In this episode of Rule Breaker Investing, Motley Fool co-founder David Gardner goes through the Fool mailbag, to read about your journeys as investors, your success stories, lessons learned, and reflections on the future. With the new year come new opportunities for growth and optimism.
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 December 18, 2020.
David Gardner: Here we are at the end of it all. All 2020. All of it. You and me here together at the end of it all. What did you make of it? How did you do? How would you score yourself? What’s your single favorite memory or moment? Did you have your heart broken? I bet you did at least once. Never forget that, but do get past it. What three lessons will you take away and with whom will you share those three lessons? When English speakers worldwide sing tomorrow, “Should old acquaintance be forgot,” remember that lyric is just the start of a rhetorical question. I don’t think 18th century Scottish poet Robert Burns was suggesting that you forget old acquaintances, but some non trivial amount of this year and feel free to round it up, we might want to forget. If that’s you, you have my Foolish permission to do so.
None of us though will forget the stock market, how it dove and rose. How many of our favorite companies went on to higher heights than we would’ve dreamed at this time last year. Do you remember? Think about it. Could you have imagined, dear fellow Tesla shareholder, that as Tesla started the fateful year of 2020 below $100 a share, that it would finish over $600? That is an acquaintance not to be forgotten. So here, at the end of it all, I say, we close things out as we always do every month. This for the 62nd time in Rule Breaker Investing podcast history, the 62nd mailbag at the end of it all, only on this week’s Rule Breaker Investing.
Welcome back to Rule Breaker Investing. My producer, Rick Engdahl, mentioned to me when I said 62nd, that’s a six with the two after it. But it also sounds like we’re about to do a mailbag in exactly one minute, 60-seconds. But that is definitely not the case. In fact, our mailbag runneth over this month and as usual, there is no way for me to take 38 pages of amazing questions, stories, and thoughts, and do any real justice to more than about a third of it. We’ll have approximately 12 points to finish your year here in 2020. We will be doing this in more than 60 seconds on the 62nd historical Rule Breaker Investing mailbag. Well, at the end of it all, in this case, just the end of this month, I always like to look back to the month briefly that has been. We kicked it off with Games, Games, Games: Volume 2, that was my holiday game gift buying guide. This podcast, which was actually recorded on Friday, December 18th, Rick and I, I hope are enjoying the holidays with our families as you hear us. By the way, we’ve never taken a week off. Every single week since July of 2015, you’ve gotten a fresh new podcast. Darn it, we’re certainly not going to stop that record now.
Even though we recorded this on December 18th, it’s somewhere right near the end of the year, which means a holiday gift game buying guide might not be that useful. However, if you are still looking for a late gift, that Games, Games, Games episode, in which I reveal 15 games in three different lists, that should suit, I hope, any taste might still be helpful. The week after was gratitude 2020. It was time to say thank you to many for this year. The week after that, the third week of the month, it was our Besties of 2020, thinking back on what I found to be some of the most compelling podcasts we got to bring you in the year 2020 with cameos. Everybody, from my brother, Tom, to my friend Vennard Wright, to our Board Member, John Mackey, the founder of Whole Foods, all with a few minutes of thinking about this year and next. I hope you enjoyed our first annual Besties.
Last week, of course, the Market Cap Game Show, because that’s what we do the second to last Wednesday of every quarter. That was our 14th episode. Congratulations, again, to Maria Gallagher, which brings us to this mailbag. I have already conveyed, we have a lot to get through. I say we get started. I always like to start with hot takes from Twitter. I’ve got four tweets to share this time. The first one comes from my friend Mahan Tavakoli, @Mahany, that’s Mahan with a Y on the end of it, “@DavidGFool, the conversations you have with your people team on the Rule Breaker Investing podcast are some of my favorites. I use those as examples of what great organizational culture and truly caring about people looks like.” Well, wow, thank you, Mahan. Coming from you, that means a lot. You’re reflecting on the conversation I had with Lee Burbage and Kara Chambers as well. We had a few this year, but especially our work from home edition, where we shared some of The Motley Fool’s best tips we could give you if you are also working from home or a leader trying to help others work from home. That was certainly one of our besties of 2020. Mahan, thank you for that.
By the way, I can mention that I was on Mahan’s podcast. Occasionally, I’m on other people’s podcast. So if you’re interested in hearing a conversation about leadership and some more personal life stuff, I’m sure as well, please, join me and Mahan. His website is partneringleadership.com and that’s the name of the podcast. If you want too much of me this month, I’m there for you.
The next one comes from @Inveduko. That’s Inveduko LLC. Looks like some kind of a money management firm, “@DavidGFool, do you think the S&P 500 is still the best benchmark for the types of companies you recommend, given that many of them are high growth tech stocks?” Not a phrase I use but, “Would the QQQ possibly be a better benchmark than Nasdaq Composite?” Well, thanks, Inveduko. First of all, I encourage anybody to compare my performance or your performance or anyone else’s against any benchmark that they like. For me, I’ve always used the S&P 500 because it’s the gold standard. It’s the one that all mutual funds or index funds get compared to. From day one of The Motley Fool, we’ve said we think you can beat the market. We think you could beat the S&P 500. That really is the most representative index that I can think of. While it’s certainly true that a lot of our companies are Nasdaq companies and some of our New York Stock Exchange companies look more like tech-centric Nasdaq companies. At the same time, we have a wide variety of different companies. I actually think that if I started comparing my performance to the Nasdaq, some people would say, “Why aren’t you using the S&P 500? That’s what everybody else uses.” But again, anybody is welcome to compare our performance to anything that they would like.
All right, tweet No. 3. This one is from @chrisc195, Chris says, “Are you saying that out of 135 picks over 5+ years, that they averaged 97% gains each?” Well, first of all, thank you, Chris, for that. What he is referring to is the performance of our five-stock samplers. So, any new listener should know that every 10 weeks or so on this podcast for five years now, I’ve picked a basket of five stocks, usually to a theme. Sometimes a serious minded theme and sometimes a completely silly theme, but each time, we’re typically picking them for three years. Now, we like them past those three years, but we make it a three-year game and we track it here on this podcast. That’s been an important part of Rule Breaker Investing, really from day one. So, if you do that for 5+ years every 10 weeks or so, you end up doing it 27 times, which is exactly how many five stock samplers we have presented. If you multiply 27 times 5, you end up with 135 stocks. So, Chris said, “Are you saying that out of 135 picks over 5+ years, that they averaged 97% gains each?” I’m really happy and I’m amazed to be able to say, yes, Chris. That is exactly what I was saying. I’ve got an update. Again, we’re recording on Friday, December 18th, but as of now, they now average 108%, so we’re beating that 97%, at least, with one week to go in the year.
I’m absolutely flabbergasted myself by the performance of the five stock samplers, certainly the ones from this year, to think that the Coronavirus stocks picked in April would average those five stocks a gain of 264% is well above and beyond any expectations I or you should ever have going forward. But even going back some years, it wasn’t just about hot stocks in 2020, it was about the track that we’ve been laying for years and years. Now, as Rule Breaker investors following this strategy, both the types of companies we pick and how we treat them, yes, I do think you can do with the academics. Think you can’t, I think you can beat the market and beat it really badly by following this approach over time. So Chris, yes, 135 picks, 5+ years, and if you take all 135 of those stocks and you simply average their gain, as of now, they’re up 108% each as a group.
The last tweet, this one comes from Vince […], “None of the so-called experts on the talking head shows ever keep score and review their picks. You’ve set the bar not only for performance but for transparency, fair play, and genuine optimism.” Vince, thank you very much for that. This is going to sound too much like chess pounding, so I’m just going to stop it right now because that’s not the purpose of Rule Breaker Investing. But I do believe that the more other people hold themselves accountable in front of their audiences with the stocks that they’re picking or their predictions that they’re making, the more successful they will be, the more successful you listening to them will be, the better our world will be. I sure hope that somebody will start copying me and doing his or her own five stock samplers on a regular basis and scoring it in front of their audience as well. It can get addictive, and it’s pretty fun.
Well, a reminder, you can follow our podcast @RBIpodcast, on Twitter. I’m at @DavidGFool on Twitter. Just maybe before the year ends, you’d like to drop us a review. Maybe you followed us on Spotify or on iTunes. Yeah, you can drop reviews of any podcast right there, and we love to hear from you. We love to hear how we’re doing. Throw me some stars, we read every one. That’s a nice little way to show some gratitude right at the end of the year, if you want to. Thanks. All right.
Rule Breaker mailbag, item No. 1, “David, I just wanted to say thank you for sharing a little of your private life on your latest podcast. Hearing your gratitude and love for your wife, Margaret, was deeply moving and brought a tear to my eye.” Wow. Thank you, Bryce G., what a beautiful sentiment, you go on to say, “I don’t know if she listens to the podcast regularly, but I hope she listens to that one.” Well, I’m happy to say she does occasionally listen to this podcast. She’s certainly not expected to and she sure hasn’t gone through all of them or anything, but I did make a point of taking her out for a car ride. Yeah, we occasionally go out in the car these days. Is there anybody else still occasionally going out with the car these days? We just went out on a car ride in the past week and I just played that last bit for her. Bryce goes on to say, ”I’m a private person myself, I don’t really participate or write into things like this very often, so I hope you received this.” Well, thank you, Bryce. Yeah, I get it all. In fact, Rick Engdahl puts time in to gather all of your notes, [email protected] is the email address. We gather those every month along with the tweets, and so I read them all, “That said, I’d like to also share my gratitude to you and Tom,” Bryce continues, “for creating The Motley Fool and for making me smarter, happier, and richer. I’ve been a member for over 12 years now of various services, Stock Advisor, Rule Breakers, Options, Duke Street, back in the day, Supernova and now, back to Stock Advisor and Rule Breakers, and I try to share your words of wisdom with those closest to me whenever I can. I know at least three of my friends have signed up for the services.” Wow, thanks, Bryce. “Keep doing the great work you do and I look forward to the next 12 years and beyond, Fool on, Bryce.”
Well, just a lovely sentiment and thank you for calling out my gratitude episode. I appreciate you as a fellow private person taking time to reach out to us. My friend Bob […], who is a longtime Motley Fool member, said he was surprised when I described myself as a private person, because you said you share quite a lot through your podcast, and you talked a lot about your life. He thought it was ironic, but the truth is, I rarely have talked about my family. Of course, I spend so much time with them, thinking about them all the time and as a more public person, I don’t try to make them part of my public life, so that’s why I put it that way. But Bryce, thank you so much for the note.
This reminds me, before I go onto some of the other mailbag items this month, these are long on gratitude. In fact, there are well more than a dozen that I’m not getting to share with you, but they all read fairly similarly. They are gratitude for extreme performance or outperformance in this year of 2020, which puts me in a tough position because, first of all, I want to say, thank you back. That’s what I’m going to say right now, if you found that you didn’t get to read this particular mailbag, and you put your heart and soul into it, and you said a huge thanks, you should know, I’m saying back to you along with my brother, Tom, and our whole company, you are welcome. Thank you for taking the time. At the same time, mailbag wouldn’t be that interesting or it would be seemy if I just shared all of those back. There’s certainly some of those running through these, in particular this month, with so much gratitude, I thought, what are some of the ones that teach a lesson or make a good point in addition? Especially, tie would go to those who’ve been with us for a long time.
If you just started investing in 2020, which took some courage if it was around March or April, I congratulate you. But if you find that I’m not reading your story, it’s probably because I’m reading the story of somebody who’s been with The Motley Fool for five years, not just one, or for 12 years, not just five. Because that’s the real game that we’re playing. We’re playing the long game at The Motley Fool, and you as a fellow Fool, I hope you’re doing the same. Still, you’ll understand if I didn’t get to that many people, who are just amazed by their nine-month returns at the same time, I sure hope you turn those nine months into nine years. With every passing year, there’s more chance that I’ll read your mailbag item.
Rule Breaker mailbag item No. 2, this one comes from long time Fool, Darren from Raleigh, North Carolina. By the way, Raleigh, North Carolina, I think I saw that it was named one of America’s five happiest cities and the happiest one in the state of North Carolina. Hope things are going well, Darren, it sure seems like it based on this note. “David, good morning. Quick update, on track for 95% return this year and 175% over the last three years, mainly from letting winners win and losers lose. I have not sold anything beyond Rule Breakers and Stock Advisor sell recommendations, which we don’t make too many of, since we met up five-years ago.” Wow, that long. Darren’s referring to a trip he made to Fool HQ. He is one of those members who thought, if I’m going to be taking financial advice from you guys, and that’s going to matter a lot in my life, maybe I should take the time out to see who you are. This was probably before we started to do podcasts.
These days, I hope you’ve got to know me and a lot of other Fools through this podcast and all of our podcasts. But pre the Rule Breaker Investing podcasts, people will sometimes seek me out saying, “Who is this guy, who is this Fool?” Darren was one of them. All right. He goes on, two notes, first, “Loved the episode on losing to win, and I can personally attest to this strategy, my long-term positions in Tesla, Netflix, Activision Blizzard, and Amazon alone have trounced my losses. My recent additions over the last three years, pre-pandemic and Robinhood stock trading of Shopify, MercadoLibre, Square, Roku, Match Group and Nvidia, Twilio, Zoom, MongoDB among others, have rewarded my patience. I forgot the name of your ratio of stocks to age.” That would be, of course, the Gardner-Kretzmann Continuum, he said, “But mine is 1.45. I just finished Morgan Housel’s book, which was further confirmation of my entire posture over the last 12 Foolish years of investing.” Another member of the 12-year club. “I have recommended it to three friends so far.” Second note, “I want to thank you for introducing me to positive intelligence, and the work of Shirzad Chamine, too much to write in an email. Short version, I read the book, identified saboteurs. In my case,” Darren says. “they were hyper-rational and hyper-vigilant, committed to the PQ exercises, raised my PQ,” that would be his positive intelligence quotient from 48 to 92 in one month. Darren goes on, “I eliminated the crushing daily anxiety of owning a business from my life. Personally, I’m identifying and eliminating all kinds of blind spots in my marriage, parenting and friendships. I’ve recommended the book to at least 10 people and I’m in a book study with four of my male friends, all of us seeing profound changes in our lives. While this may sound cultish or a ridiculous adulation for The Motley Fool, it isn’t. I’m not sure how to articulate it, maybe it’s this simple. I’ve received far more from The Fool than I have ever paid in subscription dues. For me, The Fool has far exceeded its mandate to educate, amuse, and enrich with an emphasis on enrich. Have a blessed, safe, and happy holiday. Darren from Raleigh, North Carolina.” Well, thank you very much for that, Darren.
The reason I wanted to share this one is your callout of Shirzad Chamine. Certainly, a new friend of Rule Breakers everywhere and a friend of this podcast. That was one of my Besties of 2020, Positive Intelligence with Shirzad Chamine. I’m not going to go on even to summarize it, because anybody can listen to it. All of these podcasts are available for free. This one was October 21st. But Darren, you’re not the first one who’s written me saying that that was a profound hour for you to listen to and a life improver for you. Since I’m a friend of yours, that means a lot to hear this coming from you. I also want to mention that I had hoped to get Shirzad onto our Besties of 2020 because that podcast certainly won a Bestie of 2020 and yet we had a miscommunication with Shirzad. He very much wanted to join. I was excited to hear from him some positive thoughts for 2021. But unfortunately, due to that snafu, we did not get to feature Shirzad, so I trust we’ll get to touch base with him sometime in the new year. Anyway, thank you, Darren. All right.
Rule Breaker mailbag item No. 3, this one from another Darren, this time Darren […], “Hi, David. Hope you’re safe and well.” Well, thank you, Darren, I am. “I’m new to the stock market and listening to your podcast. I’ve really appreciated your transparency with your five-stock samplers. The fact that they are recorded, timestamped, allows people like myself to do some due diligence when trying to determine the number of people giving stock advice on the Internet. From my understanding, you hold stocks for a minimum of three years.” Well, that’s right. “I appreciate the reviews, but would be very interested to know if you sell any of those or plan on continuing to hold them after the three-years. Is there any circumstance where you would sell? Is your strategy to take a certain percentage of your income and invest every two weeks contributing to winners or hold onto the next five stock samplers? Thank you for reading my email, stay safe, happy holidays to you and your family. Darren.”
Well, I wanted to share this one for two reasons. First of all, I wanted to make it really clear, Darren and everybody, especially new listeners, that for our five-stock samplers, we play the game for three years. I’ve said this a few times in the past, but if we played the game for longer than that, given that we report updates every year after the five-stock sampler has been picked, so we check back in after year one, year two, year three. If I allowed these samplers to go on indefinitely and tried to keep you updated, there would be no other content on the Rule Breaker Investing podcast other than an occasional new five-stock sampler and reviews of dozens and dozens of past ones. So, what I’ve specifically done in 90% or more of the cases is say, we’re going to do this for three years. I want to make sure you understand why we do that. I also want to make sure you understand point No. 2: absolutely, we do not plan on selling stocks that are in these five-stock samplers. All of our members, so many of whom listen to this podcast, will know that all of my five stock samplers, every one of the 135 stocks, has been picked from the services we’re already using. These are all active recommendations. That’s why I call them a sampler. There are small samples of Motley Fool Stock Advisor and Motley Fool Rule Breakers.
What we do in those services is typically, we’ve held those for years before I ever present them here on a five-stock sampler and we’ll continue holding them for years after the three-year game of a given five-stock sampler concludes. Please don’t think that there’s any trading strategy. I’m not even sure what to call that, where you would bounce from one five-stock sampler to the next, selling out of that one before buying the next one. That is certainly not what I would do or what I intend at all from this. I think that you understand that, but sometimes it’s worth putting extra time in for clarity.
Point No. 4, and we’re going to continue on this subject of five-stock samplers, some fun analysis here coming in for Matt Rantala. Matt, thank you for this note. “Dear David, thank you for the podcast and for reviewing the Five Stocks that Let You Eat Cake, which was another market beating five-stock sampler. I have been listening to the back catalog of the Rule Breaker Investing podcasts and building my own spreadsheet of your five-stock samplers as I go. Now, I’m doing this partially because I crave data, but also because of some advice I was given about learning to write. Copying verbatim the words of a master can be a helpful tool not to plagiarize, but as a form of deliberate practice. Some of your investing principles have been reinforced by systematically copying your samplers.”
By copying, I hear Matt to be saying he listens to the old podcast, he takes down the stocks in order, he types them into a spreadsheet and he tracks them, which, guess what, fellow Fools, that’s exactly what I’ve done. I have a spreadsheet of all the past five-stock samplers, simply a homebrewed spreadsheet with some help for my assistant Milena, that we’ve created so we can track and report back to you for all of these many review uploads over the years. It sounds like Matt, you’re on the same adventure. Well, he goes on, “First, and this will not surprise you, is that you frequently repick some of the same stocks. Now, why is that? Probably, because winners win. The stocks that have succeeded in previous samplers are likely to be reselected because they are winning. I try to remember this,” says Matt, “when I hesitate to increase my position in a stock that has already increased significantly. The second principle that I’ve seen in action is how one big winner can overcome the losing stocks. In three of the four samplers that I have now closed out on my spreadsheet,” says Matt, “the one largest winner, has earned enough Alpha to make up for all the losers. A principle you often repeat, but sinks in a bit more when you see it in action. When I see some red in my portfolio, I try to remember that winners lose a lot of the time.” I’ll read out just a little bit more, this one additional observation Matt adds is that, “your selections may often be targeted for acquisition. While the sample size is still small,” he’s just reviewed the first seven samplers. He says, “I have seen three companies that were acquired before the sampler was closed. While it’s not your intention to select companies with the hope of acquisition, companies that are attractive to investors are also attractive to bigger companies.” He closes it out, “Thank you again for the public samplers. I’ll continue to copy them into Excel with the goal of continuing to become a bit smarter, happier, and richer. Fool on. Matt Rentala.”
Well, Matt, I congratulate you on taking the time to go back from the earliest days, listen to what was being said, copy it down. In so doing, as you say, by copying it out and writing it out yourself, it helps you learn better. In a lot of ways, that’s why we also review them. I could just do the five-stock sampler, and then at the end of three years, just tell you how it did, which as we’ve mentioned earlier, would be a lot more than many other people picking stocks in popular media do. But no, we really do purpose every year to check in year one, year two, year three. You’re right, some of the lessons that we’re repeatedly providing here on the podcast are illustrated in that spreadsheet you’re putting together. Winners win is a clear one, and you’re right, I do tend to look back and repick some of the same stocks. I try to mix it up, because I don’t ever want to be too samey. But MercadoLibre is probably over represented in those 27 five-stock samplers, for example.
In some cases, of the five stocks, three or even four of them were actually losers. But the one, for whatever reason did so well, that it wiped out all of the others. That’s why the vast majority, over 85% of those 27 five-stock samplers have beaten the market. You’re right, it comes down to often one or two big winners bringing up the whole crew. Because as much as winners win you’re right, a lot of the winning companies I love, can lose for a three-year period sometimes. Sometimes we just make bad investments. Anyway, thanks so much for sharing and I was happy to share your lessons out to the whole community, Matt Rentala.
Enough for the five-stock samplers. Let’s move right along now to Amit Somani, Rule Breaker mailbag, item No. 5, “Hi, David and The Motley Fool team. I was a long time Fool from the early days after reading the Rule Breakers, Rule Makers book in the late 1990s.” I love hearing that, Amit. Thank you. “Lost my interest, pun intended, along the way and restarted on Rule Breakers and Stock Advisor for the past few years. In 2020, so glad you guys started Motley Fool Live,” that’s live.fool.com, “and I also discovered the awesome RBI podcast. My comment is on rerecommendations. I looked through the performance scorecard for Rule Breakers and I realized a rerecommendation appears to have a better risk-reward ratio while still crushing the S&P 500. Some of the best stocks, such as MercadoLibre and Intuitive Surgical have been rerecommended many times. A few that have been initiated and rerecommended just in the last 12-18 months, a company like Roku, let us say.” So yes, we’ve kept it up in the near-term as well as the long-term, Amit. You go on to say, “In some sense, this seems akin to how a Venture Capitalist does a follow on round in a company, which is a sign of higher conviction, albeit, at a higher valuation. I’m definitely going to use this as a strong signal and would love to get your views on it, perhaps even an episode on just the rerecommended stocks and how their narratives have evolved for the better. Thank you. Happy holidays. Keep inspiring, amusing, and enriching the world. Regards, Amit Somani.”
Well, thank you, Amit, and I wanted to read this one right after Matt Rentala, because it’s just reinforcing again this same point, “Sometimes the best new stock you can buy is more of an existing stock that you have.” As I was picking two new stocks every month starting in October 2004 for the Motley Fool Rule Breakers service, somewhere about 10 or 12 years in, so this is somewhere around 2015, I decided instead of coming up with two new stocks every month, many months in the year, I would actually have one rerecommendation and one new stock, and the theory at the time was probably a rerecommendation of a company that I really like at whatever the new price is, is going to be a higher probability win for all of us than whatever I think is the second best new stock of the month. So, that subtle change was made several years ago and it’s very much in keeping with what you just said, Amit, and what Matt said as well. I do think that there is power in rerecommendations, and that’s why I’ve made a regular habit of it with Motley Fool Rule Breakers, and of course, our most popular feature of the Rule Breakers service and of Motley Fool Stock Advisor is actually the Best Buys Now that come out every month; and what are those?
But basically, rerecommendations of existing stocks that we already have in our portfolios, a new five-stock sampler every month, if you will, both in Rule Breakers and Stock Advisor. I hope all of these habits, practices, and processes, again, undergirded by constant repetition orally through this podcast, have reminded all of us of the power of going back to what works, and the rerecommendations are a great example. All right. It’s poem time. Rule Breaker mailbag item No. 6. This is from frequent correspondent, Lisa John Wharton. Lisa, thank you for this note, “Dear Rule Breaker Fools, I’m very grateful to you, the Rule Breaker team and the Stock Advisor team, and David and Tom Gardner. I had a great year. My portfolio’s returned almost 90% in 2020. It’s really changed my life and made me feel like writing poetry. I don’t have to work anymore, and it’s offered me the financial freedom that I have never dreamed of. I’ve written this acrostic poem, which has the following role, and I know this as an English major. As an acrostic, the first letter of each line spells out the title of the poem, which happens to be Motley Fool.” That’s right. The first letter of the first line is M, the first letter of the second line is O, it spells Motley Fool right down the margin. That’s the first rule. The second rule Lisa mentioned is that she has a rhyming scheme here of AA, BB, CC, DD, etc. This is optional. She says it’s her choice. Third, it also has a trochaic meter, which means it has a rhythm of emphasize syllable on emphasize syllable, a trochee, if you will.
Lisa concludes, “I might send in a Shakespearean sonnet in the next email. Sincerely, Lisa John Wharton,” and here it goes, “Motley Fool is what I want to cheer, Oh I have had such a gainful year. Teams, you have short give the best advice, let me write full-time and exercise. Each day, when I look at my account, yes, it has become a large amount. For me, things could be mad on Wall Street, oh a spiffy-pop is making me upbeat. Oh to buy and hold is easy, so I boast, let me offer them a sincere toast.” Well, thank you again, Lisa. Now, once again, I’m very conscious that we have a lot of us celebrating the returns that we’ve had this year. I just want to briefly reflect on that, reminded of one of my favorite documentary films that I saw, this one, almost 20 years old. Hoop Dreams, it turns out came out in the year 1994, which would make it more than 20 years old. It’s 26 years old. Perhaps some of you have seen it. The real life story of a couple of kids who become grown men and have a dream to make the NBA. They enter college basketball, and the documentarians have followed them from the earliest days as these little kids, showing real clips of their lives all the way through, checking in with them, interviewing them. I’ve thought Hoop Dreams was a sensation. I think for many of us who enjoyed Hoop Dreams, there was a line there that we still remember because it broke your heart a little bit when William Gates, not that Bill Gates, no, this William Gates, when William Gates at one point in the documentary as a rising star college basketball player said this, he said, “People always say to me when you get to the NBA, don’t forget about me.” He goes on, “Well, I should have said back if I don’t make it to the NBA, don’t you forget about me.”
Spoiler alert, William Gates and Arthur Agee, the two stars of Hoop Dreams, never did make the NBA. It’s a haunting line, and I think it was supposed to be a haunting line. I want this line, this thought to haunt you a little bit in the year 2021 and beyond. If the stock market doesn’t keep going up 90% for your portfolio next year or any of the five years after, I sure hope you won’t forget about us. That you won’t forget about us at The Motley Fool, because we have lived through probably the greatest stock market year. Most of us will see, maybe for the rest of our lives, but certainly for the near-term. I mentioned Tesla earlier. It started the year below $100, it’s over $600. How about The Trade Desk? That stock is up 250% since the year started as of this recording anyway. MongoDB, ticker symbol MDB, has spiffy-popped a few times in December for a lot of members. It’s nearly a triple. Ever heard of a little company called Zoom Video Communications? I bet a lot of you have, and it might be in your portfolio, I sure hope it is. That stock is up 500%, that’s six times in value just this calendar year.
These are not normal times, Fools. I think we all know that 2020 was not a normal year in just about every way, but I sure hope, along with William Gates, that years from now, if you don’t manage to score a five-bagger on your brand new pick eight months later, that you’ll still remember us and you won’t forget. Some of my status conversations will be casual cocktail-hour conversations where somebody will say, “Yeah, I followed you guys back in the 1990s,” but then there’s nothing really after that, and that would be somebody who, when 2001 hit and everybody’s stock sold off, they lost the love for the stock market altogether and then they are the cocktail party. Once we get back to cocktail parties, telling me that they don’t really do it anymore. They burned out on the market drop in 2001. Well, the market dropped again in 2008, ’09. It had a really big drop in the fourth quarter of 2018, it had a horrific drop in the first quarter of this year. But take it all in all, and you will take it all in all, wouldn’t you? Because it has been a spectacular run. Whether we’re charting it from 2001-2008 or 2015 through to today, it has been incredible. Please know these times are not normal. You will probably not see an IPO market where stocks will tend to double on their first day in 2021 or 2022 or beyond, and it’s very unlikely that your favorite stocks in mind will multi-bag in the course of a single calendar year. Now, I’m not saying I don’t want it to happen. I would love to see it keep happening forever, but the mathematician inside me, the Fool, I hope the wise Fool inside me and the friend of yours that’s inside me wants you to know that these are very unusual times. So, with William Gates, I’m going to say once again, I hope you will still remember us even when markets drop.
All right, Rule Breaker mailbag item No. 7, this is from Jeremy Nichols. Jeremy says, “Dear David, I’ve been enormously enriched by you and your team and your ongoing dedication to making financial literacy and wisdom fun and engaging. Thanks to you, as I approach the end of 2020 and the close of my 40th year on this planet. I’m glad to report that I have 11 times my annual gross salary in my retirement and brokerage accounts.” Wow, congratulations, Jeremy. Your annual salary, you multiply that and you have more than 10 times that saved and invested. That makes me a very happy co-founder of The Motley Fool. Jeremy goes on, “I first stumbled across The Motley Fool when I was 23 years old and delivering pizza, where I used to listen to audio books every Friday and Saturday night while I drove to earn extra money. I stumbled across The Motley Fool investment guide, a multi-CD set at the public library next to the Blockbuster video in 2004,” you know I’m loving this Jeremy, “From you and your brother I learned that it was possible to beat the market averages. Inspired by you, I decided to step away from the ‘financial advisor,’ who was actually an insurance salesperson, and began to manage my own Roth IRA. I will say that I’ve made my fair share of mistakes along the way, often selling too soon and missing out on larger gains. For instance, I’m one of those who sold out of Netflix at the Qwikster announcement and who didn’t buy Apple, Google [Alphabet], or Amazon until 2016, thinking they were overvalued and all the growth already behind them. How foolish of me? Most of my investments were small, until I made the decision to leave my employer of 12 years in the year 2016 and take a new role. This allowed me to transfer my 401(k) and Roth 401(k) investments, totaling about 1.5X my annual salary to a discount broker and began to make sizable investing decisions on my own. I want to emphasize this point, because the gains that I have achieved would have been impossible within the confines of a conventional retirement plan,” and I’m reading that slower and my voice should be bolding the text in your ears because that’s an important point that Jeremy is making here.
This is not to say, by the way, that retirement plans can, even conventional ones aren’t valuable, they really are. But many of them, many people are operating in offices or workplaces where their only choice in their 401(k) is to pick from a small menu of mutual funds. Sometimes, those mutual funds overcharge for underperformance, which leads to pretty paltry returns for a lot of the people following those plans over the course of time. We’ve always favored just a Vanguard S&P 500 index fund or the total market index fund if you have only mutual funds in your retirement plan. But most of all, we celebrate those who take the extra step and open up a Roth IRA or within their corporate IRA. Sometimes, they have the freedom to invest in individual stocks. Indeed, Jeremy, I think that’s when you really set yourself up for some spectacular long term success of the kind that you’ve achieved. Let me continue his note, “The decision to leave that job of 12 years was not motivated by this factor, but more than any other, this has been responsible for the improvement in my family’s financial life. I was able to go from a 6%-10% a year return with the funds within that plan, to a compound annual growth rate of 56%,” Wow, “since the end of 2016. Here are three lessons I’ve learned from you and your team. One, how to take a punch in the portfolio.” Jeremy says, “Since I started tracking seriously, I have had what I consider three serious hits to my portfolio value. In December 2018, I experienced a 29% drawdown from an all-time high.” Yeah, I remember that fourth quarter of 2018. “In September 2019, it was a 32% drawdown from an all-time high. Then again in March 2020, March of this year, I experienced a 41% drawdown. These are not fun, but going through these has helped my long-term perspective. I also actually appreciate checking my account balances in these situations, as it helps acclimate me emotionally so that I can start to overcome the natural bias, to experience pain at loss that is three times the happiness of my gains. I am also harking back to your saying, David, that the market goes down faster than it goes up, but it always goes up more than it goes down, and Chris Hill’s saying is also helpful. That when you are suffering outsized losses, you are paying the dues required to get outsized gains. After each drop, I found myself with less panic and having made fewer impulsive decisions.”
Well, wow. Before I go on to conclude with his last two points, think about that, fellow Fools everywhere. Three consecutive years in a row at one point, Jeremy had experienced drops of 29%, 32%, and 41%, and held all the way through. A lot of people don’t want to see a drop like that more than once in a decade. Admittedly, some of our Rule Breaker stocks have, in some cases, extreme volatility. Think about companies like Tesla to the upside and the downside. You can see how these drops could happen and certainly do with the Rule Breaker investing approach. But learning to take it, as Jeremy says, to take a punch in the portfolio is so valuable. “Lesson No. 2, asset location, location, location.” He says, “This one is from Robert Brokamp,” the long time host of Motley Fool Answers along with Alison Southwick, as well as the Rule Your Retirement guru, and yes, Robert, you’re a guru. “This one’s from Robert Brokamp, who’s shared that your Roth account should be where you house the portions of your portfolio you expect to grow the most. Taking advantage of the long-term tax-free nature of gains in this account. This has been a great lesson coming into 2020 because in 2019, I sold Roth positions in larger, slower growing companies, and bought those same shares back in my IRA and vice-versa, to shift my expected biggest winners to my Roth. This led to a Roth which is loaded up with all stars like The Trade Desk, Datadog, CrowdStrike, Cloudflare, Pinterest, Sea Limited, Livongo, now Teladoc, and Roku. These have led to a compound annual growth rate in my Roth of 76% since January 2017.”
Finally, Jeremy’s third lesson, “Play great games, win great prizes.” He says, “This is the opposite of play stupid games, wins stupid prizes. I remember a Rule Breaker podcast where you talked about investing and the world of business as a game, where you are playing against the whole world. You can win financial independence as your prize depending on your performance. I wanted to thank you for that analogy as it truly has made investing more fun. This is only scratching the surface. In conclusion of how The Fool has made me smarter, happier and richer since I first dip my toes in the water with you more than 15 years ago, I would like to thank you for introducing me to this game. Well, thanks to good choices from your universal picks, I’ve been able to win a most excellent prize. Best wishes, Merry Christmas, and a happy New Year to you and yours, Jeremy Nichols.” Merry Christmas and a Foolish New Year to you, Jeremy.
Rule Breaker mailbag item No. 8. Do you see why I said our mailbag was stuffed this month? “Hi, David.” This one comes from Sydney Steel. “Hi, David. You just made my year with your games episode. I’m a huge gamer. I met my husband at a mutual friend’s New Year’s Eve gaming marathon a couple of years ago. I appreciate you sharing your love of games with the greater investing world. May I suggest another way for you and your listeners to indulge in gaming? Just like your fabulous suite of podcasts, shout out to Motley Fool Money“, says Sydney Steel, “gaming has its own plethora of them. I will start with my husband’s conversational gaming podcast, Tabletop Game Talk, or TGT for short.” Sure, Sydney, I’ll give a plug here. TabletopGametalk.com is their website, and they’ve got a podcast. “Or the weekly gaming news podcast, Dice Tower News,” which I’ve certainly seen a lot of over the years on, “which my husband has a recurring Kickstarters segment.” Well, I think she is referring to all of the games these days that get kick started to come out on Kickstarter, and it sounds like her husband, Chris Steel, is the one who monitors what’s happening on Kickstarter and does a Dice Tower News segment. She goes on to say, “In another segment, they look at the top 10 games on the boardgamegeek.com hotness list. Both of those podcasts are in the network of podcasts called the Dice Tower Network, which has an incredible amount of gaming content over multiple different platforms. Look them up and game on.” Then she ends with, “I mean, Fool on,” with a smiley.
Well, thank you very much, Sydney Steel. I really appreciate you letting us know. Not only are you a Motley Fool podcast fan, but you were also part of a great gaming couple. I wish you and your husband, Chris, the very gaming best. I’m delighted to know that he is helping more people find great games, whether it’s on Kickstarter or on BoardgameGeek. I’m just delighted to be in touch with fellow gamers. So, thanks for writing in, Sydney. Good luck, Chris. Fool on!
All right. Rule Breaker mailbag item No. 9, “Dear David, I will be celebrating my fifth anniversary of being a Motley Fool member in March of this coming year. But in the spirit of Thanksgiving, I wanted to express my huge thanks to you and all of The Motley Fool for transforming my financial life. As of today, the worth of my portfolio has tripled, yes, tripled, since March of 2016, when I bought my first Motley Fool services, which were Motley Fool Options and Motley Fool Stock Advisor. During these 4+ years, I’ve subscribed to several other Fool services, including Rule Breakers and a few Fool portfolio services. I began as an investing illiterate, and I’ve learned so much. It’s been a tremendous fund, not to speak of tremendously profitable. I came to The Motley Fool because the asset management company that I was with, a wonderful socially responsible assessment management service, alerted me that if I kept up the spending as I was doing, I would be out of money in 10 to 12 years.” Carol Davies writes, “They actually did quite well for me, but given the fact that my portfolio is virtually my soul source of income for living, it wasn’t enough. Now, I don’t have to be concerned about figuring out how to cut my expenses, thanks to The Motley Fool. I hope one day to meet you and Tom so I can thank you in person, but for now, thank you, thank you, thank you to you, Tom and your wonderful team of analysts whom I’ve gotten to know through the community boards.” Those, of course, are our discussion boards, which we make ample use of on our site through their articles on the services, and now, of course, through Motley Fool Live, which Carol Davies says she loves.
“I also listen each week to the Rule Breaker Investing podcast. You’re always engaging, bringing so much investing and living knowledge for free to so many people. With best wishes for success and bliss in bringing these wonderful investing principles and the profits that go with them, including benefiting our whole world in a socially responsible way to our whole world family.” Signed, Carol Davies. Carol concludes with, “Forgot to say, I did leave that asset management company in March 2016, and I went totally on my own, solely with the Motley Fool’s help. The triple value of my portfolio does not include all the options income from applying the Motley Fool Options from people like Jim Mueller, Jim Gillies, Jeff Fischer, all of their principles and the stocks that are sold to cover my living expenses these years. So, if I included that, the value would be significantly more than triple, all thanks to The Motley Fool.” Carol, you know how happy notes like that make us. I hope you heard my line earlier from Hoop Dreams, which I’ve co-opted for the purpose of this podcast at the end of it all, to remember to pinch yourself, because there will not be many years or many four-year periods like the one we’ve just seen, but of course, eyeswide-open, I continue to think, hey, I think the market is going to go up next year.
All right. Rule Breakers mailbag item No. 10, “Dear David, a year ago, I wrote to you about how my wife and I recently had given a perhaps unique wedding gift. Instead of buying the equivalent of a lovely set of candle sticks off the registry, we instead opened a brokerage account for the bride and groom. We started it out with single shares of 16 different companies. So, one share each, 16 companies, all but two of which traded at under $100, worth about $1,000 in total.” Well, what a generous, wonderful thought for a wedding gift. I think it’s about to get better, let’s listen. “The intent of the gift was education. Our hope was that the young couple, with decades of compounding ahead of them, would watch these small, diversified positions and learn. We couldn’t help hoping that, as they added to this little portfolio, it might be the acorn that grows into something bigger than they ever thought possible, and the wedding gift that makes the biggest difference in their lives. Well, I write to give you an update. This month, the young couple and their little portfolio celebrate their first anniversaries. The bride and I have been in touch several times a month, all year. New all-time highs were a reason to text screenshots of stock charts. Ends of quarters caused an email reminder to calculate performance against the S&P because, of course, we keep score. This week we sat down over Zoom to review their positions in the past year. The S&P 500 is up about 15% since the portfolio’s inception, and the couple is up 40% after adjusting for the $50 a month they have added to the account. Infused with Foolish companies and a Foolish approach, the little portfolio has grown from $1,000 to about $2,300 over the year. Their biggest winners are Etsy, Teladoc, Match Group, and PayPal, up variously as high as 245% to as low as just +85%. Their biggest loser is DAL.” Well, that’s certainly not one of my picks. I’m pretty sure that’s Delta Airlines, but I’m not looking at the internet right now. “DAL down 35%. They’ve added to winners. They’ve bought an additional share of Teladoc, and of eBay. They’ve seen one holding, Dunkin, as in Dunkin Donuts. Dunkin Holdings gets taken private for a 40% gain. They experienced their first bear market in March, a psychological test for any investors, seasoned or novice. They did not sell, but found the courage to buy, adding a share of Microsoft and Hospital Corp of America to their portfolio during those dark days.”
“Then, they observed how markets go down faster than they go up, but go up more than they go down. I am somewhat chagrined,” says our correspondent, “to report their performance over those 12 months is beating my own on a percentage basis. I’m forced to smile when I look over the list of companies that didn’t make the cut for my original buy list, which included Square and Zoom, up three and six times respectively over the past year. With modesty, I have to rate this experiment an unqualified success. I feel like this young couple is on their way financially. They have good habits in terms of being savers. They are responsible about debt. They think in terms of the long term and they are learning about investing. I end with the same request as last year. If you end up using the story on the podcast, please make us anonymous. My hope is that other listeners might consider doing something similar for young couples in their lives. With gratitude,” and I’m going to sign it, anonymous.
Well, as that is a Motley Fool member whom I’ve met before, I congratulate you, Sir, on what you’ve done. I love that story and I was so pleased to share it with our worldwide audience because the idea of giving a stock or a small portfolio as a wedding gift instead of candlesticks, I like my candlesticks but wow, what a valuable contribution. Beyond just giving the money or the stocks, of course, it was your attention. It was the hand holding through some really bad times in March and April, it was your thought in the first place of what 16 diversified companies that they would like, could I get them? Then of course, your regular check-ins, whether on a monthly or a celebratory quarterly basis, that was worth its weight in gold. Congratulations to you, Sir, and to all of those whose lives you touch. Happy anniversary, bride and groom. All right.
Well, for our last two points, we have one silly and one sublime, let’s do them in that order. Rule Breaker mailbag, item No. 11, this one from Eric Eason, “Hi, David and Rick. I began daydreaming as you spoke in the recent Rule Breaker podcast about your high school lead role in the musical The Music Man, because I was the stage right spotlight crew on that musical during my sophomore year of high school. We had some exciting technical difficulties, including all of the power for the stage lighting going out during the Mayor’s soliloquy in that musical from which the three spotlights saved the play by flooding the stage with our light,” Eric goes on, “but the most enjoyable memory for me was during one of the last performances, after which I had grown comfortable with the play and my role. Again, I was a spotlight newbie. My spotlight, we knew, had a damaged fresnel lens, and so I had to turn it off whenever it wasn’t in use to protect the lens from overheating, which could break it. At one point, my spotlight had a longest pause in the play so I turned it off, leaned back against the wall and simply enjoyed the show.” Eric continues, “Well, after a bit, I heard some really good acapella harmonies far off stage which gradually, ever so gradually, grew louder. I was thoroughly enjoying it when suddenly, I realized with the shock, ‘Oh no, that’s my queue.’ I rolled my spotlight onto the edge of the stage right curtains, set my aperture, turned on my spotlight, and prayed I was on target and on queue. Thankfully, I was spot on with both for my beam illuminated the lead barbershop quartet singer as he emerged on stage, followed by his companions. Well now, here’s the wonderful serendipitous twist to the story. Just as I was daydreaming of the barbershop quartet stepping onto stage with my fortuitously aimed and timed spotlight, your producer, Rick Engdahl, speaks up on the podcast to say, “Hey, I was in The Music Man too, David, I was in the barbershop quartet. Well, I burst out laughing with glee and shouted, “Rick, I’ve got you covered, my good man. Here’s a toast to small world stories and the stories of redemption like The Music Man.” Signed, Eric Eason. Through my headphones, my producer Rick is telling me he thinks it was probably Lida Rose. I remember that, to Lida Rose, old Lida Rose. Yeah, they came on slowly, and then it got bigger, louder, and faster. That’s a beautiful song. Thank you, Eric Eason.
At the end of it all, well, here’s the end mailbag item from Zach Kennely. “Greetings, David. The Motley Fool has changed my life and made me and my family smarter, happier, and richer. I subscribed to multiple Motley Fool services like Rule Breakers, Stock Advisors, Marijuana Masters, and Blast Off 2020. In partnership with The Fool, our portfolio is up 88% in just the last year. The Motley Fool has made our family smarter. We now deeply analyze present and future economic trends with an eye for how excellent businesses can capitalize on those trends. We ask curious questions like the questions at the end of this mailbag message. The Motley Fool has made our family happier. As a result of our investing, we now have the savings rate up more than 25%, up from less than 10% before becoming investors in individual stocks. Investing with The Motley Fool has taught me how to think about money by playing the long game and prioritizing what we want most over what we want now. We’ve begun communicating effectively about money, finance, and investing. A ripple effect is happening in our circle of influence, inspiring investing across three generations of our family. The Motley Fool has made our family richer. My wife and I are both teachers in Denver, Colorado. We are not rich. Though we are now on the path to financial independence through a strong savings rate, we spread our passion for saving and investing throughout our community. We are also bringing our passion for investing to our students, helping our community to understand that building a more equitable world is about more than just earning money, it is about investing that money and compounding it into wealth, which can be used to create the world they envision. It is not an exaggeration to say that The Motley Fool has truly changed the trajectory of my life, the lives of my family members, and even more incredibly, the lives of those in our circle of influence. I’ve been an educator for 10 years. In August of 2018, I was an initial responder to a shooting at my school. A student that I had worked with for many years had been shot in the head at school. Miraculously, because of this middle schooler’s incredible tenacity, he is alive and living a fulfilling life today. As a result of this experience, I struggled with post-traumatic stress for some time, yet the darkness of post-traumatic stress has only been a small part of the story for me. The real story for me has been the profound personal post-traumatic growth I have experienced as a result of this humbling experience. Through this experience, I’ve grown as a husband, a father, a son, a brother, a friend, and community member. At the root of that growth has been me discovering my passion for investing, ignited by The Motley Fool. This brings me to the framing of my question for you, 2020 has been deeply traumatic for America. We are in the throes of a life altering COVID-19 pandemic, significant civil unrest, as contentious an election as my generation has seen ever, and growing inequality. Do you think it is possible that out of the trauma of 2020, America and the world may be prime for an explosion of post-traumatic growth? If America is primed to experience post traumatic growth in our post-vaccine world, then what industries and/or trends ride the wave and win the day as a result of America’s post-2020 traumatic growth? Thank you for taking the time to read my mailbag letter. I’m truly grateful to be a Foolish investor and for everything The Motley Fool brings to the world. Grateful, Zach Kennely.”
Well, Zach, thank you for that beautiful note, and a big part of me was tempted to just cut it off right at the end of your story and not address the question because it was such a beautiful story. Talk about making lemonade out of lemons, what a wonderful reflection on what happened to you on that hard, hard day to say nothing of your students some years ago and how you both have turned it into a win. Just hearing about the success that you’re having for your family and your community brings a huge smile to my face and I know so many people listening to me right now.
But you did ask a question and it was a question from a great place, a place of optimism. A place that asks, what about post-traumatic growth? What about the possibilities there? Well, my word for a long while now, for months now, for 2021, I’ve said it on this podcast, my word for 2021 is “comeback.” That always has a little bit of a sports lilt to me as a sports fan. But you don’t need to be a sports fan to recognize the beauty of comebacks. You’ve lived one yourself. As I think about the comeback in store for our society, I think about a society that has more conscious leadership. I’ve already said, one of my favorite books this year was Conscious Leadership by John Mackey. Had them on the podcast, had them again on the podcast, just to double underline that. One of the things that you learned is that a conscious leader is the best leader, the leader that you and I want, whether it’s in the White House, in the corporate boardroom, or the heads of the households for every family across the world, what you want in that leadership is people who can find win, win, win.
As I asked myself what are some of the industries or the leaders that will create value in a post traumatic world of growth, I think it’s going to be the conscious ones. That’s why so many of our stocks, they are in the five stock samplers, they’re in our services, our conscious capitalism companies, companies that recognize that holding a purpose above profits is the best way for that organization to thrive and the secret is often, they get the most profits too. Yes, they’re managing for wins for all of their stakeholders. What I love about this answer is it’s not just true of an industry or a certain trend or a tech trend that somebody is looking at, I like to look across the broad swath of all of business and say, where are the conscious leaders? Where are the people doing good things in this world and creating a lot of value for everyone around them? I know I’m talking to one right now, Zach Kennely, because you are that for your family and your community, that’s the growth I’m investing in. Thank you. Thank you to all my fellow Fools everywhere for a most remarkable year, 2020. Here we are, now truly at the end of it all. Fool on!
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