Motley Fool Hidden Gems Investing - 100% Stocks for Retirement?

Episode Date: December 19, 2023

Toys are cheaper now than a year ago. And some of the most popular brands haven’t changed for decades. (00:21) Ricky Mulvey and Asit Sharma discuss: - Transitory inflation for the toy business… and beyond! - The everlasting power of Barbie, Hot Wheels, and Lego. - Coupang’s acquisition of luxury online retailer, FarFetch. Plus, (15:27) Alison Southwick and Robert Brokamp open the listener mailbag and answer a question about saving in a portfolio of only stocks for retirement. Got a question for the show? Email us at [e-mail] Companies discussed: MAT, CPNG, FTCH Hosts: Ricky Mulvey, Alison Southwick Guests: Asit Sharma, Robert Brokamp Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

You've got to try breakfast at A&W. You've got to try breakfast at A&W. And what better way than with the delicious Pret Organic Coffee? Starting with just one dollar, all day, every day, now until December 31st. You've got to try breakfast at A&W. At participating A&W locations in Ontario. Toy prices fall and so has a luxury retailer. You're listening to Motley Fool Money. I'm Ricky Mulvey, joined today by Asit Sharma. Asit, good to see you once again in the virtual

world. Ricky, good to see you as always. Let's start. I want to have a little bit more fun on today's show. We're wrapping up for the end of the year. There's some hardcore business stories we could dive into. We could really unpack the financials, but first, let's start with the state of toys. No, let's do it, Ricky. I'm a little hurt for what this implies about our usual get-togethers on this show, but nonetheless, let's have some fun. Let's have some fun today. Come on. It's the end of the year. We're trying to go out smoothly. I don't want you doing too much homework today, but holiday season is rocking. Maybe you're getting ready for some travel.

There's a business story here. The price of toys is down 3% from last year. A little bit of deflation in the economy. What are you making of this? Economist Paul Krugman had a really interesting article in The Times very recently. He was arguing that inflation was indeed transitory, as some were saying like two years ago. It just took a lot longer for those temporary factors that were driving inflation to dissipate. I'll quote here, what happened in 2023 was that the economy finally worked out its post-pandemic kinks with, for example, supply chain issues and the mismatch between job openings and unemployed workers getting resolved. What he's saying, Ricky, is that we should expect a little bit of disinflationary pressure.

This is normal. Look, it's not a bad environment. We shouldn't read too much into the fact that toy prices are down. Let's go and buy a little bit more toys. I was looking at the data that was cited in the article. It's from the Consumer Price index for all urban consumers, toys in the United States. This is a part of a very long downward trajectory for small plastic objects. It's also, I think, a little bit of a story of globalization in there. The top dollhouse this year, we're doing some research, the top dollhouse on Amazon is the Barbie Dreamhouse. You can thank the movie. It's going on for $130. Back in 1965, that same, the Skipper Deluxe Dreamhouse was going for about a hundred bucks in inflation

adjusted dollars. But even more than that, in the eighties, the advertised Dreamhouse, this was back in a Sears catalog. It was going for 300 bucks today. So, so these toys, the big toy, the big Barbie toy is going for about a third of the price of what it was in inflation adjusted dollars in 1986. Ricky, I think you already put your finger on this. We've got two opposing forces at work. One is time value of money. A dollar today is worth more than a dollar in the future. There's going to be some inflation. But in those inflation-adjusted dollars, what are we seeing here? This is the triumph of mass manufacturing of plastic, as you point out. went back and looked at the pictures of that 1986 dollhouse and the 1965 dollhouse, fully expecting

to see a lot more wood than I actually did. We just got better, sadly enough, at producing things straight from petroleum. There you have it. There's the story in there where it's the top dollhouse from back then, it's the Barbie Dreamhouse. Today, it's the Barbie Dreamhouse. There's mixed up, I would say, rankings. When I was looking through Amazon, for example, one of the most popular action figures, or I should say toy sets, comes from something called Gabby's Dollhouse, which I would say is Netflix's answer to make a mass-market production show for children. But I know you were taking a look at some of the toys coming out. What struck out to you about some of the themes you're seeing play out, maybe Everlasting, in this holiday season?

Everlasting is pretty much what it was when I was a kid. When you were a kid, Ricky, Mattel Hot Wheels are going to be strong this year. I have to ask here, are you going to watch Hot Wheels the movie when it comes out? I'm going to be very lame about it. I don't want to be let down. I'm going to see what the internet says and then be a sheep. Well, apparently, this is currently in development with a team that supposedly includes JJ Abrams. This could be a fun live-action movie, we'll see. He will protect your intellectual property. For sure. Legos are looking strong, Ricky, and board games also should do well this year. Don't just take this from me,

the things that I like. This is according to some market research firms. If you boil all this down, Euromonitor, which tracks a lot of this stuff, says dolls and wheels are going to hold their own this season, maybe flat, up a percent, while these other categories are going to flail around a bit. Who are they holding their own against? That'd be like video games, toy train sets, that kind of thing? That's a good question. I think stuff that has more batteries in it. I think we got the everlasting stuff. That makes for a boring conversation. Everything old is new again. Let's talk about hot trends. Are there any hot trends for holiday spending for these gifts that you're keeping an eye on? Well, for me, hot trends usually translates

into warm donuts, but that doesn't make a good gift after you wrap it and it sits under the tree for a week or two. I went to better sources than myself. I sampled hottest gift list ideas from three distinctly different outlets, Rolling Stone, Better Homes and Gardens, and Forbes. Now, Ricky, between these three, they featured literally hundreds of hottest gift ideas, and you and me thought we had a lot of time on our own hands. Let's roll with Rolling Stone, the first one. Rolling Stone features the Bronax pillow slipper. I think this is fun because it recalls to mind maybe some bros who are hanging out together and want a warm-looking, again, plasticky type of slipper to pull on their feet. I found that interesting. Better Homes and Gardens

features among many other ideas. The Bartesian professional cocktail machine. I think this must be a mix between artisan, Cartesian, and bartender. I've had one of these. They do these Keurig K-cup pods for cocktails. Yeah. There's a reason the golden ratio is golden for cocktails, but I wish them well with that one. Now, to me, this carries that trend to an extreme. The description says, the machine uses cocktail capsules and your preferred alcohol to create a cocktail in seconds. That just doesn't sound very appetizing to me, but maybe I should try one of these. It's very concentrated.

Okay. I'll take your word for it. Well, Let's finish off with Forbes. Wedged amongst a lot of sharper image, Brook Stoney-type offerings, literally between an organic wine collection and a KitchenAid mixer, Forbes offers you Deer Foams Men's Papa Bear Plaid Slippers. Papa on one foot, bear on the other. That's more like it, Ricky. Just $18 on the affiliate link to amazon.com. I feel contractually obligated to talk about a story involving more publicly traded companies right now. But let's continue on with the gift theme, and that would be with Farfetch. It's the fall of a luxury retailer.

This was an online platform for brick-and-mortar boutiques to sell things like Gucci puffer coats for $3,000. It has since been bought out by Coupang, a Korean e-commerce giant often compared to Amazon. Let's start before the acquisition though, Asit. What was the original promise of Farfetch and why were investors so excited about it? I think the original premise was pretty simple, Ricky. This is a platform business, so it's an online marketplace that links up luxury retailers with those of us who like to purchase things online. The mechanics of it seemed pretty enticing. Think about luxury goods, which have an associated high margin, you get a lot of gross volume on the platform,

the company gets its take from every sale. You have what could be a high margin business and as it expands globally, more people come onto the platform, you have a volume business as well. The setup seemed pretty enticing to investors. The company had a successful IPO, but that excitement didn't quite last. I think one of the reasons the excitement didn't last is the way that Farfetch approached acquisitions. One of the expectations from investors was that this was going to be very inventory light. You're just making a platform and you're taking a pretty chunky take rate of 30% on all transactions. Then they may have been caught off guard when Farfetch went out and acquired a company called New Guards,

which includes the luxury apparel line Off-White. Was that the start of maybe the disconnect between Farfetch management team and investors with the acquisition approach? I think that's where it started. One of the things that maybe wasn't as visible to investors from the get-go was that this was a more intensive business in terms of the cost of goods sold and fixed costs than most realized. If you are trying to draw thousands of retailers across the globe together, those who ostensibly themselves don't have the technical expertise to build their own sites, and then provide that in a way that's searchable, there's a lot of technology investment involved and there is a tremendous amount of sales and

marketing expense. The economics really never worked out even though I would say Farfetch did achieve some scale. It never saw a profitable year. Cash flow started to really deteriorate after that first year following the IPO. Then as you mentioned, they were using capital, to acquire businesses with the first messaging that we're doing a little bit of vertical integration here, and then subsequent messaging that tried to really move this into its own like retail brand. It even had, I think, an in-house expression of that. We've seen this play out before in e-tailing. It hasn't really ended well yet in any business that we've looked at. Maybe that writing was on the wall sooner than some noticed.

It's always easy to be right in retrospect, Asit. More recently, management is at this place where they say, you know what, we're no longer providing guidance. The previous guidance that we gave you, you just shouldn't listen to. How do they get to the point where they're just throwing in the towel like that? One of the things that Farfetch did was to tie up with some other retailers as they were burning cash. The financial filings with the SEC really pointed to a lot of turmoil at the company and management now, I think, the attention has been split for quite a while in trying to salvage the assets. They've approached a number of different potential buyers. Fast forward to today, there's what seems

like an offer to purchase on the table, but it's really more of an extension of capital from Coupang, which is a South Korea-based, well, as most like to describe it, Amazon.com of Asia. I think that when management reaches a point where it's hard to keep the lights on and you're scrambling to find financing, the business bleeds ever more money and then you get to the point where, again, once in a while you see this where even the financials can't be relied upon and there's a lot of turnover in management. They're at that place where everything's unraveling, but here comes Coupang with half a billion bucks to try to stabilize the picture. Why do you think Coupang wants Farfetch?

We've just described what some may say is a dumpster fire. Why bring over a blanket? Why inherit it in-house? Coupang is not a super recognized brand around the world. It is a dominant e-commerce brand in South Korea, has amazing recognition there. So one thing it gets access to is sort of this luxury end of the market. And Coupang can marry that to one thing that it is amazing at, and that's distribution. They have built an unparalleled logistics operation in South Korea, which is mountainous terrain. So they've been able to replicate how Amazon.com operates in many of its fulfillment locations on perfectly flat land in South Korea. They're actually a little faster than Amazon.com.

You can order something at 7 a.m. from Coupang and have it delivered to your door by evening. Their reverse logistics or return logistics are also quite admirable. This is one thing they do really well. If they can start to extend that out a little past South Korea and cater to their own audience, which are higher income individuals. South Korea happens to be a country of both declining population, but a pretty wealthy population and a very tech-savvy population. There is a path there where they can, I think, start to get wider distribution, get more name recognition, but also tap into a bit more margin. And they're one of the few companies I can think of that actually could take those assets and make something of them. Because the original idea of

these small, tiny, dispersed luxury retailers was, from the get-go, just a hard unit economics proposition. But Coupang is a retailer that could make it work. Asit Sharma, as always, thank you for your time and your insight. Thanks a lot, Ricky. I appreciate you having me. You just found out that your sales team is at risk of missing quota. Don't panic. Just ask Rippling AI. Since it's built on your real-time people and business data, Rippling AI can pull metrics from Rippling and Salesforce into a meeting-ready dashboard showing quota attainment, headcount plan, and monthly revenue to quota by region. In seconds, you'll see exactly what's behind your quota risk and fix it before it's missed. Question answered, action taken, crisis

averted. When you have critical business questions that need answers, don't just file a ticket and wait weeks for an outdated report. Describe what you need and have Rippling AI build it instantly leave from your live people and business data. Whether it's a dashboard with detailed charts or automated workflows with the right triggers, conditions, and approvals. Ready to rule your business? Head to rippling.ai slash fool to get the only AI built to give you full visibility and take complex actions across your entire organization. That's r-i-p-p-l-i-n-g dot a-i slash f-o-o-l. Sign up for exclusive access today, rippling.ai slash fool. Up next, Alison Southwick and Robert Brokamp open up the listener mailbag and tackle your

questions about budgeting apps, dividends, and saving for retirement. If you'd like your question considered for the next mailbag, shoot us an email at podcastsatfool.com. That is podcasts with an S at fool.com. Our first question comes from Andrew. I'm a long-time listener and would like to hear your thoughts on a new study that makes an academic case for 100% stock exposure for retirement funds. Given the wealth of evidence that shows how much stocks outperform bonds over the long run and the previous decade or so of very low bond yields, I don't understand the argument for bond exposure in retirement funds for middle-aged and younger people,

or at least the degree to which it's remained completely baked into the conventional wisdom. My retirement savings are almost completely in stocks. I'm in my 30s and have a small percentage of my company's default target date retirement fund, which is 90-10 stocks bonds. The rest is all in an S&P 500 index fund. And I've watched the S&P outperform the target date fund by several percent every year, which will make a huge difference over the long run. I understand the arguments for larger bond exposure, but I don't find them that compelling. On the other hand, not everyone might have as big of a risk tolerance as I do. Anyway, would love to hear your thoughts. Thanks for all you do, and happy holidays.

Well, happy holidays to you too, Andrew. Let's start with a study which came out in October, and it's entitled Beyond the Status Quo, a Critical Assessment of Lifecycle Investment Advice. What the authors did was they compared how much investors would have if they only invested in a portfolio that was 50% domestic stocks and 50% international stocks throughout their lifetimes. That's all they did. Versus the classic 60-40 balance portfolio or a target date fund, which is a mix of stocks and bonds. It starts out very aggressive when you're young and then gradually gets more conservative as you get older. Surprise, investing in stocks over the course of your life leads to higher returns and much more money. This is, after all, the foundational belief

of The Motley Fool. Investing in the stock market is the key to long-term wealth. Yes, if you're in your 30s and have the risk tolerance for it, it's perfectly fine to have all your retirement money in stocks. Heck, I'm in my 50s, and almost all of my retirement money is in stocks. The issue, of course, is that sometimes the market drops dramatically, which causes people to either panic and sell, or they have to delay their goals. Imagine being close to or in retirement and seeing your 401k lose more than half its value, which would have happened if you had an all-stock portfolio from 2000-2002 or 2007-2009. The authors of the study do acknowledge this, and they write that, quote, we are sympathetic to the discomfort and real costs of these bouts of

poor short-run performance. But they also say that reducing the pain of these periods by holding bonds, quote, comes at too high a price because investors must forego the enormous economic gains from adopting the all-stock strategy. And that's true, as long as the future looks mostly like the past. I will point out that studies on withdrawal rates in retirement generally conclude that a portfolio that is anywhere between 40% and 70% stocks provides the highest safe withdrawal rate. So, not a portfolio that is 100% stocks. So, I think the bottom line here is, if you're younger and you have the risk tolerance, sure, investing in the stock market will likely lead to much higher wealth. But I will stick with the standard Foolish advice that you keep any

money you need in the next five years out of stocks and in cash and bonds, and maybe extending that timeline longer if you're close to or in retirement. And if you have a moderate or conservative risk tolerance, then it makes sense to have some cash and bonds along with your stocks, because the best asset allocation is the one that you can actually stick with. our next question comes from dan i was listening to the december 5 episode and bro mentioned by the way bro does make you nervous when people start off their letters like that they're like on this day you said and then you're like oh no what did i say as long as it's mentioned it's fine if it's ever like bro recommended or bro told me to do something that makes me very

nervous. Dan writes, I was listening to the December 5 episode, and Bro mentioned he is reviewing budget app platforms. Have been an avid Mint fan since I graduated college in 2016. As the service shuts down before the end of the year, I have been researching platforms like Rocket Money, Monarch, etc. Does the team have any recommendations as to the best budget apps? Yeah. In case you hadn't heard, Intuit is shutting down Mint by March of next year and encouraging users to move over to Credit Karma. They're not making you. You have to actually choose to go over to Credit Karma. And it might be appealing to long-term Mint users because you do get to keep most but not all of your historical data. And Credit Karma does have

some money monitoring features, like you're able to see all your transactions in one place, categorize your spending, track your net worth, things like that. But many of the more robust features of Mint are indeed going away. So far, I haven't done a thorough review of all the options out there, but I did get recommendations from some of my more financially savvy Foolish colleagues, which I'll soon list. But first, I think it's important to consider what you're looking for. Let's start with some criteria to consider. No. 1 is, do you want a free tool or do you want something you have to pay for? Of course, as the saying goes, if you're not paying for a product, you are the product. Mint was free. If you've used Mint, you're probably used to that. You

used Mint and then they would send targeted ads your way based on your money habits. As I get older and maybe a little bit more paranoid, I don't know, I'm more inclined to pay for something, because I'm not as comfortable sharing my data, but something to consider. The other thing to consider is what you're looking for. Do you just want a budgeting cash flow type of tool, or do you want something that also has things like portfolio analysis or retirement calculators? If you're married, you want to look for a tool that makes it easy to facilitate money management between the two of you. Some tools do a better job of that than others. And you might want to look into a tool that allows you to import data, either your data from Mint or anywhere else.

And by the way, you can export your data from Mint for those who are longtime users and you want to save it. There's some instructions on Intuit's website on how to export it. And I also point out that some of these other tools are providing promotions, basically, trying to attract old Mint users. So they're offering discounts for Mint users, although, frankly, it's just a code. So you don't have to have been a mint user to use the code. So that's something to look for as well. All right. So again, I reached out to a Slack channel we have here at The Fool for financially savvy

fools, asked for their recommendations, and I'm just going to read this list of the tools that fools recommend. So Copilot Money, Empower, which used to be known as Personal Capital, EveryDollar, Good budget, HoneyDue, that's Honey, D-U-E, lunch money, Monarch, and Monarch's getting a lot of attention from Mint users, partially because it was designed by Mint's first product manager, so it has a lot in common. There's Quicken, of course, the OG of financial tools, and there's original Quicken, which is really good for people who have an accounting mindset, maybe you're a business owner. But then Quicken also has a more Mint-like version called Quicken Simplify. So

that's something to consider. And we have Rocket Money, Tiller, which is great for people who love spreadsheets. And then YNAB, which stands for You Need a Budget. And YNAB is the type of tool that the people who use it love. It has a very strong following. And then the other thing I'll just add is that many banks actually have their own tools. Many years ago, they saw too many people going over to places like Mint or places like that, so they start offering their own tools. Quality varies significantly, but you might as well look and see what's being offered by your bank. Those are the options. Go forth into the internet. You'll find plenty of articles and videos that compare and contrast these various options. I think you'll soon start to zero in on an option

that you'd like to give a try. Have you zeroed in on any options that might appeal to you? I use Empower and Mint, but now I'm not using them anymore. I like Empower because it's known for its retirement calculator. But that is also a free tool. Basically, you just get marketed an awful lot, which I've gotten used to. I am intrigued by Tiller because it's spreadsheet-based. And the thing I like about spreadsheets is then once you have the information and everything, you can customize it a little bit more.

So, those are probably the ones. And I'll definitely take a look at Marnock just because it's getting so much buzz. And the people at The Fool who are trying it like it so far. So, I'll give that a look as well. All right, our next question comes from Josh, self-described Fool subscriber and loyal listener from Wisconsin. I was looking to close down three of the six credit cards my wife and I have accumulated over the years just to simplify things and to streamline our monthly bill paying routine. I manage our bills each month and there's just too much to keep track of. I worry we're

going to miss a payment simply because the seldom used cards are easy to forget about. We don't need the cards in question either, so who cares, right? But I see a lot of articles online saying it hurts your credit rating to close a credit card account. Huh? We have excellent credit with a mortgage, student loans, car payment, et cetera, all always paid on time. Why would this hurt our credit rating? Does the good making your finances easier to manage outweigh the bad, a possible dent to your credit rating? Also, is it better to close the account yourself versus leaving it unused and having the issuer close it for lack of use? Thanks for taking the time to answer this and thank you both for the excellent work you do on your podcast. Oh,

Thanks, Josh. Thanks, Josh. Unfortunately, closing your credit card could indeed lower your credit score for two primary reasons. One is that 30% of your score is determined by your credit utilization ratio, which is essentially the amount of your revolving credit card balances divided by your credit limit. Experts recommend that you pay off your balances each month or at least keep your credit utilization ratio below 30%. But when you close a card, your total limit goes down. In other words, you're reducing the denominator, which increases your utilization ratio. The other issue is that 15% of your credit score is determined by the length of your credit history. If you close a card you've had for a long time, you'll reduce your credit history,

though not necessarily immediately because it generally still stays on your record for 7 to 10 years. While it's a pain to maintain all those cards, it likely is better for your credit score if you keep them and use them every once in a while. That said, if you really want to close one or more of your credit card accounts, here are some tips. First of all, do it during a period of your life when you don't expect to need a loan anytime soon. You want to make sure you cash in any points you've earned and pay off the balance beforehand. If you can, close cards that are newer and or have lower credit limits. That way, they won't have as much of an effect on your credit history or your credit utilization ratio. You also might want to call the companies that

offer the cards you want to keep and see if you can increase your credit limit on those cards so you can maintain a lower credit utilization ratio. And if you really want to play it safe, mail a certified letter to your credit card issuer to cancel the account and request written confirmation of your 0% balance and closed account, and then check your credit report a couple of months later just to make sure the account was actually closed. Yeah, we actually closed some credit cards and then saw our credit score go up because we started paying it off weekly, which I know is maybe not what Josh is looking to do, but we pay it off weekly and then we saw a pretty good bump in our credit score. That's good. Another factor that

happens is if you close, again, it's your average credit history. If you've closed a card you've only had for a year, that actually increases your average history. That also could be a bump up to your credit score. Our next question comes from someone who didn't leave their name. That's cool. If a company is paying out millions or tens of millions, maybe even more, in dividends on the same day and most folks reinvest those payments, does that serve to temporarily, artificially inflate the stock price, ultimately leading to the reinvestment of those funds not going as far in terms of share count? That was a lot of adverbs in a short amount of time, but I still nailed it. You certainly did. When it comes to dividends, there are a few dates to remember.

First is the declaration date, which is when the company announces the size of the next dividend. And the market will react to that, especially if it's a really good dividend. Folks will maybe buy the stock, or if it's a particularly bad dividend, folks will sell it. So you have that market reaction to that announcement. And then the next date is the record date, which is when people have to be on the company's books as a shareholder to get the dividend. But a day before that is the ex-dividend date. And anyone who buys the stock on the ex-dividend date or later will not get the dividend. The stock often drops around the ex-dividend date, roughly in line with the value of the dividend, because people who buy it then won't get that

dividend, but also because the company is just about to distribute millions of dollars in cash. Therefore, the money is no longer worth as much as it used to be because it doesn't have as much cash on its books, so the price adjusts downward. Now, a lot of that cash does indeed go toward buying more shares of the stock or other stocks. So does that bump up the price a little bit? And the answer is likely yes. Again, just a little bit. A study published in 2021 by Samuel Hartsmark of the University of Chicago and David Solomon at Boston College took a look at the effect of dividends on the overall stock market. And they found that the days that had a high amount of dividend payments from companies saw returns that were four times higher than days

with low amounts of payouts, but the difference was less than one-tenth of 1%. So, while dividends do affect stock prices and share counts and things like that, the magnitude is generally pretty small and probably not something worth trying to time if you're a long-term investor. As always, people on the program may have interests in the stocks they talk about, The Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Ricky Mulvey. Thanks for listening. We'll be back tomorrow.