Motley Fool Hidden Gems Investing - Motley Fool Money: 11.01.2013

Episode Date: November 1, 2013

Apple fails to impress investors.   Starbucks hits a new high.  And Buffalo Wild Wings serves up hot earnings.   Our analysts discuss those stories and share three stocks on their radar.  Plus,�� Motley Fool co-founder David Gardner talks Amazon, Netflix, and Twitter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Chris Hill, joining me in studio this week for Motley Fool Supernova, Matt Argersinger, and for Million Dollar Portfolio, Charlie Travers and Ron Gross. Good to see you, as always, gentlemen. Hey, Chris. Glad to be here. We've got the latest from big tech, big restaurants, and more. We've got Motley Fool co-founder David Gardner as our guest. And as always, we'll share a few stock ideas to put on your watch list.

But we begin, once again, with earningspalooza. And let's start with the biggest company of all, Ron, and that is Apple. Fourth quarter, looking pretty good on paper. Revenue up 17%. They sold nearly 34 million iPhones. That's up 26% year over year. And yet, you look at the stock this week, and it's the market just sort of going, Oh, Chris, Chris, $9 billion of operating cash flow just isn't enough for folks. Come on.

Apparently not. You know, it's the same old story. People are worried about margins. I think that's fair. Because margins are going down. Margins are going down. But I think they're going to stabilize. I think this isn't a high-flying growth company any longer. We have to keep saying that. It's a very, very large company, the biggest. There is still growth there. They still make incredibly great products that are in demand, as we saw with, what would you say, 33 million phones sold. It's a growth company, but it's

a slow growth. Its margins will stabilize. As new products ramp and come on board, there's upfront costs associated with those, which depress margins in the early quarters. I think will stabilize, and this will be an amazingly capitalized, slow-growth, great innovating company. O' Plus, they've got the Icon, which is that new product. No, no. The Icon, meaning Carl Icahn, who's amassed, I think, 0.7% of the company, and he's making some plans. Yeah, he wants to do a $150 billion buyback, whether the company goes into its cash hoard to do that or borrow, either way or a combination of both. There's always a little back and forth between a company and

an activist. Something will probably get done, as it has in the past. Company pays a 2% change dividend already. There'll be more return of capital coming. They have the new iPad Air that is out, that's gotten rave reviews. Do they need that to be a huge hit, as we are now in the holiday quarter? I think it certainly would help. Anytime they come out with a new product, certainly, they really need it to perform. There's 475,000 apps that are available for the iPad Air, and it's getting incredible reviews, I do think it's going to be a big deal for them. Some good numbers coming out of Starbucks. Fourth quarter profits up 34%. Global same-store

sales up 7%. That's a pretty robust number, Charlie, for a company this big. Yeah. I mean, a mature, supposedly mature business like Starbucks, you wouldn't think they would turn in 37% earnings growth. That's just an amazing number for a company this size. 7% same-store sales. And what I like is that most of that growth is from traffic. So, they are getting more people in the door, which is really great to see. They opened 500 stores in the quarter, which gives them close to 20,000 worldwide. That's a big number, but if you put that up against what McDonald's and Yum! Brands have, they're well into the 30,000 range. Starbucks, I think they could double their store count from here, which is, I mean, that's a lot to think

about. Yeah, wow. Yeah, let's not bring that up. And they now have over a thousand stores in both China and Japan. I think that's going to go up considerably over the next five years. And for the income lovers out there, a dividend hike of 24%. So you're getting 26 cents a share every quarter, which is nice to have. Somewhere James Early is smiling. Yes. The acquisition of La Balange, the rollout of that acquisition as they try to bring higher quality food to stores across America, how is that going? And selfishly, when is it coming here to Alexandria? Because it's not here yet. Not soon enough, and I would love to see it.

It's interesting to see Starbucks go in the food direction. When Howard Schultz came back, he was a little down on food, and I think they've reversed course on that, probably wisely so. So, yeah, this is going to be a good part of Starbucks' growth. Facebook's third quarter results looked impressive on paper. Immediately after reporting Wednesday night, the stock was up more than 15%. But then, Matty, came the drama, the unintended drama on the analyst conference call when you had the finance chief at Facebook making some comments that set the stock in the other direction.

I know, it was really a tale of two earnings reports. Because you had revenue up 60% to over $2 billion. The mobile sales were 49% of total ad sales. That proved that last quarter's 41%, which really surprised everyone. It was certainly no fluke. So things are going really well for Facebook. But then, yes, CFO David Abersman, I think that's how you say his name, talked about the fact that they're not going to be ramping up the ads to the news feeds

as fast as the analysts were expecting. They're just trying to manage the user experience a little better. I think that's probably a good move. But probably the bigger thing about the announcement was the fact that younger teens are using Facebook a little less. They're coming to the site a little less on a monthly basis than they were before. As we were talking before the show, Facebook's going to sell ads to adults, and adults are using Facebook pretty well.

the growth, the user growth is still very, very impressive. But the one thing you'd have to look at is say, well, if there's that first layer of people, and young teens are certainly always on the cutting edge of the new technologies, the new sites and things like that. If they're going to Twitter or Snapchat or these others and not coming to Facebook, long term, does that add a little risk to the Facebook story if user engagement is going to decline? I'm not so sure. It wasn't a big deal. It wasn't enough to take out the 15% gain, probably not. One of the places they are going is Instagram, which Facebook does own, which at the time they bought it, I thought, what is Facebook doing spending a billion dollars buying Instagram? Well, apparently,

Mark Zuckerberg knows more about this than I do. Turned out to be a really smart buy. That's probably a good guess, but yeah, no, great point. Great point, Charlie. It was pretty amazing, though, that he just volunteered that information about the usage among younger teens declining when he wasn't asked the question. He just sort of volunteered that. But on the flip side, to the mobile revenue, can we just pause for a moment? phone. Mobile revenue was non-existent a year and a half ago. Now, it's just nearly half of their revenue. That's incredible. And about 70%, I believe, of users are now using Facebook really exclusively on mobile. So, the upside there is even more.

The good news for LinkedIn is the business networking company now has just shy of 260 million members. That's the good news, Ron. The bad news, shares down this week after reporting a small loss in the third quarter. I want to make sure I accentuate, it's a small loss, but it was a surprise. People were expecting a small profit. I think more so than that, the stock sold off on future guidance for the next quarter, which is, I think, a theme we're seeing across earnings season, especially for these high growth stocks selling at very high multiples. If the guidance doesn't support the growth that analysts are baking in, the stocks are getting punished. And that's what we saw with

LinkedIn. I think that it's, quite frankly, a great company that's putting up phenomenal numbers, 56% increase in sales, guiding for only 37% increase in the next quarter. That's what has people spooked. But I still think this company is going to produce incredible profits down the road. They're going to keep growing, whether it's at 30% or 40%. Those are still great numbers. Love the business model, diversification of revenue streams. I think the stock has a lot of upside left, and it can grow for many years to come. When you look at their corporate customers, I think they added somewhere in the neighborhood of 1,700 or so for the quarter. It seems like that's the part that the mainstream financial

media is glossing over or just missing entirely. There's a lot of focus on how many tens of millions of people are on there. But when you look at how they make their money, it would seem like, gosh, if they can just keep delivering 1,700, 1,800, maybe even 2,000 corporate clients per quarter, that's really going to drive it further. Absolutely. But it's the network effect. You need the members coming in so companies want to subscribe to the recruitment tools. And then that drives also the ad sales, and that drives the premium subscriptions, the three sources of revenue that the company has. So it's all intertwined. And I think they're doing a good job in every segment. So I think

good things to come. By the way, I can make that comment about the mainstream financial media, because we have dozens of listeners. Coming up, a restaurant stock delivering on a very simple promise. Stay right here, this is Motley Fool Money. As always, people on the program may have interests 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 in studio with Matt Argesinger, Charlie Travers, and Ron Gross.

Third quarter profits for Buffalo Wild Wings rose 67%. Charlie, they had an extra week in the quarter, but still. Yeah, but still, that's pretty awesome. Revenue growth was up 28%, getting them up over $300 million for the quarter. They just really continue to execute flawlessly. Personally, I'm a big fan of going, as you might imagine, I kind of like my wings in football and beer. Big fan of Buffalo Wild Wings.

Interestingly, they are now 10 years old as a public company. And just a quick stat, if you invested $10,000 in Buffalo Wild Wings at the IPO, you'd have $120,000 today. Big long-term winner. Unless you sold it too early. Unless you sold it too early, yeah. So the $10,000 you spent on wings over the last 10 years, had you just plowed that into stock?

Yeah, it'd be fantastic, but not as fun as eating the mango habaneros. But this is interesting, because I think it's easy for the average person to look at the way they advertise, the basic, like, oh, wings, beer, sports, and think, well, gosh, that's a no-brainer for a business. Of course the stock is going to do well. But as we have talked about before, this year they brought in a new pricing strategy, because the big input cost of chicken wings, kind of volatile for any company in this business. They're buying them by the pound. They're selling them by the quantity. And this year, they made a switch and said, no, we're going to buy them by the pound. We're going to sell them by weight.

And as we said on this show back when they first announced this, this makes total sense. But if they don't communicate this well to customers, this is going to be like Quickster all over again. It's really easy to anger your customers in the restaurant business with price increases, especially if they feel like they're getting ripped off. But I think it went smoothly for them and smooth sailing ahead. Well, Sally Smith, the longtime CEO of Buffalo Wild Wings, really just under-heralded as a great leader. Baidu hitting a new all-time high this week after third quarter profit rose 1.3%. I think there were some higher costs associated, because obviously 1.3%,

Matty, not a huge number, but holy cow, the market share that this company has. Oh, right. I mean, it's 81% of internet search in China. It's hugely dominant. Is that a big market? It's slightly. It registers on the radar. Profits were up only 1%. That's really because the company is investing so much in mobile. And by all accounts, it's paying off. Revenue was up 42%. The earnings number looks dire, but the revenue was up 42%. They also raised the revenue guidance for the fourth quarter. They're really doubling down on mobile. They made a big acquisition over the summer. That seems like it's paying off. There are 1.2 billion, talk about a small market, 1.2 billion

mobile phone users in China. Mobile is the place where it's going to be. Baidu is a stock, if you look at the stock, it's really almost doubled over the last 12 months. It was trading as low as $80 a share, I think, at the end of last year. That was really because of competition. Qi Hu, who's a relatively new competitor here, has taken some share. But if you look at Baidu, it's still so dominant, 81%, and it's got such an upside. I look at the market cap of about $56 billion right now. You compare that to Google's $340 billion, it's not a fair comparison, but if I'm trying to get the most dominant search engine in the world's largest country and certainly the world's largest mobile market, this is the one you want to

have. I certainly still see upside from the stock, even after an all-time high. If you were looking at these two businesses and thinking about buying shares of either, to any extent are you thinking about inroads one can make in the other's home country? Can Google make any sort of dent in China? And conversely, can Baidu make any kind of dent in the U.S. or in Europe? That's a great question. I don't think Google is going to get into China for a lot of reasons, not just because of the censorship and things like that. But Baidu is making a few inroads. There's Taiwan, Vietnam, and a few other countries. I do expect you'll

see Baidu, over the next five years, become a little bit more of a regional company. But still, the upside in China itself is still very huge. Lay's, America's largest maker of salty snacks, has announced plans to roll out its latest innovation, wavy potato chips dipped in milk chocolate. Ron, a five-ounce bag. Ron Grossman You had me at milk chocolate. O'Reilly 349 for a five-ounce bag. I don't know. This could be a moneymaker for a parent company, Pepsi. What do you think? Ron Grossman I mean, it makes perfect sense. It sounds a little pricey to me.

O'Reilly That's why I think it could make money. Yeah, you get that bag and it's like half air, you know, but I mean, that does sound good. I'm not a big fan of just the plain Lay's potato chips. I don't really know who is. If you have a choice between, you know, so many different brands and you just get those plain, flat ones, no ridges. Ranch, ranch. Yeah, but chocolate, I like it. Yeah, it sounds good to me. So you're going to get in on this one. You're going to test it out.

Well, I don't know if I'm buying the stock, but I'm buying the potato chips. What do you think, Charlie? You know your way around a salty snack or two. It seems like a natural follow-on to the chocolate-covered pretzels, which are actually quite popular. So, why wouldn't this work? It makes sense to me. Before we get to the stocks on our radar this week, our man Steve Broido is out this week. Again. Again, just gallivanting around California. But on the other side of the glass this week,

two very special guests. We have our producer, Matt Greer, Gail Anya Nueva, our engineer, ably filling in for Steve Broido. But, Mac's parents are here. All the way from Houston, Texas. Mr. and Mrs. Greer, we just want to thank you so much. They're to blame for it. Now we know. They get the credit. They get the credit. And you know what? Our guest on the show this week is David Gardner. Now part of me is thinking maybe we just push that interview off a week and we get Mr. and Mrs. Greer in here and talk to them for a good 20 minutes because I'm guessing they have some stories. Mr. Greer also a long and distinguished career in banking,

So, there would be an investing angle, but I think we'd need a good five to ten minutes of just the history of MacGreer, Mac as a child, that sort of thing. I would love it. But, alas, that will have to wait for another week. Let's get to the stocks on our radar. Ron Gross, you were up first. Looking at LeapFrog, maker of technology-based educational games for children. Stock has not been performing well lately. There's a lot of competition out there. We like the company very much, though. The all-important holiday season is upon us.

I don't know if you know that, Chris. I did. And that will be important. So, they're going to report on Monday, and I'm really curious to see what maybe some advanced orders look like, or how they see the holiday season shaping up. And the ticker symbol? That is LF. Did they make anything for kids of the age that you have in your home?

I think of this as a company that's really geared towards educational toys for younger kids. I think it skews that way. The new tablets, they're focusing more on software than they are devices, and they're now downloadable apps. They have their own app store. And they do go up in age, and you can cater what you buy to some older child. But I think the sweet spot is the younger kids. When you say my daughter, for example, is 16, she's not really on the leapfrog too much. Teenagers, not so much. All right. Matty, what do you got this week? I've got B of I Holding, tickers B-O-F-I. It's the holding company for Bank of Internet.

It's recommended in a couple of services here at The Fool that I work on. It's a virtual bank, completely online, as you might guess by the name. It's got one branch in San Diego, yet it serves tens of thousands of customers in all 50 states and the District of Columbia. This has been a really pretty great growth story. The stock has really tripled over the past year and a half or so, really shown tremendous growth in deposits, in loans. It operates at a really incredible efficiency ratio, low efficiency ratio, which is a cost measure for banks, for obvious reasons. It trades very much like a growth stock. It trades about three times book, which for a small-cap bank, fairly expensive.

For a virtual company! Right. So, they're reporting earnings this week. I'm still expecting good news. I'll be interested to see how the stock reacts, because it's certainly had a really good run. I'm curious to find out during the break what Mac's father thinks of the Bank of Internet. Bank of Internet! Three times book, that's ... Pricy! Charlie Travers, in the minute or so we have left. What do you got? Tesco, which is ticker T-S-C-D-Y. This is one of the world's largest retailers. They're out of the UK. Similar to a Costco here in the U.S. without the membership

fee, but that's basically the type of operation they run. Large scale, a lot of products trying to get you at a great value. They report on Monday. For the dividend lovers out there, the yield on this stock is over 4%. I have to mention that Berkshire Hathaway is a large shareholder in this company. Berkshire owns 3% of their stock, which is about $200 million. The kind of company that Warren Buffett loves, and I do, too. When you say, it's kind of like Costco, but without the membership model, that makes it sound to me like- I figured that was more polite than saying it was an upscale Walmart,

which is why I phrased it that way. But I'll just go back into the gutter here. All right. Ryan Gross, Charlie Travers, Matt Argersinger. Guys, thanks for being here. Thanks. Thank you. It is nice when a stock doubles. So what is it like when a stock you've picked goes up 100 times in value. I'll ask our guest this week. Motley Fool co-founder David Gardner is next. This is Motley Fool Money. Welcome back to Motley Fool Money. I'm Chris Hill. It was just over 16 years ago that Motley Fool co-founder David Gardner went public with his intention to buy shares of a small cap company

that billed itself as Earth's biggest bookstore. Today, Amazon.com sells a lot more than just books, and shares of Amazon have risen more than 110 times in value. David Gardner joins me in studio now. Always good to talk with you, my friend. Thank you, Chris. It's good to be back on the show. I want to get to Amazon in a minute, but let's start with the market in general, because the last time you were here, we were talking about how the market was hitting new all-time highs.

That was back in June. Now we have September and October, the market up for both months. By the way, only the fourth time in the last 30 years that's happened. Okay. S&P 500 hitting yet another all-time high. How are you feeling? Are you nervous? Are you excited?

Well, I think like a lot of Motley Fool members, a lot of our listeners, I'm truly in this for the long haul. And we're all different ages. I'm now 47. So when we picked Amazon, I was 31. So now I'm 47, but I still feel like I'm invested for at least the next 40 years, I hope. So really, I don't pretend to have much of a feel for where the market's headed. Probably in June, I was saying something I'll remind people of now, which is that just because we're at new highs, the market, if you look at a graph of the Dow Jones average, it's not a parabola.

What goes up must not come down. Usually, over the course of time, we should be hitting new highs. That's a natural progression. So I hope I was saying that in June. I still feel pretty good. I'm always going to have a good time when the market's at highs because it means our members who followed our advice for the long term are happier than they were the day before.

And I, as an investor, somebody who's been invested in the market for almost 30 years now, and 40 more to go at least, I'm going to be happy too. It's not a market near-term top-bottom call at all. It's just about the general feeling. I think great companies have been rewarded pretty dramatically the last four years, and it was a horrible time, 2008-9. By the way, you wrote something for our members very recently that I want to highlight because I think you've touched on something. You were an English major back in college.

You've touched on something with the language of the stock market recently, words like soar and tumble. And I think you were suggesting we need to come to some sort of collective agreement on what qualifies as a stock soaring. Yeah, to me, that should be at least a 15% gain, probably 20% or higher for a stock in one day in a headline on the market to say it soared. Because I think you had clicked on something about a stock tumbling, and you thought, my goodness, how big a tumble. It was Apple. It was down 2% or something like that? Yes, tumbling after hours. Tumbling. So 10% qualifies as a tumble?

Yeah, and a little bit more pedantry for the fun of it. I was talking the other day about how people are often using the word name to describe a stock, like, give me some names, or that's been a good name the last year. I also don't like that. The English major in me really kind of hates that, and this is a pet peeve. But these are not names and these are not just ticker symbols. These are actually for profit businesses that you can be a part owner of. They employ thousands of people in many cases. A lot of them are great, at least the ones we're trying to pick. I don't like name talk either. So names tumbling, that would be an example of one of my least favorite phrases anybody might use to characterize stock market happenings. Let's talk about Amazon and this report that you wrote back in September of 1997. By the way, a report that is about 6,000 words. It's just shy of 6,000 words. So a very detailed report about why you were going to buy shares of Amazon. When you look at this report now, we were talking during the break about things that sort of stand out. I have a couple that stand out to me.

But I'm just curious, when you look back at this report, is there anything that stands out to you about your original thesis? Because, obviously, Amazon is so much more than it was 16 years ago when it was Earth's biggest bookstore. Yeah, well, I think the No. 1 thing that stands out to me is what wasn't there. I mean, this was written September 9, 1997. I think I pulled an all-nighter the night before as we went in on the stock at $3.21 per share, now split-adjusted looking back. So what's not there is all the innovation, so much of it that's occurred since then that we couldn't have foreseen. And I think the real big takeaway there is, when you're really investing for the long term, first of all, if you ever want to get a hundred bagger, you have to be invested for the long term.

Amazon, we've helped for 16 years. So, you don't get a hundred bagger overnight. That's been one of the best companies you possibly could have owned in the last couple decades. It took 16 years to make a hundred times your money on it. But the only way you're going to get there is if you have highly innovative, visionary managers who stay put, generally, and truly keep evolving the company. Cloud computing wasn't even dreamed of back in 1997. It's such a big thing for Amazon today. So I think what's really great about that write-up, all 6,000 words of it,

was what wasn't there, and you have to understand that to become a hundred-bagger investor. Music is barely mentioned as another revenue source. You know, I still have my Earth's Biggest Bookstore mouse pad, actually, Chris. I seriously do. That was the mouse pad that we were getting as Amazon customers back then. Part of your case for buying Amazon was Jeff Bezos, the founder, the CEO. He's been an amazing steward of that company. But I want to ask you, as someone who is a native of Washington, D.C.,

Bezos, maybe the biggest headline for Jeff Bezos in 2013 is his purchase of the Washington Post. That's a company that you knew growing up. Your dad was a shareholder of that. I'm curious what you thought when you first heard that news, because as someone who grew up in Washington, D.C., you can appreciate not just the Washington Post as an institution, but the Graham family as being an institution in Washington, D.C. Was there any conflict in your mind, any sort of bittersweet, or did you think, oh, no, this is a good thing? well i i think that um the graham family is an is an outstanding washington institution of a family multi-generational management and warren buffett on the board that's the one time i met warren was at a washington post annual meeting as i think i was about 17 or something but so you know for the graham family to sell they're going to sell to people that they

respect probably and so i think it says a lot about bezos that he was the one that they sold the company to um and you know i i think for him it's it's i hope it's not too much of a distraction i mean the washington post is it's it's a it's a cool business in some ways um but it's a small part of his thought i think he's trying to rethink what it means to do newspapers now i doubt he's going to be an operational owner. I think he's going to spend most time with Amazon. But I think I would expect good things from The Washington Post in terms of innovating what it means to be a city brand as a media company. You're listening to Motley Fool Money, talking with Motley Fool co-founder and chief rule breaker, David Gardner. Let me ask you about

a couple of other companies in your universe, in your purview. Netflix, with their recent performance. You look at that stock. And by the way, obviously, it's not a hundred bagger like Amazon. But like Amazon, at least over a shorter timeframe, Netflix, the stock, has had a little bit of a rollercoaster ride. I think that's easy to overlook with Amazon, that there was a point in time when Amazon, back in 1999, 2000, 2001, went to great heights and then tumbled. When you look at Netflix' recent performance, and mainly what I'm curious about is, what do you think of Reed Hastings, the CEO, essentially being the person waving the caution flag on the stock, on the conference call, saying, hey, this is great, but let's everybody calm down

a little bit? Well, I don't really think that much. I mean, it makes sense that, in the face of such a huge gain, that a smart, long-term-minded CEO would say, hey, boy, the stock's been great. And people also pointed out the same thing about Elon Musk recently talking about Tesla stock. I don't spend a lot of time worrying what a CEO is going to say about his or her stock, unless it's something that's totally bizarre or highly eccentric. Saying your stock has maybe run ahead or, boy, that's just conservative, basic business tactics in my mind. I think that net uh netflix um let's talk about another company in addition to netflix amc networks

which you know i first kind of saw breaking bad maybe you did too not on tv but on netflix and uh walking dead on netflix and how much netflix has helped has helped networks whether it's amc right or the shows that the abc shows like once upon a time that have bigger viewership in year three partly because people are catching up binge viewing on netflix vince gilligan the creator of breaking bad has said publicly i think at the most recent emmy awards has given a shout out to netflix as really helping his audience and and therefore the show that's great so what i really just want to say chris is that there is this word is much overused i'm sorry to use it an ecosystem around netflix and it's the right system for the future um i have a friend who

works at one of those big show, an impressive show, who talks about how the business of cable television that his show's been deployed on for 10 plus years has peaked. It's kind of fallen down a little bit. It's still where all the money is, but it's not where the future is. And so you think about, you know, how much has AMC meant to Netflix? How much has Netflix meant to AMC? You can really see, and AMC, another one of our stock recommendations in Rule Breakers. So, I like the ecosystem of find the television you want. There's one more thing I want to say really briefly about Netflix, because I think I disagree with a lot of market commentators about the ecosystem. I think the assumption is that content is getting more and more expensive. And some

people who have been bears on Netflix, and part of the reason it caved from $300 to $50 or so, It's because people said they're going to go out of business. They can't afford to buy content. It keeps ramping up. And I have a very contrarian take on that. I really believe that content is getting cheaper and should, for basic reasons, continue to get cheaper. Whether it's that there's a larger and larger supply every year, and if basic economics suggests prices come down as supply massively increases, which it is, or I try to get my children to enjoy a 1980s movie that I thought was great, like, let's take Splash, right?

Classic. And the cinematography now just doesn't look that good. In other words, I think that movies are kind of older, standard def, older vibe. Movies are kind of losing value, maybe a penny a day is kind of how I think. I don't think all of a sudden these content, you know, Turner Network-like libraries of movies are richly increasing in price. And I think the market has assumed that. I think that's wrong. So even though I love AMC Networks and the value of Mad Men, let's say, I don't think we're entering an era where good content gets more and more expensive.

I think that's a misread, and I think Netflix will continue to benefit from that misunderstanding. Coming up, more with David Gardner. You're listening to Motley Fool Money. You're listening to Motley Fool Money, talking with Motley Fool co-founder David Gardner. We've talked about a few companies and clearly your willingness as an investor to hold them through trying times. But one thing I don't think I've ever asked you is, in the other direction, when was the last time that you looked at a company and thought, you know what, for whatever reason, it's not panning out the way I thought it was going to. Not so much from the standpoint of, oh, I want a stock you lost money on to balance out the hundred bagger. I'm curious what it is that tips the balance in your mind for you to make that decision.

Sure. So usually in my two primary services where all my picks occur, Motley Fool Stock Advisor and Motley Fool Rule Breakers, we have a fair number of sales in those services. What you'll typically see is they're the ones that haven't worked out. So most of the time I'm selling the losers that are down. And by the way, sometimes they bounce back dramatically. I don't really think I'm great at selling, which is why I try not to do it too often. But the selling you'll see in our services are usually we're cutting bait on something. A lot of other people have already cut bait on it. We're like, fine.

Usually stocks trade down in advance of bad news, for example. So we wait for bad news. That said, NetNet, you're dramatically benefited, I think, by sticking with stocks. If the company is operating pretty well, let's go back to Netflix for a quick sec. It went from about $300 down to about $55, Chris, and I think in that time, the business itself, if you were just watching their subscriber base during that roughly 12-month period, declined from approximately $24.5 million to $24 million. In other words, Netflix hit a pause in its growth. It did lose. There was a whole quick stir. A lot of people were angry about price raises and all the rest. they lost about less than 5% of their members. Their business only briefly declined. The stock lost five-sixths of its value. So, if you're trying to sell in advance of slightly bad business

moments, I think that's going to be a mistake, net-net. It's been good to hold on to Netflix. Forget about Netflix. I mean, they're all manner of broken companies or scenarios that we had in our mind. We try to write them down, like that Amazon report in 1997. We try to write down ahead of time what we hope is going to happen. We also have a process in Motley Fool Stock Advisor called our five and three, where when we publish a new recommendation, we give you the five things in future that we're hoping to see that we're kind of basing our recommendation on. And then three things that if those happen, those are kind of bad. And it's all about looking ahead. So I think for the most part, we don't sell too often. The ones we do sell often are broken at that point

anyway and sometimes those come back and we regret selling and net net were benefited by holding 2013 has been a big year for ipos we've had more ipos i'm on a new york stock exchange um advisory committee and just at the exchange two weeks ago talking about how it was basically the biggest year of ipos all time pretty much and it is the new york stock exchange that will be uh having the twitter ipo at some point in the next couple right and then the new york stock exchange company, which will be dissolving into, well, not dissolving, but acquired on November 4th, it'll be dropping out as a company itself, having been bought out by ICE. So it's an incredible time of change around the exchange. But IPOs, Twitter IPO, Chris, are you in?

Are you interested in the Twitter IPO? And if not, give me a couple of names. Well, nice. I like you trying to slip that by. But you won't get that by me, Chris Hill. So, I think that the Twitter, the Twitter is an amazing company, and it will be an incredible IPO. Anytime you have the New York Stock Exchange announcing ahead of time, they've tested their systems to make sure what happened with Facebook on NASDAQ. This is really more about the NYSE versus NASDAQ, not really about the Twitter IPO. But, anytime you have the exchange talking about, it's got stuff in place for this and it'll work out, that's going to be a hyped IPO.

Now, the word hype usually has an incredibly negative connotation. I don't think it should. It's a fairly neutral word to me. There's a lot of hype. That is going to be a big-time IPO. Am I excited about buying Twitter on day one? Probably not. We did recommend Facebook eventually.

It's been a winner in Motley Fool Rule Breakers, but we got it six months after IPO, after that disastrous failed IPO, all those negative terms used around it. Anyway, I try to think past the IPOs, obviously. I'm just asking myself, do I want to be a part owner of this company in 10 years? Do I want to look back and say 10 years from now, you know, I bought or 17 years from now, you know, I bought Amazon, let's say, back in 1997. I try to look backward and say, did I want to own this? I think you have to be very interested in Twitter to own it. Last question. Last time you were here, we talked about wearable technology.

and i'm curious with all the focus on the smart watch from samsung google rumored to be apple as investors instead should we be looking at nike and under armor because it seems like in terms of just reviews and good word of mouth i i just know walking around this office i see a lot more people wearing stuff produced by nike and under armor than i do anyone beating down the doors of samsung to get their new galaxy smart gear watch well i think number one wearable technology is a good phrase and it's a very accurate description of where the world's headed so in the same way that back in 1997 you and i could say e-commerce and be believers which by the way was a contrarian position just about

amazon has ended up massively benefiting from that so a lot of other companies i feel the same thing will be true about wearable technology. Obviously, not as big an opportunity as e-commerce. But that's really what we should be thinking about, square one. Is that for real? And let's watch it. Then the whole question is, what does it mean? It means everything from Google Glass to things that haven't even been invented yet. I know Nike has its fuel ban, and there's the Fitbit, and I use my jawbone up. But there are watches that companies have supposed to have been delivered by now that haven't even been put out on the table. So who knows what it's all going to look like. But I think keeping your eyes open and trying stuff, that's part of the reason I wear my

jawbone up. The other reason is to see whether I sleep as little as I think I do. But I think there's no substitute. Kleiner Perkins, the great venture cap firm of our time, says we invest in order to predict the future. And that's a great way of thinking about all of these things. So wearable technology, I would suggest you wear it in order to get a better gauge on where the world's headed. And there will be small, pure plays. Companies like maybe Jawbone will go public one day, pure play. Or really big companies where it's just a small offshoot, like the Nike Fuel Band is a small part of Nike's revenues. That said, it kind of shows you where companies are going. Google Glass is a small part of Google's revenues, but kind of shows you where things are

headed. So I don't think that there's an immediate play. If you buy Under Armour under the expectation that you've got a wearable technology stock, I think you really just own a great sporting goods brand. Of course, you're speaking to somebody who loves emerging technologies. I want to go back to that Kleiner Perkins line. You should invest in order to predict the future. And a lot of the stocks that I follow, I feel like give me a better window into where we're headed just because I'm paying attention to those names. We will end there. David Gardner, Motley Fool co-founder and chief rule breaker. Always good to talk to you. Thank you, Chris. Fool on. That's going to do it for this week's show. Our producer is Matt Greer. The show is mixed

by Rick Engdahl. Our engineer is Gail Anyan-Huevo. Thanks for listening. We will see you next week.