Motley Fool Investors Look Back at 2022 and Forward to 2023

In this podcast, The Motley Fool's Bill Mann, Emily Flippen, and David Gardner talk about topics including:

• 2022 through the lens of a small business.
• The importance of evaluating the management team of a small-cap company.
• How fear can be contagious for investors.
• Keeping an eye on inflation as we head into 2023.

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 Nov. 19, 2022.

Bill Mann: You start looking for companies at that level, that if the CEO stepped down, the company is going to be OK. You saw that 100 percent with Apple.

Chris Hill: I'm Chris Hill and that's Motley Fool Senior Analyst, Bill Mann. We talked in front of a live audience at a Motley Fool event we had at the Hawk and Griffin pub in Vienna, Virginia. This was an event we had for Motley Fool members and we want it to bring you part of the conversations that we had onstage. I talked with Bill, fellow analysts, Emily Flippen and company co-Founder David Gardner about what they've learned as investors this year, and what they're watching as we look ahead to 2023.

Chris Hill: One of the things that I think we both love about working at The Motley Fool.

Bill Mann: Have we started recording by the way?

Chris Hill: As far as you know. I think one of the things we both love is the ongoing focus of learning that happens at the company and it really has been instilled from the very beginning with Tom and David Gardner. I'm reminded of a phrase that I first heard it from Tom Gardner. I don't know if he came up with it, but it's the whole idea that when we don't get what we want, we get experience. With that in mind, when you think about investing in 2022 as a lifelong learner, hat has this year taught you?

Bill Mann: I have to thank you because for the last four days, I've had the song Islands in the Stream rolling through my head over and over.

Chris Hill: Goodness, why?

Bill Mann: I don't know. But now I'm going to have Are You Experienced by Jimmy Hendrix rolling around in my brain. Thank you for getting me to the next step. We know in, as people who are students of the market, we know that there are downtimes, but like a lot of things, you do not get the chance to feel deeply that pain and that fear when times are good. We knew going through 2020 that we were going through something that was, at best remarkable. You could pull letters out of a scrabble bag and arrange them and buy that stock and it doubled, which is I don't know if you guys know this, that's not how that works.

We knew that there was a reckoning coming, but the type of reckoning that we've had in 2022 reminds you just how psychological the market can be, and it is really important to keep in mind and to be, there's such a reminder that you are not as smart as the market says, you are at any moment and you're not as dumb as the market says you are at any moment. Let me tell you something, right now the market tells me that I am stupid. We know this anyway, but the market is reaffirming it. We really need to have a sense of grace with ourselves during times like these, because it is what gets you through to the good news that comes and you're as David Gardner said so many times, the market goes down faster than it goes up, but it goes up more than it goes down.

Chris Hill: One of the reasons I benefit from our friendship, I don't know if you benefit from our friendship, but I do.

Bill Mann: You're all right.

Chris Hill: Because every once in a while, you will pull me out of what is happening in the US markets and point to something else around the world. You are very much in Global Investor. I'm curious in terms of this year, from a business standpoint, from an investing standpoint outside of the United States. What has surprised you?

Bill Mann: Can you all believe that in the stock market in 2022, we here in the united states have had it good. We've had it good. If you can imagine, one of the things that makes the united states special, there's a big list, but one of the things on the list is the fact that we have the reserve currency of the world, which means that the debt that we have, we know how much it's going to cost. In countries all around the world, they have debt that is denominated ultimately against the reserve currency in dollars, and so you have seen situations in countries around the world where the dollar has spiked against these currencies, which seems bad anyway, but when they have to pay their debt in US dollars, it makes it very painful.

One of the things that we've seen is something you never want to see is a negative correlation from country to country. We are in a global economy, mean may be less global than it has been. China seems to be pulling away. Russia, we seem to be done with them for a little while with them. I think one of the things that we're going to see in the next decade is the United States and the friendly markets to the United States really do well, and again, if it feels like it's been bad for us, it's been bad for these markets times two.

Chris Hill: There's no experience like doing something yourself. So even though you have studied businesses for decades recently, you've gotten the experience of being part owner of a small business like this. What do you know about small business and the challenges and opportunities of a small business? What do you know now that you didn't know, say a year or two ago?

Bill Mann: This is going to sound like I'm bragging on myself, but I'm not, I'm bragging on the man behind the bar, Tom Kylo, and especially with smaller companies, you need to know who you're betting on. Absolutely positively. He has built most of this place by hand. This was his passion project during COVID and passion projects don't always work out, but you've got someone who has a good business sense, who has the ability to go through the times that are hard. Running a small business in 2022 is incredibly challenging.

I don't know if you all have heard about this inflation thing, but it hits businesses as well. In some ways, with this type of business, with a razor thin margins, getting it right really matters, and so I take from this lesson when I, because my area primarily at The Motley Fool is in small caps and then internationally, and it just really confirms to me that knowing the management and getting a sense of what they are about and whether they are aligned with you is really important.

Chris Hill: Does it become, I don't want to say, less important as the company becomes larger. But does the, almost the burden of how good is this management, does it shift away to how good are they at picking their team?

Bill Mann: Yeah, I think so, and for me, that's been one of my longtime fears about Tesla for example is that they go through management, the layer below Elon Musk. Like they're going out of style and you'd get CFOs in packs of six. Because there's that much turnover. But I think one of the more important things with larger companies is not so much the manager themselves, although that can be very, very important. It's that next layer, you start looking for companies at that level, that if the CEO stepped down, the company is going to be OK. You saw that 100 percent with Apple when Steve Jobs had to step aside, 90 percent of the value of Apple has been created under Tim Cook, not under Steve Jobs. I mean, that's a remarkable way to think about what has happened with that company because you still think of it as being Steve Jobs' company, but it's not.

Chris Hill: I'd love to talk more, but you got to get buying.

Bill Mann: Thank you all so much.

Chris Hill: Man.

Bill Mann: Fool on everybody.

Chris Hill: All right, with that, it is very much my pleasure to bring up one of the true Rising Stars in the analyst community at the Motley Fool, Emily Flippen.

Emily Flippen: What an introduction?  The bar is high now.

Chris Hill: Let me start with the same question that I asked, Bill. What's your investing takeaway for 2022?

Emily Flippen: Yeah, it's a hard question to answer because 2022 has been such an unusual year. But I think if I had one takeaway, it's just that fear is really contagious. For context for that, I'm 28 years old. I started investing after the Great Recession, the great financial crisis. So 2022 and honestly part of 2021 as well has been really the first time that I've seen just I guess what the fear looks like and how it manifests and how investors respond to their portfolios, decreasing day after day and 2022 has just been an incredible year to see that reaction and some spaces. Places where investors congregates, whether it'd be at the Fool or on places like Twitter.

You would think the world is ending. People are saying this time is different. They've never experienced a time like this. But at the Fool, talking to you, talking to our analysts, day after day, we just don't have the time [laughs] to get afraid. You're too busy reminding everybody that it's going to be OK that you start to believe at yourself. I'm interested to see what 2023 has in store if it's for another year. I have no doubt that will come out of it on the other side the same way we entered 2022. But I would just encourage everybody to provide some context to what they're experiencing today because 2022, as unusual as it's been, it's not unheard of, it's not unprecedented, no market pullback as well.

Chris Hill: That's part of what makes investing tricky. It's not just analyzing the numbers of a business and is this industry growing and is this business within this industry growing? A lot of it does come down to, well, what is the story of this business industry? To the point you just made, what is the story of this market? Because when the narrative every day is the sky is falling. As an individual investor, that's hard to overcome.

Emily Flippen: Yeah, I will say this. I think about the macro-environment approximately zero percent of my time. I don't like to spend my time thinking about inflation mostly because it really hurts my pocketbook. I don't want to go into the grocery store and seeing my bills up 50 percent. But really it doesn't have an impact on the long-term thesis for the vast majority of businesses that we're invested in. I focus on what I can control, I focus on the business performance, understanding how the company is doing, yes, in today's environment, but more importantly in the environment five years from now. It's the same way when you think about investing during political turmoil. We just came out of a midterm election here in the United States. We're not investing for any single market environment the same way we're not investing for any certain political regime. We're investing in companies that 10 years from now should hopefully be in a better position we are today. That depends on a lot more factors, and then just what's happening in this exact moment.

Chris Hill: Let's get to one company specifically. This week, our company is having its annual meeting. A part of that is not just presentations from our company's leadership to our entire company. It's also we get the chance to hear from leaders of other companies. You've actually recorded an interview that we're going to be seeing this week with Summit saying who is the CEO of Chewy? A company, I first heard about from you. Without giving too much away, what was your impression of him as a shareholder? How are you feeling about the business of Chewy? Like a lot of businesses, it's had a tough year.

Emily Flippen: Well, let me say I'm not a tough audience, I'm a fan girl if this company of any shareholder, basically since the company went public. But more importantly, I'm not married, I don't have kids, but I do have a cat. I do treat that cat like my family. Chewy is an integral part of my everyday life. Having the opportunity to sit down, assume it has been absolutely amazing. I will say, obviously everybody's out here selling your companies, I want to believe in the company that I'm invested in it. But I was really impressed with the mentalities that he's brought to the company. He is not the founder, but he has been the CEO. He brought it through the IPO and he brings a really great logistical mine to the business. He understands fulfillment and infrastructure better than anyone I've talked to you before, which is so vital for the position that Chewy is in today.

But more importantly, I think he just has the right culture mindset. It's a really hard thing to have, I think, when you're not the founder of a business. At the Motley Fool here where you have two co-founders that have helped to create a culture that is really unique and we all benefit from that today. But Chewy, going through that transition from their founder to an outside CEO being essentially brought into the organization, it's hard to retain it. But they have created something that is really pet parent first, if I can steal some of their language here, and really focuses on building an internal culture that creates a sense of loyalty among their customers. That's the reason why they have really high net promoter scores with the people that they engage with, have a really high level of repeat orders and customer loyalty. They have an understanding about what pet parents like myself and my tiny cat needs better than Amazon or Petco.

Chris Hill: I'm glad you mentioned Amazon because as someone who doesn't own pets, but my memory is that during the pandemic, one of the early stumbles for Amazon was with pet owners. Am I correct that Chewy benefited from the misstep of a competitor there?

Emily Flippen: Here's my thing. I don't like to say that Chewy won because of the pandemic and this grinds my gears a little bit, Chris. Because when I ever talked to me about with Chewy, they're like, oh well, that's a pandemic play. I was a shareholder to you before the pandemic, I'll be a shareholder of Chewy now and continues in the future, I expect. But the business was set up for success because they understood their customer better than Amazon, to the world. I don't think it's necessarily that the pandemic happened and Amazon misstepped. Not understanding the needs of pet parents, not doing super well with their private-label pet goods. That was the reason why Chewy did well. Chewy has been executing on the same thesis that they had a year before the pandemic and a year after the pandemic, it was just a matter of I guess everybody got a bit more pets.

Chris Hill: I was just going to say, I wasn't suggesting like now that's the only reason they're doing well because it didn't make sense to me that people will be like, well, I'm just going to try this for a year, and then when the pandemic's over.

Emily Flippen: I clearly heard it too much. You hit a sore spot. 

Chris Hill: Clearly, I did. What is something you're going to be watching in 2023? Let's move away from Chewy. But just in terms of industries trends, what's on your radar as we come to the end of this year and look forward to hopefully a better one for investors.

Emily Flippen: Well, obviously I want to say Chewy. I'll be watching Chewy along with all of my investments in 2023. But there really isn't anything I expect. I like to not enter my years with expectations about what may happen. But I do like to say that I outlined things that I'll be be watching. Obviously, inflation is a big one heading into 2023, how that handles it. There's been some people who are calling last week, I guess the bottom point of the markets. I don't know if I necessarily agree with that, but it is interesting to think about if 2023 will continue this few day uptick that we've seen. But ultimately, yeah, I'm positioning my portfolio to perform much better in 2024, 2025, 2026, not just 2023.

Chris Hill: Thanks for being here.

Emily Flippen: Thanks for having me.

Chris Hill: Emily Flippen. Please welcome David Gardner.

David Gardner: Thank you.

Chris Hill: Let me start with a way that I think you've been spending part of your year with 2022 being the theme here. You've been spending time with the Motley Fool Foundation. I'm curious the conversations you've been having with people in the foundation, networking in the greater DC area. What impression are you getting from folks in terms of how they are viewing the market, the economy? This would seem on the surface to be a difficult time for non-profit foundations, and I'm curious, what's been your experience as you talk to folks in this community?

David Gardner: First of all, just to get investing out of the way, I'm about half of what I was a year ago, just straight up. Whether or not I'm picking stocks anymore on a regular basis for the Fool, doesn't matter, I remain fully invested just like I hope everybody else generally is or should be. Just to be really clear on that, I had the pleasure at our first face-to-face member gathering Fool face in three years, a couple of months ago to say. Maybe some of you heard me say this, I'll say it again. Whoever's down, however much you're down, I'm down more. I have neither bought nor sold a stock since before COVID, so I just pretty much stay fully invested all the time, and therefore I ride it all the way down, and usually down more than most other people in any given room, and then right back up and that works. That really does work.

Thank you for the question about the foundation. I think Chris, what I have really appreciated about where we are. In the early stages, this is an icon, this is a scrappy start-up. This is what the Motley Fool was in 1993, it's a print newsletter, were just a few months into the foundation. Thank you for those of you who've already leaned-in, contributed your Fool fuel as we like to use the phrase because we really are counting on our membership to fuel our foundation. We have some resources and we're fully dedicated. Some of our most mediocre minds are focused on our foundation, but we really are counting on our Fools everywhere. I think that what I've concluded about the world, after a lot of conversations the last 12 months, is that we need to continue to democratize money for everybody.

We have done that pretty well in our own small way, in our own Fool way over the last 30 years for the markets, and some of you were already investing before Chris and I were born, and you're here tonight, and for thanks for joining us, and your amazing exemplars to your families and to all the rest of us here. Many others may have gotten started in the last three years because of the Motley Fool, and a lot of people are hearing our podcasts, we have a larger audience than ever before today, so that means a lot of people have just joined in and learned about the market's during the Fool. Chris, we're here to get everybody carrying about the markets.

But in fact, before you can care about the markets, you need to care about saving, about being invested, about recognizing the importance of not just financial literacy, teaching stock market to kids, let's say, but of having a roof over your head, having your health, because financial freedom doesn't mean a lot if you don't have your health and what health means. A lot of these things are systemic and that's really where we've been. In my longest answer, I'll give to every question, that's really where we've been leaning in.

Chris Hill: I want to go back to something Emily talked about, because I was struck by this. Emily talking about fear as being an emotion, that she experienced en-mass for the first time as a younger investor. She didn't put it this way, but I will. We're older, we've been investing for decades beyond that, so maybe we don't have the same level of fear or certainly are not surprised by it. I'm curious, how you've done that over the years to the extent that you've managed your emotions? Because I think that's part of what Emily was getting at. In some cases we've seen this for years. At the Motley Fool, we've seen fear drive people out of the market all together. They're investing for a year or two, they hit a bear market and then they said that's it, I'm out. I'm curious, how you've managed your emotions, but also to the extent that you've counseled people to get through and stay in the game.

David Gardner: I think that fear needs to be replaced by knowledge. They're almost opposites. Fear and understanding, fear and knowledge. When Emily said she was 28, which is so awesome. Emily, thank you for contributing so much in your earlier as the Fool and I look forward to on association. Thank you. I'm 56, so I'm like, I'm 2x. I'm glad we had this moment, I'm like, "Okay, I'm exactly twice as old as Emily." But I think that for a lot of us, it is about making sure you understand, you have context, and some of that has to be earned in the market, in real downturns. Emily spoke really well to that. But I truly believe that the people who shy, or people who don't have the context of understanding that the stock market has traditionally returned 9-10 percent annualized over the last century, and that includes every horrific bear market that you can think of.

Some of which you can even make up in your head, it's all happened in the last century, and you still got that amazing return. But you only got that return if you stayed invested. For me, with a never sell mentality, my brother practices the same thing. I think a lot of us, I hope appreciate that. Not everybody does, some people like to trade jump in, jump out. It's just not my orientation, but I think you make a lifetime commitment to the stock market, to investing. You learn as you go, and I think that you feel less fear. I do, because you know more, I do know more. Yet it still is a bummer and I still get to say to all of you, I'm down half over the last year. That never feels good. I felt it before, and if I keep my cholesterol a little bit lower, this will happen several more times in my lifetime. This is not the last really bad market. I hope everyone is prepared for the next one. Doesn't mean batten the hatches now, doesn't mean try to guess when it's going to show up, just realize it's going to happen. Losing to win is like a critical theme for me in life, but investing too.

Chris Hill: I'm not going to ask you to make a prediction for the market for 2023 because I've known you too long.

David Gardner: I actually have the URL, predictionclub.com.

Chris Hill: Why?

David Gardner: I own it. Because I intend to make use of it at some point, so we can say predictions, I think we need to be doing more of that in this world. There needs to be more prognostication or at least more accountability for those who are constantly prognosticating, which is probably not what I'm about to do.

Chris Hill: What happens if someone goes to prognostication club.com right now, what can I get?

David Gardner: Go for it? If you make any investment, you'll be well past me, all already be in your rearview mirror. I'm a member of a longtime book club that I love, I think that there should be prediction clubs. I think that we should be convening once a quarter or a month and make predictions with each other, and then we should go back a month later, a quarter later, get back together. It's not just that Harry made this prediction and Sally made this prediction, it's that you and I, as members of the club, need to agree or disagree with Harry and or Sally, and be accountable and score it. I think we'll get smarter about the future and the big wisdom of the crowds fan. Why are we talking about predictions?

Chris Hill: I was just going to say this becomes a lot more compelling to me if I get to bet on either Harry or Sally. Okay?

David Gardner: It might be our business.

Chris Hill: We'll talk business. Now, where I was going to go was somewhere that I'm sure it's going to disappoint at least some of the people listening. I wasn't going to ask for a stock market prediction, but I know you are a believer in the idea that winners win, and we see that in companies that succeed over decades, and we see that in sports programs. How are you feeling about the North Carolina basketball team in 2023.

David Gardner: I feel as if the North Carolina basketball team this year for the few who may care about it in this room, or listening on this podcast, I feel as if this might be the best team that we've ever seen. 

Chris Hill: Thanks for being here.

David Gardner: Thank you. Fool on.

Chris Hill: If you're not already listening to David Gardner's weekly podcast, check it out. It's called Rule Breaker Investing with David Gardner. New episodes every Wednesday, find it wherever you get your podcasts. If you're in Northern Virginia and looking for a bite to eat in a friendly setting, find your way over to the Hakim Griffin pub.

As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill, thanks for listening. We'll see you tomorrow.