Is it wrong to short stocks? Is it worth the effort?
Go Tar Heels
What happens when the rival of your favorite team becomes your team?
Have you confronted your own prejudices? Do you have a ______ friend?
Are you looking at the right data? Are you defying conventional wisdom? Are you winning?
Netflix (NASDAQ: NFLX)
Are you able to recognize when Goliath has met his David?
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on July 20, 2022.
David Gardner: When the facts change, what do you do? When does your information changes? Or if someone manages to persuade you that you’re wrong, what do you do? Well, maybe you’ve heard the classic John Maynard Keynes line, which we’ll talk about this week. If so, you have a good rejoinder, but more than a witty line, we’re talking about the benefits of changing your mind this week on Rule Breaker Investing. Changing your mind about a stock or an investment approach, switching sports teams to cheer for, or even deeper, changing the way you think. Changing your mind about how the world works or what you think of certain people. Changed your mind recently in a big way? Well, most people don’t that often, but we can mark our lives often by when we did, which is worth calling out, worth reflecting on, worth some ‘splainin, worth a new episodic series only on this week’s Rule Breaker Investing.
Welcome back to Rule Breaker Investing and the start of a new episodic series. I’ve built this podcast over the seven-plus years now, often on the backs of figuring out a new series like, let’s say Great Quotes or Market Cap Game Show or the Mailbags themselves, which are series, and really, I’ve built up a list of more than 20 different recurring episodic series, and occasionally, I add a new one of the mix and that’s exactly what we’re doing this week. I’m excited about it because we’re talking about changing your minds. The title of this podcast is Five Times I Changed My Mind, Volume 1. I led off with a reference to John Maynard Keynes. Now, I’ve always heard it this way that the British economist of the 20th century once said something like this, “When the facts change, I change my mind. What do you do, sir?” Now, longtime listeners will know that my fondness for great quotes often has me scurrying over to quoteinvestigator.com. It has to be one of my 20 favorite websites. quoteinvestigator.com does a good job tracking down and seeing, did Keynes in this case actually say that? Did Gandhi ever actually say, “Be the change you want to see in the world.” Long-time Foolish listeners here will know, the answer is no.
Gandhi never did actually say that even though he gets called out for that in TED Talks or on bumper stickers or T-shirts. Gandhi never actually said that. Now, it sounds like something he would have agreed with and it sounds a lot like his voice. Well, I think a lot of others might have said that about John Maynard Keynes, the economist sharp thinker, but quoteinvestigator.com never finds a citation saying Keynes said this. Ironically, the earliest citation of a line like this, “When the facts change, I change my mind. What do you do, sir,” comes from another economist, Paul Samuelson, who received the 1970 Nobel Prize in Economics, longtime Harvard economist. Ironically after, originally as we can tell, delivering that line himself, he then later attributed it to Keynes even though nobody can find Keynes ever saying it, and so people think Keynes said it, but at least according to quoteinvestigator.com, hard efforts over there have led to the belief that it was actually Paul Samuelson, for those keeping score at home, who delivered this line, which can also be heard in a few variations.
For example, when my information changes, or when someone persuades me I’m wrong, I change my mind. What do you do, sir? I think the reason it sticks out to me often is that injunction, that question back to the listener. What do you do in this case, dear listener? I wanted to think back over the course of my life and encourage you to think back over the course of years and ask ourselves when were there some key points where you and I changed our minds and often not only do those points mark us, but they really shape us. In fact, for me, several of these, I really take some pride today in having changed my mind to reach that new state that I would previously have never expected. I do want to say I think it’s easier the older that we get. I remember Shirzad Chamine coming on this podcast, of course, telling one of his great stories a couple of years back. The who knows what is good or what is bad fable, the Chinese fable about the stallion. I’m not going to retell it here. You could just Google Chinese stallion story and you’ll see it again. In fact, having just Googled it myself actually will take you to Wikipedia where the fable is simply entitled The Old Man Lost His Horse. This is The Old Man Lost His Horse fable on Wikipedia. But I think the key here is, it’s an old man, it’s an old farmer. I think that’s right, it’s probably more plausible.
I certainly think there can be young people who recognize this thing as well. But it’s a fair generalization that as we get older, many of our initial blacks and whites become grays or we see the gray that we never saw when we only saw black or white. When misfortune hits, sometimes it’s not bad, and when great fortune hits, sometimes it’s not as good as you might think. Well, thinking about changing our mind, I do think it’s easier to do as we age. I was recently in touch with a university leader who told me this story, he said at the start of the last academic year, at the start of the year, he received a letter from the sophomore class of the school. The letter which was signed by the sophomore class began the school year by saying that he was overseeing an organization that for years had used its power and prestige. They contended to forsake the less privileged to misserve society. This friend of mine did something, I think, very brave, very courageous, and very leaderly. He invited the entire sophomore class to attend outdoors at night where he could simply hear them and then respond back as best he could.
Certainly, not every member of the class came, but a whole bunch did sitting under the tent that night. I wasn’t there myself. I think they encountered a leader who showed he was open. He was open with the spirit of inquiry and I would also say humility to hear their viewpoint. I think he did a good job because he told me at the end of the year, he decided to close the year by inviting back all of those same people under a tent once more to ask them whether their opinions had improved, whether their minds had changed. Well, because I was not one of them, I can’t say what they thought, but I can say this, it’s that spirit of curiosity as opposed to, I might say, a declaration that really is what opens us up to alternative viewpoints, and ultimately, to growth. That spirit of curiosity, of inquiry, I think at the heart of that is humility. I also want to praise this person by saying that he said he actually had a great time talking to the sophomore class and he felt special empathy for them. They were really the first class that in history had missed their entire freshman year, spent a lot of time in Zoom classes and out in social media. That is how their impressions have been shaped, not yet having even gotten to spent a day yet on campus at that university. Five times, I changed my mind. For each one there’s a little story attached what happened. But then why? Why did my mind change or where am I now? Before I get started, I do want to say that if I speak in favor this week of or against anything in this podcast, I want you to know that I’m speaking only for myself. I’m not holding up my own viewpoints today as ones that you should adopt. What I am doing is championing the act of keeping our minds open, full of that inquiry and humility, and in particular, of examining and holding up those times in our lives where we changed.
Changing our minds, we changed. It’s actually a bit circular now that I hear myself say that, do we need to change before we can change our minds, or in changing our minds, do we change? I guess I would say, yes and yes. Let’s get started. A time that I changed my mind, number 1. The topic is shorting stocks. I was raised in a family that believed in the stock market, and my dad’s best investment was The Washington Post Company back in the golden days of the newspaper age. The Graham family, of course, Katharine Graham, the female CEO of this great dividend paying company that delivered to our front doorstep every morning its product, The Washington Post company. Warren Buffett was on the board. The only time I’ve ever met Warren Buffett directly was when I was 15 years old, and I shook hands with him at a Washington Post annual meeting. He was on The Washington Post company board. At the time it fulfilled a lot of the things Buffett looks for, in terms of being a well-managed, multi-generational company with a great product, balance sheet management, etc. I was raised to buy stocks and go long. At some point early on I think I decided I’m pretty sure this was not forced on me, but I think I decided that shorting was un-American.
I just thought, why would you bet against our economy? Why would you bet against a company bet? I was probably thinking, why would you go against the grain when there are so many good companies worthy of consideration for your investment dollars? But somewhere in the first year or two of launching The Motley Fool on AOL, maybe I was talking with my brother, Tom. I do remember talking over with Jeff Fischer in the early days of the Fool Port. Basically, our portfolio that we managed in front of our customer base, our members at the time on AOL, just a free portfolio. We would announce our stock picks a day or two before you could buy then. We wouldn’t start scoring them for a couple of days. I’ve always loved that we let our readers front run us. But I decided, I’ve thought more about shorting. I was writing about it at the time. When you think about shorting, it’s not really any different from investing the traditional way, you’re just reversing what you’re doing. Now, I’m not going to give a short course right now in shorting. If you’re new to understanding how shorting works, where you are selling high and trying to buy low later on and pocketing the difference, well, just go to fool.com, Google it, you can read a lot more about shorting and how it works. But the key here is that I was pretty much the first 25 plus years of my life.
I didn’t just think shorting was stupid, I thought it was wrong. But then I started thinking about a little bit more and I realized when you invest long you’re buying one day looking eventually to sell. When you short a stock, you just do it in reverse. You sell, initially, presumably at a high price, and then you’re hoping to buy back later at a lower price. A lot of people listening who are new to this might be wondering, how can you sell a stock that you don’t have? Well, the answer is your broker, without you needing to do anything, borrows shares from someone else’s account temporarily so you can sell them and later you’ll buy them back again, you hope at a lower price. I seized on a new strategy and I called it the Buzzard Bait strategy. Jeff Fischer and I employed this in the Rule Breaker portfolio back in the day in the 1990s. It led me to short Trump hotels and casino resorts, a story that I’ve told on this podcast years ago. One of my probably 10 favorite stories of my entire career. If you don’t know it, just Google “I Own the Water.”
That’s the title of the article I wrote back in the day. Rule Breaker Investing Donald Trump, you’ll hear the story of why we shorted his company and what happened to it. But without giving too much of a spoiler, it was a pretty brilliant move on our part because his company, which was at the time leading the list of America’s least admired companies lost money hand over fist. Years later it made me wonder, why is this guy overseeing a television show called The Apprentice, where he’s sitting in judgment of other entrepreneurs when I’ve watched what happened to his public company and I didn’t just watch, we shorted it, and we helped our members make money. Anyway, it wasn’t just that company but a number of others that we shorted over time, encouraging our members to short along with us, and it worked. In more than one regard, it net-net made money. It also hedged. If the stock market was going down, our shorts would be doing OK and bring a little bit of a smile to our face, and it all came because I changed my mind. I realize something that had always been true, but I just reframed it and I realized that shorts are simply doing the same transactions, a buy and a sell, but in reverse order. The irony is, actually, if a guy is short, he’s in some senses your best friend if you’re long, because his next action is going to be to buy the stock one day, usually, in a shorter term timeframe, which is a bullish signal. Anyway, shorting, which started for me as un-American, ended for me as a nice hedging strategy. Yet to close this one out I should mention, I no longer short. I haven’t done it for a few decades. I eventually decided changing my mind one more time, that it’s a lot of work for not that much return. Most short sales are conducted over shorter periods of time. You’re hoping for maybe a 20 percent gain instead of a 200 percent gain or a 2,000 percent gain, a 20-bagger. I’d far rather spend my limited time on this earth finding great companies and holding them.
I think it’s much more lucrative than shorting, but I still have fondness for shorting and respect for it. Some of the short sellers aren’t people that I respect very much, because it seems like they’re creating a lot of hullabaloo and sometimes some false notions about their company just trying to make money as it drops briefly if the media gives them out enough attention. But let’s push that one to the side now and move on to a time that I changed my mind, number 2. I grew up in Washington DC. In fact, I was in Georgetown, and those who know that area of Washington might know that there’s an esteemed university, Georgetown University, right in Northwest Washington DC. My brother, Tom, and my sister, [inaudible 00:15:17] , and I all grew up in the shadows of Georgetown University. Georgetown University at the time had a new basketball coach. It was the early 1970s, as I recall, and John Thompson came to coach Georgetown. Now, back in those days, Georgetown, which later became a real college basketball power, but back in those days, they were playing in their home gymnasium, on-campus McDonough Gym, and they were playing and losing to teams that didn’t have great reputations. It was a small emergent program at a small liberal arts university. But from those early ’70s into the mid 1980s, John Thompson, one of the great coaches in college basketball history, took Georgetown from nothing to national championship games, and they were my team. I watched Georgetown game in and game out. I never went to Georgetown, but I loved Georgetown because I grew up there going to their games and admiring their coach and their team. Later when NBA stars like Patrick Ewing started showing up, Georgetown was all of a sudden a top five team.
Again, this small, somewhat anonymous at least from a national sports reputation kind of a university, was all of a sudden playing in the finals of March Madness and was playing the University of North Carolina at Chapel Hill. That team had a freshman named Michael Jordan. It had James Worthy, Sam Perkins. It was a stacked line up, and my underdog Hoyas took North Carolina down to the final minute when the point guard for the Georgetown Hoyas, Freddie Brown, thought he was passing it across to a teammate and threw it right to James Worthy on the North Carolina side, the other team. North Carolina went on to beat Georgetown by one point, 63-62 I think it was in the 1982 national basketball championship. Guess which was my least favorite team in all of college basketball from that year going forward. The answer is, of course, the University of North Carolina Chapel Hill, the very school that I went to attend just two years later with a full scholarship called a Morehead-Cain Scholarship these days. Yeah, my school, Georgetown, all of a sudden wasn’t my school anymore, because I was on-campus in Chapel Hill. I spent my entire freshman year cheering against my North Carolina men’s basketball team. Again, for obvious reasons, but this is very contrary. When you go to a school that loves its sports and it has a great team and you’re a freshman there and you’re cheering actively against them, alongside your friends, your entire freshman year, you’re an odd duck. It was some time in my sophomore year that I started thinking, I do go to this school and this is the school I think I’m going to graduate from, and I think I’m going to be wearing their colors for the rest of my life.
I like my friends on campus and I like all the other sports teams here and some of the athletes on them. Maybe I should turn around and cheer for the team that I “hated” just a year or two ago, again, for very logical reasons. Well, time number 2 that I changed my mind is one that’s still sticks with me, of course, and will for the rest of my life, because sure enough I did graduate UNC Chapel Hill, and today I’m a big supporter of the school, in particular, the Morehead-Cain Foundation. But it means so much to me. I married into the state of North Carolina, still have so many friends down there. I actively go back. We bought property in the state of North Carolina in the last few years. It means so much to me. A time that I changed my mind, number 2, I just entitled Go Tar Heels. But when I actually went to UNC Chapel Hill as a freshman, I felt exactly the opposite. Our sports teams count for a lot, for many of us. It’s very hard for some of us to imagine ever switching from the team that we cheered on in our youth. Yet for me, I’m so glad I made that change, and if you’ve kept up with the fortunes of these two basketball programs in the last 10 or 20 years, you’ll understand it was a great move. I didn’t make it, thinking North Carolina would be better. I made it thinking, I’m a Tar Heel, what am I doing? A time that I changed my mind, number 3. This one didn’t change my approach to money like shorting. It didn’t just change my approach to sports or who I was cheering for. This one has changed my approach to my fellow humans, to many of us. I was raised in what I would call a very traditional, very privileged household. I had a childhood I treasure for many different reasons. I had well-educated and loving parents. My dad, a lawyer, raised me to love games and sports.
My mom, an artist, raised me to question conventional wisdom and appreciate life’s beauties. They both were from entrepreneurial families. We went to church most every Sunday. We believed belief that we’re all here to do good things for each other. I also want to add that both my parents had senses of humor and valued that in others. All these things and many things besides. For instance, we were financially well off as my father did a brilliant job, both investing for our family and also teaching us to invest. In retrospect, I had almost every privilege I can imagine. Although I also assert right away that things weren’t always easy and I had to strive hard and compete and lose in many instances, in every life, rain of course, must fall. But one thing that was true of me, I will say true of the circumstances in which I was raised and was reinforced constantly in popular culture, from the movies we watched to the comedians who made us laughed. One thing that was pretty much taken for granted, is that heterosexuality was the only respectable norm. For the whole of my young life, I would say I held homosexual or bisexual acquaintances or figures public or private in pretty low regard. It wasn’t in retrospect so much of our religious conviction. I think back on I was raised catholic, I went to Episcopalian schools before attending the University of North Carolina. Whatever the church was saying back then, my thoughts here were not driven by the church. It was our culture, my own school boy culture for one, I was at an all-boys elementary school growing up and for us kids back then, irregular put down, I mean, it wasn’t really a malevolent word per say. Let’s say it was right in line with the word like square, or lame, or weak, was gay. Something that was ineffective would be glibly labeled gay or any one of a number of other synonyms that’s so gay, we would lament. I don’t think, I hope anyway, that I ever actively showed cruelty or contempt to a gay friend.
But that’s because at least in my world of 1970s and early ’80s, I didn’t have any gay friends. Check that. I bet in retrospect, I did have gay friends, but back then, it was impracticable for them to admit it. To admit it, to come out, a term we still use even today because I think it remains a challenge. Years later at school reunions, I would learn that one or another friend of mine bringing their partner was gay. I wouldn’t have known it back in the day, wouldn’t have thought much of them anyway if I did. As a middle-aged adult, I’ve learned not just to open my mind to human sexuality and the loving choices we make, but often to ally with, to champion the other side with the same zeal that I learned to embrace shorting or my Tar Heels. How could I not based on how I now feel and based still on how people discriminate against others. I feel the same way about all traditional forms of discrimination, gender, and race practiced over the centuries as I do hear about what I’m calling loving choices. All of these minority groups are disenfranchised. Groups of every persuasion have felt the sting of discrimination for centuries. A lot of that is still with us in the world today. But I also want to assert that a lot of it is going away. There’s far more inclusion. I think an opportunity in the world today for all minorities far more than existed 50 or 500 years ago. I once urged all of us at a past podcast, to make as many friends as possible. Check that, to make as many different types of friends as possible. I phrased it then as I phrase it to you now, do you have a blank friend? In fact, that was the title I’m checking out of my June 24th, 2020 mailbag. June 2020 mailbag, do you have a blank friend? Fill in the blank. I think it’s as helpful as possible to collect as many friends with as many different backgrounds, viewpoints, and experiences as possible. I say that to all my friends, young and old, but especially to my younger friends who will be here much longer than I will. I think it’s a worthy way to go through life collecting friends.
Do you have a blank friend? Here I might say, do you have a gay friend? I now have numerous friends who are gay, heck, and family members too. I really appreciate hearing their viewpoints. I hope everybody listening to me right now has a gay friend. Here are some other friends I have. I hope you do too. I have some black friends, I have some white friends, I have some transgender friends, I have some rich friends, I have some poor friends, and sure enough, I have democrat friends, and I have republican friends. I have some Russian friends and some Ukrainian friends. They’re all wonderful people. I have friends that went to Duke. Yes, I’ve cultivated for years now and I’ll always continue to do so. A very diverse group of friends who have different minds and a lot of different topics, and I tried to have as many blank friends as possible. I would just say as we get ready to move to number 4 here if you find that you disagree with a group of people, but you can’t identify a friend that you have in that group of people, whatever type of group we’re talking about, I would suggest you make a blank friend. By the way, this isn’t falling someone on Twitter, trending that way on Facebook, although I suppose you could start it that way, this is a real relationship. I’m talking about a friendship. I think of Mister Rogers here, whoever dies with the most friends, the most different friends, wins. Mister Rogers, is another great past Fool guest by the way. I love going back and listening to that one. Yes, on loving choices, I changed my mind and really now can’t see it any other way. What seemed to be so worthy of admonishments, as a kid, I changed my mind about. I think most of all, what changed me was starting a business, a business that you love, that you took risks to start, that was open to all. As Tom and I began to meet our early customers and started to hire our early employees, in a sense, I fell in love with anyone Foolish enough to call themselves along with me a Fool. Average investors like me who like to think different, who would make jokes about Wall Street, who would follow me on my stock picks, who took risks with their money and risks for our employees, risks with their employment as they got hired aboard at Fool HQ.
This incredible motley group of people has all kinds in it then and even more today. Hugging a member back in the day who was there with her partner, back in the day saying, “Thanks, for recommending AOL. We just retired to a place of our dreams.” I didn’t care what loving choices they made anymore. What mattered is that they were loving. What the world needs now, the song has always gone is, love sweet love, committed love, intimate love, general love, love of others. Philanthropy, which we often at the Motley Fool Foundation call Foolanthropy has, has of course, for its Latin route love, which is filos and anthropos, which is humanity, love of humankind. That’s what this world needs more of. As one of my favorite Fools at The Motley Fool said a little while ago, we’re all here for each other. That’s why we’re here for each other. I think of Roy Spence saying on this podcast, “I’m a for person.” Well, I hope you are too. Yeah, I changed my mind. At the time that I changed my mind, number 4, let’s call this one Moneyball. I grew up playing lots of games. I think anybody who’s followed me for any space of time knows that about me already. But in particular, as a younger person, I loved sports games. A lot of them had dice, and dice baseball of all the dice games I played, and I played Strat-O-Matic football, and I played hockey, and APBA basketball. Any sports game where you had cards that represented real-world players and you could roll dice and play against your friends with your favorite players in teams, I was in. While I don’t play many of that type of game anymore, I’ll always have great fondness for it. I thought I was pretty good at it. I certainly did play a lot of dice baseball.
But as I graduated the University of North Carolina in 1988, I found myself playing. One of my good friends from school one night just as graduates, by the glow of lamp light somewhere, we threw down a baseball game called pursue the pennant which I thought was an excellent game. In contrast to Strat-O-Matic or other of its ilk, pursue the pennant didn’t have six-sided dice. It had red, white, and blue 10-sided dice. There was more interest and complexity and possibility in the game of pursue the pennants, which I’m not sure has stood the test of time that well, but that was the game we were playing, and I was playing probably my favorite team, Minnesota Twins. I don’t remember who my friend was playing. He might have been playing his Nets, but I remember one thing and I’ll always remember this one thing, and that is that we played eight times in a row in part because after I lost each one, I said, “All right, come on, rematch.” We played it again and again and again, and I kept losing. Somewhere that evening amid all the losing, I turned him and I said, “Jim, what are you doing exactly? How can it be that you’re winning every single one of these?” He looked at me and he said, “Well, who are you leading off there, in your lineup, your baseball lineup, who’s your lead-off hit?” I’d say, “Well, I’m leading off of fast guys, steals bases.” Then my second guy can bunt well to get that guy on first, if he hasn’t stolen base already to second or third, and so yeah, that’s how I’ve set my lineup.” He said, “Well, what’s their on-base percentage?” While I was somewhat familiar with the term, it’s a statistic that’s a simple percentage of the time a player gets on base. If a player four times out of 10 reaches base, whether by hit or walk, you’d say that player has a 400 on-base percentage. I wasn’t really using that in terms of setting my lineups and my calculus about what will win in this game of baseball or in this case, dice baseball.
My friend Jim said, “Well maybe you should rethink that,” and I said, where did you learn that, and he said, ” Well, I’m reading this guy Bill James.” Bill James has been writing a book called the Baseball Abstract where he challenges a lot of the received wisdom about baseball, and my friend Jim said, “I’m a big Bill James fan.” From that day forward, I can say to you, dear listener, I too became a big Bill James fan, and in fact, not only did I decide that Bill James who was from outside baseball, he was not a coach, he had never been a player. He was a journalist, he was an observer of the game. His initial following were geeky people like us who were reading his books, which were certainly not best-sellers, although increasingly they did become more popular, and even though as James kept selling books, his methodologies, were still not being used by professional baseball. At least he was creating awareness, and as time passed, eventually Bill James would have his ideas picked up and used by an actual major league baseball team, the general manager, that team baseball fans listening to me right now know that that’s Billy Beane I’m referring to in the baseball team the Oakland Athletics adopted really first enforce a lot of Bill James’s provocative ideas about how to play baseball, how to manage, how to trade for baseball players, how to pay baseball players better than it previously been done largely by looking at new things, new statistics that the conventional wisdom was it looking at.
Well, just to put a cap on this, I changed my mind about baseball, and while I realized at a young age, I probably wouldn’t make any real waves in the world of baseball, there was a whole old boys network there. It was a big thing too. James himself, as influential as he was, it took decades for him finally to be accepted. I thought, here’s a field I could play down on though, and that would be the field of the stock market. The beauty of the stock market, I realize then just as I do say to you today, the beauty of the stock market is we’re all competing on the same field. We’re all in the same stadium. The portfolio that you put together that I put together, that a hedge fund puts together, that some guy spouting off on CNBC puts together. All of these things can be monitored and scored, and there’s no privilege that allows anyone to be the only player or the only one getting paid. All of us have an opportunity.
As I hope the Motley Fool continues to democratize this subject, all of us have an opportunity to be an investor, and what I did is I shifted my focus on challenging the conventional wisdom of baseball, which felt like a dead end for me, into challenging the conventional wisdom of investing and how to invest. As I finished the story, I want to let you know how some of the aftermath played out. That friend of mine who beat me repeatedly in dice baseball, Jim, his last name was Surowiecki, and Jim Surowiecki came to work for the Motley Fool for several years before eventually becoming the New Yorkers first finance page writer, and writing a famous book today called The Wisdom of the Crowds. That is the same Jim, who beat me silly in dice baseball and help shift my perspective, or as we’re saying this week helped change my mind. I’d like to say as well that I got to meet Bill James in 2013. In fact, i got an hour-long phone call with him just to talk stocks and baseball, and I still think fondly back on that. Bill if you’re listening, thanks for that nine years ago. But that willingness to change my mind only emerged by getting beaten so repeatedly and badly by somebody, I thought I should at least win one game against.
Thank you, Jim. Thank you, Bill. A time that I changed my mind number 5, closing it out this week. Let’s call this one Netflix. I think the year was 2002, in fact I’m pretty sure it was 2002 that I attended an investment conference hosted by the longtime investment banking firm Allen & Company out West in Arizona, and that was the first time I ever had the chance to meet Reed Hastings. We would later have Reed on some of our Motley Fool radio shows back in the day, but Reed Hastings at the time was in charge of this upstart company called Netflix. When I first heard about it at that conference and I thought about the company had recently come public. I hadn’t been using its service yet, I didn’t know that much about it, but as a friend explained it to me over a round of golf one afternoon at that conference, it sounded a little crazy. Here is the idea. You were renting DVDs by mailing them back and forth to an Internet company. That’s right. You made a queue, French word for line. You’d line up whenever you wanted to watch next, and you would subscribe to this monthly service where you would mail back-and-forth DVDs and you can have one out, two out three out, something like that, and while it started to become popular, it seemed preposterous to me at the time because Blockbuster video, we just had the CEO on our radio show. Blockbuster was so dominant and Blockbuster was on.
It seemed like every corner in urban environments, and you could just drop your movie off there, not mail it and wait three or four days back-and-forth to get your next movie, and of course, Blockbuster was the King Kong of the era. It was the dominant brand company in its industry for decades that had built up a lot of real estate positioning to be there as a place that you found VHS tapes, and then later DVDs. Of course, Blockbuster was, in many people’s minds, characterized as the company charging me, yet another late fee because I didn’t take my video back on time. Yes, I was part of that culture as well. When I had an opportunity at the Allen & Company conference to stand up and ask a question after Reed Hastings gave his talk, I basically stood up and ask whether people would actually really mail back these DVDs. Is this model even something that would work? Now, perhaps somebody at Allen & Company has videotaped. I like to think everything’s been videotaped at these conferences. Maybe 20 years later there’s historical footage of what I actually said, but I’m pretty sure I stood there. I wasn’t mocking because I was generally admiring of a CEO of this stature, but I was pretty skeptical about the idea that Netflix would actually work. Well, I think a lot of us know what’s happened in the 20 years since Blockbuster, your hard-pressed to find any in business anywhere anymore or even the brand these days.
Then on the other hand, as I started to think about what my next recommendation should be for Motley Fool Stock Advisor, the ticker symbol NFLX started coming to mind as I thought about how in some ways disruptive this company was. It would be a some years later when they decided finally to do streaming on the Internet, dropping for the most part, although it’s still going today, the DVD service, and I think it’s fair to say the rest is history. Netflix stock has been absolutely spectacular. Reed Hastings, one of the great CEOs of this era. Netflix stock has not performed very well. The ticker symbol NFLX is down substantially over the last year, but it still remains one of my biggest holdings, and they only get to one of my biggest holdings if they roll up to it with lots of appreciation over many years. Since this at its heart is an investing podcast, I love starting with shorting and ending with Netflix, just thinking back to something I was so skeptical about at the time, but I guess I want to give myself a little pat on the back, since a couple of years later, I reversed my viewpoint, went from skeptical to a buyer and a much wealthier buyer.
Not just me, but so many of us listening to me right now who are longtime Fool fans probably own some Netflix in your portfolio and even with a big decline in the last year, I hope you’re still smiling if you’ve been around for a long time with your Netflix. The time I change my mind, number 5 of all of these, is the one that was probably most valuable, not just to me, but to the world at large because what we do at The Motley Fool is we get you invested and we all invest together in good times and bad. We all invest together looking for true excellence that will stand the course of time, and when we win, we win grandly, and we win together. Thanks, Netflix. There you have it. Five times, I’ve changed my mind. Of course, we’ve all changed our minds many more times than five, but in this series we’re looking at real shifts in your mind that led to real changes in your behavior, and I hope real results in your life. It’s like a door that you walked through and once you walked through it, you were in a brand new place, and you couldn’t ever now step back again. As we close, I’m going to assume the same is true of you, that is of me. When my information changes, or when someone persuades me, I’m wrong, I change my mind. What do you do, dear Fool? Well, I hope and trust that you do the same. It’s not easy by the way, but boy, is it interesting. Because its growth. Next week is the Rule Breaker Investing Podcast Mailbag for July 2022. I’d love to share a few from my avid listeners a time when it mattered that you change your mind. In the meantime, stay open, stay inquisitive, and stay Foolish.
10 stocks we like better than Netflix
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now… and Netflix wasn’t one of them! That’s right — they think these 10 stocks are even better buys.
*Stock Advisor returns as of June 2, 2022