When searching for tech companies to invest in, Motley Fool co-founder David Gardner suggests we focus less on particular companies or technologies, which can be swept up in trends and changes that make them volatile. Instead, he says, we should take a careful look at a company's founders.
In this clip, Gardner explains what traits he favors in founders and leaders in the tech sector. He also talks about what happens to tech companies when they stop innovating, and how to avoid investing in businesses that are going stagnant.
See the full podcast by clicking here. A transcript follows the video.
This podcast was recorded on Jan. 15, 2016.
Alison Southwick: So, you talked about not necessarily buying the companies, but looking at the leaders. Most of the people you've mentioned so far are founder-led companies, and the founders of companies. What are some of the traits that you look for in these founders and these entrepreneurs?
David Gardner: Certainly. One thing that I favor is when they do own a fair amount of their stock. Usually, that's true, especially if they started young -- which, in general, I do favor. I like it when my brand new entrepreneur is 20, as opposed to my age, 49. It's not that I don't believe in 49 year olds like me, but if somebody has gotten a company to the public markets, which is an unbelievably hard thing to do, you've gone through a thousand or more really hard decisions.
If you've actually done that at a very young age, created something of real value, that is a remarkable demonstration, I think, of visionary status, and likely somebody who's going to keep doing that for the long term, whether it's Jeff Bezos some years ago, or more recently, Mark Zuckerberg. So, when I find a combination of youthfulness and inside ownership, that makes me happy right there. I also like daring. I like it when people are taking on the establishment. Whether it was Netflix, in a lot of ways, taking on Blockbuster back in the day, as a real upstart, when Blockbuster was the heavyweight and the favorite. Or, then, subsequently, the cable companies. Or, Amazon taking on the entire retail world. So, when there's an element of daring there, somebody who's willing to be ambitious and take risks, Elon Musk, etc. -- I hate to use the same names over and over, but these are the best entrepreneurs of our time, creating the most value.
So, often, what's funny is, the world doesn't really want to believe them. It's either that Mark Zuckerberg's so young, or it's that Steve Jobs is hopelessly focused on quality, and Microsoft is running roughshod over him, or Reed Hastings has lost his mind in 2011, or Jeff Bezos, they'll never make a profit, those kinds of things. I love it when there's that element of daring combined with extreme skepticism, often from the financial press. There are some other factors besides, but there are a few that I look for.
Robert Brokamp: The Motley Fool has an annual meeting called Foolapalooza, and you may remember, at the last one, you and I were talking about Xerox as a company that, at one point, was one of those buy-and-hold stalwarts. And I checked the price the other day -- it's at the exact same price today as it was 30 years ago. That's a company that was innovative at one time -- actually created some technologies like the mouse, and eventually gave it away to Apple. So, the whole idea of, at some point there, a company becomes innovative, but then it changes and almost becomes part of the establishment. At what point do you look at a company and think, "OK, that period of innovation is over, and it might be time to part with the company?"
Gardner: Yeah. I just think we all should be actively asking -- and you both can see this as well or better than I can -- "Are they still innovating? Who is innovating in a leading way?" And often, the companies that were once innovative did not keep it up, or did not keep it up at a more consumer level, or a daring level. So, Xerox had Xerox PARC, which has given rise to so many wonderful inventions. We talked earlier about AT&T: "You will. And AT&T will bring it." Well, actually, AT&T didn't, but AT&T's research and vision did help lots of others. But I don't think it took a genius to see that Xerox wasn't really continuing as a company that you could buy shares in, with its own products, it has not been a leader for quite a long time.
Similarly, I feel the same about Walmart, which I do consider to have been very innovative in the 1970s. Their whole model and everything -- lowering prices, widening the choice that you had when you went into your store of what to buy, and better prices -- brilliant. And going into small towns was very innovative. However, Walmart stopped innovating somewhere around the time that the Internet started, and Amazon took advantage. So, I just ask who is innovating? And those are the people I want to be invested in. In some cases, they're the same people that were innovating 10 years ago, like Google. And in other cases, there are companies that were doing it 10 years ago that aren't anymore. And there are new upstarts that we'll see in 2016 that you and I don't even know yet, that we'll see that thread embedded in their DNA. So, that's what I look for.