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David Gardner: Every once in a blue moon or a new moon, or an old moon or a borrowed moon, I queue up a hodgepodge of points that I want to share. They’re not really related to each other, they’re a hodgepodge, but I force them to fit into this mold. Something old, something new, something borrowed, something blue. You probably know the expression, don’t you? It’s what brides traditionally are supposed to wear on their wedding day for good luck, something old, something new, something borrowed, something blue. While I won’t be providing this on this podcast, you’re also supposed to have a silver six-pence in your shoe. Now if you want to locate a dime or a quarter, slip it in your shoe for this week’s podcast, I think you might have even better luck. Anyway as summer here in the Northern Hemisphere begins to crank itself up, can you tell I’m at the beach this coming weekend it’s time to crank back up this episodic series, Old, New, Borrowed and Blue. We’re going to talk about Rule Breaker investor habit number six and the second-order effects of your businesses products, and services. We’re going to talk about your second brain and an oh-so blue faker breaker stock. Something old, something new, something borrowed, something blue. Only on this week’s Rule Breaker Investing.
Welcome back to Rule Breaker Investing. Thank you. Each of you, whether what you wrote me was featured on last week’s show or it wasn’t, I really appreciated the birthday gifts that I received earlier this month in the form of you telling me what you’ve learned from me. It’s always inspiring for me to hear that and be reminded of, I think some of the most important things that have come through this podcast, whether it’s just here in 2023 or now in our eighth year over our eight years, it really means a lot to me to hear from you what you’ve learned. That’s just such a gift and I tried to share it back last week. Some of my favorite ones that I heard, it’s a pleasure to do what you have learned from David Gardner each year we did again last week. If you missed last week’s show, I think you’ll really enjoy it, especially if you are newer to Rule Breaker Investing, if you’re a newer investor, because that opportunity to share back the key things that listeners have learned is a wonderful way to learn if you’re new. What you’ve learned from David Gardner also gave rise to a few that I’ll save for next week.
Next week is of course, the May 2023 mailbag. It is your Rule Breaker Investing mailbag, our email address, is rbi@fool.com. Some of the great notes I got earlier this month, I’m going to be featuring there because they’re better for mailbag, but there’s room in the mailbag. If you’d like to submit your best question for me, your best thought, a poem, a stock pick, anything that comes to mind that you feel like that breaks the rules in some way, shape, or form, I’d love to hear from you. The purpose of the Motley Fool is to make the world smarter, happier, and richer and that’s exactly what this podcast tries to do week-in and week-out, but especially enjoy the final week of every month where I get to hear from you and feature back your thoughts. If you have a great one, something you think might bring a smile or cause a light bulb to pop over top of many, a Rule Breaker head nationwide and worldwide, please do share at rbi@fool.com, I’ll speak to it next week. Well, this is volume seven of something old, something new, something borrowed, something blue. I hasten to add that each time I do this, it’s of course a brand new podcast although with this one, something old is usually something we’ve talked about before, is something I feel is important to bring back. In a sense, this is always fresh, always new, but this particular episodic series, since we have old and borrowed things, I might be refeaturing something that I think you should hear a second time, and that’s the way we’re going to kick it off right now with something old. For something old this time, I wanted to go back to the six habits of the Rule Breaker investor.
This is a list that I first came up with several years ago, one week on this podcast and it’s something that I wrote about at fool.com. It’s something that I’ve continued to use going forward. When I thought about what are six habits of Rule Breaker investors, what are six things you and I should do, should make part of our mindset in some cases should make sure we don’t do. What are habits, good habits we can get into as investors. In particular, I came up with that lists several years ago because I realized prior to that, what I had mainly done with Rule Breaker Investing is to tell you the traits of stocks that we look for as Rule Breaker investors. Most of the first 20 years of Rule Breaker Investing was mainly about the companies and the pattern recognition that we develop as investors. Saying this one, not that one, give me a real Rule Breaker and not a faker breaker, that’s a phrase I’ll be using a little bit later this week, but give me the stuff I need to know to find the right stocks. But what I realize subsequently somewhere in the third decade or so of writing about this is, you know, it’s one thing to tell people, the stocks that they should own, that they should buy and hold but if they’re not going to buy them, or if they’re not going to hold them, or if they’re going to start doing silly things that I would myself never do, we’re not doing a good enough job for you at The Motley Fool, if we’re not also speaking to your mindset and the habits that you should get into as an investor. For something old, I’m looking back at one of those six habits of the Rule Breaker investor. Because I tend to love to randomize and six is a great number for rolling a traditional six-sided die, I did that and I rolled six this particular week.
Let’s talk about the sixth habit of the Rule Breaker investor. That is to aim for 60% accuracy. That’s what I want to speak back to again this week. Now the first thing that most people would ask if we’re talking about investing is what the heck is accuracy and what would be 60% that we’re shooting for? What is accuracy? Accuracy is a term that I coined simply to describe whether you have accurately picked a winning stock. The way that we measure that is over whatever your time frame is, I would suggest a minimum of three years, but you could just say your long-term holding period, we would say in my parlance anyway, that is, you are accurate, you made a good pick if that stock beats the market. If that stock loses to the market, you were inaccurate with your effort. Of course, if it’s a market performer, I would still say that doesn’t meet the accuracy rating where I’m looking for something that’s beating the market. Yes, if after seven years you’ve held a stock that’s up 173% and the market’s up 170%, I would still say you’re accurate, you are definitely beating the market. It’s fairly straight math here. We simply look at the return of your stock and you can include dividends versus the S&P 500s return and you could also include dividends for it if you like. You are accurate when you beat the market with each stock pick, you are inaccurate when you don’t.
Habit number six for the Rule Breaker investor is to aim for 60% accuracy. Now, over the course of my life of investing this way, I doubt that I personally have hit a 60% accuracy. I guess the second point after having, with my first point, define what the heck we’re talking about when we say accuracy. The second thing I want to say is that we’re going to aim high. We’re aiming high. I’ve learned that from a lot of great leaders and mentors over the course of time. If you don’t aim high, you’re unlikely to get very good results. Even though we may not actually hit the six out of 10 picking stocks to beat the market accuracy level, that’s what we’re aiming for because aiming high makes it much more likely, will outperform our own lower expectations if we didn’t aim high. Aim for 60% accuracy. I didn’t say insist on 60% accuracy or stop investing. If you don’t have 60% accuracy, I simply say aim for 60% accuracy. Which leaves my final point about this, something old, this sixth habit of the Rule Breaker Investor, and that is that you should proceed forward with confidence. In my mind, when I sit there and ask, will I buy the stock? Should I buy this stock? It’s really a mindset thing. I want to be able to be comfortable and confident, not feel like I’m rolling the dice or being a crazy man, but confident enough that I really do think that this stock will beat the market, at least, let’s say 6 times out of 10. If you embrace this, if you adopt this mindset, if you settle in to this habit as an investor, and I would especially suggests you should as a Rule Breaker Investor then what it means is you’re only going to pull the trigger. You’re only going to send in that buy order and end up with that stock in your portfolio. If beforehand, you’re sitting there going, I think this is going to beat the market. Now I’ve often likened , picking public market stocks, stocks traded on the New York stock exchange, the Nasdaq, et cetera. I’ve often likened it to venture capital investing in a lot of ways, rule-breaker investors have a VC mentality. I think anybody who’s worked within the world of venture capital will know that very infrequently do many venture capital funds themselves have 60% accuracy.
It is not uncommon at all in long-standing big venture capital funds to have a real minority of the positions taken in those venture capital funds actually win or beat the market. The good news is, and this also happens in Rule Breaker Investing, as I’ve demonstrated over almost 30 years now, the good news is your winners really, if you hold them, really can and do win for you. In my experience, they wipe out all your losers. The great news here is if you’re investing like a rule-breaker and you really are holding onto these winners over the course of time. That by the way, is the first habit of the Rule Breaker Investor. If you don’t know these six, just Google them. You can go back and listen to me, talk them through for that first podcast on Rule Breaker Investing, the six habits of the Rule Breaker Investor, but the first habit of the Rule Breaker Investor is rule Number 1, let your winners run high. I lead off with that as rule Number 1 because it is the single most important way to make a lot of money on the stock market. It’s not by being right all the time or jumping in and jumping on timing the market. It’s holding onto the things if you find Apple early, if you find Tesla early, if you find Nvidia early, if you find Intuitive Surgical early, if you find Chipotle early, it’s all about holding onto those great stocks over time. That’s really how venture capitalists, win, they usually hold for 10 years or so. That’s how rule-breaker investors, win.
You should know you really can win this way without a particularly high accuracy, but I think it’s great for us as more speculative investors to tend to go into situations where we’re confident. Now with something blue at the end of this week show, I’ll speak to the other side of this and what fails and why it fails, but that’s for something blew a little later. Let’s wrap it up here with something old Rule Breaker Investor habit Number 6 aim for 60% accuracy. Now for something new. Every year I go to the conscious capitalism summit in Austin, Texas. It’s in October. There I have accommodation of something old and something new which I love every year. Something old would be the old friends that I get to see from one year to the next. CEOs, authors, people who’ve understood the power of capitalism done well, how much the world benefits from it, how much the world needs it, and how the real leaders practice it. I get something old to remeet fantastic CEOs and leaders who really are winning for all of their stakeholders even though many businesses worldwide don’t think that much about winning for much other than themselves. That’s something old, old friends, but then again, new friends.
If you’re a working professional and you go to conferences from time to time, maybe there’s that key conference that you go to every year for your industry, you’ll know that there’s a lot of something old from one year to the next studies, but then there’s always, if it’s really good, something new, there’s a new thinker, new speaker, there’s a new trend and new technology. Make sure your heads not buried in the sand. You are picking your head up looking around you as an individual and entrepreneur or industry, you’re looking at reality and you’re saying, there’s something new out there, let’s talk about it. Something old in something new, true. Many of the annual conferences that you and I may go to from one year to the next. Well, I had a great something new moment in 2022 last October, and I just wanted to share that as something new this week. Something new for me was meeting Victor Cho. Now Victor Cho I have not met before, but Victor for seven years in 2014-2021, was the CEO of a company many of us have heard of, and that would be Evite. If you’ve ever had an invitation to a book club or party or maybe a sports banquet of some kind maybe, they used Evite. You might love Evite. Some people probably hate Evite or have mixed feelings about Evite, but for the most part, you should know, especially in recent years, under Victor’s leadership, Evite was doing things really well. Generally protecting your privacy, trying to make it easy, not trying to oversee spam you, Evite has been really owned by others over the course of its lifetime.
Owned by InterActiveCorp for 10 years or so then owned by Liberty Media more recently, and I think it’s held down by in private equity. This has never been a public market company, but it’s the stock that had it gone public, I certainly would have been looking at it and thinking about it. I don’t know if I would have recommended it or not, and I’m not here to promote Evite as an awesome site or stock, especially not a stock because you can’t buy it, but I do want to say Victor gave a pretty great talk at the conscious capitalism summit last year. Now he’s talking about stakeholders and I’m going to get into his key point in a second, but before we go there and let me just make sure that, you know, if you don’t know about conscious capitalism, which I sit on the board of nationally, you should know that one of the key traits of conscious capitalism, the companies that promoted that live it from one day to the next is a desire to win for each of its stakeholders. Conscious capitalistic companies name, their stakeholders.
They say things like, well, who are our stakeholders? You’ve probably done this for organizations you work for or are affiliated with. Who are our stakeholders? Well, certainly your customer, seems like an important stakeholder otherwise, why do you exist? Your employees are critical stakeholders. They’re really the energy that enables you to live out your purpose in the world to produce your products and services. Your employees are important stakeholders, even though many businesses have not treated them as such over the course of history, even more recently. Many companies don’t do this very well. Some others stakeholders you might name. Well, how about the environment for some companies, how the environment is treated, even though it often doesn’t have a voice for itself, is an important stakeholder. We’re all connected through planet Earth. Partners and suppliers matter a lot.
Certainly, shareholders, since this is an investing podcast and it’s hard, you and I are hoping to be invested in, rewarded for being invested in companies we are an important stakeholder too. The best business is think about winning for all their stakeholders, not just taking one of those groups and saying, we’re just here for them. In recent years, when I’ve talked about this, I’ve mentioned some next-level thinking which I’m about to give you, especially if you are a leader of an organization. If you own your own business, you’re running something. Maybe you’re a hired gun for somebody else, for-profit and not-for-profit. One of the better ways of thinking about winning for your stakeholders. Let’s take a quick example. Let’s think about your employees and let’s think about their health. That’s something we’ve paid some attention to at my company, The Motley Fool. I’ve talked about that some on this podcast over the years, but imagine if every company worldwide, every organization for-profit and not-for-profit, made their employees health a key stakeholder. That means you have metrics around it, you’re scoring it, you’re trying to drive that higher, you’re trying to have a healthy workforce.
Some companies do this amazingly well, far better than a small company like mine might, but others, even some very big ones. Sometimes we can think about hold governments that don’t seem to treat their workers very well. You can see how this is still dearly needed. That to me is almost a table stakes for being a good organization here in 2023, but next level from employee health, I think is mental health. Imagine if it’s not just about your employees, physical health, what traditionally we call health, but imagine if you start scoring and trying to improve your employees mental health. I did see another great talk at the conscious capitalism summit last year given by Dan Simons of Founding Farmers, which is a Washington DC area based wonderful, large restaurant company, but Dan gave a talk saying, mental health is just health. Why are we calling it mental? Mental health is health and he’s really managed his hundreds, nearly 1,000 employees toward that over the course of time and done so well by them. Another next-level thought when we talk about your employees before I go to what Victor Cho taught me. Another next-level thought for you is just what a few actually named a new stakeholder for your organization? Especially in this remote hybrid world that many of us are living in, what if you decided that a key stakeholder that you’re going to measure success for your organization is not just your employee? Yes, but what about a new stakeholder, the family of your employee, that that family is happy or well cared for or healthy? It may not make any sense for many of us to make that commitment, but at a next-level orientation, if you want to go above and beyond and be a superstar organization potentially, I might suggest you think about the family of your employee and how you can help and make it thrive.
So those are all ideas I’ve gotten from conscious capitalism in years past, but here’s what Victor Cho shared at last October’s conscious capitalism, he started saying one thing that is very important, especially think about social media or some of the regulation that’s being suggested around Big Tech. Why Victor asked somewhat rhetorically, why is that happening? And what he went on to say, and he thinks about this as a leader himself. You can go to his website victorcho.com and read more from him and see more from him on this topic, but what he started saying is, you know the best companies and the smartest companies should be thinking about the second-order effects of what their products and services do to people down the line and out there into the world. Many businesses of course, just want to sell their widget, their product, or service and get a sale, and if it’s profitable even better, get a bottom-line caching and a lot of businesses are happy just to have that, but if your product or service might have some secondary effects that others might judge harmful or at least questionable, Victor suggested to all the leaders in the room in Austin last fall.
Maybe you should start acknowledging the second-order effects of your products and services and if you’re brave enough to do so, why not start managing them? Why not start showing that you have a conscience, that you are socially responsible and you are thinking deeply if you’re, let’s say a social media company? You’re thinking deeply. You have your own research on what this might do to teenage girls, for example, and you are the first to come forward and say, there could be problems here. Surgeon General is not needed. We’re going to give you some warnings in and around our product or service. Now, the example that Victor gave from American history, and this is one I know well because I grew up with friends who helped manage this organization was the motion picture association back in the 1930s, when movies first started to have significant social effects and become much more popular, moving from silent to sound, eventually moving from black and white to color.
The movie industry itself recognizes that not everybody should see every movie being made, and in fact, if you are a filmmaker and you really want to make your movie without it being censored. Parts of it taken out or just not shown together, the greatest thing that industry could do for the creative freedom of its artists and leaders is to create its own voluntary rating system to self-regulate, which is exactly what Jack Felony did in 1968 for the motion picture association of America. I grew up, I’m sure many of you did too seeing things like, that’s a rated G movie, that’s a PG 13. All of that is a voluntary self-regulated system created by the motion picture association and you can think about the benefits of giving guidance to parents and others so that you know ahead of time whether it might be objectionable or not, and how important that is in streaming today and these days, of course, beyond just a letter rating, you’re often seeing phrases and explanation as to why even something like smoking these days gets called out as a warning that you should know about ahead of time, wherever you dear listener might think of that, but the key here is that the motion picture association recognized that it could self-regulate rather than have angry critics or the government come after it and start suggesting censorship.
That was a great example, the Victor Cho game, because it’s I think something all of us can relate to, but now imagine if in industries that had potentially objectionable or unhealthy, fair, whether it’s food, social media, the list goes on. Imagine if the companies who are the leaders and then I’m not saying this doesn’t happen. It does happen some, but I want to double underscore how powerful it is when leaders make this happen. Imagine if the leaders in each of these industries came forward and said, this is potentially problematic in some circumstances. We’re going to get ahead of that. We’re going to let you know and we’re doing our best to invest in a way that will protect and enable all humans to flourish despite the sometimes questionable second-order effects of our products and services. That for me, in October of 2022 was something new and I want to thank Victor Cho for his visionary thinking and sharing. It’s my delight to share that with you. I know I’m speaking to people in all different walks of life.
Some of us are leading big organizations and some of us have retired, and this is just an interesting thought, but not something that’s necessarily actionable. One of the things I love about our work at The Motley Fool is through our podcasts, articles, a lot of our media, we put things out there. We’re never quite sure who’s listening or what we hope good thing might happen next, but it is a delight for me to just continue to share my best thinking often coming from others in hopes that you’ll put it into play in your own lives, and then maybe I get an amazing mailbag note 12 or 14 months down the line about how something that you heard here this week has made the world better. Something new. Think about, get ahead of, manage, and own the secondary effects of your organization. Now, for something borrowed, now whether or not I managed to land Tiago Forte authors in this August, where each year in August I bring authors of books that I’ve really appreciate onto this podcast, whether or not Tiago will make it to this podcast in August of this year. Here we are in May, and I want to be calling out my favorite read of 2022. Now, if you are a regular listener, you’ve definitely heard me mention this once or twice, but you may not have heard 10 minutes or so from me as to why I think Building a second brain is such a valuable book for all of my fellow humans.
Again, my favorite book that I read last year, Building A Second Brain by Tiago Forte talks about your two brains. The first one that we are all born with and that we use is really good at some things, for example, dreaming things up, imagining, creating. Those are the best uses of our first brain. Listening, reacting, empathy so much of the decision-making we make from one day to the next driven by that first brain that we tried to make smarter, happier, and richer that we rely on so much from day to day but the second brain starts to compensate for where our first brain is not so reliable. If you’re like me and I hope you’re not, you don’t have a great memory and you start realizing, my first brain, the one in my head is really not great at remembering the right thing at the right time. How many amazing books or passages and books have I read that I don’t now remember that I can’t actively recall? Tiago Forte says, “The beauty of the world that we live in today is you can create a digital framework outside of your first brain, let’s call it your second brain. You can really organize your digital life in a way there’ll be so helpful for you going forward, whether you’re competing against your fellow humans and a for-profit industry, or you’re trying to win jeopardy, or you’re trying to compete against artificial intelligence. Some of the AIs that start making their way.
Alien intelligence is, as Kevin Kelly mentioned a few weeks ago on this earth, you’re going to benefit a lot from a more effective in fortes words second brain. Now, he really focuses a lot on the notes that we take. You might be a note-taker dear listener. I am. I own lots of different little Post-it pads in different colors. I even make the colors count. I have significance attached to different colors of different Post-it notes, and I have a lot of Post-it notes rolling around my den. I haven’t always done as good a job processing them as I did when I first wrote them, but then I started to realize there’s a reason that my life is full of unprocessed Post-it notes. It’s because I’m not effectively enough taking notes in the first place so the notes we take Forte says, can be done better. Two thoughts he has I share with you here the first is every note you take, whether it’s marginalia in a book or a post-it note, or you’re keeping minutes for organization or taking notes on a sermon at church, each of those notes Forte suggests you should reconstitute in your mind as a message that you’re sending to your future self. He basically says point number 2, you should be organizing for action with the notes that you take.
If you’re just taking notes for notes sake, I mean, the only real justification I can see there is for some of us, the act of writing down makes us listen better and remember better even if you never process those notes or go back to them. But most of us take notes with the expectation we’re going to use them at some point in future. But Forte, the author says, your future self, who you are working for right now by taking a note, your future self is a very busy person. It’s a more complex and busy world in the future and that future version of yourself is like, I don’t have time, what do you try? You’re getting in my way. What is this note that you’re trying to make me read or care about seven years later and so in respect of that future self of yours, you should be taking notes in a new way. You probably should be taking fewer notes if you’re me anyway, you should be thinking more purposefully about why you’re keeping this note, why you intend to and if you listen to the author, you really organizing action projects that you will initiate. No one’s going to give you five stars for being a great note-taker.
That’s probably not going to be on your gravestone at the end. No one’s really going for the note-taker awards unless you’re part of some specialized industry. Most of us are just doing it to be as practical and useful to our future selves as possible and Forte does a great job, not just reminding us of that in his book, but really helping us think about a system that we can use. He talks about it as projects, areas, resources, and archives. I’m not going to summarize his book here. I hope I’ve said enough with something borrowed here to interest you to look into it further if you haven’t already heard me talk about this we’ll come across building a second brain. That approach to organizing your notes in a digital way so that you’re using the same system in each of the instances where you might be keeping notes. For example, a lot of us have some notes on our hard drive, let’s say in folders. Forte says you should use the exact same organization of those folders as you might have in other areas. You might have an analog brain book. Some of us call it that like a commonplace book.
In a book you go back to where you’re keeping notes, or you keep your schedule, or you keep your favorite quotes, whatever that is, you should be trying to use the same framework of the same structure. Maybe you also use Evernote. I do. In Evernote, you want to use the exact same framework and structures so that you know how to refine things later on of any of the notes that you’re taking. Well, I’m going to start getting bored if I try to summarize a book that I haven’t read for a few months, but I can tell you it is a fantastic read and it’s my pleasure to borrow some of his great ideas from his book, Building a Second Brain. I was inspired to go on to start looking into apps. Maybe you’re already using ones like this Instapaper or Matter, Reader. There are a number like this where these days you can, if you’re reading on the web or you read a lot on your phone, instead of just reading that article on that site wherever you are, which often in my world anyway these days has really flashy annoying ads constantly distracting you from actually reading the article you’re trying to read.
You can just drop that article, and that URL into an app like Instapaper or Matter and it will clean up all the ads and importantly it will let you highlight, just like you have a highlighter in your hand or your E highlighting in an Amazon Kindle app. It will let you highlight the articles that you’re reading or the emails that you’re reading in your digital life. So the opportunity to begin highlighting and tagging and hooking into your second brain a lot more than just what you’re reading is part of what you’ll discover as well so we’re all leading two lives these days and I don’t think it’s going to change for the rest of our lifetimes we’re leading an analog life, which has been true from time immemorial, and we’re now leading a digital life and the better that you can organize that digital life, that you can make maximum use and productivity of it and hook it into your analog world so that you can produce that exact quote just as you’re about to give a speech, you know exactly where to find that, it comes back to you at the right moments, the notes that you took. Now that you are your future self, all of a sudden you’re able to draw on them and have the most used or have the perfect story.
That is part of what I’ve begun to experience with a second brain. It’s been a wonderful boost for me over the last year and if this is new what you’re hearing from me, I highly suggest you act on something borrowed this week and start building a second brain. In episodes past for Something Old, New, Borrowed, and Blue, blue for me has meant sometimes the sadness that you and I might be feeling, or it might be the colour uniform of a sports team I want to talk about, or it might be the ticker symbol onetime, literally ticker symbol BLUE. It gives me an opportunity to talk about investing and/or business and/or life. But for this month’s something blue, I’m going to go with a stock, Blue Apron. Blue Apron, raise your hand if you recognize that company name. I’m looking across the podcast platform world and I see a lot of hands up. Now not every hand is up, but I do see a lot of hands up because I think a lot of us have at some point come across the concept of meal delivery or meal kits.
Blue Apron is a company that fairly quickly and fairly robustly built up a meal kit delivery platform. The company was founded in 2012. It actually went public five years after that in 2017 and certainly caught a lot of attention. I think I probably tried it once or twice, maybe you did too. COVID came along and it probably benefited some. It had that little initial COVID kick when the stock market came flying back and we all thought, well, we might be locked down in our homes for much longer than in reality, we’ve ended up being locked down in our homes. So Blue Apron has gone through a number in its just 11 years of being a company. It’s gone through a lot of different twists and turns. But I’m sorry to say, and I say I’m sorry because I tend to cheer on companies, I want better products and services. I want things to work in the world. As an investor, I want stocks to go up, not down. But I’m sorry to say Blue Apron is an example of a real failure, now that we can see with 2023 eyes what has happened. Let’s briefly review some of the highlights and lowlights of Blue Apron.
As I mentioned, the company was founded in 2012. Now it wasn’t first to market in a sense. There was a company called HelloFresh that many of us may recognize today. HelloFresh is a bigger, more successful business today than Blue Apron. I’ll talk about that in a little bit. But it got started in 2011. Now it wasn’t 10 years before Blue Apron, it was only less than a year before. But this German-based company got started a little bit earlier and scaled a little bit harder and faster and today is much more successful. But 2011 and ’12 is when this industry really started. Now the next date that I want to talk about is 2017. As I mentioned, that was the year that Blue Apron went public. Wow, just five years after being founded as a company, Blue Apron is a public company. Imagine the pressure that was felt by the management team, by the employees, and the pressure the investors felt. Well, if you are a venture capital investor, you might’ve been selling out your shares so that the company could go public.
You’re pretty happy with yourself today. But if you were buying shares really at any point from 2017 on right through to today, it has been an unmitigated disaster. It’s one of those stock chart patterns which is best described as Mount Matterhorn or Mount Everest, where things are really, really high and pretty much just go hyperbolically straight down over the course of time. Blue Apron came public around $160 a share six years ago, and today it is trading at about 50 cents. It has lost 319-320th of its value. The company, once with a market cap over $10 billion, today has a market cap below $50 million. Here’s a somewhat surprising fact to me. Where does Blue Apron trade today? Unless I’m seeing things wrong on my Internet browser, I think Blue Apron still trades on the New York Stock Exchange. That I guess shows the changing ways of the New York Stock Exchange and what it takes to be listed or de-listed on big public exchanges these days. But ticker symbol APRN appears to me anyway, still to be on the New York Stock Exchange, with the stock price market cap below $50 million. I think that the primary reason that this ended up not succeeding as a company is that it was an innovative idea that didn’t have enough differentiation, didn’t have enough distinctiveness relative to what was already out there in the marketplace.
For example, HelloFresh, there were other copycats that existed in the early days of Blue Apron’s businesses. But then once bigger companies like Kroger or Whole Foods started seeing what was happening, those companies could also come out with some competitive offerings in the meal kit and meal delivery industry and all of a sudden, Blue Apron had gone from looking like it might be a Rule Breaker to being a tiny underfunded also ran in an industry it had helped create. I think the key takeaway for something blue this time is a reminder about the snap test. The snap test is something I first wrote about in our book Rule Breakers, Rule Makers, our Motley Fool 1998 book. I wrote the Rule Breakers, the first half of the book, and I first started talking about the snap test, and I’ve talked about it a number of times since on this podcast. Regular listeners will know what I’m about to do. But if you haven’t heard this before, if you could snap your fingers and overnight the stock that you’re researching, the company that you’re thinking about disappeared the next morning, would anyone notice? Would anyone care? Now, obviously, some people would probably care.
The employees of the business, if it disappeared overnight, would care, but this is all a relative thing. How many people would really notice? How many people would really care? For me, as a lifetime lover of the stock market and picker of stocks, I have tended to do better when I listen hard for that snap and I respect what the test is teaching us. In short, you should be buying and even loving the companies that if they disappeared overnight, tons of people would notice and many, many people would care, would be sad. Those typically are the stocks that will do best in our portfolios over long periods of time. Those are the companies, the ones that pass the snap test, that we should be looking to be part owners of. On the other hand, companies, and I would say Blue Apron is a clear example, if you’d snap your fingers at any point in the last 11 years, it remains true, 2012, 2017, 2023. If you snapped your fingers, not a lot of people would notice and not a lot of people would care, especially in an industry that is rife with copycat kinds of solutions. At the Motley Fool, and I’ll speak to you as well, dear fellow stock picker, dear fellow armchair investor, we often don’t get much credit.
We’re not asking for it, but we often don’t get much credit for the stocks we don’t recommend. But I think some people, when Blue Apron first showed up, were saying, “Hey, Dave, you’re going to pick that for Rule Breakers? That looks like a Rule Breaker.” Well, another section of the book Rule Breakers, Rule Makers I wrote 25 years ago in 1998 talked about the faker breaker. Those are companies that look like Rule Breakers, but they’re not actually Rule Breakers. Often, the moment where you can start telling whether a Rule Breaker is a faker breaker is when, in the marketplace, a very similar solution, a very similar copycat product or service shows up and for the first time, your upstart, that visionary, that team that came up with that product or service in the first place is tested to see whether they can deliver measurable value above and beyond just the cost of that product or service. That copycat that showed up with a similar-looking brand or a similar-looking price is our original hope for Rule Breaker able to rise above, to demonstrate value above and beyond the copycats who show up with the same products and the same prices. In my experience, the great companies of our time, the Rule Breakers, do managed to combat the competition that will inevitably show in industries that are growing. Whereas the Blue Aprons of the world, something blue this week, remind me that often they don’t. I think what you and I should be looking for is some combination of hitting enough scale that something can’t be sunk. It’s big enough that it will be around for a long time. HelloFresh, by the way, is a multi-billion-dollar company now still 12 years after its founding, multi-billion dollars listed on a German Stock Exchange.
But for many of the upstarts, Blue Apron included, they’re not still around. I think, again, the key takeaway is were they differentiated? Did they have some clear value, add or special sauce, even sometimes a gimmick, something of that allows them to rise above the competition? Or if people catch on to quickly to what you’re trying to do too early, it can make it very hard unless you’re doing something special in this world that can make it very hard to succeed. There are some thoughts on ticker symbol APRN, Blue Apron, which is desperately trying to change up its model and right its ship. I do wish them good luck. I like this industry. I think some people got fascinated by meal kits initially and then found the offerings too repetitive or they started thinking, well, now that I’ve learned the recipe, I can just do this myself.
There may be some endemic problems to this industry overall, but I think it’s served a lot of people in a lot of ways. So good luck to Blue Apron. But whether or not it works going forward, I think we can all learn from the past and become better investors by observing, so something blue. Then something old, something new, something borrowed, something blue. Again, to review this week’s something old, how about aim for a 60% accuracy as one of your habits as a Rule Breaker investor. Something new, what about managing the second-order effects of your product or service ahead of regulators, even ahead of the media and your critics? What a better world and what a better outcome that will be. Something borrowed, building a second brain. Something blue, Blue Apron. A classic example, I’m sorry to say, of a faker breaker. If I’ve inspired any thoughts, I’d love to hear back from you. Rbi@fool.com is our email address and I’ll feature the best thoughts and questions on next week’s show. It will be your May 2023 mailbag. In the meantime, especially for those in the United States of America, I wish you a happy long weekend and Memorial Day. Remember the reason for that weekend. Talk to you next week. Fool on.
David Gardner has positions in Apple, Intuitive Surgical, and Tesla. The Motley Fool has positions in and recommends Apple, Chipotle Mexican Grill, Intuitive Surgical, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
