He's been a presence in Fooldom for more than a decade and has 20,000 message board posts under his belt. What keeps Tom Engle -- aka TMF1000 -- coming back for more, and more, and more? And which stocks does he find most compelling right now? Join us as we set out to find the answers in this Foolish profile of a tried-and-true Fool.
"My investing approach is a very simple one: I find businesses I would enjoy running and those I feel will be relevant in 10 to 20 years."
-- Tom Engle
The Motley Fool: First off, tell us a little about where you grew up, your hometown, and your family. Any pets?
Tom Engle: I was born in Louisville, Ky., and lived there for 48 years or so, then moved to Crestwood (Ky.), which is a very peaceful place and more out in the country. A farm surrounds our house on two sides, and cows come up to our fence. I had to tell my wife that our neighbors raised them for pets, not steaks. She is a vegetarian and an animal lover, and I am fairly sure she wouldn't have let us move there if we didn't at least pretend they were being raised for pets.
MF: Any hobbies -- that is, besides investing and manic discussion-board posting?
TE: I love gardening and planting trees in our yard, which was looking great until an ice storm hit Crestwood this spring. Now most of our trees are down and I still haven't cut up all the limbs and branches. So for the immediate future, my hobby will be mulching tons of branches. At the rate I am going, it may take a few hundred years. I like collecting things -- Jim Beam bottles, toys, and books on the stock market -- but my wife put an end to it when all the rooms in our old house got so full we were forced to move. All of those things are now packed away. I had a choice of things to unpack: my stock books, which number more than 1,000, or my collectibles. The stock books won out.
MF: Good thing for us. So, how did you get started as an investor, and when and how did you get started with The Motley Fool?
TE: My parents and grandparents started me investing when I was 12. They were avid investors, and my mom still has stocks she bought back in the '50s. She is the true long-term investor in our family. Around 1995, I was about to give up on stock research and just shift into mutual funds. There wasn't anyone really interested in investing around where I lived, and I had mostly reached my financial goals by that time, so I figured I had enough to coast. And doing research solely for me wasn't as much fun as it used to be when I started investing. I was getting bored.
Around that time -- I don't remember exactly when it was -- I subscribed to AOL. I think it was about 1995. AOL had a financial site being run by The Motley Fool. It was a dream come true. Through the TMF message boards and chat rooms I was introduced to hundreds of investors that were seriously excited about the market and discussing stocks. I was like a kid in a candy store, with so many people to discuss my favorite topics -- stocks and stock research -- and in a civil manner, unlike other message boards and other chat rooms. TMF's chat rooms were exciting and moderated by my stroller heroes: TMFKaren,TMFJeanie, TMFSpirit, and TMFKeeler. The chat rooms, much like today's TMF discussion boards, introduced me to stocks I had never considered as investments before; it changed the ways I thought about building portfolios; it expanded my realm of research, which eventually resulted in much wider circles of competence.
I immediately resumed researching stocks again, just so I could keep up with all of the intelligent conversations and posts. They were exposing me to industries I had never considered before, so I had to learn other methods to value stocks, not just the ones I was used to using. I was also being introduced to people that worked within the various industries. I could invest in unfamiliar industries with far more confidence. It opened up new ways of looking at investing, building portfolios, and exposed me to new ways of valuing companies. It made investing exciting again -- even more exciting than when I was 12 and would run to the mailbox to get the latest Wall Street Journal. Being introduced to The Motley Fool and community, I quickly discovered there was far more to learn. All I had to do to learn it was to ask someone who knew, and those in the know were everywhere.
After more than 12 years with The Motley Fool, investing and stock research are still my favorite things to do. And I get to use it as an excuse to shop, eat at various restaurants -- all in the name of stock research. My wife loves that excuse and uses it herself!
MF: What's the story behind the name TMF1000?
TE: Long before I ran into The Motley Fool, I always believed that, if I could get a large number of people together to study three or four stocks, we could cover the entire market. And picking the right stocks at the right time would be simple. When I discovered TMF, I then believed it was really possible. So, I simply used the number 1,000. I needed only 999 more people to help. Since then I have found thousands of people on the various boards that have helped me make really good decisions. I seldom buy a stock without first posting a page on the appropriate board about my target stock and carefully read the feedback. No matter how long I research a company, after I posted my research someone would provide additional facts that supported my thesis and/or additional risk factors I hadn't considered.
MF: You recently crossed the 20,000 discussion-post threshold. Congrats on the big green star! If I've done my math correctly, that's nearly 2,000 posts per year -- or about 40 posts per week -- since you became a member of The Motley Fool. How in the world do you manage that kind of output?
TE: I think anyone that buys stocks and does their own research could easily make that many posts. I suspect many investors have tons of information stored on their computers that would easily translate to 2,000 posts a year. You see, if I think it or write it, it usually ends up on the boards. Oh, and copying and pasting helps a lot.
MF: Describe your investment approach for us. What do you look for in stocks? What specific factors convince you to buy?
TE: My investing approach is a very simple one: I find businesses I would enjoy running and those I feel will be relevant in 10 to 20 years. I have found that if a company survives that long as an independent entity, it is likely to reward shareholders.
After finding those companies, I want to accumulate their stock at good prices, or value points. By buying in stages at better value points, I am tipping the scales in my favor and have a better chance of being rewarded in the future. A value point can be determined using a combination of metrics, and different ones are needed depending on the company. For companies with growing earnings, the P/E ratio usually works just fine. When earnings aren't going up, I switch to a cash flow yield. This is the one metric I feel best values a company at any point in time. Its yield, though, still must be compared to prevailing interest rates. After all, if you can get a higher yield from a risk-free government bond, it probably isn't much of a bargain.
It is tough to give specific factors, because they're different for each asset class. If I want a solid, dependable company with very little speculative risk, then I look for a clean balance sheet, significant cash flow production, a long track record of success, stable earnings growth, an increasing dividend, a repeatable business model, and a decent valuation. The latter is nearly impossible to get in a bull market, and that's why I accumulate in stages at better and better value points over time.
MF: So based on these factors, what are your favorite Stock Advisor stocks right now?
TE: Starbucks, Whole Foods Market, Amazon.com, Apple, and Marvel Entertainment. Each of these stocks will be relevant 20 years from now, and any company that can maintain relevance will reward shareholders, or they won't survive. Amazon has the opportunity to become the Wal-Mart of Internet retailers -- it just keeps adding new products through its third-party army of retailers.
Starbucks and Whole Foods have hit some tough times. They each sell premium products in what is now a very deep recession. They both produce a tremendous amount of cash flow. Earnings may fall, the P/E ratio may become useless, but the cash flow tells a powerful story. And that story is, they ain't going anywhere -- they're here to stay. Survivors give investors huge opportunities not just for long-term buying opportunities, but the chance to exploit volatility and produce personal cash flow.
I like Apple because I believe it's the computer industry's best bet in ending the Microsoft monopoly, and that can only be good for consumers. Apple stores have done extremely well and still represent only a small retail footprint. Apple continues to report that about half of the Macs sold in those stores are going to first-time Mac users -- that just has to terrify other computer manufacturers.
Marvel may not have theme parks, like Disney, but it could become an entertainment giant as it leverages its library of characters and completes the transition from partnering with other studios to producing its own movies. The business and Marvel's stock price will experience some serious cyclicality between movie releases. Investors should take advantage of that volatility to expand their long-term stock positions at great value points.
MF: What was your biggest investing mistake ever?
TE: I tried to invest in commodities. But instead of trying it myself, I allowed a broker to buy and sell for me. That is the quickest I have ever seen an investment go to zero. It taught me an important lesson: When investing, do it yourself. Learn from others, but learn to pull the trigger yourself. Don't place your money in other people's hands.
MF: Biggest success?
TE: Wal-Mart. I found that one fairly early, and it was easy to find. I liked retail anyway, but the concept had proven so successful as it spread across a third of the U.S. I figured nothing was going to stop them as they continued their expansion. I held [those shares] a long time, and my family held them a long time. Its success led me to other successes: Home Depot and then AutoZone. I looked mostly at their past track records and could see they were likely to become category killers. I don't think I would have necessarily found Home Depot and AutoZone had I not owned Wal-Mart and seen that the patterns were similar.
MF: What's the single most important lesson you've learned from the financial crisis?
TE: I have seen bad times before. I owned stocks during the last secular bear market. This one is very similar, though it may be a bit deeper. I learned from past bear markets not to invest in companies you don't understand well. So, you will never see me buy financial stocks. Even people in the industry can't be sure if the loans that are out there are good or not. And recessions can make good loans become bad loans. So, I avoid financial stocks. There are plenty of good industries to study that are easy to understand and where there are no hidden landmines. But if I were going to speculate with bank stocks, now would be a good time, provided they aren't nationalized. So, perhaps if one felt adventurous, they could buy a little, but definitely not a lot.
MF: What's the best piece of advice you can give to someone who's lost a good chunk of their life savings over the past year or so?
TE: Tough question, since everyone's situation is different. Everyone needs to invest within their comfort zone. They should use discretionary money to invest. That's money left over not only after the bills have been paid, but after vacations and fun as well. People underestimate how large small sums of money can grow when one buys regularly and at better value points. We don't want to become forced sellers at the very time we should be buying stocks. So it's important to invest within one's comfort zone.
For those who have lost a tremendous amount of money and are worried, I see three options. 1. Sell some stock to build cash reserves as a backup, and get back into a financial comfort zone. 2. Stop investing altogether and save cash from income until your cash reserves are back to where you're once again comfortable enough to start investing. 3. I believe that, if it is possible, one should hold their stocks and continue to invest, even if it's just in small amounts. The market values are so much better than they were a few years ago. Small amounts are buying far more shares. Regardless, however, one must invest within his/her comfort zone, and if they can't, then they need to make adjustments. If investing becomes a fearful thing, you are unlikely to do it well, and you will make bad decisions.
My portfolio is down significantly from its high, yet I keep investing. I'm not worried because I haven't invested a single penny outside my comfort zone. I have been accumulating more stock at better value points and have even grabbed some quick doubles since the market hit its recent low. My portfolio has now moved up from the bottom again -- still a long way from its peak, but I am confident that in time it will move to new highs, simply because I chose to keep investing while prices are extremely low.
One more important point. We keep hearing how the companies in the Dow have given back all the profits they made since 1997. The Dow is merely an index, and 12 years is a small amount of time in my eyes. At the same time, there are many stocks that have done quite well during the period. Most important, there has never been a bear market that wasn't followed by a bull market. So if one can, do so within your comfort zone -- use small amounts -- and if possible, continue to ease into stocks at better value points using money you won't need or want for a very long time. If an investor plans on selling, the best time to do that is in bull markets, not bear markets like this one.
MF: If you had to put all of your money in a single stock and keep it there for the next 10 years, which one would it be?
TE: First, I wouldn't do that, because that is gambling and would put me outside my comfort zone. But if I had to, I would pick a company that paid a dividend, had a long track record of success, had a history of raising dividends, a repeat business, significant cash flow, and was selling at a good value. I would go with PepsiCo. I don't think investors could go wrong with Pepsi, particularly at today's bear market prices. I would offset the gamble of investing everything in one stock with a company that is conservative, has a long track record of success, and a long track record of returning value to shareholders.
