In this podcast, we take a look at some admirable things about America and review a five-stock sampler from 2018.
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This video was recorded on July 6, 2022.
David Gardner: Four years ago, I picked five stocks for the 2018 World Cup. The 2018 World Cup was, do you remember this? Hosted by Russia. Yeah, that Russia. One of the stocks I picked was Yandex, the search engine, and e-commerce company for Russia. Anyway, that five-stock sampler finished out at the end of last week and it's another tale of huge wins swinging to meaningful losses. We'll talk about it and send five stockholders celebrating the 2018 World Cup off to Foolhalla. But even more this week, with all that's going on, it's my country's birthday, perhaps yours too and so briefly and unapologetically, I'd like to celebrate. Yes, celebrate and not denigrate or flagellate our country, and do that through the fresh eyes of an immigrant observer. What can we learn, maybe relearn? What might we have forgotten? What should we never forget? Only on this week's Rule Breaker Investing.
Welcome back to Rule Breaker Investing, and especially if you're an American listener, happy birthday, and great to have you with me this particular week in the height of the summer heat and the summer calendar. There's still enough left of summer that you can still look ahead if you love summer and go, wow, there's still so many summers left and yet past July 4th now, as we record on Tuesday, July 5th, you can already look back and say some of the summer is gone and will never come back. I guess I love that feeling. Maybe it's not that different from middle age. Well, we have two primary agenda items for the podcast this week. The first is a five-stock sampler review, and the second are some reflections about the United States of America, appropriately enough this week. We'll do them in that order. In the past for many Reviewapalooza episodes, regular listeners will know, I've had a Motley Fool analyst join me, and often will do three of these at once and we'll have three different analysts. But since we're just doing one and since I hope a lot of my analysts are on vacation or maybe at the beach, this week I thought I would just pick off this one and talk it through.
After all, I'm the one who picked all the stocks and so why don't I be their both of the Alpha and Omega for five-stock celebrating the 2018 World Cup. Now, the market over the course of these four years is up 40.7 percent, and longtime listeners will know that the vast majority of my 30 historical five-stock samplers were set for three-year games, three-year periods that we watched the stocks learn from their performance and see if we beat the market. This is one of the very few that I did. Not for three years, but for four, and for understandable reasons, since the World Cup occurs every four years, it felt like the right thing to do. As you will shortly find out, I sure wish this one it ended after three years but no, with the World Cup returning, I was just checking with my pal, my producer Rick, and we noted that the Men's World Cup starts in November of this year. Of course, four years ago, it was in the height of summer that it was happening, but since I guess Qatar seasonally is just better for November-December, that's when the world cup is for the men this year in 2022.
But this five-stock sampler was picked in July of 2018, and here we are, right at the start of July 2022. Let's get into it. As I already mentioned, the stock market over these four years was up 40.7 percent, we'll round that to 41 percent from July 2018 to July 2022. That's what we're trying to beat, 41 percent. I always like to start with the worst performer. The worst performer was Yandex, which I mentioned at the top of the show this week. Yandex is not even trading right now, so it's been a Rule Breaker pick. I actually personally own shares of the stock. It hasn't traded for few months so it's locked in at a price that is well down from where it was one year ago. I was just checking back with our review of this sampler last year, much better times, and Yandex stock was up 101 percent, so it had doubled in the three years since we picked it. It closes this fourth and final year down 46 percent. Yeah, that's 87 points behind the market averages and Yandex is the worst selection for this five-stock sampler.
Obviously, a business that as of the first quarter of this year, had a billion dollars in cash sitting on its balance sheet, still has value but with Russia in the state that it's in, this company was delisted from the Nasdaq and the Co-Founder and CEO recently stepped down, but it remains a vital going concerns. This is an unusual situation to say the least of the first-time in five-stock sampler history, we had a stock delisted for this reason. Of course, I continue to follow all of these companies past the end of the games that we play with a five-stock sampler, so an interesting one to continue to watch. Now speaking of interesting to watch, hard to watch though, was the best performer for this five-stock sampler, and I'm happy to say that Mercado Libre is up 122 percent over these four years, which is well ahead of the markets, 41 percent returns. We can give ourselves a plus 81 in the win column if you're netting out the market's return for Mercado Libre's return. But here's why it's been hard to watch, because a year ago this week, Mercado Libre was not up 122 percent. It was up 421 percent, basically 300 percentage points higher. It had quintupled over the three-year period. Now, it's just a double over four years.
As you might imagine, the greatest reason that five-stock celebrating the 2018 World Cup will close out as a loser is not really Yandex's fault although Yandex was by far the worst performer, it was the 300 points of Alpha that we lost in our top stock over the last year. It's really a good lesson to keep in mind, which is that when your winners win, they carry you to unprecedented heights, and indeed in normal market periods and over any meaningful market eras, that's the way things will play out as it will for this stock over time, but over any nearer term periods, over any bear markets, all the bear markets that we must live through in life, it's going to be your biggest gainers when they get halved. Well, that's down 50 percent from their highs. But in terms of your overall return, if you are riding a 17-bagger or something like that, all of a sudden your 17-bagger will be an eight-bagger or less.
That's always to be kept in mind. I think the strength of Rule Breaker Investing is that over time, you will celebrate these wonderful multi-baggers and how they can sometimes occupy outsized places in your portfolio. But part of that celebration has made all the sweeter by the memories of yours like this one, where you watch wonderful companies lose a lot of their value and a lot of your profits along with them. Anyway, Mercado Libre, the top performer for this five-stock sampler, Yandex, the worst performer, and between those two, as bookends, we have Electronic Arts, Booking, and Dassault Systemes. Electronic Arts, the video game company, closes out as of last week down 13 percent well behind the market, Booking closes out down 16 percent, also dozens of percentage points behind the market, and Dassault Systemes, the 3D design, and automation software company, a French company, and by the way, the reason I picked this five-stock sampler the way I did, some of these companies were international accompanies like Dassault Systemes, a French company.
Of course, the French ended up winning the World Cup four years ago. Well, Dassault Systemes was up 29 percent over these four years, but still about a dozen percentage points behind the market returns. When you take it all in all, these five stocks return 16.3 percent. Again, which given how the market has been in the last year feels good except not that great, because were 24.4 percentage points behind the market averages and so five stocks celebrating the 2018 World Cup, which was so worthy. The sampler anyway of celebration a year ago I mentioned the numbers in a sec, ends up going off to Foolhalla as a loser. Rick, please queue our Foolhalla music so I can emotionally think about what might have been for five-stock celebrating the 2018 World Cup.
The reason I even may be a little choked up right now is because when we reviewed this sampler one year ago, the market was up 59.7 percent, so we'll round that to 60. These five stocks were up as a group 122 percent, they had doubled the markets return. Just one year later, we end up walking away in shame. Since Foolhalla is permanent and that's where the permanent memories will live, those halcyon days of 2021 and how they were treating a company like Mercado Libre now look well, a bit nostalgic. Before we prepare to transition to the second part of this week's podcast, I guess just a couple of thoughts in passing. The first is that it's been a really tough year. This is not the only five-stock sampler that has rotated from big positive gains to all of a sudden, while in some cases, not this one, negative returns, but well behind the market.
I guess thought number 1 is just to remember that part of winning is losing. I once did an entire podcast entitled Losing to Win. It's a really important Rule Breaker point. As most bear markets last somewhere between six and 18 months and we're in one right now, there's no way we can quickly swim out of this. It may have worked for that second frog and the story, two frogs in a bowl of milk. Remember the second frog persevered, he refused to give any through his own exertion, he gradually turned the milk into butter so that he was able to just climb out of that cup. We can't do that instantly. That's not how investing works. Lesson number 1 is that you just have to be prepared to endure this. That's why my most repeated phrase on Rule Breaker Investing in 2022 is, of course, just keep swimming.
Maybe we can add in the frog analogy. You can picture a frog swim too, but you can picture those frogs kicking their legs in the milk and eventually it becomes butter. Lesson number 1, you have to endure the milk. Then lesson number 2 is even in the worst bear market I've seen for at least a decade, we can look back over these 35 stock samplers and see the 150 stocks taken together returning an average of 69 percent. As I report back to you this Tuesday afternoon, July 5th, the market over those blended seven years up 33 percent directly comparable. We're more than doubling the market averages, even watching some of our greatest gains get washed away with the receding tied of 2022. Chin up, Fools. Before we get to the second half of this week's podcast, I do want to mention next week on Rule Breaker Investing, I'll be joined by Rule Breaker service leader Tim Beyers.
Tim made a cameo on last week's mailbag. I hope you got to catch that at the end. He was previewing his appearance with me to talk about the Rule Breaker service in The Motley Fool on next week's podcasts. Really looking forward to having Tim join me a week from today. Now on to an article which really forms the basis for my reflections on the final half of this week's podcast. This article was published in the Wall Street Journal on the final day of last year, so December 31st, 2021. It was written by Peggy Noonan. I'll be channeling Peggy here. But what Peggy was doing in her own article is she was channeling the social media posts of an immigrant, somebody who's been in our country for 10 years, came over from Jordan in 2012, and he had put out a series of social media postings about what he loved about America. Now I think before I get into this, we can all agree on a couple of things.
First of all, America is not perfect, and whether you love it or hate it, we can all agree it's a human enterprise and it has a lot of flaws. But the second thing I hope we can all agree on is that there are some really admirable things about our country. Sometimes it feel as if we're beating ourselves up on a regular basis, maybe a little bit more than we should, and sometimes it takes people from outside of our own environment. Like de Tocqueville in the 19th century who came to America from France and pointed out a lot of the things that he admired about the United States of America in the 1800s. Well, in its own way, in a much more modest way, the social media postings of Amjad Masad, who came to America, as I mentioned, in January of 2012, function in a similar manner. Since this is a celebratory weekend, since this is a happy birthday, despite all of the flaws, I thought it would be a nice way to celebrate our country's birthday.
Let me just read a little bit of how Peggy characterizes him. He was from Amman, Jordan. He was 24, 10 years ago, so he's 34 today. He came because his father, a Palestinian immigrant to Jordan and a government worker, bought him of computer when he was six. Amjad fell in love and discovered his true language. He studied the history of the computer, he became enamored of the US in Silicon Valley. His memory of arriving at John F. Kennedy International Airport at the age of 24 is a jumble. But what he saw from the bridge going into Manhattan was unforgettable, the New York skyline gleaming in the distance. For him it was a spiritual experience. He was here. A little bit of his background. He settled in New York, he worked at a start-up, then he moved West. He needed to be in Silicon Valley. Five years ago, he became Co-Founder and CEO of a company called Replit, R-E-P-L-I-T, a company that offers tools to learn programming. At the time, it employed 40 people full-time and 10 contractors. Well, Mr. Masad became a citizen in 2019. His reflections near the end of last year were approaching the 10th anniversary of his arrival. He was so grateful for three things: a company, a family, and a house, all of his own. He and his wife and business partner, Haya Odeh, who's also from Jordan, started talking about America.
He used Twitter for it. Peggy quotes him saying, "I landed in the United States 10 years ago with nothing, but credit card debt. After one start-up exit, one big tech job, and one unicorn, I genuinely believe that it wouldn't have been possible anywhere else in the world. Here are 10 things that I love about this country." For the rest of this podcast, I'm just going to go down through his list. I'm just going to read it as he put it and then I'll give a little commentary here or there where I think it's warranted, but most of all, I'm just channeling, during America's birthday this week, the thoughts from somebody who truly loves the united States of America. Number 1, he says, "Work ethic. First thing I noticed was that everyone, regardless of occupation, took pride in doing a bang-up job even when no one looked. I ask people, why do you pour everything into a job even when it is seemingly thankless? It was like asking fish what is water." That was his thoughts on number 1, work ethic. For me, that ties back to what I think of as one of America's five core values, which I've talked about in the past on Rule Breaker Investing, and that would be value number 3, enterprise.
You think about how important entrepreneurs starting businesses, new technologies, for-profit capitalism, done well, by the way, often done poorly, which is another aspect of America he doesn't talk about, which is that we let things fail in this country, which doesn't feel good at all. Just like when my five-stock samplers go from, I don't know, 30,000 feet up there in the clouds right down to nose-diving down. Well, we'll just say much lower than that. But we let things fail in this country, and failure is important too. But it's that work ethic he's speaking to, which I think so tightly aligns with enterprise, which is such an important thing in America of every age. His number 2 reason to love America was the lack of corruption. He wrote, "In the 10 years in the US I've never been asked for a bribe. That's surprising. When you know that you predictably get to keep a sizable portion of the value you create and that no one will arbitrarily stop you, it makes it easier to be ambitious."
That was his number 2. What an important point that is and how common bribes and bribery are and really corruption in so many places around the world, which is sad because as he points out, it really affects how you think about your own prospects. If you can't enjoy the fruits of your labor, you're not going to work nearly as hard, I think. That lack of corruption to me ties back into enterprise once again. When you put together two things, work ethic and a lack of corruption, you have a pretty devastating one-two punch for excellent business, which is how I continue to think about America today. Now, I guess I hasten to add that of course, we all know corruption exists everywhere around the world and the United States has had its poster children like Enron over the years. Of course, we recognize that there are a lot of flaws and there still is corruption.
I wish there were none at all. I think as humans, it's probably impossible to imagine there ever wouldn't be some, but that lack of corruption in relative terms combined with work ethic. Really love his initial list of number 1 and number 2. Let's move on to number 3, which as you might expect, is going to tie back into business once again. Here it is. His words. Number 3, "Win-win mindset. People don't try to screw you on deals, they play the long game and align incentives in such a way that everyone wins. This is especially apparent in Silicon Valley," Amjad writes, "where you can't underestimate anyone because one day you might be working for them." Which I think is hilarious and has proven to be true. Not a lot to add on this one other than when I think of the win-win mindset, the first two words that come to mind for me are conscious capitalism, a recurring topic on Rule Breaker Investing. I'm on the National Board of Conscious Capitalism, and the win-win mindset is exactly how conscious capitalists think about business being a force to elevate humanity, creating value for all, and creating wins for everybody.
Now, we can all observe organizations for-profit and not-for-profit today that don't have that mindset. I hope it will continue to spread. I do believe since it's a winning formula, I believe that over time, many who are not following that will either be compelled to start adopting a win-win mindset or lose talent and profits to those who did instead. I'm very confident about that dynamic, which is in part why I'm confident about the future of America and worldwide business. It's driven for me anyway by that win-win mindset, which Amjad Masad has just spoken to. Let's move on to number 4, rewarding talent. He wrote, "From sports to engineering. America is obsessed with properly rewarding talent. If you're good, you'll get recognized. The market for talent is dynamic. If you don't feel valued today, you can find a better place tomorrow. Reason Number 4, to love America. As I thought a little bit more about this when I was reminded of a past interview on this podcast, which I'll speak to in a second. But I do want to say that every day I think we are inching closer to a meritocracy.
A meritocracy is where I want to live. A meritocracy is ruled by those who have the most merit. When you think about merit, it's not just that they're the smartest or they have the most money, is that they have the most merit. They are some combination of incredibly talented, incredibly hard-working, and incredibly noble, and they're thinking about others, not just themselves. That's the meritocracy that I want to live in and I truly believe while we make fits and starts, if you just think about how many more people today are included in conversations in America, how many more have prospects? I realized not everybody has equal prospects, probably never will. But from women to people of color, people who are excluded from lots of conversations or dynamics in our country 25 or 50 years ago are far more included today and I suspect even more so tomorrow because I think every day we're inching a little closer in this country to the meritocracy that I want to live in.
This reminds me of the interview that I did with Kevin Kelly, one of the co-founders of Wired. That is a book, The Inevitable. If you've not read The Inevitable by Kevin Kelly, you're missing a treat. It was written a few years ago, but it probably won't read too dated since Kelly is looking at the future and asking what are the inevitable technological forces that will shape the next 25 years and so as a futurist, he's looking ahead. In that book, in one section, he begins talking about how we're not living in a utopia. I think we can all agree on that with the author. He also doesn't think we're living in a dystopia, and I sure don't. Things could be so much worse than they are and there are a lot better than they once were in my mind. Kevin Kelly gives a new phrase to what he thinks we're living in, and I think we're living in it too, you and I, and the phrase is protopia. Not a utopia, not a dystopia, a protopia. Quoting from Page 12 of The Inevitable, "Protopia," Kelly writes, "is a state of becoming rather than a destination. It is a process. In the protopian mode, things are better today than they were yesterday, although only a little better.
It is an incremental improvement or mild progress. The pro in protopian stems from the notions of process and progress, or I might say process and progress. This subtle progress is not dramatic, not exciting. It's easy to miss because a protopia generates almost as many new problems as new benefits. The problems of today were caused by yesterday's technological successes and the technological solutions to today's problems," Kelly writes, "will cause the problems of tomorrow. This circular expansion of both problems and solutions hides a steady accumulation of small net benefits over time." I'll read that again. "This circular expansion of both problems and solutions hides a steady accumulation of small net benefits over time. Ever since the enlightenment and the invention of science, we've managed to create a tiny bit more than we've destroyed each year. But that few percent positive difference is compounded over decades into what we might call civilization. Its benefits never star in movies."
To conclude this passage from Kelly, I'll just go on a little bit longer. "Protopia is hard to see because it is a becoming, it is a process that is constantly changing how other things change and changing itself, is mutating and growing. It's difficult to cheer for a soft process that is shape shifting, but it is important to see it." I love that passage, I hope you do too. Such clarifying, perspicacious thoughts, the protopia from Kevin Kelly, the meritocracy that you may not notice, but every day I think we're inching a little bit closer. It's very evident, by the way, in sports. Most of us can agree that the best teams, when the best athletes get paid the most, of course there will be exceptions, but most of us every day if your sports fans, you're seeing merit out there. I think in a lot of ways, it's truer in the rest of society than we think. It happens very evidently with TV cameras and lots of analysis on the sports field. But most of the best businesses and business people end up winning over time for very good reasons. They're pleasing our customers more than their competitors.
That inching closer, that becoming a meritocracy, it can only happen if with point Number 4, to close your rewarding talent. Let's move on to Number 5, maybe the best of Amjad Masad's 10 things he loves, love this one. Number 5, "Open to weirdos," Masad wrote, "because you never know where the next tech, sports, or arts innovation will come from. America had to be open to weirdness. Weirdos in America thrive without being crushed. We employ people with the most interesting backgrounds, dropouts to artists. They're awesome." I think those words stand on their own. I'm not going to really add anything other than the phrase, and Fools. Fools too, because Fools, Fools or weirdos, if you've listened to this podcast for any persistent basis, you're a Fool along with me. You're a weirdo too. Number 6, "Forgiveness. Weird and innovative people have to put themselves out there. As part of that, they're going to make mistakes in public. The culture here," Masad wrote, "values authenticity.
If your authentic and open about your failures, you'll get a second and a third chance." Well, we've already spoken some of the failures and the importance of that. The importance of letting that happen, I think part of what ground Japan's economy to a halt for a few decades was the insistence that it not let its failures fail. The government's interventions into what I might call public-private partnerships, a little bit overweening, and it allowed mediocrity in some aspects of Japanese business and culture to continue to persist. I think there's a great strength in letting things disappear. While it's very painful and you never want to be the one on the losing end, I think we do that really well in America. If you are, then forgiveness seems to count for so much. And I really love his phrase, "If you are authentic and open about your failures, you'll get a second and a third chance."
We don't give it to anybody. You have to earn that by being real and being transparent. Number 7, and Peggy Noonan, in her Wall Street Journal article mentions this is the one that got him the biggest pushback on social media. Because if you're going to post something on social media, you should expect pushback from somebody somewhere, probably many people, many different places, which is one of the things I don't really like that much about social media, although I prize the open comments in the public conversation, but the pushback that he got was around Number 7. Maybe you'll understand why as I read Numbers 7. "Basic infrastructure. Americans take care of their public spaces. Parks are clean, subways and buses run on time. Utilities and services just work. Because life can be livable for a time without income, it was possible for us," Masad wrote, "to quit our jobs and bootstrap our business." Well, I think we can all appreciate that infrastructure in different areas of the world is sometimes much better, or much worse than what the US has.
Even within the US, there are many different contexts for different infrastructures I take for granted happily so that I'll have clean water as I tap my faucet each day. There are many areas in the world where that simply is not true. Clearly, we need to pinch ourselves sometimes about our infrastructure, but are our trains, for just a quick example, as awesome as Europass travel? I would say no. I hope we'll get a little bit better every day in that direction. For the author of these social media posts, Mr. Masad, when he got to New York, Peggy writes, "Central Park was a beautifully maintained gem," and on the streets, he appreciated "the music, the arts, free concerts, random pop-ups, all for free and open to all," by infrastructure she adds, he also met our system of laws and arrangements. He wrote, "When we started the company, we got our health insurance through Obamacare to keep costs down" and for him, it worked.
Infrastructure I suppose can take many different forms, but there are lots of things here. If you're a fellow American that you and I should be grateful when we think about our infrastructure. Well, the last three, Number 8 needs no introduction to my audience. Number 8 is optimism. Masad wrote, "When you step foot in the US, there is a palpable sense of optimism". People believed that tomorrow will be better than today. They don't know where progress will come from, but that's why they're open to differences. He writes, "When we started up, even unbelievers encouraged us." Even those who didn't think a start-up would work out these so-called unbelievers here nevertheless encouraged him in his ways. I've said many a time, optimism is not an emotion or a state of mind it is a creative force. Whether you think you can or whether you think you cannot. Henry Ford once famously said or was said to have said, whether you think you can or whether you think you cannot, you're right.
To me the world will always be to those who thought different and said, yes, we can. Those are the types of people I want to invest in. Those are the people I want to work alongside of. Those of the people that I would love to proliferate in my neighbourhood and my community and across this fair land. Optimism needs no introduction on this podcast. Let's move on to Number 9. Number 9 is freedom. Masad wrote, "Clearly a cliche, but it's totally true. None of the above eight that you and I have just talked through this week on this podcast. None of the above works. If you're not free to explore and to tinker, to build companies, and to move freely. I still find it amazing that if I respect the law and others, I can do whatever I want without being compelled or restricted."
My brief reflection on what massage share there is, well, for me, one of America's five core values is always has been, always will be liberty, freedom. I think we're seeing among world powers a couple of different theories emerge. A couple of different ways you can play the game. One of the largest countries in the world seems, in my mind anyway, hell-bent on increasingly becoming a surveillance state. That for me, is the opposite of freedom, the very opposite of American liberty. I don't know if I would die for all of the 10 things on this list. Infrastructure maybe not, but I think freedom is the thing that you and I should be willing to die for, especially for our kids and the future. Freedom, how could it not be on this list of 10 things we love in America? Freedom is relative. The Motley Fool is trying to create financial freedom for all through both our for-profit and not-for-profit endeavours.
Financial freedom is just one form of it, maybe for me, among the most powerful, but the freedom to move around, which is what Masad spoke to. The freedom to say what you think. The freedom to make choices against the grain, especially against the powers that be. These are such important things for humanity and for humans to flourish. The very opposite of anything that looks like a surveillance state. Freedom. Liberty. The 10th and last one, this one I think shows off that Masad is at heart is an entrepreneur because his final thing, Number 10, that he loves about America is access to capital. He wrote, "It's a lot harder to innovate and try to change the world without capital. If you have a good idea and track record, then someone will be willing to bet on you.
The respect for entrepreneurship in this country is inspiring and it makes the whole thing tick". Well, at the end of this Wall Street Journal article, again, it was published on December 31st of last year. It was the end of the year, but I thought it was much better for this particular week in America's birthdays. It was a joy to share these with you at the end of her article, Peggy, of course, thanks Amjad Masad. But I want to thank her for taking the time to write what she did. I want to quote her simply to end this week's podcasts. Here's toward the end of the article, what Peggy writes, and I quote, "At the end, Mr. Masad said he was speaking generally, that character limits, like Twitter has don't invite nuance, that there's no call to sit back self-satisfied, that everything can be made better. But he added a warning, 'Many of the things that
I talked about are under threat, largely from people who don't know how special they have it. America is worth protecting and realizing that progress can be made without destroying the things that made it special.'" Noonan goes on, "The past few years, maybe decades, we've become an increasingly self-damning people. As a nation, we harry ourselves into a state of permanent depression over our failures and flaws. What we imagined because we keep being told is the innate wickedness of our system which keeps justice from happening in life, from being good. Maybe we got carried away. Maybe we have it wrong. Maybe those who are new here and observe us with fresh eyes, see more clearly than we do. As long as our immigrants are talking like this, maybe we've still got it going on. "What a welcome thought. Thank you. Amjad Masad.
