Motley Fool Hidden Gems Investing - Motley Fool Money: 08.01.2014

Episode Date: August 1, 2014

Twitter reports a profit.  Zillow makes a big buy.  And Buffalo Wild Wiings serves up some not so hot earnings.  Our analysts discuss those stories.  And Motley Fool co-founders David and Tom Gardner talk Tesla, Facebook, and market volatility. Learn more about your ad choices. Visit megaphone.fm/adchoices

Everybody needs money. That's why they call it money. The best things in life are free. But you can give them to the birds and bees. From Fool Global Headquarters, this is Motley Fool Money. Welcome to the Motley Fool Money radio show. We are not at Fool Global Headquarters. We are not. We are coming to you live from the Grand Hyatt Hotel in San Francisco for our Motley Fool One member event. And joining me, from Motley Fool One, Jason Moser, and from Motley Fool Supernova, Matt Argusinger. Guys, thanks for being here.

Oh, yeah. Earnings Palooza rolls on. We will discuss the latest results from some of the big stocks in the news. We will talk investing strategies with Motley Fool co-founders David and Tom Gardner. And we are taping this before the monthly jobs report comes out, guys. So we will discuss the big macro a little later in the show with Morgan Housel. But since we are here in Silicon Valley, let's start the week with Twitter. Shares of Twitter up more than 20% on Wednesday after second quarter revenue more than doubled.

And monthly active users topped 270 million. Jason, I know Germany won the World Cup, but it seems like Twitter won the World Cup too. Well, I think they at least won part of it. You know, as a shareholder of Twitter myself, I was really happy to see them turn this quarter in. And I think this is really, this was the quarter where Twitter, I think, gave investors the opportunity. They could see what management is really trying to do with this company. Dick Costolo said in the conference call again and again, they want to be the world's largest information network. And I think part of the problem investors were having for the longest time was trying to understand exactly what Twitter was trying to be.

And you saw them always comparing them to Facebook and saying, well, there's no Facebook. And no, it's not Facebook. They do two different things. And I think Twitter is starting to show exactly what it does do, and it reaches much farther than just those 271 million monthly active users, you know, the people who don't use Twitter but see tweets on TV, for example. And so I think that, you know, as time goes on, we'll see them learn how to monetize that user base that goes beyond just those registered users. They're doing things like amping up profile pages. They're going to introduce some new video offerings here in August. And so I think all in all, it was a great quarter.

I expect more of the same here for the rest of the year. And honestly, this is one of the companies I'm most excited about here for the coming probably five, ten years. Yeah, Matty, at the beginning of the year, Dick Costolo said, hey, we're not making a profit in 2014. And adjusted profit, two cents a share, that really surprised people. But I'm wondering if that just raises the bar for Twitter for Q3 and Q4. No, I don't think so. I totally agree with Jason. I mean, I think this is a company that's still finding the right path toward really big profits.

But I think it's still a brand play to me. And there is really no bigger brand, I think, in media, mobile communications than Twitter right now. I mean, it was just everywhere during the World Cup. I interact with Twitter every day. It's really how I get my news and, you know, my updates on things. And I just think they're going to figure this out in a big way. And I'm glad they're investing a lot in the platform. And I'll say I'm not the biggest soccer head in the world.

But, I mean, the platform that they set up for the World Cup I thought was phenomenal. I mean, using my iPhone daily, I mean, they had the whole World Cup page you could go to get instant scores. I mean, see what was going on all around the world at the drop of a hat. So for me, that's what really impressed me right there. It piqued my interest in the World Cup where I didn't think I was going to have very much at all. Second quarter loss for Tesla Motors was bigger than a year ago as the electric car maker prepared for the launch of a new SUV. A lot going on in this quarter, Matty. What stood out to you?

Lots of moving parts. But, look, Tesla is on track for 35,000 vehicles this year. That number is huge. It blows away previous expectations from the earlier year. They're on track for 60,000 cars next year. Look, if you look at the thing that really impressed me with the earnings, gross margins were about 27%. I mean, Ford in a really good year is going to do about 10% to 15% gross margins.

BMW, a better comparison, maybe gets to 20%. Tesla is doing gross margins in the 27% range. They're probably going to be 28% by the end of the year. With the Model X rolling out later this week, a prototype, with that coming out, the SUV version of the Model S coming out next year, they might be looking at 30% gross margin. So Tesla's producing a lot of cars and producing a lot of cars very profitably. And, of course, the big news, of course, is the Gigafactory that they're planning on building.

I love, you know, Elon Musk's approach here. They broke ground in Reno, Nevada, and, of course, a lot of states are excited about this. But they left it open. They said, well, we're thinking about building it in Reno, but we'll see what California, we'll see what Arizona, we'll see what New Mexico says, and, you know, maybe we'll build it there, too. Who knows? Come, you know, give me a call. Make us an offer we can't refuse, right?

That's right. So it's interesting. But the 35,000 cars, I mean, let's be honest. If Ford Motor produced 35,000 cars in a year, they'd be out of business in a heartbeat. That's right. Well, you have to remember, though, the ramp is going to be huge. I mean, they're going to be at a point next year where they're going to be producing 100,000 car annualized rate. It's a big number.

It's going to ramp a lot faster than people can think. What do you think of Tesla Motors, the stock? At $25 billion, which is roughly the market valuation, there's a lot of that future priced in today. I just think what the company is doing and the optionality it has, it's going to be a much, much bigger company in the future. You can buy it today. I think you'll be fine. If you buy it at a cheaper price, even better. So you're rooting for a dip?

Rooting for a dip. That's a dip you bought. Whole Foods, third quarter profits came in higher than expected, but shares down a little bit, Jason. Overall sales, a little light. I should mention John Mackey, co-founder of Whole Foods, sits on the board of directors here at The Motley Fool. Same question, a lot going on in the quarter. What stood out to you?

You know, I think it's really easy to gang up on these guys right now because we've seen really, you know, competition heat up in this grocery space. But I think that's a mistake. I really think this is a company that is just hitting a new phase of its business. Yes, competition is growing. Yes, more grocers out there are offering the organics and the naturals and whatnot. Now, that's going to change Whole Foods' offering a little bit. They are focused more on the value offerings, and that's bringing their margins down a little bit.

And we're seeing a little bit less traffic in the stores. Last year, they were projecting around 6.5% to 8% comps, and they're bringing in somewhere in the neighborhood of 4% right now. So that's obviously not good. But I think that investors should be encouraged at all of the levers management's trying to pull here to encourage that growth. I mean, number one, they're going to be undertaking a tremendous advertising campaign here in the coming quarters. And if you think about it, I mean, when was the last time you saw a Whole Foods commercial? I mean, I don't think you probably have. And that's going to be something we're going to see more and more of.

It's not going to be something focused on specific sales or items. It's going to be telling us what Whole Foods is about, what they mean, and why they think that's important. And I think that's important for customers, too. I think that'll bring more customers into the door. They're going to create a loyalty club here. They're getting tests out for that right now. And this really, I was impressed here when I was looking through the call last night. Over the coming year here, they're going to refresh 70% of the stores that are 10 years older.

They are going to focus on home delivery, customer pickup, and an online subscription club in 12 to 15 major markets by calendar year end. So that right there shows you that they understand the customers are looking for other ways to get their groceries, and they're trying to meet the customers on their own terms. I think you have to love that. And at today's price, these guys have a lot of stores to open up. And it's just a really well-managed operation. My daughter's own shares, and they're still excited. You know, you mentioned the marketing. And I'm sure there are people out there saying, well, wait a minute.

If they're going to start spending money on advertising, that's another cost that they need to add in. But think back to when Starbucks first started advertising. There were plenty of people on Wall Street saying this is a mistake. They're wasting their money. And that seemed to work out pretty well for them. Yeah, I think it's easy to look at that in the short term and say it's a mistake. it's a waste of money. But you also have to look,

Whole Foods, they don't even spend even close to a percent of their annual sales on marketing. So this is going to be something that really they've needed to do

for a while. And they got it to 400 stores at this point with really nothing more than word of mouth. And so I think that at this point in their life, this makes perfect sense

and I'm very encouraged by it. A big merger this week in the online real estate industry. Zillow buying Trulia for $3.5 billion. Matty, it's an all-stock deal and when you look at Zillow, Well, you know, Zillow stock up about 400% over the last two years, so good that they're using stock.

But you look at shares of Zillow this week, they're down a little bit, and it makes people think, well, wait a minute, are they overpaying for a competitor? That's a good question. Thank you. That's why he's here. I don't think they're overpaying. Well, Trulia might not be worth the $3.5 billion for any other company, but it might be worth that for Zillow. I have to say, I was shocked by this deal.

I think a lot of people were, because Zillow, by all respects, or from my perspective, was crushing Trulia already on all kinds of traffic measures and visitors and users. But I guess from Zillow's perspective and maybe Spencer Raskoff's perspective, this is a big land grab right now. And if I can become the dominant real estate portal, the dominant marketplace for real estate transactions in the future, And if I grab Trulia, I've got about 80% of that market right now.

So big. And, you know, if you look at the market for real estate marketing, it's about $25 billion. Right now, a combined Zulu and Trulia, or Zulu, Zillow and Trulia are doing about $500 million in annual revenue. So that's still a huge upside to that potential market pie. I think it's important to note, too, I mean, this is right in line with Zillow's strategy. I mean, they're pursuing a strategy of a brand portfolio, right? And I think you probably could relate this to something like Middleby. Middleby does something very similar.

They're just buying up all these little brands and building this big portfolio. And that's what Spencer's trying to do here. So, yeah, maybe, yeah, they did overpay for it, I think. But by the same token, they're not going to change the Trulia brand. That's going to be something that remains. And so, you know, those folks out there who are loyalists to Trulia, they'll still be able to use Trulia. And those folks who are loyalists to Zillow, they'll be able to use Zillow. And they're just going to continue to build this portfolio up.

So, and like Natty said, it's a land grab, and these guys are the ones with the most. Yeah, I'm a buyer of Zulia. I believe in that business. I think that's a good, that's a brand that's going to stick. Shares of Buffalo Wild Wings fell nearly 12% in the wake of second quarter results. You look on the face of it, though, Jason, pretty good quarter. Profits were up. Same store sales up around 7%.

Looks pretty good. Look on the face of it. Look underneath. Dig around. I mean, every which way it was good. I'm calling this, at least to date, this is the biggest overreaction on Wall Street. yet. This was a great quarter. Top line growth of 20%. Company owned comps of 7.7%. Franchise comps 6.5%. Earnings per share up 42%. Cost of sales down a couple of percent. I combed

through this call trying to find the problem here. And really what it is, it's one of the expectations. Sally Smith had talked about earnings growth for the year somewhere in the neighborhood of 25 to 30%. And lo and behold, the market seemed to be expecting 35. And that's really what this sell-off represented, was people just fleeing because of those expectations. I think this is a major overreaction. This brings Buffalo Wild Wings back into serious buy territory, in my opinion, because, I mean, you're looking at a company now that's below 30 times earnings. They still have plenty of growth to go. And as long as Sally Smith's at the helm, this is one of the best restaurant operators out there. So, yeah, I think

it's a tremendous overreaction. And I suspect we'll see this stock recover some of its value of the coming week. He's not on the other side of the glass, but let's bring in our man Steve Brodo on this. Steve, you go to the menu at Buffalo Wild Wings. They have 21 different sauces for their wings. I think there's room for a 22nd. Do you have a recommendation in case Sally Smith is listening? I'm going for a San Francisco fog. I'm looking out the window right now. I feel like I'm in Cloud City from Empire Strikes Back. It's just incredible out here i don't know where i am uh all right before i let you guys go uh as i said we're here in silicon valley give me a company or a technology that you're really fired up to

watch over the next five ten years sure well the company is actually not not based in san francisco not based in silicon valley but it it reeks of silicon valley and that is this company called mobile eye which i'm sure at least some of you have heard of uh just going public um and this is in the driverless car space, which seems so fantastical if you think about it, the fact that there could be hundreds of driverless cars out on the street in your neighborhood in five to ten years. But if you think about it, so was watching an HD quality movie in a three-inch piece of glass five years ago, which we can do today. So I just think that technology, that company might be leading it or might not, but companies like Tesla

are going to lead that, like Google as well. And I just think it's very possible. It's good for the auto market. It's good for driving. It's good for commuting. It's good for the environment. It's good for everything. And I just think, as crazy as it might seem, driverless cars,

10 years out, probably a big reality. Jamo? Free up my schedule a little bit. Yeah, so Tony Arst and I were talking about this one a little bit earlier tonight. It's Zoom. They are based out of San Francisco and I've been covering them for a few quarters now. They're in the money transfer business. And I think when we talk about money transfers, we immediately think Western Union,

and Western Union has played into this advantage of this vast physical network of stores all over the world, and it's worked out very well for them. But as the Internet tends to do, it's disrupting even the Western Unions of the world, and I think Zoom is one of the companies taking advantage of that. They are working a very capital-like business model, developing great mobile technology that is growing a very loyal customer base for the electronic money transfer market, which is a huge market opportunity. So that's one that I'm going to continue to keep my eye on.

All right, coming up, Morgan Housel weighs in on the big macro. Stay right here. This is Motley Fool Money. Welcome back to Motley Fool Money, coming to you live from our Fool One member event in San Francisco, California. Joining me now, Morgan Housel, one of our columnists. As I mentioned at the top,

we're taping this before the monthly jobs report, But we do have the latest GDP report. Second quarter, the economy grew at a rate of 4%, better than expected. What did you think? Well, I think if you're interested in this stuff because you find it intellectually stimulating or you just think it's neat, then that's one thing. If you're an investor and saying, what does this GDP report mean for my portfolio? What should I do with my investments?

The answer is absolutely nothing. About two years ago, Vanguard Group did a really interesting study where they looked at all these macroeconomic factors, GDP and interest rates, and all these macro factors that I think a lot of investors look at and say, what does this mean for my portfolio? So Vanguard looked at these factors and they said,

how do these factors correlate with what the stock market did one year after, five years after, ten years after? And the answer was almost nothing. There was almost no correlation whatsoever. They threw in the variable rainfall in there to say, how does rainfall predict the stock market? And it was better at predicting the stock market than GDP or interest rate.

They both explain nothing. So, you know, I think if you're interested in this stuff because you think it's neat to say what's the economy doing, that's one thing. But investors should pay no attention. It's interesting because on Wednesday, you know, the report comes out. The market does well. Everyone's thrilled. You know, front page of USA Today, that sort of thing. Thursday, the Dow down more than 300 points.

Everyone's screaming about volatility. But one of the things you've talked about before is when it comes to volatility, that's just commonplace. Yeah, so stocks are down 300 points today. In a normal year, that will happen seven or eight times. So it makes big headlines, and people think it's a huge deal when it happens. But this is why stocks give good returns in the long run, specifically because they're volatile in the short run. So this is just the cost of admission of what you're paying. this is why you earn greater returns than you will in bonds or cash over the long run,

is because you have days like today. Is volatility one of those things that, because again, there's so much noise out there, particularly in the financial media. Is that sort of in the top three or five of things that investors should just ignore when some analyst goes on TV and the main point they're trying to make is backed up by, and this is because of volatility? Yeah, I think it's probably the single biggest point that investors should ignore. I think most investors, we're going to talk a lot about this tomorrow,

most investors do not come close to even matching the market's returns, let alone beating the market. And I think the single biggest reason is because they pay too much attention to short-term volatility and think that what happened in the last week or the last day or even the last two or five years is indicative of what's going to happen going forward. And it's natural to do that and say, what did the market do in the last year and think that's what's going to happen in the next year or the next ten years?

And I think most people know the long-term history of the stock market. There's a lot of volatility. and they know that intuitively but when it actually happens in real time there's a sense of it's different this time and the market's broken and the economy's broken

and this is the big one that's going to drag us all down and this is going to be the next Great Depression that's going to drag us down and stay down there forever and it happens every single time you see even a little bit of volatility and it gets dangerous

when we haven't had a lot of volatility like we haven't in the last three years it's been a very calm three years Tom's going to I think walk across America if we don't have a 10% correction this year or something like that. I might be misquoting him a little bit, but we haven't had a 10% correction in almost three years,

which there are only two other times in history that we've gone that long with that one. And the longer you go, the more painful it's going to be when it actually happens. We got about a minute left. You're going to be talking tomorrow. You're also going to be back in San Francisco later this month. You're one of the headline speakers at the Money Show.

What are you going to be talking about? Well, just like what I was talking about earlier, we're all here because we're trying to beat the market and are beating the market in our services but that is a rarity among investors and if you just look at the average investor the median investor across the whole investing universe

they don't come within a hailing distance of even matching the market's returns so I think there's a whole group of investors out there that don't need to focus on trying to beat the market, they need to focus on trying to not beat themselves through bad behavior, through buying at the market top and then panicking and selling

at the market bottom. So that's, that's what the talk will be about. All right. Thanks for being here up next. What's better than talking with one of the Motley Fool's co-founders talking with both of them, Tom and David Gardner are next. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. We're coming to you this week from our Motley Fool One member event in San Francisco, California. Joining me now, the co-founders of the Motley Fool, David and Tom Gardner. Guys, we talked about Tesla Motors earlier in the show. Elon Musk, the founder and CEO, earlier this year, Tom, you had coffee with his brother, Kimball, and he told you that Tesla is on path to become the largest auto company in the world.

Let me just throw out two numbers. As Matty Argersinger indicated earlier, Tesla's market cap, around $25, $27 billion. Toyota Motors, $190 billion. So first, do you agree that they're on that path? And second, how long is this path? Like, how long is it going to take? Right. I mean, if it's 95 years, it's not as great an investment. It's funny. I guess, Kimball, if you're listening, that's Elon Musk's younger brother. Guess what? Our coffee ended up being on the record. So yeah, Kimball basically said, we believe very strongly in what we're doing. I remember one point in our conversation, he just looked at me and said, one thing I've learned is don't ever bet against my brother. And I think that's true of Elon Musk. I think

he's deeply passionate about what he's doing. I think he's well beyond caring about the short-term commercial results of his work, whether he ever was. Wait, Tom, is that something that he was saying to you or that you were saying about your brother? At this point, I'm lost. I can't remember who's on first. I'm sorry. I was confused. Continue. So I think it's definitely plausible. And I do believe that the electric car is going to become dominant on the roadways. And I wouldn't be surprised to see a bunch of partnerships in the intellectual property zone between companies like Tesla and Google and Uber. I think that there are some very natural connections between those businesses. Google's already a big shareholder of Uber. And you may have heard

that Larry Page said that if he were to die now, he would like to change his will and make sure that as much of his money as possible would go to Elon Musk, because he's the smartest guy he knows in the world. So, and doing the most remarkable things. And David feels the same way. And I think we do across the Motley Fool. We love to bet on great people. It's much more enjoyable and exciting to win with great people than with just financial performance and good valuation. Well, and David, you and I were talking earlier about Tesla. You made a point that I think most people overlook about Tesla because it's easy to just think, oh yeah, they're the electric car guys. But when we talk about the gigafactory, this $5 billion factory that they are on path to build,

you made the point that, no, no, no, part of what Tesla is, is a battery company. A lot of great rule breakers, and Tesla is a classic example, often have a term we use a lot around our team, which is optionality. They can go multiple ways at unexpected times. So a lot of people who misread Amazon early on were asking, you know, what happens when Barnes & Noble and Borders come online and crush Amazon? So, you know, I think that when you have visionary people running companies, they'll surprise you with where they can go. So, yeah, that gigafactory isn't just for Tesla. We're here in Silicon Valley. It is home to not just some of the biggest tech companies in the world, but just some of the biggest companies, period. And let me just throw

out two, Facebook and Google. Where do you think they are 10 years from now relative to one another in terms of size? Because right now, just in terms of market cap, Google is twice the size of Facebook? Tom? I think Facebook will be a larger business than Google 10 years from now in terms of market capitalization. One of the ways I think about those two, what probably many of us consider two of the greatest companies of our, certainly of this time, and I would say of my lifetime, they're two of the most highly rated cultures to work at, which means that they're collecting more and more remarkable talent and liberating them to be entrepreneurs every day at work. And that's very different than so many industries and so many companies within technology.

But I think one of the ways I think about Google and Facebook is that Google is the mind. We search and learn because of Google. There are many other things that Google's doing, but that's the core of their business. Facebook, we connect with others. Maybe Facebook is something like the sound in the other room, or maybe it's a connection of our heart. Maybe Facebook is closer to the heart and our social connections, and Google is the mind and learning. And I think it's interesting to ask which one of those things ends up being more important in our lifetime, just in a general way. And I find them to be at least equally interesting and equally important. And I think that Facebook's business and what's going to

happen with Oculus Rift, I think it's going to be very, very profound. And Mark Zuckerberg as just a 30-year-old CEO with a super large stake in that business, deeply passionate about it. I think Facebook will be a larger company than Google 10 to 15 years from now, but I think they're both going to be massively successful businesses over the next 10 years. David, do you agree with that? Well, I mean, I don't really feel like I have to decide because we own them both and we've held them both for years. If I were just playing the odds, I would probably just guess that Google would be, because they're both great companies and starting twice as large. It also has a lot more startups happening within Google, I think, than Facebook has. But Facebook with the Oculus

Rift, and I absolutely like what Tom said. I guess it's kind of a fun question, but in the end, it doesn't matter that much to me. But if forced, because I always do like to get in the batter's box and swing. If people are throwing me a pitch, I would probably guess that Google would be larger 10 years from now. But I say that without any particular conviction or edge. When Morgan Housel was here, we talked about market volatility. He's made the point that just you look at the stats, you look at history, we see a 10% decline in the market on average every 11 months. And statistically speaking, we're pretty much due for one right about now. And I'm curious how – and I know you're crossing your fingers, Tom.

Apparently I'm walking across America. What is the bet that you – or what is the – it was a bet that you made, a declaration you made at the beginning of this year. I've said this to a few of you, but it was so easy to write and hit publish and then to actually reflect on what I've committed to and then to start hearing back from some of you that are marathoners. An Ironman in Motley Fool 1 sent me a note to say, I don't think you're going to be able to do this. So I committed, if the market doesn't fall 10% by January 1st, to get on my treadmill desk every day and walk a marathon for five days in a row.

And, you know, I think day one, that's a layup, right? We should be fine. Day two, I guess maybe I'll be a little stiff. Day three, apparently my feet are going to be a problem by day four. so one of the ways I'm going to motivate myself if we don't get the 10% decline which is only going to take like five more days like the day we had

today so but if that happens what better way to experience a little bit of foolishness in your life than to get on the treadmill desk next to me and walk along and maybe we'll raise some money and maybe something really fun and great will come of it for all of us in Motley Fool 1

but I still am cheering for a 10% decline I think Jeff Fisher says it so beautifully, you want to set your portfolio up so that you can take a positive action in the darkest periods. And if your portfolio is not set up for that, you better be very skilled at managing your emotions. But most people overinvest and, as Morgan so eloquently says, think that they'll be fine with volatility. So in the Everlasting Portfolio, we're 6% in cash and we're looking forward to a 10% decline. There's so much that you two agree on when it comes to investing. And I'm curious, are the differences between the two of you stylistic

or are there very fundamental ways in which you differ as investors? Tell me why you love me, Dave. I mean, I love you because you seem to resemble me a little bit more every day. Love that. Love that. I don't know. Well, the beauty of Motley Fool Stock Advisor is that we have, every month,

we pick a different stock. So clearly, you know, last month, you had Criteo, and I had Idex Laboratories. So in a sense, part of the story of Motley Fool Stock Advisor is that you have two different brothers with their teams, and every month we come to slightly different conclusions.

I think that we agree on 98% of everything else, but maybe I'm willing to lose more and just get crushed. I have many more losers than Tom and his team has in any of his services that he's ever worked on. So, I don't know, I'm just putting stuff out there. I'm feeling airtime, Tom. I think that Dave's approach is the best public market approach that I've ever observed

for getting the greatest long-term after-tax returns because it's buying awesome growth businesses, it's accepting a mix of winners and losers, 50-50, and it's letting them ride and adding to them at different points along the way. And if most people learned how to invest that way, gosh i mean not only would their returns be much better but we'd be funding really exciting great companies that are changing the world and bringing them to greater prominence so i do think that

maybe a difference between us is that i probably think a little bit more about volatility and try and have a slightly higher batting average at the plate but those actions result in lower long-term returns so so david's approach is the better approach and he's got a better head of hair too so you know so that's it's been hard it's been hard for me my brother looks like superman the very first uh the very first um um portrayal of dave and i was in new yorker magazine this is circa 1994 would that be 94 95 94 94 and then we got it that was that was a that was a big Motley Fool was made moment. And they asked to get photographs of us

and they did the drawing in the Talk of the Town section of the New Yorker magazine, if you know that. And then it arrived. And there it was like, wow, the new article's out, guys. Go get the article.

And we pull it open and Dave looks like Superman and I look like Jonathan Winters. And I was like, okay. I'm okay, I'm okay. I think, Tom, you're more willing to stick your neck out there and make market calls,

like 10% drops. Well, you know, actually... You know what I think it is? It's partly that you are a student of history and you look for things that repeat and you expect that to happen. And sure enough, most of the time they do. Yeah, and I think that most of that market call,

just so everyone knows, I'm not really interested in making market calls. I'm interested in making sure that every one of us in Motley Fool 1 is preparing our portfolio for down periods. So it's kind of a game for me to put it out there. I honestly hope I don't walk five days in a row on marathon, but it's just a way to try and remind us that it's coming, and it probably won't be a 10% but could be a 15% decline or a 20% decline, and what will happen to your portfolio when you see some of your stocks down 38%, maybe your largest holding down 34%.

How's that going to feel, and what impact will that have on you? And if it's going to have a big impact, you need to reevaluate the size of that position. Coming up, we will go back to 1994 once again. This is Motley Fool Money. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Welcome back to Motley Fool Money.

Chris Hill here with Tom and David Garner. We're coming to you from our Motley Fool One event in San Francisco. Before the break, I mentioned 1994. for it was almost 20 years ago to the day that The Motley Fool moved from being a printed newsletter that you guys were cranking out every month, moving online to America online. I'm curious. I know so much has happened in the last 20 years, but in terms of investing, what has been sort of the biggest investing-related surprise for each of you over the last 20 years? David?

I would have to say the dramatic swoops that the market took in 2001 and 2008-2009, those were really historical. I mean, for the NASDAQ to lose 70% of its value in about an 18-month period around 2001 was unprecedented. And for our financial system to look as badly broken as it would, to think that that could happen in this modern technological information-rich era is shocking to me. So now I hasten to add, before I kick it to Tom, that the market has been tremendous over the 21 years that we've been running The Motley Fool. So if you are foolish, capital F, and like us have been an investor all the way through, that's part of the reason you're

here today or listening in, because I think you've prospered, but it has been through serious blood, sweat, and tears in a way that I never expected either time. Tom? I'll just say I think the tremendous opportunities for active investors who want to learn, the opportunity to access information at significantly reduced cost to what it cost to get information 20 years ago, significantly lower transaction costs I mean when we were starting I think Schwab transaction was like $59 a trade and that was a discount broker

that was a discount broker in the early 1990s the S&P stock guide was published once a month and you would get a little bit of data and you paid money for it now that data is available for free and updated in real time so if you're an active investor and somebody wants to learn about investing

the last 20 years has been the greatest period to gain more information less expensively and opportunity as we are here in this experience over the next two days to connect with each other and learn from each other, which is so unbelievably valuable. I mean, you all know sitting out there that collectively you're a lot smarter than the three of us sitting up here, and how can we create environments where we can share that knowledge and information and make better investment decisions because of it?

So these 20 years have been unbelievable for us as avid investors. I won't ask you to go 20 years into the future, but 10 years from now, Do you have a sense of how you think investing will have changed from where it is right now? I will predict that more people are investing. And it's not just because the population will have grown. I truly believe in our mission to help the world invest better. And I don't think there are enough investors today. There are a lot of traders.

But I think the more that real transparent results are published through the Internet and Motley Fool members educate their kids and their grandkids, the more we spread the word about what investing really is about, which is not much more complicated than finding the best companies and taking part ownership interest in them and treating them with patience. I think that there will be a lot more investors 10 years from today. Virtually all financial transactions will take place through the Internet, and that means that all financial advice will happen through the Internet.

We will see financial advisors. Wait, we can't talk about that at cocktail parties anymore? There's no more? It's all Internet? Oculus Rift? Your virtual reality character can get my office hours, and we can hang. No, I think there's going to be tremendous personalization through data, and I think that financial advice is going to be disrupted like the travel agent business was.

You didn't travel very much without going to a travel agent 20 years ago. Now the idea of meeting with a travel agent before you traveled would be absurd unless you were going to some really obscure place that you needed some guidance and help, and I think that's going to happen in financial and investment advice. You're going to see more and more of it personalized and automated. And, of course, there is use for financial advisors, but the use for a financial advisor in today's world, the true use is for an advisor that's completely transparent about fees and performance,

and that's not happening at the big financial advisory businesses today. And I would say that they're threatened over the next 10 years. We've got just a minute left. I would be remiss if I did not mention, since you are both big baseball fans, The San Francisco Giants, the Oakland A's, doing great, heading towards the playoffs. David, you recently tweeted, you're a lifelong fan of the Minnesota Twins. You're rooting for the Oakland A's, though. Why? Well, because the Oakland A's are by far the best team in baseball, measured by the simple stat run differentials,

where if you just follow runs for and runs against, a simple way to look at baseball, every nine runs that a team has more than scored than it's given up should equal one win over 500. by that measure the A's are about 7 to 8 games better than any other team in baseball and I really hate it when the team that earns it over 162 games sometimes in a 3 or 5

game series gets knocked out I don't like that for historical reasons the A's are one of the best teams in Major League Baseball in years so yeah I'm all out A's plus Tom I mean we're all Billy Bean fans so yeah but if they end up playing the Washington Nationals

Oh, no, I'm going to be all out Oakland A's, sorry. I agree with David, and I think Billy Bean's an incredible person. Just for everyone here, one of the really fun things we had, I know we're running low on time, but our leadership development program, when the group graduates, we travel somewhere, call up everyone in that area that we love and see if they'll have coffee with us,

and Billy Bean said, sure, come by an A's game, we'll set you guys up in a box, and I'll do something that I don't ever do. I'll come watch the game live. If you watch Moneyball or read the book, you know that he doesn't like to do that. And there was Billy in the box with us watching the game. A true fool.

And somebody asked him, Billy, why don't you like to watch games live? And he said, because I'm going to become a trader. If I quote my stocks every day, I'm going to take more actions than I should. If I stand out here and see a mistake made in the field, I'm going to think about trading that player when there are so many other data points than this single moment in time, and I will overrate it. And just as he was saying that, their right fielder dropped a fly ball. We were like, oh, Billy. And he could not take his eyes off anything,

and that's why he doesn't watch games live. He's a long-term investor as a baseball general manager, and we love that. All right, Tom David Gardner, guys, thanks for being here. That is going to do it for this week's edition of Motley Fool Money. The show is mixed by Gail Agnew and Nuevo. Our engineer is Steve Broido. Our producer is Matt Greer. I'm Chris Hill.

Thanks for listening, and we'll see you next week.