In this month’s Rule Breaker Investing mailbag episode, Motley Fool analysts Bill Mann and David Kretzmann help host David Gardner find the sweet spots of Foolish investing.
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This video was recorded on March 30, 2022.
David Gardner: “Old, New, Borrowed, Blue.” “Telling Their Stories.” “Market Got Ya Down?” And our latest installment of The Market Cap Game Show — how did you do? Well, that’s the month that has been for Rule Breaker Investing. A truly Motley month, it was — think about it — starting from the blue. And the goal, at the start of this historic month, 34 pages of mailbag submissions had me scrambling first to read them all, and second, to figure out what equals the best show this week for you. The best mailbag. Well, joining me this week, Fool guest stars Bill Mann and David Kretzmann. Let’s talk stocks, shall we? Only on this week’s Rule Breaker Investing.
Announcer: It’s the Rule Breaker Investing podcast with Motley Fool co-founder David Gardner.
David Gardner: Welcome back to Rule Breaker Investing. It is the end, just about, of March 2022. In fact, it’s April Fool’s Day week, which really counts for us at The Motley Fool. I hope as a fellow Fool, you’re ready for April Fool’s Day as well. We played many a gag in years past with our members and in public. I can predict one thing this year without spoiling anything too much. We’re going to be a lot more focused on the Motley Fool Foundation this week. As you will discover this Friday, April 1, a lot of you listening to this podcast on the weekend, please now that yesterday, the Motley Fool Foundation came public to the world. I’m really excited about that. In fact, in next week show we’re going to talk about financial freedom for all. It’s an enticing phrase. It’s the right way to start solving the equation. So next week, let’s get into it a little bit, really looking forward to welcoming my special guests next week, and also more importantly, hearing your feedback, your thoughts, which is really what the mailbag is for.
Every month, I do want to mention, April is also the month death and taxes come to mind. Yes, we’re going to have a little bit, maybe a lot of bit of one of those too. April is going to be a special month for this podcast. But do I say that every month? Maybe I do. I have 10 mailbag items to cover this month. I’m going to start first, though, with a few hot takes from Twitter.
I will start by thanking @307$Fool for this lovely tweet earlier this month. “Just finished the latest Rule Breaker Investing podcast. Thank you, David, for your steady, calm and rational voice when the market and the world have so many people down right now. There is more good than bad, and there will be more up than down if we just keep swimming.” Well, thank you for that @307$fool.
I loved doing all of my podcasts this month, but I think the “Market Got Ya Down” one is the one that I hope was most relevant and can be shared out with as many people as possible. We have people thinking a more rationally about what we’re really doing as investors and be to recognize all the good in this world.
Reacting to last week’s Market Cap Game Show, ProShopGuyMF, that’s Mike McMahon. Mike, thank you for this. “Listening to The Market Cap Game show on Rule Breaker Investing podcast with David, I found the best outcome,” Mike asserts, “is to always just say ‘outside the range,’ especially for obscure companies. Perhaps the scoring should be modified to award a full point for agreeing to within the range, and a half point for outside the range, and then another half point for correctly guessing above or below the range. Next level of Market Cap Game.“
That is pretty much next level, Mike, I don’t think we’re going to get to that level. That starts getting confusing. However, you have definitely highlighted something to pay attention to going forward. And it sounds like you’ve used this to good effect. Maybe my star contestants need to be a little bit better with their ranges if the default answer seems to be to say, “outside the range.” Nota bene, Fools.
Then one more tweet, this one from Eugene @EugeneNg_vcap. That’s for venture cap. Eugene thank you very much for this. You shared your sincerest condolences to me and my family for our uncle Jimmy. Here’s a little something Eugene whipped up in blue and something gold that he created and sent a unique piece of art. A beautiful swirl of blue and gold. So uplifting, and so thoughtful that you would take the time to create visual art and share it out in recognition of my uncle and some of what you may have heard on the first podcast of this month, “Something Old, Something New, Something Borrowed, Something Blue” — and that was specifically the “Blue” section. Thank you, Eugene.
In fact, our first two mailbag items speak somewhat to that. So let’s get started.
Rule Breaker Mailbag, item No. 1, this is from Fergus Cullen. Great to hear from you again, Fergus, hope all is well in New Hampshire.
“Dear David, I listened to you remembrance of your uncle Jimmy Lowe twice, and took you up on your suggestion to find and read his obituary. I was surprised to learn.” Fergus writes, “I have two experiences in common with Jimmy. We attended the same college and both served a term on the Republican National Committee. But the reason you’re telling of Jimmy’s story connected with me is because my dad passed away last fall. My father was a self-taught investor,” Fergus writes, “who spent many a Friday night watching Wall Street Week with Louis Rukeyser, where perhaps your name once appeared in the credits.” Well, that’s kind of you. I never did work on the TV show, Fergus, just on the print newsletter, but thanks for that. I did work with Rukeyser as my first and really only job, because I’ve never thought of what I do at the Motley Fool as a job but a calling. So I’ve really only ever worked one job. I only lasted six months in it before I resigned in distaste — had nothing to do with Rukeyser, just the nature of the job itself. I’m so glad that that in some ways enabled the start of the Motley Fool, which might not otherwise have happened if I’d hung out, I don’t know writing for Lou’s TV show. Anyway, let me get back to your beautiful note here Fergus.
“My father is pouring over thick paper packets of Value Line which you received in the mail.” By the way, Fergus mine did too. “My brothers and I observed the process of his investing work. We certainly benefited from the results of it, for which I am profoundly grateful. What my dad did not do beyond his example was actively teach his children about investing. That is a parenting improvement I am attempting to make with my own children who range in age 18 to 1. Our only lasting impact is that which we have on the lives of others. It sounds like your uncle Jimmy made a positive impact on the lives of many. — Fergus Cullen, Dover, New Hampshire.”
Well, Fergus, that note speaks for itself. But I do want to mention what a wonderful thing it is that even if your dad didn’t really teach you that much about investing, he was at least embodying it, exemplifying it. I know you were a beneficiary of the fruits. I loved that you’ve taken it one step further. While we don’t live in a world where mailings from Value Line, which you would insert into this big black binder with the most recent quarterly periodical — we’ve moved onto a digital world today. So has the Motley Fool. We were once a print newsletter, back in the day. But, indeed, the act of constantly scanning for what’s the new company? What’s the new technology? What’s the new product or service that you think will improve the world that you and I can be part owners of through the public markets? That quest will never end, and I know you’re doing a fine job at that as well Fergus. Best to you, sir. Thank you for writing in.
Which leads me to Rule Breaker Mailbag Item No. 2. I don’t want to be too self-reflective and I hope this is not too self-indulgent, talking about my own family, but this was a lovely note. Thank you, Brett for writing.
“Good afternoon, Mr. Gardner. My condolences for the loss of your uncle, James ‘Jimmy’ Lowe Jr. As I read about his life, it became apparent that his life was a life well lived. The poem High Flight,” — which is what I featured on that podcast, “Something Old, Something New, Something Borrowed, Something Blue” and the blue section in the poem, High Flight — “is one of my favorites. I wanted to point out one other commonality between John Gillespie Magee Jr., the poet, and Jimmy Lowe Jr., was that both men attended Yale University. As a member myself of the United States Air Force, High Flight is a poem near and dear to my heart,” Brett writes.
“Attached to this email are pictures from the Air Force Museum in Dayton, Ohio, taken in 2015 while I was in training at Wright-Patterson Air Force Base, detailing the heroics of Pilot Officer John Gillespie Magee Jr. I have also included the picture frame of High Flight that we keep on our wall at work,” Brett writes, “a source of inspiration and perspective as we go through our day-to-day routines like the Rule Breaker Investing podcast. Thanks for all you and your team do. Respectfully, Major Brett Valisillow.”
Thank you, Major Brett V. for taking the time to write in and share your perspective. I haven’t been to the Air Force Museum in Dayton, Ohio. It sounds like a lovely place, and I really appreciate you including the pictures that you’ve put in, especially of the framed copy of the poem High Flight, which for any listeners who may have missed that podcast a few weeks ago, I hope you’ll read High Flight at some point. It’s a sonnet. It’s not a very long read, but it’s a beautiful poem, one of my five favorites in the English language, and I’m so glad it connected with many people listening to me right now, including a Foolish Air Force major.
Well, on to investing we go.
Rule Breaker Mailbag item No. 3: This from Martin Keogh. “Hello David. First, some gratitude, I joined the Fool back in the days when your paper newsletter would drop monthly into the letterbox attached to our front door. Investing the Foolish way allowed me to be a professional dancer for 40 years, which took me to dance in 32 countries on six continents, all the while supporting a family of six. Dance is notorious for being a low-paying profession. Yet,” Martin writes, “I got to live with a livelihood that I was passionate about, and I got to model to our children that it’s possible to have a life in the arts or in the non-profit sector and still get by without an excess of sacrifice, by starting early, and putting in a little of my earnings each year, I’ve been able to grow a nest egg. So thank you for helping me to live the life of my dreams.”
Well, Martin Keogh, I’m delighted to hear about your life, I’m honored that you think to include us. I hope we did play some small role, but, wow, did you do a lot. Dancing in 32 countries while supporting a family of six off of that, and Foolishly investing all the while. I think especially your mention of getting started early probably has been a key factor that I want to underline for everybody hearing me right now. I also appreciate, Martin goes on with this note with a little bit of etymology. Thank you for this, sir.
He says, “As an aside, the phrase ‘nest egg’ has been used to refer to savings since the late 17th century. The term is believed to have come from poultry farmers placing eggs, both real and fake, in hens’ nests to induce them to lay more eggs, which meant more income for these farmers.” You know I love the language, I love hearing histories behind words. Thanks for that, Martin.
Now, on to your question which you say it has to do with what you see as a conflict between Rule Breaker Investor Trait No. 2 and No. 3. You cite Investor Trait No. 3 first — this, by the way, is from our list of “The 6 Habits of the Rule Breaker Investor.” Martin says, Trait No. 3 says to invest for at least three years and that is correct, and then you cite investor habit No. 2, which is add up instead of doubling down. Or as Martin goes on to say, “As I say, add to your winning positions rather than buying now-cheaper shares of your decliners.”
Martin goes on, “This is quite contrary to conventional wisdom, and such a touchstone of the Rule Breakers philosophy, and it has served me well. I’ve also heard you say, “I try to find excellence, buy excellence, and add to excellence over time. I sell mediocrity. That’s how I invest.” That is indeed one of my watch words.
“While you recommended long-term, buy-and-hold three-year minimum, I’ve regularly,” writes Martin Keogh, “sold my less well-performing companies to ‘double up’ on better performing companies. I feel overall my portfolio has done better with this approach rather than a simple buy-and-hold approach. I know I’ve lost out on some great gains in some companies like Nvidia, but I’ve doubled up on stocks like Tesla and The Trade Desk, which has served my portfolio well. My question then: Do these traits really conflict with each other and how do you balance these two principles? Thank you for the decades of guidance and good cheer.” What a lovely sign-off — “Dancing into retirement, Martin Keogh.”
Well, maybe I’m missing something here, Martin because, after all, I created these and I do have my blind spots. But I don’t think that they conflict with each other. I think a lot of the time, as Rule Breakers, we need to integrate both sides of our brain, left and right. We need to be able to speak out of both sides of our mouth and see the bull case and the bear case. So ultimately, I’m a huge fan of integrated thinking. I’d like to know both sides of the spectrum before I try to locate the golden mean there, with Aristotle within that spectrum, and the golden mean in different contexts can be a little arrow, a little carrot plotted in a much different place along that line, spectrum, from one side to the other. So trying always for the golden mean is my aim. So Investor Trait No. 3: Invest for at least three years. Yeah, that one’s pretty straightforward.
Trait No. 2, you’re mentioning, add up instead of doubling down. So Martin, you have been selling off some underperformers occasionally over the years and reinvesting that — adding up which sounds entirely consistent with Investor Trait No. 2. I think you’re suggesting that they might conflict if I say invest for at least three years and you might be selling a loser, let’s say, after a year and a half in order to buy more into a winner. I think that is, in general, a good approach. I applaud that. If you’re thinking that your minimum holding time should be three years. That’s generally how I act. Usually I hold longer than that. I do think that leads to your best investing. You might want to check how Nvidia’s done and see, what if you’d held onto it? But at the same time, if you’re talking about putting that money instead into Tesla or The Trade Desk or any one of a number of other great Motley Fool stocks, how can I gainsay that? So I truly believe those two do not conflict. I think it is generally helpful to invest for at least three years. But if you’re looking to raise funds and you have a laggard or a loser, I would certainly say sell that one, and yeah, if it’s been a bad two years and the company’s imploding or something, feel free to sell before that three-year deadline.
But in general, the reason that we have these habits or list of six different traits or principles is to make sure we uphold that and we aim high and we have clarity on what that is. If you want to make it your own contextually, by tweaking any which way — I’m speaking to somebody who dances, I think you understand, “dancing into retirement,” how to do some jazz, improvisational dancing. I think that’s something we’re all called to do at different points in our lives.
Anyway, Martin, thank you so much, one Fool to another, Martin Keogh, for sharing your story, I hope that was helpful.
On to Rule Breaker Mailbag item No. 4. This is for Mike McMahon. This is the aforementioned ProShopGuy, who follows so much of our work on Motley Fool Live, and starting as a volunteer, Mike, you’ve ended up contributing a lot to member experiences by your summaries of what’s happening on Motley Fool Live, your tweeting on the internet, etc.
This is an email you shared, and I really liked this, so let me share. “Hi David. After listening to the recent episode on RBI podcast with Bill Mann and Auri Hughes sharing their story, I’ve challenged myself to put together my story in a 150 words or less, and here it is, Mike McMahon’s story in a 150 words or less. “From my grandmother teaching to set aside dimes and nickels from chores to a fascination with computer punch cards, saving and computers have been life themes. A D grade in calculus led me to changing majors from Math to Accounting with an Information Processing focus. My initial investing experiences included watching silver coins go up 10 times before crashing. Marrying a like-minded partner led to a 40-plus-year marriage of living within our means. A 30-year career at a middle-tier retailer included jobs in auditing, credit management and IT planning. Serving on the company credit union board taught me about running a company. At age 65, with Motley Fool Live’s help, I began actively investing in companies after 40 years of passive investing. Over the past two years, I’ve collected over a 100 companies with a multiple-decade time horizon of building a legacy for future generations.”
Well, Mike, I’m glad that you were inspired. I really enjoy the “Telling Their Stories” episodes, and challenging my guests to tell their story in 10 sentences or less or 150 words or less. It’s a wonderful exercise for us all. I have to admit, I haven’t done it myself, but I’m so glad that you were inspired and challenged to do it yourself. It’s just a delight to share that. I can relate to not such a great grade in calculus. At a certain point, as we got the higher math, I started going, “Wait, I’m now calculating, what is it … the slopes of curves, the rates of change? What am I doing?” It got so abstract. I love that, clearly, you’re still mathematically minded, you just shifted to accounting. I did get an A in fifth-grade math. I can do quick calculations. As somebody who likes numbers, but doesn’t like to get too abstract, I can completely relate. But Mike McMahon, thank you again for all that you’re adding. And I’m so glad that you shared, that because who’s joining me this very moment on the podcast, but a guy who also captured himself in 10 sentences or less, 150 words or less — my friend, Bill Mann. Bill Mann, it’s great to have you back on Rule Breaker Investing.
Bill Mann: David, it’s good to see you. How are you?
David Gardner: I’m doing great. I’m even doing better since we last saw each other because of what’s happened in the Final Four — basketball, March Madness. Maybe we’ll talk about that in a little bit, but I know you and I have the same dog in that fight, Bill. It’s a special week.
Bill Mann: It is the best week ever.
David Gardner: Well, people really enjoyed your and Auri’s appearance on telling their stories earlier this month. I just want to share with you a couple of notes before we go to Rule Breaker Mailbag item number 5, @GaryCar: “Catching up to Rule Breaker Investing podcast on a slow Sunday afternoon and what fun it was to hear @TMFOtter tell his story. Bill Mann and David and so many others at The Motley Fool have indeed made my life richer in non-dollar ways.”
Just a lovely reflection on your appearance, Bill, and this one as well, @YairBringsTheLight, long-time Motley Fool, Motley Fool Live viewer and a pretty dadgum (to use a Roy Williams-ism) dadgum big Bill Mann fan said … this was reacting to the clip of you testifying before Congress 20-plus years ago, Bill: “It’s not often someone who purposely calls themselves a Fool gets to address the U.S. Senate.” That’s in quotes because that was your quote before the Senate. He loved watching this video. He said, this is #gold, and @TMFOtter, you my friend are a #livinglegend and I am grateful to have you as both the teacher and friend.
Bill Mann: I wish I had that Bill Mann’s hair at this point because those were some luscious locks.
David Gardner: [LAUGHTER] They were, and anybody who may have missed that, who would enjoy seeing that, Bill, am I right? They can just go to YouTube and google “Bill Mann Fool U.S. Senate.”
Bill Mann: Something like that — “Bill Mann Fool Enron”
David Gardner: That should work, Enron.
Bill Mann: Yes. That’s what I was testifying. We were with the good guys.
David Gardner: Thank you.
Bill Mann: We were with the good guys.
David Gardner: Well and you’ve always represented us as a good guy, so well, thank you, Bill. I just thought to have you on because a couple of these, I think you can give us some help with. Let’s go to Rule Breaker Mailbag item No. 5.
This is from Patrick Urkel. Patrick writes: “Hello, Fools. I’m a long-time listener, Motley Fool member, Stock Advisor, Rule Breakers, Digital Explorers, etc. As a statistician, a fan of the empirical, and the benefactor of The Motley Fool’s approach to business-focused and necessarily contrarian buy-and-hold investing in the leaders of today and tomorrow, I have a concern,” Patrick writes, “regarding small-cap indexes such as the Russell 2000 or the Vanguard Small-Cap ETF and its conflict with a Foolishly diversified portfolio, which includes both individual equities and indexes across mid- and large-cap companies domestically and internationally.”
This is not just a statistician, Bill. This is a thorough-going investor and actor, you agree?
Bill Mann: Yes, I think Patrick has thought through this quite well.
David Gardner: Let’s continue, “A small-cap index reduces the downside risk through diversification. However, a small-cap index by its structure limits upside gain by selling the successful companies who’ve matured and grown into mid- and large-cap valuations. Thus,” Patrick continues, “the small-cap index only benefits from the narrow growth window from, let us say, $300 million to $2 billion in terms of market caps.” He’s saying that’s around a 600% gain if you pick that at the start before, he continues, being sold out of the index. He picks it up there.
“Instead, as many Motley Fool analysts recommend, buying a basket of individual small-cap companies diversifies the downside while allowing investors to hold and to buy more for five, 10, 20 or more years. The Motley Fool approach,” Patrick continues, “allows much greater participation in the upside, adding to those businesses with demonstrated potential, watering the flowers, as has often been said, and trimming the weeds to seek portfolio balance as well as growth. From the next great opportunities, investors can allocate new funds to those former small caps that are now mid or large caps, as well as identify new small caps. I know a few great TMF services,” Patrick writes, “that could help.”
Bill, I’m about to turn to you, but let me just close it out here. He said “Using this perspective, I’m inclined to shift most, not all, of my 401(k) funds, which are limited to index funds, away from small-cap indices and into mid- and large-cap indices and then, in my personal IRA and Roth accounts, boost my allocation to individual small-cap stocks to gain some market cap diversification across the portfolio. Thank you,” Patrick concludes, “for continuing to make the dozens smarter, happier, and richer. Fool on, Patrick from USA.”
Now Bill, what is your official job title at The Motley Fool?
Bill Mann: You know, I don’t know.
David Gardner: Well, you’ve often come on the show, and now they’re saying Director of Small-Cap Research among other things.
Bill Mann: Yes, I’m the Director of Small-Cap Research.
David Gardner: Here you are, and here’s Patrick saying, “Hey.” He’s a statistician, he is very thorough. Going with the best, he is going for diversity, but he’s starting to think, “Do small-cap funds sell me out of winning stocks, like Shopify, once it’s no longer a small-cap?” Is that doing it right or wrong?
Bill Mann: He’s absolutely right. That is what happens, unlike … because both you and I have had the privilege of buying companies when they were tiny and having them grow to be massive companies, and that is a beautiful thing in investing. Indices can’t do that. An index has an upward or a lower bound. He is exactly right that any index fund that’s tracking small caps will in fact be selling companies that have done too well. I don’t know if that’s a tragedy for your life. It’s like the world’s least tragic tragedy.
David Gardner: Best problem? [LAUGHTER]
Bill Mann: Best problem ever, these companies have done too well. There is something else I think that Patrick is getting at with this by saying that he wants to take the small-cap component of his portfolio and pick individual stocks. There’s a super-cool piece of research done by a group called Callan, and they do a periodic table based on assets. It shows that there actually is a performance differentiation between small-cap stocks and large-cap domestic stocks. In the last 12 years, small-cap stocks have been the best performing of the nine asset groups that they track. Over the last 12 years, small caps have outperformed every other group four times — four times out of 12, which is a little bit more than random, I would say. It shows that there is out-performance capacity for small caps even if you just own the index. If I were investor X, and it sounds like Patrick agrees with me, which is the best kind of question. [LAUGHTER] I would not avoid small caps at all, but if you want to take them on and take on choosing some using the Motley Fool services, I happen to think that that is a wonderful way to go about it.
David Gardner: Well, of course, from a Motley Fool standpoint, as a fellow Fool myself, I also think we offer good advice there, and I do think we have a demonstrated track record across many advisors and analysts of finding the ones that outperform. As anybody who is listening to Rule Breaker Investing for any length of time knows, you’re going to have your losers too. It’s like venture capitalists. In the venture capital approach to the public markets, you’re comfortable with losing. You don’t want to lose. You hate losing, but you know it’s necessary to win. “Losing to win” is one of my operative phrases on this podcast, and Bill, you — as somebody who for the longest time, going back to the Hidden Gems days for the Motley Fool — have always appreciated, along with my brother Tom, those smaller Hidden Gem-like companies. And yeah, the beauty of being a stock market investor, directly owning companies as opposed to owning them through funds is that you can manage your position and allowing an acorn truly to reach not just like little oak, nor medium oak status, but like Oak oak status. That can only be achieved by people who probably own the stock directly and keep holding over long periods of time. Bill, thank you for saying that. A little bit of chapter and verse Foolishness from you right there.
Let’s move onto Rule Breaker Mailbag item No. 6, while I have you. Just another investor question of a horse of a different color. Yet Bill, a horse that frequently, of whatever color, makes its rounds around Motley Fool podcast, Motley Fool our website, our advice. This is probably a frequently asked question. It’s known.
Bill Mann: Very much so.
David Gardner: Yes. It takes many different guises. Here we go. From Justin Mazza: “Hey, RBI team, I wanted to ask a different spin on the same question.” Not the same question by the way, as Patrick, our previous person, no. This is of course written independently by Justin Mazza. “But how many stocks,” he writes, “should I own? I have been following all aspects of the Motley Fool for about three years now. During that time, I’ve really increased my efforts in my personal retirement and individual brokerage accounts. I’m approaching 30″ — that would be 30 years of age — and I’ve been investing for about eight years now, to give some background.” Love it. Justin continues, “Through this time, I’ve obviously invested in many different companies from a variety of industries. Individual stocks make up about 60% to 65% of my overall portfolio, with support from ETFs and mutual funds.” Bill, we have here another broadly diversified Fool.
Bill Mann: Yeah.
David Gardner: In a way, that leads to a problem that Justin is about underline where I’d love your insight here. “The question is always asked: How many stocks should I own? Although I know there’s no complete right or wrong answer to this, and Fools have discussed this topic numerous times throughout the years. I have a more direct question in almost the reverse. I’ve spread myself too thin. I own too many smaller positions in individual stocks, and I want to scale out of some and add to others. However, what I find myself doing throughout the years, especially over the last three with the Fool, is buying small positions, sometimes only a share or two in a company for the typical problem — FOMO or fear of missing out — and now I find myself with too many companies to keep up with. In addition, because I’m so spread out among, let’s say, 100 companies to make the math even, I will have 20 companies underperform that may cancel out” Justin writes, “the high performance of a different 20 companies.”
By the way, quick editorial note for me before we continue. That could happen especially in the short term because stocks drop faster, my experience and they rise over time. In a shorter-term time frame, you will find your losers wiping out some of your winners. I’ve seen that with some of my five-stock samplers. But if you let that time go by, Justin, I predict that reverses itself. But let’s keep going. Here’s the final question, Bill. Justin asks, “How do I scale out of individual companies with small positions? How do I control the FOMO? Is now, with the market being so volatile, the right time to sell? How do you adjust when you become too diverse that you aren’t really gaining much? As always, appreciate the knowledge and conversations. Fool on. Justin Mazza.”
Bill Mann: So great. First of all, I want to hear from Justin from 2021 experience, how he managed to have half of his companies go up when the other ones dropped? [LAUGHTER] That’s pretty good.
David Gardner: That was a tough year for me, anyway.
Bill Mann: It was a tough year for almost everybody, and it was one of those years in which the surface lied about what was happening underneath. [LAUGHTER] I think, ultimately, Justin’s question is that he is trying to track too many companies and he has very small positions. And he is trying to figure out how to justify owning that many positions. If you think about it, Justin has in some ways produced a mutual fund for himself, and he also owns ETFs and mutual funds. And I’m pretty sure that he has no idea what is in those. He has structured himself in a way that he does not have to worry about what the smallest companies in his portfolio are doing.
David Gardner: Well, that’s true. Now, I do want to say that he probably can’t comprehensively know what is in all those funds because I mean, who would? But I’m sure he does know the names of the funds and the purposes. This is obviously a diligent investor.
Bill Mann: Yeah. I’m not talking about someone being neglectful here. I’m just saying exactly as you said, structurally, exactly, structurally, he is trying to be responsible with the companies that he owns. But I guess the point that I’m making is a little bit different. If the companies that are the smallest ones, that are in the funds don’t really matter that much to his returns, then you could almost say the same thing about the companies that he has individually selected, the smallest of them. Think: If you’ve got a company that’s 0.2% of your portfolio and it doubles, it feels great, but it doesn’t actually make that much of a difference for your financial future.
David Gardner: It goes from 1/500 to 1/250 of what you have.
Bill Mann: Congratulations.
David Gardner: I can do fast math.
Bill Mann: That was good.
David Gardner: Not calculus though, not calculus. [LAUGHTER]
Bill Mann: I’d have to take my socks off, so I’d have enough digits to [LAUGHTER] access for anything more complex than that. What I would say though, is in some ways, he’s got a freeing question. If it is 1/500 of his portfolio, he can ask himself, “Do I want to own this? Or if I do just feel like owning this, do I care?” If this is not a company that he has much riding on, so therefore, he can just choose to continue owning it or he can sell it. It is a free shot either way.
David Gardner: That’s really interesting, Bill. You’re basically saying, it doesn’t matter because it’s so small. It really doesn’t matter either way. It doesn’t matter if you keep it. It doesn’t matter if you jettison it. It doesn’t actually matter.
Bill Mann: Yeah. It becomes a science fair project.
David Gardner: Everything matters a little bit and everything’s connected, but we’re talking big picture here.
Bill Mann: Big picture, it doesn’t matter that much. With those smallest companies for Justin, what I would do is I would recognize this fact, and I think to me that feels somewhat freeing because then you could say, I can get rid of them and it’s not impacting my financial future. But there may be some that I’m just interested in. If you’re interested in it, just hold it. If you’re not interested in it, the question answers itself. And it shouldn’t be painful. I mean, there’s those FOMO issues. It’s fun owning companies. David and I are both collectors that way, very much. But the fun of it simply becomes the reason for owning it. If it is that small of a component of your portfolio. It becomes a company that you should be interested in following. If you’re not interested in following, that question answers itself.
David Gardner: There’s one other thread here. Let’s pick this one up briefly in conclusion, Bill. That’s the FOMO part of this. This is not the only Motley Fool member I’ve ever heard of who is fearing missing out, potentially, on that “what is the next big Shopify-like winner.” They worry that if they haven’t bought a share or two, they might miss out. Thoughts about the fear of missing out for investors?
Bill Mann: I think it’s, again — and I don’t want to go too much into our description of Justin’s situation because I don’t think that Justin would say, “Hey, I’ve got positions that are 0.2%.”
David Gardner: Right. We made that up.
Bill Mann: We made that up. But think about this. If 0.2% of your portfolio is Shopify and it goes up five times in value, you still have missed out. You haven’t fully missed out, but you have at least partially missed out because you have a position that’s great, but it’s not transformational. When you think about missing out or not missing out, you want to make sure that those positions are of a size that are even conceivably, potentially transformational. Everything else underneath that is just whether you are interested in them or not.
David Gardner: To close, Bill Mann, thank you very much for all of those insights for both of the mailbag items. I guess one of my old lines that I keep going back to — “make your portfolio match your best vision for our future.” That’s another way, Justin, Bill and everybody listening, to think about what you are owning and whether you want to keep owning something. It’s a filter.
Bill Mann: Yeah.
David Gardner: Does that match? Does that help lead to a better version of the future? And if so, how impactfully? I think the best stocks of any era are going to be the companies that truly took us higher and at a broad, broad level. That’s another filter any of us can have it, by the way, if you’re missing out, just because you missed buying this amazing stock back that first time that you heard it doesn’t mean you can’t still buy it a year later…
Bill Mann: 100%.
David Gardner: … three years after that, or, Bill, 20 years after Amazon came public, it was a pretty great investment in 2017, for example.
Bill Mann: Absolutely.
David Gardner: The only missing out at a certain point, an intentional decision simply not ever to buy that thing that is in front of you, that is improving the world and everybody else’s making money off, right?
Bill Mann: Exactly. Every single one of us — you, me, everyone else — are throwing rocks into the stream. That stream is moving by. The day we learn about a company, we have already missed out on some component of the experience of owning that company. There is absolutely nothing to be afraid of in missing out. The only thing, the reason that you can miss out is you look at something and you want to own it, and you think you should, and you don’t. That is the only component that you need to worry about.
David Gardner: Thank you, Bill Mann, and I can’t let you go without just a quick basketball thought. I realized about one in four of our listeners is outside the United States of America, let alone the Atlantic Coast Conference. At least one of four people hearing us right now really don’t care what you and I are about to say about basketball.
Bill Mann: [LAUGHTER] That’s good marketing right there, David.
David Gardner: [LAUGHTER] Only once in our lifetimes has, and maybe will ever, Duke and North Carolina faced each other in the March madness tournament. It’s in the Final Four this coming Saturday. Bill, a thought.
Bill Mann: I grew up in Raleigh, North Carolina, so this is two rattlesnakes in a bag. They are [LAUGHTER] seven miles apart. You and I are here in Northern Virginia, but I cannot describe, in North Carolina, how big these rivalries are. When I was growing up, people would move into town and we would say, “Are you Carolina, or Duke, or State?” and they’d say, “I’m from Ohio, so Ohio State.” It was like, “No, that’s not the question. You have to pick.”
I don’t know that this is going to be fun, but it is certainly going to be historical. And I can’t wait for Carolina to win. I can’t wait for it to be over with, but I really can’t wait for Carolina.
David Gardner: I want to inject this as well, and this will be my only other basketball note, this podcast. But I swiped this from one of my favorite sports podcasts, which is called Three-Point Range, done by my friends, Kimball Crossley, Tim Crothers, and Mike Berardino. But this is a really great point. We just came through a tournament in which there was arguably more parity than ever before. Saint Peter’s Peacocks are playing in the Elite Eight.
Bill Mann: Beautiful.
David Gardner: It seems like anybody could beat anybody else, but what are we left with, Bill? Arguably, the four great programs of our time. And there are other greats like Gonzaga. But here’s a fun thing that I learned, and I’ve thought more about and I agree with this. Whoever wins Saturday and then Monday will be able to lay claim to being the team of the century thus far. Because if it’s Duke or North Carolina, they each have won three times already this century, and so it breaks the tie, and that’s the fourth. So that’s their claim. But then Villanova has won two national championships in the last six years, and if they win on Monday night, that’s a third in just seven years. They’re the team of the century. If Kansas wins — and I actually think Kansas is more likely than any of the other teams to win it all — if Kansas wins, they entered the tournament with more wins this century than any other men’s Division I program, and they will exit as the all-time leader in the NCAA tournament victories, so they’ve got the claim. I cannot imagine how the planets could align, Bill and all basketball fans listening to me, that we would be in this position including the Duke-Carolina game, but what a fascinating reflection. That 22 years in, somebody is about to definitively jump ahead in the team-of-the-century sweepstakes.
Bill Mann: It’s Kentucky’s nightmare. It’s Kentucky’s nightmare Final Four. [LAUGHTER]
David Gardner: All right, Bill. They’re giving us both the hook, but because I have to keep hosting, we’ll go back to the stocks. But thanks Bill. So good to be with you, and thanks for telling your story earlier this month.
Bill Mann: Thank you so much. I always appreciate the invite and it’s wonderful to catch up with you, David.
David Gardner: All right. Well, on to Rule Breaker Mailbag item … I’m actually going to say Nos. 7 and 8. We’re going to do them one at a time, but similar themes. Some important shared content, and here to discuss that with me right now, our good friend, David Kretzmann. David, welcome back to Rule Breaker Investing.
David Kretzmann: Great to be back. I feel like it’s been at least a year, maybe two years. But either way, great to be back.
David Gardner: Any time you want to drop me a note and say, “Hey, I really want to be on the podcast, I really want to talk about this or that,” I’ll always say yes. But in this case, it was your name being invoked multiple times on incoming mailbag items that had me thinking we got to have the man back.
David Kretzmann: Oh boy, let’s go for it.
David Gardner: Long time listeners will immediately know the acronym “GKC,” which has been something that has been important to the show ever since it was first spontaneously created when David Kretzmann joined me on Rule Breaker Investing, lo, some years ago. The Gardner-Kretzmann, that’s our names, David, the Davids, the Gardner-Kretzmann Continuum. Now, because both of our mailbag items are speaking to that, I think, David, it’s a good idea for us to redefine for a new generation of listeners what we’re talking about when people say the GKC. Would you do the honors to this one?
David Kretzmann: I’ll do my best. Like we said, it’s been a while. But yeah, when we were talking about just general concepts around diversification, number of stocks in your portfolio, we were just riffing on the podcast, probably about five years ago or so, David, and the definition we came up with — somewhat impromptu, but it stuck — was taking the number of stocks in your portfolio and dividing it by your total age. So if you have 50 stocks in your portfolio, and you’re 50 years old, your GKC score would be 1. I think the general rule of thumb that we came up with is that you should generally shoot for a GKC score of 1 or higher. Every investor will be a little bit different, but net-net, shooting for more diversification than not as you add more years to your life experience. Probably a good thing for most investors in aggregate. How did I do, David?
David Gardner: Beautifully. Let me just add another example or two just so those who are just hearing the numbers for the first time can get a couple different looks. David, you gave a great example of 50 year old with 50 stocks, so 50 stocks in the numerator, 50 age years in the denominator, that’s 1.0. If that same 50 year old had only 25 stocks, then her GKC would be 0.5. That would mean she has half the number of stocks of her age. On the other hand — and I think part of the reason this became a thing, when you were on that podcast — is you opened my eyes in your 20s at the time, which I think is still the case.
David Kretzmann: Still the case.
David Gardner: It is still the case.
David Kretzmann: Still there, a little bit longer.
David Gardner: Still in your 20s, yes. But at the time as earlier in his 20s than he is now, you were rocking a number of stocks that was a much bigger number than I was thinking. So if a 25-year-old has 50 stocks, his GKC is 2.0, well above the 1.0 we were surmising is a good baseline. But there is no right or wrong answer here. Mainly David, what we’re trying to do is highlight for people being aware of their own diversification and where they are, and giving especially new investors, I think, something to shoot for. Because when we start investing, a lot of us start with zero investments and one of our first questions is, “How many should I have?” So I think the GKC has provided a rule of thumb, which is why it keeps coming back year after year.
David, we have two this time. They’re each a little bit different riff. I thought it’d be great, especially because these are Motley Fool members, and so they’re partly trying to figure out how do we use our services, and that’s a big part of your focus now at the Fool Member Experience — members’ success.
David Kretzmann: Yeah.
David Gardner: Please speak to that. But let me just leave it up with Rule Breaker Mailbag item No. 7. This is from Ryan Tretter. “Hello, David. I found the Rule Breaker Investing podcast about a year ago. Since then, I’ve listened to every podcast and have begun modeling my investment portfolio with Rule Breaker principles in mind. So my question this week is geared toward diversification. I currently have 24 stocks in my portfolio and at the age of 35, this gives me,” Ryan writes, “a GKC score of 0.69. I like the idea of getting my GKC score to 1, which I could do rather quickly by picking 11 different stocks over the next 22 weeks of biweekly payroll contributions,” and by the way, good on you Ryan, love that you’re doing that, “but,” he continues, “I’m not sure that that’s the right approach since those positions would be relatively small compared to the other 24 I currently hold. Another option I’ve considered is to pick a new company to invest in and add to that until it has an equal starting point that the other 20 before had before choosing that next company to invest in after that. However, at my current contribution rate,” Ryan writes, “this method would mean I could only pick two new companies per year, and I wouldn’t reach that coveted GKC score of 1 until I’m 46,” writes the 35-year-old. “Should the focus be on building out your positions slowly one by one, or spreading it out among many companies and then adding to those positions over time. I realize this may be a classic “why not both?” type of situation as well, but I would love to hear your thoughts when it comes to building out a well-balanced portfolio. Thank you, Ryan Tretter.”
Well, thank you Ryan for that question and I’m happy to say I have the other half of the GKC to address that wonderful question. David, what are your thoughts?
David Kretzmann: Yeah, what a great question and love the fact that we have members like this, thinking through how to best apply these principles to their own portfolios and their own outlooks. Obviously, everyone is going to be a little bit different, so there’s no one-size-fits-all answer here. While David and I will both espouse more diversification than not, as generally good principal for most people — and that’s what we’ll typically recommend most of our members do — is aim for at least 25 stocks in your portfolio, aim to hold them for at least five years. Generally, the more stocks you hold, the longer you hold them, the greater your odds of a positive outcome over time. But there will, of course, be outlier investors on the other side who want a hyper-focused portfolio of 10 or 15 stocks and all they do is study those businesses and they hyper-focus there.
I think in the case of a lot of our services and again, every advisor, every service will have their own take on this. Generally, I think would be leaning toward spreading out across multiple companies and then building up that portfolio over time. However, we do have examples of services like Stock Advisor or Rule Breakers, where it’s on a rhythm, two stocks a month, and building up over time with that scorecard or that portfolio approach.
But like I said, everyone will be a little bit different. I think one of the variables that will maybe impact how you think about this for your own situation as an investor, might be whether or not you’re adding new money on a regular basis to your portfolio. Say you’re working age, you still have years or decades ahead of you where you’re likely going to be able to add a regular chunk of money to your portfolio every two to four weeks. Or on the flip side, if you’re someone who you’re not adding new money, whether you’re just not working right now or you’re in or nearing retirement, that will probably change how you think about this. I think it’s going to vary for everyone, but in general, I think our overarching message is, when in doubt, err on the side of getting to 25-plus stocks as quickly as you can realistically, and then build up that portfolio over time, but a lot of nuance within that.
David Gardner: There is no one-size-fits-all, as you began saying, and Ryan was even saying, hey maybe I’d say why not both answer, but I also side with you, David, on the side that says add more stocks and more different companies and then build them up over time, because by the way, the act of building them up over time, you might start to realize a few of these are better than some of the others. Like, as you get to know these companies, you’ll start to think, “Hey, I’m going to add more to that new one and maybe less to that other one that’s not working out.” So you have an opportunity to watch them as they go. I think you’re going to learn more while remaining more diversified. But David, back to your original comment. I know the Fools made a lot of this, especially over the last year for members, five-year minimum holding period, 25 at a minimum stocks in your portfolio, Ryan’s right about there. This guy just started listening to podcasts a year ago, he’s up to 24 stocks at the age of 35. Let’s make sure we give him an atta-Fool slap on the back for where he is right now, but is even articulating this question. I wish everybody in America had that same question for us to articulate. That’s something the Motley Fool Foundation is going to be working toward, but I’m talking too early about next week’s show. But thank you, David, for your perspective there.
Let’s get to Rule Breaker Mailbag item No. 8. Actually, before we go there, David — years ago, the reason you were on the podcast more often is you were a Motley Fool Rule Breakers analyst at that point, so I was having you on, and it’s always a pleasure to have you on. But describe what you’re doing today at the Fool. You just had a wonderful career at The Fool, and how are you spending your time? What’s your focus?
David Kretzmann: Yeah. Well the way we will put it at The Fool is a lot of us will bounce around the jungle gym year by year, decade by decade. So my latest destination around the jungle gym is leading what we’re calling our Member Success team, which I will describe as essentially our core product team. We have our product designers and developers, our investing and financial planning teams within our membership business, really the foundational pieces that go into the building blocks of what we deliver to our members. Thinking through the details of the member experience, really looking to take steps to simplify and enhance the member experience week by week, month by month, year by year as we go — so a lot of member-focused work.
David Gardner: I love the phrase Member Success because that’s really what it’s about, smarter, happier, and richer, we hope never one without the other two. I’m sure we don’t get it right every single time. Some people do cancel Motley Fool services. If we’re not relevant or not doing a good job for you, I’d be the first to say so, but I’m just delighted, David, to know of your focus on our members’ success, and that’s an entire team at the Fool. And podcasts are a small part of what we do at the Fool, but thank you for helping us reach today more members than we ever have before. There’s a lot to do and to think about and I’m just delighted you’re in that role. But put your Rule Breaker Investing podcasts hat back on for one more item this week because here comes PT Lathrop.
“Hey David. Keeping it brief despite my longtime Foolishness, here’s some encouragement for others. I know about the GKC score and I’ve skewed quite low, maybe 0.6 to 0.7 for most of my investing life. Well, the downturn in Rule Breaker stocks has pushed me to be even more diversified,” and, yes, PT Lathrop and everybody listening, a lot of Rule Breakers have gotten knocked down — we’ve talked about this on this podcast — a third and some cases cut in half in just a matter of months. I think the they’re the same great companies they were three or six months ago, but the market doesn’t think quite the same way about them, which I think opens up some opportunity, and David, I think that’s what I’m seeing in PT Lathrop’s note. I’ll continue.
He says, “…the downturn in Rule Breaker stocks has pushed me to be even more diversified, so I committed to maintaining a GKC score of 1. “By the way,” PT says. “I’m 35.” All the 35-year-olds are joining our services, David Kretzmann — great job.
David Kretzmann: The 35 club, I love it.
David Gardner: Both of them, 35, I love it. “I finally got to 1,” PT writes, “and the positions aren’t exactly balanced. I have some old positions that might be near 10% to 12 % of my portfolio, and my new additions to push my GKC are tiny,” he writes, “maybe 0.3% but — all caps here — BUT NOW I HAVE THEM, like your horses,” he says. “Now I have a full-year to add to winners and follow these companies and grow the positions. I didn’t need to put $5,000 in the new position, I can spread it and keep slowly adding to great businesses. “Bonus round,” PT adds, “the stocks I added are,” here comes some ticker symbols, “NUE,” that’s Nucor, “ZBRA,” that’s Zebra Technologies, “ABNB,” I bet you know that one, David.
David Kretzmann: Airbnb.
David Gardner: You betcha. “CFLT, FNV,” I have to admit, I don’t recognize those ticker symbols, but here we are with a few more tickers, “RBLX,” that’s Roblox, “SMAR, and DVN.” Do you want to highlight any of those? Do any of those companies jump out to you, David Kretzmann, as a particularly interesting company to put to ones watch list?
David Kretzmann: I mean, I think all of those are worth watching. We have a fellow member here highlighting them on the Rule Breaker portfolio journey. And I think the overarching theme here that I love from this note, and I think what the GKC score helps catalyze is there’s never the end destination. There’s like a moving finish line here. The finish line and destination continues to move. I think as investors as Fools, as Rule Breakers, we want to be continually curious and exploring around the world, what’s going on in the world of business and investing. I think in this case, it’s great, bump up that GKC score a little bit. I think it’s also trying to push back a little bit. Sometimes you’ll hear some of the push back to people who are building up a lot of stocks in their portfolio, like, “Well you might as well just buy the index fund at that point, if you’re buying 60, 70, 80 stocks, just buy the index fund.” But, by building your own portfolio across dozens, sometimes hundreds of companies in the cases of some of our long time Motley Fool members, you learn so much about the world, about business, entrepreneurs, leaders, so I think leaning into that curiosity is a wonderful thing.
There’s also the element of allocation. Just because you own a 100 companies doesn’t mean you just have 1% allocated to each of those companies. You can still have the bulk of your net worth in some of those dominant business that you’ve held for many years or decades. So going back to Peter Lynch is a great example, leading Fidelity Magellan for well over a decade. He owned I think over 1,000 companies. At least at one point, he famously said, “I never met a stock I didn’t like.” [LAUGHTER] He had some pretty darn good returns. Those are all just some themes to think about, where sometimes there will be some hesitation out there and you’ll hear it in the media, some established investment firms out there, to not diversify across dozens of stocks, but I think there is a lot of good research and reason to lean into that curiosity, build out that portfolio and continue exploring year by year.
David Gardner: Well, especially when your outsized positions, David, have achieved that through their own performance. I definitely have some outsize positions. That’s pretty much how I have rolled all the way through as an investor for a few decades now, but the only reason I ever had a lot allocated to one or more stocks is because they achieved that. They grew into that. I didn’t throw a whole bunch of Vegas money at one thing, red or black or 23 and hope to hit it, no. Fair starting line, spread it out. That’s what I love about these GKC notes. I’ll note, “In closing,” PT closed, “Anyways, the point is and I agree with this, the GKC is a great tool to keep you appropriately diversified, but also focused on adding to great positions.” PT closes, “I have a GKC of 1 and I’ll be adding to my most beloveds until I get to add one more, some more love next year. Stay cool. PT Lathrop.”
I think that really summarized it well. I feel as if this whole section, the last half hour or so of this week’s podcast, focused on “how many stocks should I own?” I’m not quite sure why that’s such a big theme this month, David. Maybe it’s been a volatile market and people questioning positions that they have, and some people thinking, “Do I have too many?” Others say, “Maybe I don’t have enough.” So maybe that’s why we’re focused on how many stocks we own.
David Kretzmann: It’s a good question to have and I think one way to approach an answer there is, your portfolio should be set up in a way that you are able to sleep at night and you are able to focus on the long term. Because the number of stocks you own is an important variable, but arguably, the most important variable is the length of time that you can hold those stocks. You can have as many stocks as you want, but if you’re still day-trading them and flipping them, not holding for longer than a month or a year or even three years, your odds of success becomes a little bit closer just flipping a coin or entering the casino. If you can control both those variables — the number of stocks in your portfolio and the length of holding time — then your odds of success dramatically increase. I think those are the two variables. Whatever you got to do, whether it’s having a cash position, more stocks, fewer stocks, certain stocks, adding some ETFs to round out your portfolio — whatever you got to do to optimize for a number of holdings and length of holding period, that’s probably a good way to approach it.
David Gardner: Wise words, David. Thank you so much for sharing that. I agree with you. How many stocks you own matters. How long you own stocks — “greater than sign” — probably matters a lot more. I think that shows up in performance numbers. It certainly shows up in the performance of Motley Fool services over time, allowing positions truly to grow in the way the stock market, I think, was designed to do. For you and me to be investors, not traders. David Kretzmann, so good to be with you again. Thanks for joining us on Rule Breaker Investing.
David Kretzmann: Thanks as always, David. See you next time.
David Gardner: Together we wish for more member success. Two more to close. Rule Breaker Mailbag item No. 9: This is from Nikhil Jane. Thank you, Nikhil.
“Hi, David. First of all, thank you for all the knowledge you disseminate and for all of your work and effort to make the world” — I love this phrase — “smarter, happier and richer.” Well, you’re very welcome, Nikhil. Thank you. You’re a member, I see, of Rule Breaker, Stock Advisor and Everlasting Stocks. “I had a thought,” writes Nikhil, “on much of the Motley Fool advertising, promotional, and teaser content. I see two individuals whom I never or rarely see outside of this content. These people are Eric Bleeker and Rex Moore, who both seem to be mystery figures,” writes Nikhil. “They obviously are not active analysts who TMF members have a lot of exposure to through podcasts, MF Live, the Rule Breaker podcast or articles. I was wondering if you might be open to introducing them, so to say, to the Motley Fool membership. Maybe through a podcast or even an interview like you did with Olin Douglas, who also was not well known to me before your podcast interview. I’m curious to learn more about them. Thanks for your time and consideration. Best regards, Nikhil Jane.”
I really love that note. I include it this week because it’s a reminder of what a wonderful team we have here at the Motley Fool. Because well, Rex and Eric are not necessarily as well known to members within our services, they are some of our marketing faces at the Fool, and Rex has been with us for 21 years. Thank you, Rex Moore. Eric Bleeker has been with us, he’s younger than Rex and me — wow, Eric, 13 years. Between those two gentlemen, yeah, 34 years of service to Fools. I’ve seen Eric travel all the way up nearly to the Arctic to do a marketing video for us. Seen Rex do any number of marketing videos. He’s focused on small-cap stocks. Rex is a big University of Texas fan. His original Motley Fool screen name was MFOrangeBlood. Anybody who knows Texas will understand that. Anyway, these are two of my favorite Fools, longtime contributors. Yes, you’re right, because any organism, as it grows, its parts specialize. I think that is a biological truth, and it’s certainly been true at our company. So somebody like Rex, who did come as a Hidden Gems analyst back in the day, a contributor, I think initially to our discussion boards, we hired him. Over time, and as the Motley Fool kept growing, we noted that Rex, who was a former television sportscaster, was good on camera, and was willing to travel with Eric to some crazy places to shoot some fun videos and promoting whatever the new Motley Fool service is. I think a lot of their work is very investment-oriented. They’re both knowledgeable and avid investors. They follow our services, I would say as, avidly as any of our members, but you’re right. They’re not — in this organism that has grown, who’s parts have specialized — they’re not officially Motley Fool analysts. But Nikhil you’re inspiring me to think it’d be fun to have them on, maybe a “Telling Their Stories” upcoming volume later this year, because I want to make sure you don’t just think all the best investors at the Fool are people who are picking stocks as formal analysts.
We have so many good investors, frankly, who are techies. We have so many good finance and accounting people and marketers who understand Foolish investing. I think part of what this podcast tries to do — and I hope the Motley Fool writ large tries to do — is remind us we’re all investors. It’s not a specialized, rarefied class of individuals. We are all investors. There are so many good to great ones who may not do it every day on their business card with their titles, but do do it in real life. Rex and Eric are two delightful Fools. I’m happy that you noticed them and that you’re underlining them. I think we should get to know them sometime in 2022. Thanks, Nikhil.
Closing it out, best for last? Well, let’s see. Tristen Whitehorn and thank you for this note. Rule Breaker Mailbag, Item Number 10.
“Hi, David. First of all, thank you for your weekly podcast. I love listening to the rhythm of your presentation. Look forward to each installment, as every topic makes me a little bit smarter and more informed.” Well, thank you, Tristen. “I’ve been consuming your content voraciously since late last year when I also became a Motley Fool subscriber, a member of Stock Advisor” — and I see, also, AUS Share Advisor, so I’m guessing Tristen, that you are an Aussie, welcome. “I especially enjoyed,” Tristen writes, “your Feb. 16 ‘The Year the Market Skyrocketed’ podcast, where you managed to include the dulcet tones of Chris Hill and many of my other regular favorite Foolish contributors.” So I see this is just a thanks email. It just goes in, “in thanks” and then here we go. “I think the practice of gratitude is something I tried to do.”
Well, Tristen, you’re modeling it beautifully here and I really love the Motley nature of this note, which is why I wanted to close with it. “In thanks,” you write, “thank you for all of the Foolish psychology. It’s really helping me. I jumped into some badly hit stocks in the 2020 COVID crash, but didn’t hold my nerve, so I jumped out again. Something I really regret as I would be up over 100% even after the recent market drop. I’m now sticking with my recent investments in spite of what the market is doing to me. I really appreciate your tip of not looking at your portfolio while it’s down, but I’m trying to balance that against keeping an eye on it, so I can invest further in some beaten-down great companies. Any tips on getting the right balance?” Tristen writes.
Well, I’ll say, Tristen, the last half hour of this podcast contained numerous tips and pointers about getting the right balance. I hope it’s been helpful for you. You continue, “Thank you for always reminding us of the power of compounding. Thank you for introducing me to a range of new vocabulary that we can only aspire to use as long-term investors. I thought I’d go back to have a look at my portfolio in the context of this vocabulary.” Tristen writes, “I’ve been fortunate enough to own a very small number of Accenture shares,” ticker symbol ACN, “since its initial public offering at $14.50.” Tristen writes, “I was an employee at the time, little over 20 years ago. I was also fortunate enough to lose track of the holding for a long time, which meant I couldn’t work out how to sell them. Even after recent market declines the stock is a 21-bagger for me, at its peak was a 28-bagger. Somehow, recent drops don’t matter so much once the stock has ‘multibagged’ ” — you’re using all the right terminology, Tristen. “I’m not sure how it has performed relative to the market, but I really don’t care. I noticed that it enjoyed,” another phrase in quotes, “‘a spiffy-pop’ on March 26, 2020. Unfortunately, since going on to all-time highs, it’s also had two ‘spiffy-drops,’ Jan. 13 of this year, Feb. 11 this year. Not sure if spiffy-drop is a term, but it lost more than my initial investment in a day.”
You did correctly intuit the exact phrase that I have always used for when you lose more in a single day than you initially invested in the stock. That’s happened to me innumerable times over the years, spiffy-drops. Yeah, that’s exactly the phrase. I always want to note, you can only really ever suffer a spiffy drop for stocks that have spiffy-popped multiple times, over time. It’s very hard to achieve a spiffy drop without that. So good on you, I say.
Tristen, you go on to say, “I’ve also noticed that it’s a ‘dividend bagger,’ meaning for me that Accenture has paid more in dividends than the initial purchase price, and by holding it for a few more years, I’m hoping it will become a dividend double-bagger.” Wow. “This look back has inspired me to start a portfolio with my 10-year-old daughter, who has far more opportunity for compounding ahead of her. She started with a pocket money saving match where if she put some saved pocket money toward investing, I’ll match it. Do you have any tips for creating a love of investing in younger kids?”
Well, I do. First of all, how about a dad who is doing exactly what you are doing? I think that’s probably the best tip of all — to do some handholding and some pocket money matching and to help that child think long term, which makes so much sense for them, even though I think the younger we are, probably ironically the shorter term we tend to think.
But another tip I’ll give you is just google “Rule Breaker Investing podcast, get your kids started investing” and you’ll encounter two different episodes I did a few years ago that should be evergreen episodes — that is, as listenable to today as they were back then. That was the purpose of them, and it’s all about getting your kids started investing. Some great tips from some of your fellow Fools awaiting you, if you’ve not heard those. There’s advice to you and all others, getting kids started investing, a little bit of a mini-theme on this week’s podcast. A little bit more of this lovely note, Tristen. “Thank you for “Games Games Games.” My wife is an avid board gamer. It’s an episode I turn to for gift ideas. I’ve got two more games coming for her 50th birthday, thanks to “Games Games Games Volume 2” and your recommendation of The Crew: Mission Deep Sea in “Games Games Games Volume 3,” has been a hit in our family,” — and I’m so glad to hear that, what an excellent card game. “Thank you for having a massive backlog of Rule Breaker Investing podcasts. I’m working through it now.”
Well, you are very welcome, Tristen. By dint of just doing it week in, week out for seven years or so, you do end up on a heap of words. Near the end here: “I would love to hear some discussions with venture capitalists and founders of pre-IPO companies, maybe organized thematically. While these things aren’t easy to invest in today for most of us,” Tristen writes, “they’re often uncovering trends that we should all be looking at to inform our future investments and perhaps retain a more optimistic view of the future of our world.” What an excellent point that is.
“As an example,” Tristen writes, “my wife” — that would be your gaming wife — “runs a venture capital fund. It’s www.w23.vc/foundry” — I love this — “for the biggest supermarket chain in Australia. They are investing in the future of food and retailing,” … with examples and you gave a few different examples of start-up companies. It reminds me — Nikhil, in his Rule Breaker Mailbag item No. 9 mentioned Olin Douglas, our venture capitalist, the head of Motley Fool Ventures. I had them on last year so we could explain a little bit more about venture capital investing and I agree, Tristen, it’s a fascinating area even if you and I can’t or don’t want to invest in early-stage start-ups, to find out what they’re working on and what they’re doing often does show us the future and does, as you write, “keep us optimistic. I love that Australia’s largest supermarket chain has a VC wing investing in the future of food and retailing — seems so important.”
Your final point, “I’d also love to hear something from Prof. David Sinclair, the author of the book Lifespan: Why We Age and Why We Don’t Have To. His research and implications for Foolish investors could be far-reaching, because after all, if we live longer,” Tristen closes, “we have to think about retirement planning differently.” Cue Alison and Bro. “If we live longer, we have longer to enjoy the benefits of compound returns. There will be a whole bunch of new Rule Breaker candidate companies that allow us to buy into longevity stocks. Once again, thanks for all you do. I’m looking forward to a Foolish future. Cheers, Tristen.”
Well, from one continent to another here at the close of this month, I wish you the very best Tristen. I love your optimism. By the way, I love that you forgot that you held Accenture’s stock into a 20-plus bagger. You forgot your way into a 20-plus bagger. You’re yet another teaching parent. What a wonderful thing that is to think about the extra efforts we make to get kids invested even if we weren’t invested as kids, that’s great parenting. Yet another gamer, by the way, part of a gaming family. Love hearing all those things since you know, these things are what bring us together. These are the things that unite us.
In a world where often people want to point out the differences or the difficulties, I think it’s well worth being reminded, sometimes on a weekly or at least monthly basis, of the things that we share together that help us enrich each other, that help us make each other — and it is two way, my fellow Fools — that help us make each other smarter, happier, and richer. Happy April Fool’s Day. Fool on.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bill Mann owns Shopify. David Gardner owns Amazon, Roblox Corporation, and Tesla. David Kretzmann owns Accenture, Airbnb, Inc., Amazon, Nvidia, Shopify, Tesla, and The Trade Desk. The Motley Fool owns and recommends Accenture, Airbnb, Inc., Amazon, Confluent, Inc., Nvidia, Roblox Corporation, Shopify, Smartsheet, Tesla, The Trade Desk, and Zebra Technologies. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.