It was the Summer, it was a decent result looking back, but looking forward, the company was very cautious. They basically said that, you know, they scaled back their enrollment expectations, and they said they're doing it deliberately because of the "mainstreaming of online education." They just felt the market was getting very competitive. So, they wanted to just start, you know, real back, they weren't going to have these big online programs that they were doing, they were going to scale back with less marketing spend, lower expectations, so they wouldn't be launching as many new graduate programs.

So, basically, we had a stock that basically took a huge hit on a single day, and you figure, well, there's no way that from July 31st the stock will triple, but it did, it's almost there; it's in the low-$30s now, as you pointed out earlier. So, I mean, it has made back most of that damage.

And the good news is, in this basically this very mean roundtrip from $36.50 to $12.90 in a single day and now back to the low-$30s, is that the stock of the company was actually growing pretty well even through that. You know, this is a company that this will be the ninth year in a row where they're growing at least 30% or better. So, this wasn't really a big hit, there were some acquisitions along the way that helped to keep the streak alive. It got into some other things like bootcamps and degree certifications, and those small acquisitions, sort of, help pad results. But in this last quarter we heard a couple of weeks ago, it was 31% all-organic revenue growth. So, the model is, sort of, working, and the model itself is also changing.

You know, in the early days and until recently, they were basically collecting 60% from universities and up to 80% for some of these bootcamp affiliations, of the revenue, and they were doing all the legwork. And they were sort of like, just kind of like, just hold on to their money, they're trying to sign new deals where the universities put some more skin in the game, and so there'll be less investment upfront to get these curriculums rolling, but 2U will be able to make a smaller piece of the action, but less risk in the future.

So, an interesting model, we'll see how it works, but yeah, definitely, from our starting line, a terrible run, not so bad if you bought basically Summer of last year.

Gardner: That's fair. You're absolutely right. Depending on your viewpoint, you've tripled your money, if you had this stock in March of this year, when it had been crushed down to near $10, or as Rick mentioned, August of 2019. So, a lot of this comes down to where you're scoring it from, but, hey, we're scoring it from three years ago this week, that's how the 5 Stocks That Let You Eat Cake work.

And, Rick, what was I saying, why are you eating cake with 2U, when I did the podcast three years ago?

Munarriz: Yeah, the cake was, you can go to a regular university that you know, like a brand-name university that you've maybe frequented, you maybe did undergraduate work there or you know, and also have the online experience ...

Gardner: And do it online.

Munarriz: Yes, and it's online and still be, you know, UNC, and in my case, UM, and still fly our colors while sending money to a [laughs] phantom 2U somewhere out there in cyberspace.

Gardner: Well, I do think that 2U continues to let you have your cake and eat it too. It remains an active recommendation for us. We still have great hope and a feeling of promise around 2U. It's a shame it's been cut-in-half over the last three years. That damaged this 5-Stock Sampler pretty badly, and yet we proceed forth. You know, Rick, you're right, Karl Thiel reviewed 2U last week, because we were looking at a sampler from two years ago this month. There's something about November that has me picking 2U, I don't know what it is, but I keep doing it, and it keeps not working thus far.

Okay. So, again, -92%. Let's move now to stock No. 2, this unfortunate also down. Rick, this company is down about 27%, again, the market up 42% from three years ago, so that's a -69% in the loss column in addition to the -92%; I'll do the math a little bit later. The company, Rick, is Cboe Global Markets (CBOE -0.64%), the ticker symbol is CBOE. Rick, what has happened to Cboe that has it losing a quarter of its value in the last three years?

Munarriz: Right. So, CBOE, it stands for the Chicago Board Options Exchange. And it was born in the springtime of 1973, so it's not as old as you may think some of these older exchanges go, but it was the first U.S. options exchange offering standardized listed options. So, we're talking about options, futures, basically derivatives depots is what the Cboe is. And of course, when you're in the trade trade, you're also going to make deals for other exchanges. We've seen a lot of the other exchanges, Nasdaq, New York Stock Exchange, do similar things. And they're a big deal.

And Cboe, they acquired Bats Global in 2016, which was a growing player in the U.S. It was a U.S. company. But growing really big in Europe too. And the most interesting story about this is, if anyone remembers in 2012, when Bats Global tried to go public on its own, it was pretty bad. So, Bats Global is not an international Bruce Wayne fan club, it is actually an acronym for Better Alternative Trading System, which is what BATS stand for. And they decided to be the first company to go public on their own exchange, and they said, OK, you know, let's lead by example. So, that the stock priced at $16, and hit the market, and there was a major glitch. And the stock was trading for as little as $0.01 at one point. And basically, the glitch basically sent ripples through the rest of the trading system. Apple stock was trading for a few cents at one point on this exchange. So, it had to cancel all these trades, and that should have also canceled the listing. So, Bats Global rather never went public.

So, four years later Cboe approached it, and it said, well, yeah, I'm going to save face, let's go. So, Cboe Global Markets is the largest options exchange, but it's also now the third largest U.S. stock exchange because of Bats Global and also one of the largest exchanges by value traded in Europe. And of course, it's also a leader in exchange-traded product listings and trading. So, when you hear the term VIX, which is basically the VIX, which is a gauge that measures stock market volatility, that's a Cboe exchange traded product. So, they're basically all over where -- and at the time, when we put it on the sampler, when you put it on the sampler three years ago, it was -- because you can have a stock that was a growth company, and Cboe was definitely a growth company at the time, with minimal risk. And with Cboe, you know, even now -- I looked up at the beta -- the five-year beta is 0.59. And I should probably explain beta for those that don't know. It is sort of a metric of volatility, like, 1.00 is sort of equivalent to, like, steady with the Standards & Poor's 500. If it's a high beta stock, in Rule Breakers we tend to have a lot of high beta stocks, because we like these high growth companies, you'll have a very high number.

A low number doesn't mean that it's low risk necessarily; I mean, the goal tends to be like 0.00. But it marches to its own drummer, it marches to a different beat of a different drummer, so to speak. So, Cboe did live up to that part of it. But what happened is, even though the stock was historically a steady producer, and you can go back to 2004, and I did go back to 2004, and revenue rose every single year until last year. And what happened last year was, like many other exchanges and many other even brokerage companies, it became a very competitive market, and probably, just your own broker, your own stockbroker, maybe offering $0 commissions now and free ETS and all these things, it weighed on Cboe.

So, even though average daily trading volume for Cboe, the average daily volume was up 27% last month and 34% the month before, it basically -- the revenue generated per contract is going the other way, so they're not making as much money off their trades and that's really hurting them, and that really weighed on the stock, at least over the past year definitely. So, it didn't help last year. And this year just, people just aren't buying Cboe this year.

Gardner: All right. Well, thank you for that, Rick. And you know, it's great to have you break down what's happening in the businesses. That's really what we're focused on The Motley Fool, we're focused on, we call it business-focused investing. The stock price usually is going to take care of itself, up or down, as we're finding out this week, but it's the business dynamics that are driving these moves. The moves made by the CEO, management teams, partnerships, new product innovation or not. And again, all five of the companies we're covering this week, whether winners or losers over the last three years, remain active recommendations going forward from here, companies that we would buy shares in today. And say, yeah, I think we hope we're anyway going to beat the market in the next few years.

So, Rick, how are we eating our cake and having it too with Cboe?

Munarriz: Yeah. Back then the thesis was that Cboe was a great growth stock, but it was also a way to take a great growth stock without a lot of risks. So, you can have a low risk, high return investment. It didn't pan out that way, but you know, it was definitely a well-intended pick in that front.

Gardner: Well, thank you. And I'll mention again, of course, having picked the stocks on November 22nd, 2017, the official final score for the sampler won't be known until Friday market close this week, that will close out the three years. I keep a spreadsheet where I keep all these numbers. What we're reviewing, this is about 98.9% of all the votes being counted at this point, but there's still 1% of time for this sampler, that could happen either way, that could change some of the numbers, but they won't change it much, I don't think, not enough to make Cboe or 2U winners. Well, those are the two losers for this.

All right. Well, from losers, [laughs] now we get to go to winners. The third best performer here Rick Munarriz, really happy to know, the third best performer has itself more than doubled since three years ago. Nvidia (NVDA -2.48%), ticker symbol NVDA. The third best let you eat cake stock. Nvidia was at $214.93 three years ago, today it's right around $535. That means it's up 149%. Again, against the market's +42%. We're going with +107% in the win column just for this stock alone. Rick, how was Nvidia letting us have our cake and eat it too.

Munarriz: Yes. So, Nvidia, the argument was, that you could have a Founder-CEO, or in this case of Nvidia, a Co-Founder-CEO, who's not only a genius electrical engineer, so a smart tech guy running a tech company, but also one that was really a highly capable executive. And that's where Jensen Huang comes in. And on Glassdoor, he has a 99% CEO approval rating. And 97% of the folks working at Nvidia would recommend working there to a friend. So, I mean, obviously, this is very impressive. And he was in the Glassdoor list of top CEOs for 2019. And back then his CEO approval was just 96%. So, whatever he's done then, he's gotten even [laughs] better at it. So, his employees seem to like him even more now, which is always great to see.

And of course, there is a platform like Glassdoor for investors, it's called the stock market, and there Huang and Nvidia are, obviously, killing it, to have more than doubled since you made this call three years ago.

So, Nvidia, just a quick short history of the company. It started out as a graphics chip company. And Huang saw the evolution of the CPU, eventually leading us to the GPU, which is the Graphics Processing Unit. And so, the big allure initially was the gaming market where visuals are everything, and probably at that time, you know, desktop publishing an Autocad for architects. But Nvidia and the GPU, they've come a long way, it's not just a matter of just putting chips on a graphics card to make your videogame look cooler, they're basically -- Nvidia is a leader in powering datacenters; autonomous driving, so all the self-driving car projects; AI and just about every buzzword before it becomes a buzzword seems to be in Nvidia's wheelhouse. And Jensen Huang, obviously, he's always one step ahead of everybody else, he's like that friend of yours that was streaming The Queen's Gambit or Ted Lasso before you and I were. So, he has this great ability to just look ahead, but of course, he's also humble enough to know that, hey, sometimes I don't have the solutions. So, he hasn't been afraid to cut big checks, you know, basically a multibillion-dollar deal for Mellanox Technologies, and a $40 billion deal for chipmaker Arm Holdings. So, they're obviously a winner here.

And the one thing, again, we always talk about timing. A year ago, this pick would have been in the red, because from November 2018 to October 2019. So, almost a whole year, there was this dry spell where the stock couldn't break that $200 ceiling. And we are above that three years ago, so. And it traded exclusively in the hundreds there. And it was, sort of, well-earned, if you see the numbers behind those quarters, it was four consecutive quarters of year-over-year decline in revenues, and you can blame that, sort of, maybe on the cyclical nature semiconductors, there was obviously trade tensions between the U.S. and China, that aren't gone necessarily, but back then they were really heightened and people were afraid.

Customers and industries that weren't at their best last year, but however, Nvidia shot out of that slump, and basically in the last three quarters, Nvidia has come through with growth of 38% or better. So, you know, a great Co-Founder-CEO can get you out of the situation, and he did.

Gardner: Wow! And he can also bail you out of a 5-Stock Sampler that started with two losers 2U and Cboa, -92%, -69%, that's minus -161%. But with this stock outperforming by 107%, we're not back to even yet, but Jensen Huang and the talented team at Nvidia has us at -54% as we look at our final two stocks for this sampler.

Now, stock No. 2, the second-best performer. Well, I've talked about it a little bit before, it's that company where you can buy the e-commerce leader or would you buy the worldwide cloud leader, oh, wait! No you could actually have both. And the ticker symbol is AMZN, the company Amazon (AMZN -1.35%). I remember that was the cake that you were able to have and eat it too. Jeff Bezos, his amazing vision, talk about visionary CEOs, Rick.

The performance of Amazon has been spectacular. The stock three years ago this week at $1,156.16, today it's over $3,140. It's about $3,145 as we record. So, that's up 172%. That's 130% ahead of the market, that puts us back up 76% ahead of the market before we go to our final stock. But before we go there, Rick, some perspective on Amazon.

Munarriz: Yeah. And I think Amazon is a story, it's more of a singalong than an actual story, because we all, sort of, know the words here. And I'm not going to rehash everything, but it's an interesting anecdote that I know, probably a lot of people may not know, but back when they went public back in May 1997, they were calling themselves the world's largest bookstore. And obviously, a lot of us know that we know that, but an interesting thing that happened that week is a few days before the IPO, Barnes & Noble launched its own website. So, they are basically, you know, the brick-and-mortar book superstore. Started their own website, and they filed a lawsuit claiming that Amazon's boast was false advertising. And the move backfired on Barnes & Noble, because Amazon would go in counter and saying, well, OK, then but maybe your Barnes & Noble website, you know, they should be charging sales tax on its site for all the states where it has a physical presence, which is probably the only time that Jeff has ever been on that side of the taxing debate, I guess, for Amazon. But eventually the two parties settled in October, and pretty much everyone just said that it was just a public relation nightmare for Barnes & Noble and not so much for Amazon.

So, Amazon, we all know, it's all part of our lives. Every year it becomes a bigger part of our lives. And what I found interesting is Amazon, is if you look at the revenue the last few years, it grew up 20% in 2015, 27% in 2016, then 31% in 2017, and 31% again in 2018. It accelerated. And then last year it took a break, it went back, it went to 21%. But this year, it's on a pace for 35% growth. So, this will be its strongest growth in nine years. So, the world's largest bookstore is now the world's largest retailer in terms of market cap, it's not in actual sales volume because Walmart can sue it, $348 billion in trailing revenue for Amazon, it's still $200 billion short of Walmart.

But Amazon, obviously, being so much in high-margin products and stuff like AWS, which is a cloud computing platform that we all know and it was one of the original parts of this -- that it was the top dog in cloud hosting. So, they're everywhere. And I know my house, every few days, I know I'm hearing my little Amazon Alexa, you know, give the bum-bum there's an Amazon delivery waiting for on my porch, so. And I know I'm not alone with that, especially with the pandemic. I know I've leaned on Amazon Fresh for a lot of grocery deliveries. I've leaned on them for just so many things. Entertainment on TV streaming, and music, and obviously, Audible for audiobooks.

Gardner: Yeah, Amazon Prime is No. 2 in the streaming wars; Netflix, of course, No. 1. But it's just remarkable to think that Amazon is ahead of Disney. Now, Disney is obviously a later entrant and is making great growth. But just that even that little bookstore online would be there in the No. 2 position here in the U.S. is remarkable.

All right, well that sets the stage for the top performer of 5 Stocks That Let You Eat Cake. This is a company, it's one of my favorite stocks, I've never used it online services, though, because I'm a happily married person now in my 31st year of marriage, but if I were looking around for a mate, online is not a bad choice these days. And Match Group (MTCH -2.20%), ticker symbol MTCH, has been helping people meet significant others now for a couple of decades. It is a domestic and really global leader.

Rick Munarriz, this stock was trading at $29.96 back on 11/22 '17, happy to say it's gone from $30 to $131. As we talk, it's up 340%, again, against the markets +42%. This has been a 4-bagger for those who listened and went for it, 5 Stocks That Let You Eat Cake three years ago. I wasn't expecting, Rick, that it would go up 4X; why is Match Group doing so gosh darn well?

Munarriz: Yeah. So, basically with Match. In the world of online dating, there were two camps. And the thesis at the time, three years ago, and I believe it was Rick Engdahl himself who had suggested it to you, if I'm recalling the podcast correctly, that basically there were two camps here. There are old-school dating sites that you basically pay to join. And so, you're getting folks that have more skin in the game. So, it's probably a better potential for a lasting relationship. And then you have the trendier swipe left, swipe right apps, that teens and young adults turn to for more casual hookups. And Match Group, of course, gives you both, you do have Match.com, it is the original, it's the old-school online dating site.

And David, three years ago you called it the LinkedIn of online dating. And to me, that's perfect description, because it's functional, it's white-collared, it's a business card slid under the door when you're in the market, it's vanilla and not Haagen-Dazs vanilla, it's more like store-brand vanilla, but you know, it's a pioneer in the space, it's back to the late 1990s, so.

But Match Group also has the other end, it has Tinder, the popular social dating app that has gone to account for the majority of Match Group's revenue, even though the company is still calling itself Match Group, it's really very Tinder based now. So, altogether, Match Group operates dozens of dating apps and websites. So, it's not just Match and Tinder, it's Meetic, which is the European equivalent of Match.com.

And an internal study that, admittedly, Match Group itself did, it found that 60% of relationships that started on a dating app or website started on a Match Group platform. So, an impressive breadth this company has across many different sites. And it has 10.8 million paying subscribers at the end of September, and a little more than those are international. So, this isn't just a U.S. story.

So, what happened? Tinder happened. So, Tinder was already a pretty big deal for Match two years ago, but the only reason that revenue grew back three years ago in that quarter was because of Tinder, because revenue for all of the non-Tinder brands actually declined, the direct revenue declined, their advertising revenue declined, if you back Tinder out three years ago. Tinder had 2.5 million paying customers three years ago. Today it's at 6.5 million. So, basically two-thirds of the Match Group total. And an ARPU, which is average revenue per user, it's only up slightly in that time. So, it's not as if Match Group is getting better about monetizing. It's that they just have a better grasp on what's going on in the online dating scene.

And like you, I celebrated my 30-year anniversary earlier this month, so I know all these sites anecdotally. Obviously, I'm aware of them. But yeah, thankfully, [laughs] I haven't had to turn -- you know, online dating wasn't even a thing 30-some years ago.

So, with Match Group, what's really happened now more impressively is that it's now more of a team sport, which makes the company stronger in my eyes, because this isn't just a Tinder story anymore. Direct revenue from the non-Tinder brands rose 23% in its latest quarter, which is faster than Tinder itself growing at 15%. So, the company is adding a lot of cool new sites, it launched a site Chispa a couple of years ago for Latins, for Latinos, like myself. It launched one recently -- and I want to play a little game with you, David, I know you enjoy games ...

Gardner: Let's go.

Munarriz: Yeah. So, they launched a site called Upward recently, it's the last site they launched, and it's one of these three things. I want you to guess to see if you know what it is, it is an A. a site for really tall people, specifically men, six feet and four or taller or women five feet and ten or taller; B. a Christian dating site; or C. a dating website for Type A middle managers?

Gardner: I'm just going to go with A. I love the idea of a dating site for tall people.

Munarriz: Well, you fell for my flourish for details. It's actually B. It's a Christian dating site. I imagine they're taking on a Christian mingle, and you know there's just so many, like, farmers only, which they don't own, but there's just so many basically specific, people-focused. I want to, you know, meet people that have my beliefs or something like that, and they're actually catering to that. But obviously, there's still Match and Tinder that are wide open to anybody, and Hinge, which they recently acquired. So, they really have this ...

And to me, this is a really surprising story that it's done so well, because again, I'm just so far removed from this, I thought this would be one -- the kind of stock that would actually get crushed in the pandemic, because you know, if going outside of your house is dangerous, imagine going out on a date and meeting people. But you know, Match Group has done a really good job about keeping things virtual, having people meet virtually, get to know each other a little better, and that's keeping people on their platform longer. So, it really has played out well for them, you know, it's the kind of industry that you thought would get crushed from the COVID-19 crisis.

Gardner: Yeah. And indeed, it did drop quite a lot earlier this year, along with the rest of the market. It dropped from $80 down to about $45 or so in just a month. But from $45 back up to $131, pretty much a steady walk up the steps from late-March through to today, which gives us a big win for 5 Stocks That Let You Eat Cake.

Rick, I want to thank you very much for your due diligence looking into those five stories. This is the final time we'll ever review this sampler. I hope everybody appreciates the theme, remembers the important lesson in the theme, but also appreciates Rick doing some extra work thinking about three years of progression for these companies. You know, I've said every 5-Stock Sampler, just about everyone, as a three-year game. Three years is a minimum increment for us as investors, at least for me at The Motley Fool, I rarely sell anything inside of three years, I'm always thinking at least three years forward. But if we went much more than three years, we'd spend every podcast reviewing all of our past samplers. We have to end the game somewhere -- speaking of games, Rick Munarriz -- otherwise, it would be all reviews all the time.

But a final reminder to us all. All five of these companies are actively recommended, not from three years ago to now, although, yes, but from now going forward over the next minimum three years.

Rick, thank you very much. Good luck to the Dolphins, but most of all, Happy Thanksgiving! to the Munarrizs.

Munarriz: Thank you, David. And Happy Thanksgiving to the Gardners as well.

Gardner: All right. And as a final accounting, a reminder the actual final numbers will be clear once Friday trading ends at four o'clock Eastern. But as of this podcast scoring, those five stocks averaging a gain, rounding up, of 117% per, that's against the markets 42%, 75%, each of those stocks averaged, beating the market. Two of them losing, three of them winning. One of those losers, by the way, is cut-in-half, which sets me up now for chapter two.

Chapter two is entitled Losing to Win, which is the theme overall of this podcast. I was put in mind of this when Shirzad Chamine joined us about a month ago. He was talking about what's your PQ? All of us have an IQ, whether you know it or not. I don't know mine, I never want to; it's probably not that good. All of us have some EQ. We've been taught, largely by psychologists and society in the last couple of decades, that emotional intelligence counts for a lot, and presumably that can be in some ways scored.

Well, Shirzad's site is now rocking the PQ. That's your positive intelligence quotient. And what we learned from him a month ago, is that, if you're able to have positive interactions and positive feelings three quarters or more of the time, about life, about yourself, your prospects, about interactions with others, your thoughts going forward, if you can hit a PQ of 75, that's the percent of the time you're positive, or higher, it unlocks all kinds of good things for you in life, your PQ.

And that ratio, sort of, three-to-one, right, three out of four, is exactly the ratio that for years I've been talking about. Psychologists tell us the pain of loss is three times the joy of gain. And I even mentioned that to Shirzad, and he said, you see it's a universal number there. Well, I'm going to go back to that ratio right now to make my losing to win lesson.

So, psychologists tell us, the pain of loss is three times the joy of gain, which is really sad when you think about that, for you and for me. This is wired into us, we've evolved it over, not just centuries, but thousands and thousands of years, protecting the downside, worried about the downside, in situations where our ancestors were much less secure than you and I are, but we still feel the same way today, we fear loss, we feel loss much greater than we feel gain.

And we see this with new people joining Motley Fool services. It's not infrequent that sometimes I sit in on these member calls, maybe I've heard you before, I listen in and I hear about somebody who has just had their first stock that they bought, maybe one of my stock picks, and maybe it's one of the losers from this week or this month or last year, the first one they ever bought is down 10%. And frequently their next question is, should I still hold it, and then the one after that is, or should I just sell. And they're probably even thinking, should I cancel this service? Which is maybe why they're calling in part, our member services, because they don't want loss.

I mean, we don't like losing, I don't like losing, do you? No, none of us does. Turns out, we like it so much less than we like winning. And when I meet with new employees and I go around the table and I ask each person what's your superhero power, because darn it, if you're getting hired by The Motley Fool these days, we're getting about 100 to 150 applications per spot. So, if you're getting hired, you are a superhero, so what is your power? And when they turn the question back on me, I say, my superhero power is a strange one. I have an ability to lose constantly. My superhero power is the ability to lose, it's just losing, I lose all the time, but of course, I'm losing to win.

So, lose and lose constantly, we're doing it all throughout life. And the less we're afraid of it and the less we're constrained by either the fear of loss or loss itself, the better off we're going to be. And I've got some numbers to share with you now. This kind of numerical study I performed ad hoc here-and-there over the years. And I've occasionally made this point, but this time I really wanted to nail it down in this podcast with the facts and the title of this podcast Losing to Win.

So, this is my losing to win point. These numbers will change next week, next year, but the truth will remain the same and it's pretty remarkable. So, let's go to The Motley Fool Rule Breakers service where I have now picked 389 stocks since we debuted. The date was September 23rd, 2004. So, every single month, I've picked two new stocks since way back in the Fall of 2004 and we're at 389 now, because I picked my first of November already earlier this month and I have one more to pick. So, 389 picks.

Here is a horrific fact, and it is a fact. 63 of those 389 picks are down 50% or more. In many cases they were closed out years ago. So, we can historically say now, it's official, they were down 57% or 77.5%, some of them are still active. But when you take it all in all, we have 63 picks, that is literally one in six of every stock pick that I've made for Motley Fool Rule Breakers. And let me hasten to add that every stock pick I've made for Motley Fool Rule Breakers, I believed in at the time, you're paying me for my advice, I'm giving you my best shot. I will say, I'm never headstrong confident about any of them, even my favorite ones. I think the right mentality to take is, hey, we're playing the odds here, I think things can work, but we'll see, and you have to be ready to lose, because lose we have.

So, if you take those 63 stocks that have lost 50% or more and just say, on average, they're down 75%, and you do the math there. You equal -4,725% of loss. 63X -75. Here's the good news. The good news is that the 63rd best stock for Motley Fool Rule Breakers happens to be HubSpot. HubSpot is up 401.8% since I first picked it, and that is the 63rd best stock. In a world in which people fear to lose, don't want to have that first stock even lose 10%, I'm happy to say that the single best stock in Motley Fool Rule Breakers, which is MercadoLibre, picked it at $14.13 more than a decade ago, today it's at $1,300/share. That stock is up 9,004.7%. I realize there are a lot of numbers in this week's podcast, and for the numerically inclined, I hope you're loving it. I care deeply about numbers and I like to track them and get them to the first decimal at least, but if you are not as numbers inclined, I apologize for hitting you with so many numbers this week. But just think about that, our single best pick is up 9,004%, all of our 63 disasters combined lost 4,700%. In other words, our one best stock has just wiped out all of our 63 dogs and left a bunch of money on the table on top of that.

Such an instructive point for investors. And the reason I love to share this point is because it's true, it's happened, it's happened over more than 15 years, and because we've been just picking two stocks a month in Rule Breakers, the data is now a large enough sample size that I think we can look at that and say, not only is that true in the past, it's likely to remain true forever, it's very unlikely that this dynamic that I'm observing of losing to win will ever change. And you as a fellow Rule Breakers, I'm giving you the news first, if you didn't already know. This is a profound insight that most people investing today or trading especially simply do not understand. And why, because we're hard wired to think that the pain of loss is 3X the joy of gain, but flip it, because for investors, the joy of gain -- well, the joy of gain is a 91-bagger for MercadoLibre, that is way above the really constrained pain of loss, which for investors is never more than 100%, unless you're doing something crazy. And I've never lost 100% on any of my public picks. So, the key insight here with our fellow humans hardwired to think that the pain of loss is 3X the joy of gain, Shirzad was saying a month ago, turns out for investors, the joy of gain is infinite times the pain of loss. And that's why you and I should be willing to take it on the chin as frequently as one-in-six times, which is exactly [laughs] what I produce now over 389 stock picks over +15 years.

And in case you're thinking, well, that's just a strange artifact that's just peculiar to the Rule Breakers service, I have two things to say. The first is, I think you're right that it is peculiar to Rule Breaker Investing in our overall approach. You have to find great stocks to have the big winners that can wipe out your losers. And for people who aren't willing to buy Rule Breakers or embrace Rule Breaker Investing, people who are just looking to get Exxon for its dividend, they're probably never going to experience these kinds of gains. And so, for this reason, it works because it's Rule Breaker Investing, losing badly works just fine. That's the first point I want to make; it is probably particular to this style of investing.

But the second point I want to make is that this isn't the only service that I run that exhibits these dynamics. So, I've been picking stocks even longer in Motley Fool Stock Advisor. I pick one every month. For this reason, even though we started in March of 2002, I've actually picked fewer stocks in Stock Advisor than Rule Breakers. I've now picked a monthly stock for the last 224 months consecutively, so 224 picks in Motley Fool Stock Advisor. How many of those are down 50% or more? Well, more like 1 in 7.5 here, 13% of those picks, exactly 30 of the 224 selections, are down, I hate to say this, 50% or more.

But here's more good news: the 30th best pick in Motley Fool Stock Advisor is TransDigm Group (TDG -1.05%), ticker symbol TDG. It's up 756.6%. In fact, it on its own wipes out much of those 30 -50-percenters. If you add in the few behind it, the 31st, 32nd, and 33rd best picks, which happen to be, if you're keeping score at home, Okta, Pegasystems, and IDEXX Labs, those four wipe out all of those 50-percenters combined, and leave us 29 stocks on top of those that have all done even better.

And as I've talked about before, the best stocks in Motley Fool Stock Advisor history is Netflix, picked on December 17th, 2004. The 16th anniversary of that active recommendation is coming up about a month from now. We picked it at $1.85 back then. Of course, that's all post-split, it wasn't a penny stock. it's just a stock that's split a bunch. $1.85 then, $479.91 now. That's a gain of 25,737%.

Here are the last numbers I'll hit you with this week, if you take those 30 -75-percenters on average in Stock Advisor and you multiply 30X -75%, you end up with -2,250%. We're down 2,250% of loss, Netflix is up 25,737%. It's up more than 10X on its own. That one pick, all of those losers combined.

Is the point clear? I hope it is. And now you know why one of my favorite lessons, and one of my favorite lines is the title of this week's podcast, it's the phrase I'm going to leave you with, Losing to Win. Are you ready for it with me, are you ready to lose, to win?