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David Gardner: Some people like fantasy stories, like them so much that is a culture we’re spending, oh, I don’t know I have already paid about 1.4 billion dollars at the box office worldwide this year to see a fantasy story made and supportive of Mattel toy named Barbie. We all can think of our favorite bedtime story, Harold and the Purple Crayon where the wild things are. It’s often said of us human beings that we are a storytelling race, the call of the story, the prehistoric campfire, where stories were acted out. Huge industries today have been built up just around celebrity stories or how about sports, the news scores, results, the stories we remember from our own athletic exploits, however scanty they may be, in my case, stories, stories, stories, stock stories. Every stock tells a story.
As investors, we get to know our company’s mission, maybe know their marketing tag line, that’s the story by the way. We follow the share price, we experience highs and lows, sometimes dizzying highs or cavernous lows, sometimes both. Our experience as investors gives us the long view, the foolish view, capital F equates us with great prosperity creating stories, especially, look across a portfolio, look up and down your brokerage statement and I bet you see stories. Well, for the eighth time in this podcast’s history this week, we focus on telling stories. Now we’re a stock market podcast so these are stock stories. Visiting me around the campfire this week, are five talented Motley Fool contributors, each of whom has a story to tell, five stock stories to make you smarter, happier, and richer. Only on this week’s Rule Breaker Investing.
Kirsten Guerra: It’s the Rule Breaker Investing podcast with Motley Fool Co-Founder David Gardner.
David Gardner: Yes, the sound as we say of rules being broken. I know that window shattering sound can be disruptive for some we’ve gotten mailbag notes about that in the past, we even turned it down a notch so that the version I think that you’re getting in 2023 is not so disruptive as it was in 2015, but never mind about windows shattering because this is the more stress reducing sound you’re going to be hearing often in this week’s podcasts, this. [NOISE] More about that in a sec. Authors in August, a one-of-a-kind mailbag last week reminds me to mention that we have a wonderful, not just author but thinker on the podcast next week, and that’s Arthur Brooks of Harvard University most recently teaching fame author Arthur Brooks’s columns in the Atlantic on Happiness. He and I are going to be talking about his new book with Oprah, which is its own thing but I read a wonderful book called Love Your Enemies in 2019 that he wrote. We’re going to be talking about the state of our country in some ways but really the state of our hearts and I’m looking forward to joining in with Arthur Brooks and you next week. But today not to stray too far from our campfire, which is Rule Breaker Investing, we’re headed back to the campfire back to the stock market, back to the campfire around which we talk about the stock market this week. Before we get started, I want to mention that we’ll be reviewing five stocks indistinguishable from magic, stuff that into the mailbag at the end of this month but just last week, those five stocks, that five stock sampler finished out and we’ll be reviewing some of the lessons and of course the numbers, but I’m going to do that at the end of this month and stick to just stories this week.
Now this week I’ve asked my friends and fellow analysts here at the Fool to tell the story of some stocks, not story stocks not necessarily but the linguistic reverse, stock stories. It’s something we do on these podcasts, this is volume 8, in fact. All previous volumes in the series are worth listening to, I hope and this week’s podcast stands shoulder to shoulder with all past ones every story is new. As I mentioned earlier, I have five Fools queued up looking forward to sharing them and their stories with you for some education, amusement, and enrichment. Now they’re not just going to be talking about the company which is so often how we think about investing with Rule Breaker Investing, we think we’re buying pieces, shares of companies. We love business focused investing at The Motley Fool, but in particular, I’ve asked each of our guests this week to identify where the stock was, maybe the few different points include the stock in their stories. If we do our job this week, we’ll be making you smarter, happier, and richer, you’ll be enriched by these stories. Now as we get prepared here I do have an exciting announcement due to the growth of this podcast over the years as explained last time, we can now afford more sound effects than we could in past years. My talented producer, Rick Engdahl will be bringing some sound to the stories that you hear. Now we’re going to keep it simple and augment overtime. Rick, I’m going to ask you to queue up the single sound effect that you’ve already previewed to set the mood for story Number 1. All right, that helps me to start setting the right tone here as we welcome my friend, Robert Brokamp. Robert, welcome back to Rule Breaker Investing.
Robert Brokamp: Such a pleasure, David good to see you again and to hear you again as well.
David Gardner: You bet Robert, and before we get started let me ask you, what are you doing around the Motley Fool these days? I suspect it’s the same thing you said last time, but there are always new listeners.
Robert Brokamp: I am the lead advisor of the Motley Fool’s Rule Your Retirement Service, which is I think our third oldest service, now 19 years. I’m a weekly contributor to the Motley Fool Money podcast and I am on the Fools 401K committee.
David Gardner: Fantastic. A Motley array of responsibilities and we’re so fortunate to have you fulfilling those so ably, and here you are finding yourself around a campfire of all places to tell us stock story and I know Robert stock stories aren’t necessarily something you spent a lot of time with, as our Rule Your Retirement expert along many dynamics, you don’t necessarily think stock by stock but you are this time.
Robert Brokamp: I am, indeed.
David Gardner: Before we start, have you seen Barbie yet? If so, your one-sentence non-spoiler review.
Robert Brokamp: I have seen it. I would say if you are open-minded and like quirky ideas and concepts you will love it.
David Gardner: Thank you very much for that. How about an adjective maybe a bit interesting or surprising to describe this campfire setting that we find ourselves in right now before we start?
Robert Brokamp: I would say bicycle centric because I’m in the process of trading for RAGBRAI, which is the annual ride across Iowa, which is a week long bike ride where you ride all day and you camp at night.
David Gardner: Wow. Well here is Rick, sound effect Number 1, to set the tone and Robert, as we settle in here what stock will you be telling a story about?
Robert Brokamp: Home Depot?
David Gardner: Excellent. Ticker symbol?
Robert Brokamp: HD.
David Gardner: What’s the title of your story?
Robert Brokamp: The title of my story is dripping my way to a 34-bagger.
David Gardner: That sounds very promising. Robert, get us started.
Robert Brokamp: Well, David and listeners, once upon a time, I had more hair. In fact, it was many years ago, 1997 or so, I was 28 years old teaching English at an elementary school in Washington, DC. I wasn’t making a lot of money. I was living in an expensive city, already had a kid at that time. So I figured I should get educated about personal finances. I began to use a relatively new thing called the Internet to learn as much as I could about personal finances and investing. In fact, I stumbled across then newest site called the Motley Fool, David, I don’t know if you remember. This is about the time we first met at a book signing at the Borders Bookstore in Alexandria, Virginia.
David Gardner: I do remember that very night and that very moment, and it’s such a delight to reflect back on.
Robert Brokamp: I still have my signed copy of the Motley Fool Investment Guide from that time. Anyway, this was also the thick of the dot-com bull market. The S&P 500 was returning between 20% and 35% every year from 1995-1999. So I was very eager to start investing. Now back then, you still had to pay commissions to buy stocks. Anywhere from $10 to $50 depending on your broker, which you know, that could eat into your principal if you were just investing small amounts of money as I was doing back then. But I learned about programs called direct stock purchase plans and dividend reinvestment plans, more commonly called DRIPs, that allow you to buy stocks directly from the company with no commissions. I decided, since I didn’t have a whole lot of money, that this was the way for me to go. I took a look at all the companies that offered these kind of programs and asked what company do I think will be around for a long time, and I decided upon Home Depot. I invested the minimum that you had to invest back then, $500 via Home Depot’s DRIP plan. I would love to tell you the exact date and the exact number of shares I bought, but the transfer agent that was running the program switched in 2000 and I lost the first three or four years of my information. It’s going to be really challenging if and when I decide to sell stock, but I haven’t yet, which is part of the lesson today’s plan. But let’s just assume it was mid-1997.
On June 30th of that year, Home Depot closed at a split-adjusted $15.33. Where is it today? Well, as of this taping, it’s at $328.31. It has gone up more than 21 times in price in 26 years. But wait, there’s more. That’s just the price return. I’ve been reinvesting the dividends all along the way. The great thing about dividends is they tend to go up every year, usually at a rate that beats inflation, if you choose the right company. In Home Depot’s case, in June of 1997, it paid a quarterly dividend of two cents when you adjust it for stock splits. The most recent dividend paid in August of this year, $2.09. The dividend has grown more than 100 times in value. Since the late ’90s, I’ve been buying more shares with the reinvested dividends, which leads to more dividends, which allows me to buy more shares, which pay more dividends, more shares. It’s the dividend snowball. Put it all together, my original, I’m guessing, I bought maybe 27 shares. I now own 52. My initial $500 investment is now worth more than $17,000, making it a 34-bagger on a total return basis. Now when I retire, I’m going to turn off the dividend reinvestment, have that money transferred to our bank account, and then hope to pay for a decent vacation or maybe a small home renovation. Thanks to Home Depot. [laughs]
David Gardner: All off of $500 initial allocation. I love, Robert, that you pointed out it wasn’t just a 21-bagger, which was just straight up price, but you added so much juice to it by reinvesting the dividends. When you were talking about 1997 and part of the beauty of DRIPs, so-called back then, was you could skip commissions in an era in which commissions were very significant. These days, commissions are often at or near zero dollars a share. But, Robert, I assume you still like and would advise people to sign up for dividend reinvestment programs because the dividend goes right back in and there is some convenience there as well.
Robert Brokamp: Absolutely. Yes, it’s automatic reinvestment. It’s automatic dollar-cost averaging, right? Because like your contributions to your 401(k), the dividends, you’re regularly purchasing shares. When the price is high, you don’t purchase as many. When the price is low, you purchase more. Jeremy Siegel, famously the author of Stocks for the Long Run, has called dividend reinvestments something like the bear market return accelerator. Because when stocks go down, the dividend reinvestment buy more shares. It has your portfolio recover faster than the overall stock market.
David Gardner: Part of the promise of stock stories, Robert, is that we draw a didactic lesson and punch it home for our fellow listeners around the campfire. There’s a lot here. I see a 25-plus years story, and I tend to fall in love with stories about the long term and persistence and patients and sometimes just forgetting you even had the position and discovering what it’s worth. That’s part of what I see in the story, but there are a number of things to highlight. What is the didactic lesson you would like us all to take away as we steer deeply into the campfire looking for truth?
Robert Brokamp: The lesson I would say is that investing even small amounts can pay off. I remember when I was in my classroom printing out the Fools’ 13 Steps to Investing Foolishly on a dot matrix printer, another teacher came up to me and said, “What are you doing?” I said, “Well, I’m starting to learn how to invest.” The teacher said to me, “You can’t invest, you don’t have enough money.” But if you just put in small amounts of money on a regular basis, give it 10, 20, 30, 40 years, even 50 years, and we have long-term time horizons because we have to take until the end of our lives really for our entire portfolio, it can really add up.
David Gardner: Fantastic. I can’t imagine a better way to start this volume, Volume 8 of Stock Stories. Robert Brokamp, thank you so much for joining us and Fool on, my friend.
Robert Brokamp: Fool on to you as well, sir.
David Gardner: But wait, before I let you walk away from the campfire, we need to preview, Robert, that last year, around the day of Halloween, you and I did a memorable podcast. You were telling scary stories in this case about often wills and estates and famous people who didn’t actually make a will. Those were scary stories, so scary at such the right time of year we said together let’s do it again. Next year, Robert, you will join me in mid-October, some weeks hence, we will do our second volume together of scary financial stories. Do you already have one or two in mind, and I’m not asking to tell them now?
Robert Brokamp: Well, I have some in mind and I assure you they will be frightening.
David Gardner: Excellent. I look forward to you scaring the heck out of us around six weeks from now. Thanks so much, Robert. Onto stock story number 2, Bill Barker, welcome back to Rule Breaker Investing.
Bill Barker: Thanks for having me.
David Gardner: A delight to have you. This is I think your first time around the stock story campfire for Rule Breaker Investing and, Bill, I’m curious, what’s an adjective, maybe an interesting or surprising adjective that comes to mind in this campfire setting?
Bill Barker: Far from surprising, but I’ve spent time up in the Adirondacks. Family has a place there and almost everything is referred to as campy. Shows with the atmosphere is not very thoughtful or inventive can’t be accurate.
David Gardner: Can’t be as accurate. Thank you, Bill and in fact, Rick is making things slightly can’t be accurate as we speak by threading in that second sound effect with your second story. As he’s doing that, Bill, what are you doing around Fooldom these days? Give us a one-sentence, who you are in Fooldom.
Bill Barker: After many years in asset management, I’m back on the publishing side working primarily on the small stock service, firecrackers and working with Bill Mann, who I’ve worked with many times in many different places and with Tom.
David Gardner: Wonderful. Thank you for that. Bill thank you for all that good work. And not to throw you off your game too much. But have you seen Barbie? And if so, how about a one sentence non spoiler review?
Bill Barker: I have seen it. A one-sentence review would be given it a B+. That’s my review.
David Gardner: B+ is good enough. Admittedly, I have not been there yet, but I look forward to seeing it, especially in light of Bill Barker’s B+.
Bill Barker: I don’t hand out A just automatically the [laughs] way things seem to be going more and more. A B+ is a good grade back in our day, you went to class, you worked hard and you got a B+, in a subject where there’s honest grading going on, that was not a bad grade at all.
David Gardner: Heck, let’s get into your stock. What stock will be telling a story about?
Bill Barker: I’ll be telling a story about XPO, Inc.
David Gardner: Ticker symbol XPO.
Bill Barker: XPO.
David Gardner: Bill, what is the title of this story?
Bill Barker: I guess the title is Undeserved Good Fortune. Let’s go with that once upon a time. This is a stock that I came to meet for the very first time back when I was doing asset management and I was at a conference. An Investor Conference institutional thing and the format for those that don’t know if you’re in the business, you try to get some one-on-one meetings with management around if you don’t particularly have the connections or the juice to get those one-on-one meetings. You sit in presentations in my asset management days and I’m watching a number of presentations that accompanies gives 40 minutes, 25-minute PowerPoint than 15 minutes Q&A and it was a small stock conference primarily. And I didn’t have a lot of one-on-one meetings with management this day. I’m sitting there going through the conference schedule, picking out the companies that I want to hear based on what I know about them. There comes a 45-minute block where I don’t know anything from any of the four companies giving a presentation, in four different rooms and so I just sit in my seat, I dive, I was there for a company I was interested in. The next company is gonna be XPO Logistics. Couldn’t care less. I’ve got no interest in the business and I just don’t feel like getting up and moving.
David Gardner: I mean it’s not like the most inspiring corporate name either. If it had some campy fun name, you might have been adjusted, but it was XPO Logistics. That doesn’t help logistics.
Bill Barker: I just thought, well, here’s a chance for me to catch up on my sleep or something. The presentation was very persuasive. Early on in the days Bradley Jacobs was the CEO and he had taken over the company and had a history of rolling up companies. He’d done it with United Waste and United Rentals and now he was going to roll up the Truck Brokerage Industry. It was the first ending was the top of the first stemming. The company was doing less than 300 million a year in sales. And they wanted to be doing several billion within two years, three years, whatever it was, it was just a a ridiculous promise. I sat through it, took some notes, did my homework after, and was impressed with Jacobs history. This has been in my Asset Management days and we do a small position in the company and the early days. We watched it essentially go from 300 million in sales to about 15 billion in four years. They were 60 acts. It was a roll-up. They did not believe me, the stock price did not go 60 X because they had to raise money, they had to issue more equity than to take on debt. They had to get the money to buy all the pieces of this puzzle that they were putting together. And the stock when I met it in that conference room was low 10,12, $14, something like that. Four years later, it was in the 50s. In 2017 so we’ll get to some other parts of the story in 2017. It goes from the 50s to about the high 70s. Then a rumor comes out that Home Depot was going to buy it to stop Amazon from buying it. This is a logistics company. Home Depot has got some logistics work, but they don’t need the size company that XPO was for their own logistics needs and so it didn’t make a whole lot of sense. It made sense at Amazon might take it over. But the stock went from 7,000, something like that on this rumor, everybody denied it, and of course nothing ever came of it. About a year later I sitting around, I was lying around actually because I just had my Achilles surgically repaired so I was in bed in a cast and story comes out, that short seller has got a report on XPO and it it gets cut in half. This is about a year later for about 110, ends up down around 4050.
David Gardner: Wow.
Bill Barker: That was about four or five years ago in the year since its visited a lot of interesting places. It’s split up into three companies. It’s now XPO, RXO and GXO. If you take all those and add them together, it’s worth about 150 if you held onto everything throughout the whole time. It’s been about a 10X in the last 11 years.
David Gardner: All bill, because you just sat through a presentation at a conference that otherwise you would have been on your phone on?
Bill Barker: I just I would just as likely in my case have been out in the lobby getting coffee. You could watch it any. I’m drinking coffee right now. I’ve pretty much always drinking coffee. My coffee bug buster been filled as the beating started. It was just pure luck because it was not in an industry that I was following, nor would a roll-up company in general, no matter how aggressive the promise and the opportunity would be in an unconsolidated industry. It’s just not the type of thing normally I would be following.
David Gardner: Well, I’m about to ask you for the didactic lesson, the key takeaway that makes stories memorable and productive for listeners. But before I do that, Rollups just in general, we’ve seen this happen across a whole bunch of different industries. Somebody starts thinking I can be acquisitive. I can roll up the entire industry by just buying everybody out. I usually think of them as not a great model. It feels stressful. As a conscious capitalist who likes to think everyone’s winning and being treated well. Often there are lots of layoffs around these things. I’m not a huge fan of Rollups Bill, but you’ve just told the story of a very productive winning company and investment in a roll-up that has been a serious home run.
Bill Barker: I agree. I’m not a fan of Rollups in general and would advise that people treat them no better and opportunity than anything else. But because of the history of Jacobs executing and rewarding shareholders that part in particular, not just doing a roll-up where management enriches itself by growing accompany 60 times and paying itself 60 times when it started out being with. But the stock needs to be reflecting that the equity shareholders are benefiting. He has done that three times and so I think the lesson here other than stay in your seat or keep your eyes open is watch Jacobs because he’s pretty much extracted himself from the XPO story. I think he’s got one more of these in him. I would be very interested to follow along again if the opportunity comes up.
David Gardner: Well, you have all of us watching. And I love that example. It’s the invest in the jockey, not the horse and pay attention is the jockey hops off the horse, pay attention to the jockey. Sometimes people get carried away with the race or start overrating the horses. But the humans that are running things that are making the decisions for the horse, leading to results in the race that is very worthwhile doing, especially when you find a good jockey. Bill Barker, thank you for that campfire story Number 2 on this week’s podcasts, I pre invite you back to our next campfire whenever we hold it.
Bill Barker: That’d be great. I would look forward to coming up with another story with a different lesson. Because there are so many out there.
David Gardner: You’ve got a lot in you. Bill Barker. Thank you so much full-on.
Bill Barker: Thank you.
David Gardner: All right, onto Stock Story Number 3. Kirsten Guerra, welcome back to Rule Breaker Investing.
Kirsten Guerra: Thanks for having me, David.
David Gardner: It is your first time around our stock story campfire and I’m already hearing that Rick is adding a key third sound into our audio setting. You and I Kirsten may or may not be at a real campfire, but how about an adjective? Maybe a bit interesting or surprising to describe this campfire setting that you find yourself in.
Kirsten Guerra: Hot. It is 98 degrees outside and we’re at the campfire, David, what are we doing?
David Gardner: Why are we doing that? It’s a good question. Speaking of doing, what are you doing around Fooldom these days, Kirsten?
Kirsten Guerra: I’m working over on Stock Advisor and I’m also contributing at interconnected opportunities, focused on essentially anything connected to Cloud. That’s what we do over there.
David Gardner: Love it. Thank you for both. Have you seen Barbie yet? And if so, your one-sentence non spoiler review.
Kirsten Guerra: I have seen Barbie and I will say if you haven’t, you don’t need to see it in theaters.
David Gardner: That is helpful.
Kirsten Guerra: I hope that’s not a hot take.
David Gardner: Bill Barker who just left before you gave it a B+. I was starting to think I should go to the theater, but I’m happy not to go to the theater, but still watch it on streaming inevitably down the road. Thank you for that, Kirsten. Let’s get into your story now. What is the title of the story you’ll be telling us?
Kirsten Guerra: The title I have is, My Biggest Mistake Was My Biggest Lesson.
David Gardner: That is a promising title and we’re going to hold off on what the company name is because that might be part of the story. Kirsten, take it away.
Kirsten Guerra: Once upon a time; the year was 2014, The European Space Agency landed our first probe on a comet, the World Cup was in Brazil, Germany won. I was being told that I could divert up to 10% of my paycheck into my company’s discounted stock purchase plan. That company was Schlumberger. The ticker is SLB. I started there in late 2013 when the stock was around $90 a share. I remember in my first week, one of the presenters had pulled up the website and the stock prices right there on the front page and they were commenting something like, wow, $90, look at that stock run. I didn’t really know anything about investing at that time, but the benefits overview that I was receiving about how I could divert some of my paycheck into that stock for a 7% discount by the way, paired with the general buzzing sentiment about how well the company was doing. Just sounded like a fantastic idea to me so I bought in. The stock price just kept climbing from $90, but numbers are just numbers. The actual business atmosphere behind those numbers was fantastic. Morale was high, motivation was generally abundant, culture felt very strong. Everything felt like a win. But let me back up for a second and tell you what Schlumberger does. It is an oilfield services company. It offers basically any service that you can imagine; drilling, well logging, which is like data collection in the oilfield, hydrofracking, extraction, software solutions. Anything that an operator might want, Schlumberger will do.
David Gardner: Well said.
Kirsten Guerra: Now operators are the companies that own the wells. They make the strategic decisions about how to develop a field or when and how to produce their wells. But the service companies are the ones that will come in, that will carry out those field operations, whatever the operator sells to do. Listeners may immediately recognize something about this industry, oil and gas that I worked in that I didn’t really understand at the time as I was pouring my paycheck into this stock. That is, that it’s highly cyclic. It is an industry whose fate is very fundamentally tied to the price of oil, and oil is a commodity. Most everything that influences the price of oil is outside the control of a company like Schlumberger. In 2014, what we were saying was an inventory surplus, which by the way was further exacerbated when economic sanctions were lifted on Iran in 2015, and their inventory came online too, so even more inventory surplus to come. We also had OPEC refusing to cut production levels and overall, softer economy with lower oil demand, partly driven by more interests in fuel-efficient vehicles, things like that. That all led to the price of oil dropping from over $100 a barrel to around $40 a barrel by the end of 2015. Yeah, so Schlumberger’s stock peaked around $118 in mid-2014, and by late 2014, the layoffs started. I worked for Schlumberger as a micro-seismic geophysicist. Basically, our to operators was real-time mapping of the extent and the quality of their fracking operations. But it’s like a luxury service.
Operators can forgo that real-time mapping to optimize the stimulation treatment. They can’t just do it and still get a bunch out of the well so my service was one of the first on the cost-cutting chopping block. Over most of the six years I worked there, the company was haemorrhaging money, layoffs were perpetually on the table, people were always leaving, morale was understandably terrible, and two things were happening in response. My employment was at risk with the same company whose stock was plummeting with a significant portion of my salary and savings tied into that. Ultimately, I was incredibly fortunate that I was not laid off. Around 75% of my team was so it was a very real threat for several years there. That in hindsight, taught me a lot. I shouldn’t have put so much money into a single company that I did not understand. Yes, to some degree I had an insider understanding of the company, but not really. I was a scientist. I was not an analyst at the time. To be clear, I shouldn’t have invested so much, but I don’t regret that I invested. Even cyclic businesses can be really great long-term investments, especially if they’re oversold by others unwilling to wait. But you have to know what you’re getting into to reasonably limit your exposure. Of course, I should not have allocated so much of my net worth into the same company that employed me. It is risky to tie your daily livelihood and your future savings to the same company. I don’t want to scare anyone away. I think you should definitely look into taking advantage of employer stock offerings, that can be great, but be smart about it. Diversify, limit your exposure to any one company taking into account both your savings and your salary as part of the package.
David Gardner: You did a great job underlining multiple lessons there, Kirsten. A couple of things I just want to share back. Earlier around the campfire, Robert Brokamp was here talking about the benefits of dividend reinvestment plans, something that we certainly like at the Motley Fool and in part because sometimes there are discounts or just the convenience of having dividends rolled back in. So you’re not gains saying any advice against using drips. I hear you saying, don’t put everything into your company unless maybe you’re the CEO, understand everything that’s happening about the industry and can predict the future. But if you’re not all three of those things, diversify.
Kirsten Guerra: Yes, exactly. There are people for whom it might make more sense who have a better understanding of the business. If you really know what you’re talking about and you have some of that information, then sure. But I didn’t have both of those things. What I did was risky.
David Gardner: I’m going to ask you in a sector punch home just a final, maybe one sentence take away the top lesson in your mind from what you just shared. As you think about that, I just want to reflect on you today versus you 10 years ago. A lot of studies show that we as adults underestimate the amount of future change in our lives. We can look back over 10 years and say, Kirsten, I think of you as a stock analyst, but you’re a geoscientist. You were working at an oilfield services company 10 years ago. Just to think about the degree of personal growth, some risks that you’ve taken and the challenges that you face and who you are today makes me smile. But it also reminds us, who knows what any of us will be doing or thinking about 10 years from now? Again, it’s easy to use hindsight. Look back and say how much we changed, but we should all at every age be ready for future change that may surprise us. That’s at least one thought that I have as a takeaway is I hear you tell that Schlumberger story. What was the title again and what is your didactic takeaway?
Kirsten Guerra: My title was, My Biggest Mistake Was My Biggest Lesson. That mistake and that lesson was essentially, know the limits of your investment understanding and diversify appropriately.
David Gardner: Kirsten Guerra, thanks so much for joining with us this week around the campfire.
Kirsten Guerra: Thanks David.
David Gardner: Stay cool out there. Onto stock story Number 4, welcome to the Rule Breaker Investing stock story, campfire. Mac, Greer.
Mac Greer: David is great to be here.
David Gardner: It’s great to have you Mac. As Rick threads in, the newest audio accompaniment to this week’s podcast back for you. What does an adjective maybe that’s interesting or surprising to describe this campfire setting, you find yourself in?
Mac Greer: Overpowering. I don’t know if there’s a dearth flame log or there’s just something kicking off a lot of heat. I’m just going to have to stand back a little. It’s truly overpowering.
David Gardner: I see that and yet I think your equal to the task. I appreciate you pointing that out. We we probably need to turn things down from time-to-time Rick Engdahl. Mac, you are one of our longest standing Motley Fool employees. You’re one of my favorite Fools. What are you doing around Fooldom these days?
Mac Greer: David? I am a producer, so I produce our premium podcasts, which includes our Stock Advisor roundtable, as well as other premium programming. Very invested in our morning show on Motley Fool Live as well as special events.
David Gardner: I loved that and Mac, you’ve done a lot of those things for years and some of those things are relatively new in the sense that premium programming is something that we’ve done on and off. I once did a Supernova Podcast for the Fool back in the day, but highlight that for people who are not yet members of The Motley Fool. It turns out I can get more stuff if I’m a member and a lot of that is being produced by the talent we’re speaking to around the campfire right now.
Mac Greer: Exactly, David. It’s like this great big secret world, Willy Wonka, without some of the weirdness. [laughs] You’re a member, you get premium video programming but you also now can have access to our premium podcasts through the magic of, well, I don’t know how it works exactly. But you can take your Motley Fool account and you can link it to a Spotify account and that way you can get a members-only Motley Fool podcast.
David Gardner: Outstanding. I’m delighted to know we’re doing that and that you are head manning that. Thank you Mac Greer. Before we get started, I would be remiss if I didn’t ask you if you’ve seen Barbie yet and if so, your one sentence non spoiler review.
Mac Greer: I have seen it. We saw it the second day it was out. I would say, wonderfully ambitious.
David Gardner: Excellent, we’ll leave it right there. Mac, what’s stock will you be telling a story about this time?
Mac Greer: I will be telling about a little stock named Apple.
David Gardner: I’ve heard of that company. One of my pet peeves I’ve heard that out on this podcast before is that people sometimes get the ticker symbol wrong with this one. Marco what does the ticker symbol of Apple?
Mac Greer: You want me to say APPL?
David Gardner: I don’t want you to say.
Mac Greer: I will not. I will say AAPL.
David Gardner: Thank you. I guess more importantly, what’s the title of your story?
Mac Greer: The title is the dangers of early success
David Gardner: Take it away.
Mac Greer: Once upon a time Apple was in trouble, serious trouble. We may not be able to stay in business trouble. The year was 1997, the band Hansen was setting the music world on fire with that catchy song by Apple was in trouble. On August 6th of 987, Apple co-founder Steve Jobs revealed that Microsoft, led by Bill Gates, had invested $150 million in Apple. Microsoft received 150,000 shares of preferred stock in Apple. Microsoft invest 150 million in Apple. In following that deal David, Steve Jobs told Bill Gates, and this is a quote, “Bill, thank you, the world’s a better place.” Well, the world became a better place for me. Because a few weeks before that deal, David, a few weeks before Microsoft invested in Apple, I, Mac Greer had bought call options in Apple. It was the first time i hit ever bought stock options. I’ve been investing for 7,8 years. I bought gap Dell‘s other stocks but i never bought options. I was young ish. I was single, I was not risk averse at all so I decided to give options across. I don’t want to get in the wheelchair here, but the big advantage of a call option versus a stock, as you know, is the call option really magnifies any gains in the stock. If the stock moves up a lot beyond that strike price, you stand to make even more money if you have the call options, which I did. Of course, if the stock is below the strike price at exploration, you lose what you pit. David, summer of 1987, I, by these call options for around $1 not knowing what’s going to happen. Each of those call options controls around 100 shares of Apple or not around it does control 100 shares of Apple. [laughs] I buy them because I remember thinking, you know what, how much lower can Apple really go? [laughs] An option seems fun. A few weeks later, Jobs announces that Microsoft’s invested 150 million in Apple. Apple stock shoots up in overnight. My options went from $1- $9.
David Gardner: That is absolutely insane, Mac.
Mac Greer: This is in the early days of the Internet. So I remember, I think I was at my lunch break during my job in DC and I think I may have been on the pay phone calling Schwab to get my options quote. I was just like in total disbelief as I hear that $9 price. I sold my options and I took my profits. David, you’re thinking so far, so good.
David Gardner: I am thinking that. I’m actually thinking so far so great.
Mac Greer: So far so great. The story ends there and I learned my lesson and I never buy options again. Not so fast though. Unfortunately, I decided that I was good at investing in options and I started buying all sorts of options on names like Intel and Dell, and oh yeah, here’s the kicker. I was also using margin. Yes. I wanted to juice my returns so no more of those sleepy buy-and-hold days. I was swinging for the fences using margin borrowed money to juice the returns even more. Well, David, not surprisingly, it did not end well. I started to lose money and then I started to lose more money. I learned eventually that I had no business investing in options. I wasn’t paid for it. I wasn’t using options for income or as a hedge or in ways that allow me to manage my risk. I didn’t use options in any of the ways at the Motley Fool has prescribed. I was flat out speculating. I was gambling. Because my first big bet on Apple had paid off big time, I learned the wrong lesson. That’s my first big takeaway. Success can be dangerous, especially early success. Make sure you’re not learning the wrong lesson. Make sure you’re not mistaking lock for skill. I wasn’t smart. I was lucky. Now the second takeaway here is you can have a robust portfolio and you can have a very happy and productive and fruitful investing life without ever using options. I don’t invest in options anymore. I know myself now and I can’t do it. By the way, I don’t use margin either. I don’t have the stomach for it. The final takeaway and perhaps the most important one, stay humble. If you’re on top of the world today, help someone who’s not. Remember, there was a day back in August of 1997 when Microsoft essentially bailed out Apple. That’s the same Apple that has around a three-trillion-dollar market cap today.
David Gardner: That is an absolutely outstanding point to conclude with. There was a lot going on there, Mac, I appreciate you taking us back to a time where yeah, we got stock quotes over the phone, we would call our broker or maybe there was the touch-tone opportunity to quote our stocks, but certainly online. May or may not have even had that yet, but before there was online, there were the phone quotes, so thank you for that. Mac, you mentioned that eventually you learned not to use options into our margin. How faster that eventually happen for you? Was it the big drop out of 2001 too are you like, I’m done here or did you keep doing it or did you stop right away in 1998?
Mac Greer: I think the.com crash pretty much finished me off because that was the end of it. I may have bought one or so after that, but that was pretty much it, the.com crash.
David Gardner: But most of all your concluding point about Apple. It is so remarkable to think back on that time and thanks for reminding us it was $150 million bailout investment from Microsoft just about 25 years ago today, 26 years ago. It’s astonishing to think that Apple has the highest public company market cap in the world today, far larger than Microsoft. All from a seed investment which was a couple of decades after its founding truly remarkable. I love what Steve Jobs said and that was a great quote.
Mac Greer: It’s incredible, David, and I don’t mean to pile on Microsoft here because Microsoft they’ve had a great run. But here’s a fun fact courtesy of an Engadget article I found online. 2001, Microsoft converted all of its Apple preferred shares and to around 18 million shares of common stock. By 2003, Microsoft had sold that entire stake. David, I’m no math wizard. [laughs] I don’t know how many splits Apple has had since 2003.
David Gardner: Nobody should be fired for capital allocation in the Microsoft investment department. [laughs] That’s what I’m hearing.
Mac Greer: In that an incredible world head Microsoft held that stake, they have to be what, one of the largest, if not the largest shareholders in Apple? [laughs]
David Gardner: Truly remarkable. Well, Mac Greer, thank you so much for joining us around this campfire and for punchy on. You gave several lessons, just the final thought, your final takeaway, if you were to boil it down the didactic lesson to just one sentence or so, what do you want to leave us with as you depart this hot, campy, overpowering campfire setting.
Mac Greer: I think there is a tendency when we succeed to give ourselves too much credit and to not give luck more credit. The best protection I found against that is to stay diversified and to keep my position pretty small and to realize that if something does blow up, if you have bad luck or good luck, you’ve at least constructed a portfolio that can withstand that.
David Gardner: That’s great. In a lot of senses, these things work not just for investing, but also for business in our professional lives, staying humble, diversified, and of course, in life itself. So thank you for painting each corner of the Rule Breaker Investing room. Great to see you again, Mac. We’ll have to do this again sometime. Happy camping.
Mac Greer: Happy camping.
David Gardner: Stock story number 5 this time, let’s welcome to the Rule Breaker Investing stock story campfire, Jason Moser. Jason, welcome back.
Jason Moser: Hey, thanks for having me, David.
David Gardner: We’re hearing Rick provide the final full accompaniment. Really sound being fully realized for our campfire setting this week, Jason. You’re getting to hear it in its full fury. What is an adjective, maybe a bit interesting or surprising that comes to mind to you when you stare deeply into the campfire that we find ourselves sitting in front of right now?
Jason Moser: You know, David, I’m going to go with the word refreshing, and I think one of the reasons why I use that is because it just, this day and age, especially these last several years, we just haven’t had the opportunity to work together so much, and that I think is something a lot of us miss. I didn’t get involved in these collaborative experiences. To me, the first thing that comes to mind, this is just a refreshing change of pace.
David Gardner: Thank you. Very well said and thank you for for being refreshing for all of us. It’s great to have you back. Jason, remind us in a sentence or two, what are you doing around the fool these days? Promote.
Jason Moser: Well, as many know for the last five years, I’ve been working as the advisor on our Augmented Reality and Beyond Service. Then also I’m working as the advisor on our Next-Gen Supercycle service and that’s the one that’s focused more on like connectivity in 5G related ideas. Then I get to continue with the Motley Fool Money stuff, and then helping out with Rule Breaker Investing podcast along the way.
David Gardner: I think man about town is fair to describe Jason Moser around Fooldom. It’s great to have you here, and I have to ask you the question I’ve asked all my other guests because for some reason I have this on my mind this week. Jason, have you seen Barbie yet? If so, your one-sentence, non-spoiler review.
Jason Moser: I feel like people would probably bet that I haven’t seen it. That’d be fair, but I’m going to surprise them and tell you what, David, I have seen it. It was something my daughter initially went to go see, made my wife jealous and so. My wife and I had a date night one night shortly thereafter. I will say going into my expectations for the movie, we’re not all that terribly high for me. It was more about the company I was keeping. But I will say absolutely the movie exceeded my expectations. I think Ken’s song was really probably the pinnacle of the movie for me. So much so my daughter who recently went away to college is coming back here in the next week and she has just told me that we have to go see that movie together. So you just don’t have it any other way. [laughs] So yes, I did go see it. How about you?
David Gardner: Excellent. I have not yet, as I previously mentioned this week, and yet, I know I will, but whether I wait for streaming or not is my big question. But Jason, I will have to say, I was not surprised that you saw because I know you have [laughs] wonderful daughters and I feel like is a guy surrounded by three women and his nuclear family, you were going to see this movie at some point somehow.
Jason Moser: A fair assessment.
David Gardner: Well, enough about Barbie. What stock will you be telling a story about?
Jason Moser: I feel like years and years from now when I’m long and gone, I feel like the investing story of Jason Moser is going to be told and everybody is going to make sure that McCormick is a part of that story. So to no one’s surprise, talking about McCormick. The ticker is MKC, not MCK, but MKC, McCormick.
David Gardner: Yes. What is the title of your Jason Moser McCormick story?
Jason Moser: Ninety percent of the flavor and 10% of the cost.
David Gardner: Excellent. Take it away, Jason.
Jason Moser: Once upon a time in February of 2010, a man named Jason Moser, a young buck, a green investor. What behind the years, [laughs] just started at the Motley Fool as just a member of the Analyst Development Program, not even guaranteed a job. He had to go through his educational rigor with the company. Didn’t even have a shot with a career and 14 years later look where he is. But back in 2010, February 2010, I started with the Motley Fool. Around this time, McCormick shares were selling for an adjusted $14 and change. Now, records are somewhat fuzzy because this was a little while back, but I believe we went to McCormick headquarters at some point in 2011. Now, this was just a trip that I and a couple of colleagues from work decided to take one day, a boots-on-the-ground field trip to get a better idea about the company and what they do. They were fairly local. Located up in Hunt Valley, Maryland.
David Gardner: I did not know that. So McCormick is in Hunt Valley.
Jason Moser: It was an easy trip for us to take, just a day trip, and that was the general timeframe. But I was still new to the job, like I said, very well behind the years, learning so much. For me, it was an exciting opportunity. This was one of the reasons why I was so excited to start with a fool because of these types of opportunities. So we drove up to McCormick headquarters for the day. We had a terrific time. We met with the CFO at the time, I believe it’s Gordon Stetz. We toured the whole place. This was probably a good 4-5 hour field trip that we took. Again, especially at the time, this is what struck me as a very Peter Lynchian type of experience. I had just read one up on Wall Street at the time. I mean, it really hit home for me. This is just one of those buy-what-you-know type of companies. We really got to know it very well. I have so many fun memories of my childhood learning how to cook from both of my parents. A lot of that just came from stretches, sitting in the kitchen, watching my mom or my dad do whatever they were doing, they would bring me into the mix and teach me how to do it. It’s something that even connects us to this day and I can recall vividly opening up the pantry, just seeing stacks upon stacks of McCormick’s spices. The color or the logo and all just kind of stuck with me. This field trip was something that reinvigorated, I guess, that interests really. Not in cooking, but really in in understanding exactly what McCormick did and if it was something that was worth considering as an investment idea. So I continue to follow it for years to come. You may remember on our old podcast Market Foolery.
One of Chris Hill’s favorite questions to deliberate every now and then was what’s the next Berkshire Hathaway acquisition? I always just answered McCormick. There were a couple of other times I would answer other companies like Ellie Mae or something like that. But McCormick was always my go-to because there just seemed to be so many Buffett-like qualities about this business. It was reliable, steady, strong returns, and I even said in April 2013, I laid it out there on Twitter at the time, David. Hear me now. Buffett and Berkshire will buy Spice Kings, McCormick & Company, under their umbrella one day. It’s two Berkshire business, not two. Fast-forward to today, David, of course, that has not happened, but I’m actually grateful because that has allowed me to just stay on here as the shareholder for so long and benefit from watching this company grow into its thing. But it wasn’t long after that, somewhere in the year 2013 where I bought my first shares of McCormick. That was somewhere in the $30 range adjusted for today. So $30 and change. I will mention too, by the way, just for listeners. One shortly, not long after that, you recommended McCormick in Stock Advisor on the team David side, and it’s performed very well for you there, I think matching the market and close to 200% returner there.
David Gardner: I definitely have never been to Hunt Valley, Jason, but it is a timeless company, doing good things in the world that I admire, and I think especially somewhere back that I’ve never been a cook myself, but I started to realize spices are such an oncoming thing. I know they’ve been around forever, but it feels as if maybe I’m just thinking about American cuisine, but I think it’s true worldwide, but I only really know American cuisine that it’s just getting better and better. We have fusions with other forms of cuisine and spices. I think I had spices on the brain. I know you remember the classic plastics line that was delivered to a young Dustin Hoffman in the graduate. But I was probably saying spices to somebody somewhere around then. It has been a good investment. It’s a company that I continue to appreciate today, but Jason, it’s it’s an iconic one for you. For me, I’m still confused as to why the ticker symbol is MKC. I know. I think we’ve always tried to noodle on, and I mean, I guess we could try to dig in and find out the history. I have to believe it has something to do with McKesson getting their first, but.
Jason Moser: I think so. I mean, to be clear, McCormick of course is MCC. I’m not online right now, so I’m not checking if somebody grabbed MCC, but I just see the K on the end of McCormick and I think it should be on the end of the ticker, but you’re right, McKesson, which is another stock advisor, pick, got MCK. But more importantly, what have you been learning? What have you learned from having McCormick in the Moser Folio for so long?
David Gardner: Well, I’ll tell you one thing I’ve learned is you never really underestimate where a business can go because certainly they’ve gone well beyond just spices. I mean, with acquisitions and RB Foods and bringing more flavors into their portfolio, sauces, things like that. Now they own French’s and they own Frank’s RedHot, and Cholula. This is a company that has certainly evolved over time. I think that’s definitely one of the lessons I take away, but the big lesson I take away from a company like McCormick, owning a company like McCormick. I think about this now more than ever really given that we’re not getting any younger David. I didn’t want to be late to the game working on building out that income-generating side. My retirement portfolio.
Jason Moser: McCormick was one company that really helped me keep that thinking alive. It’s something that talking about dividends and things like that is something my dad taught me when I was a kid. But when you’re young and they tell you you’re young, you can take more risky, have more time to make up for it. That’s true to an extent. But you don’t want to get to that older age having just completely neglected even beginning to build out that income side of your portfolio. For me, I’m glad I started thinking about the merits of owning a company like McCormick one I did. I even feel like it was maybe a little bit late to the game on that. But but I knew at some point the years would catch up, but I’d be happy that I’d taken advantage of that mindset. Complementing some of those younger companies that I own with a bit of stability and income generation. For me, I’ve continued to build out that income side of my, I’ll say “retirement” portfolio. The reason why I put retirement in quotes is because honestly, even now I’m going on 51. Retirement is not a word I even really think about. I’m not looking forward to it. I’m not aiming to retire, but it is something I keep in the back of my mind. Life goes on and you have to do something at some point or another. McCormick is one that has really helped me keep my eye on that ball, and it’s encouraged me to continue adding to other similar high-quality businesses that we like here at the Fool, other stable, income-generating ideas that have really helped me keep focused on that ultimately diversification that we value so highly here.
David Gardner: Well, that’s wonderful, and just checking it right now, the dividend yield for McCormick as we speak is right around 1.9%. Robert Brokamp earlier, really, he kicked off this week’s podcast with a reminder of the power of reinvesting dividends in companies like this one over a long periods of time. What was a 21 bagger in Home Depot for Robert is actually a 34 bagger because he consistently has reinvested dividends. You’re right. None of us is getting younger so far as I could tell, on any given day, and setting yourself up for a stream of income later on in life with companies that will keep paying those dividends steady Eddies, like McCormick, like Home Depot. I’m a great reminder to us all. Of course a lot of listeners already are doing this, have done this for a long period of time, but we have a Motley crowd out there. Whatever age you are, I think you can take something wonderful away from Jason’s story. Jason, can you remind me again of the title of your story and then give us, punch it out the takeaway line, as you think about your love affair with McCormick.
Jason Moser: Well, yeah, so 90% of the flavor and 10% of the cost and that really is to call back to their own value proposition they always try to tell us about. They’re responsible for 90% of the flavor of the food that we’re eating. But only about 10% of the cause. A tremendous value proposition starts to make a little bit more sense as an investment. I think looking back to the lessons, I mean, you don’t want to wait really to try to plan for your future. I think that when it comes to investing the way we invest here at the Fool, we preach diversification, we preach position sizing. It’s very easy to think about getting rich quickly. But let’s focus on getting rich slowly. It’s a journey. It’s not something that we’re going to achieve overnight. This is something we’re building over long stretches of time and giving us a little bit of all of those different types of great businesses out there that can really work wonders in the long-haul.
David Gardner: Getting rich slowly as a much sure path to getting rich. It’s actually a lot more fun to. You’d think it wouldn’t be, but you take away a lot of the stress. You don’t feel too bad during bear markets. You see them as opportunities and you have an opportunity, as Jason has done, to build out a diversified portfolio over time. It’s like a garden or an orchestra. You want to have many different players, many different contributors, and watch that growth over time. Jason, thank you so much for joining us again this week on Rule Breaker Investing.
Jason Moser: Thank you.
David Gardner: Well, I hope you enjoyed this addition of Stock Stories Volume 8. If you did, there are seven others you can listen to for didactic lessons in other companies in the past, including some of the same voices you heard this week telling other stories around the same campfire that can keep you company on a cold autumn night. Assuming it gets cold and Autumn at some point here in the Northern Hemisphere. This year it will, just not quite yet. If you’re on the East Coast this week, you get me also. I did enjoy our expensively post-produce campfires setting just the right tone, making our stories more memorable. For which I’d like to thank because I never do enough, my producer, Rick Engdahl. Rick, have you seen Barbie?
Rick Engdahl: Yes, I have.
David Gardner: Of course, you have.
Rick Engdahl: I do have a teenage daughter after all. [laughs]
David Gardner: How about a one-sentence reviewer thought from you or you can take an extra cents.
Rick Engdahl: Weird Barbie is the best Barbie.
David Gardner: As somebody who hasn’t seen it yet, I will take your word for it. I know lots of others are not in their head and I’m sure in agreement. Rick, were you a weekend one viewer?
Rick Engdahl: I think so. The first or second weekend, I was there with my daughter and her friends. The reason to see it in a theater is to see it with a theater full of teenagers. Pretty much throughout the entire movie, there’s plenty of spontaneous applause and laughter in the theater, and that’s what makes it fun to be there.
David Gardner: You’re right. That’s a great note in favor of going to the theater. I totally get you. The audience, where they were talking about a movie or a play or a comedy show, the audience or a rock concert, the audience makes such a big difference to ones enjoyment. Well, thank you for that and thank you for the good work this week. To close, the reason that you and I can even read the Odyssey and the Iliad when we went through school is because there’s an oral tradition that handed those stories down for centuries, which means great stories need to be memorable. I hope at least one of these was memorable for you dear fellow Fool and listener. This go-round, thank you again to Robert Brokamp talking about Home Depot, Bill Barker, XPO, Kirsten Guerra, her experiences in employee and investor in Schlumberger, Mac Greer, how can we forget that Microsoft’s investment into Apple? Jason Moser, 90% of the flavor and 10% of the cost. That’s Rule Breaker Investing for you this week. Next week, author and rule-breaking thinker, Arthur Brooks. Full-on.
Kirsten Guerra: As always, people on this program may have interest in the stocks they talk about. The Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. Learn more about Rule Breaker Investing at rbi.fool.com.