Motley Fool Money - The Triumph of Adding to Your Winners

Episode Date: August 23, 2022

How would you react if the first company you bought shares of went bankrupt within three years? (0:21) Matt Argersinger discusses: - The rise and sudden fall of Wang Laboratories - Why his search for "the next Warren Buffett" ended badly - Amazon and The Home Depot sharing discipline as a common business trait - How he overcame the challenge of adding to his winners Stocks mentioned: BH, SAM, AAPL, AMZN, HD, MELI, EBAY Host: Chris Hill Guest: Matt Argersinger Engineer: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi everyone, I'm Charlie Cox. Join us on Disney Plus as we talk with the cast and crew of Marvel Television's Daredevil Born Again. What haven't you gotten to do as Daredevil? Being the Avengers. Charlie and Vincent came to play. I get emotional when I think about it. One of the great finale of any episode we've ever done. We are going to play Truth or Daredevil.

What? Oh boy. Fantastic. You guys go hard. Daredevil Born Again official podcast Tuesdays and stream Season 2 of Marvel Television's Daredevil Born Again on Disney Plus. How would an investor react if the company they bought shares of went bankrupt? Let's find out. Motley Fool Money starts now.

I'm Chris Hill, and just like yesterday's episode with Jason Moser. Today, we've got the investing origin story with Motley Fool Senior analyst Matt Argusinger. And yes, the first stock he ever bought shares of was a company that went bankrupt just three years later. We'll get to that in a minute, but I started the conversation by asking, him, who was the first person to really start him on his investing journey? My dad was a little bit of an investor. He was in the Army, and so, you know, but I remember we'd get the Wall Street Journal at home. And I can't remember when, but I remember at some point I was probably seven or eight

years old. And you just look at, you flip through the Wall Street Journal when, you know, back in the day, when they had pages and pages of stock tickers. And you kind of just sort of like, what is going on here? the numbers moving around every day, plus minus, fractional. I mean, it was all fractional back then. And I think I just got kind of intrigued by the idea that you could invest in these numbers, but there were companies, these symbols, right? And then they could, you know, the next day, you could have more money. And I think that was fascinating to me. And so as early as I remember,

I mean, I had a paper out, as a lot of kids did back in like, you know, late 80s when I was like eight or nine years old. And so I was, I was like eight or nine years old. And so I was, And so I could save a little bit of money. And if it wasn't video games or something like that, I was trying to think, could I save enough money to buy one of these stocks that my dad was kind of talking about? So that was, yeah, I can't remember when the light went off, but that was kind of like my earliest memories of being interested in investing. I remember thinking it was like a code, looking at stock charts in the new,

not even charts, but just sort of, as you said, the pages and pages of the shortened names of the companies and thinking like, oh, it's a secret code for names of actual businesses. Right. Right. And then, you know, it was magical when you'd, you could go to the mall or something, you know, and you'd say, oh, here's the gap, just to name a company that was popular in the 80s or 90s, you know, or a Walmart or something like that. And you realize, wait, that's one of the symbols. You could actually buy a piece of this company that I know that I can see and touch. I mean, it was, that was also sort of just the wow moment of, you know, So what was the first stock you bought?

So it's a funny story. So I finally saved enough money. I had a paper out. I was mowing lawns for people. So I saved, I think I saved like 500 bucks, you know, which when you're like nine or 10. That's a lot of money when you're a kid.

I was like, this is, I'm rich, man, you know? And I said, okay, well, I want to buy a stock. And so I remember talked to my parents. And they gave me terrible advice. But it's good advice, but terrible. I don't know, I'll tell this. There's like a backed.

story to this. So I ended up in, I was, we're living in Massachusetts, and I was, and one of the big companies at the time was a company called Wang Laboratories. It was founded by a really great entrepreneur named On Wang. He, I think he immigrated from China way a long time ago in the 20s or 30s. And he just, you know, built technology companies, software companies, I mean, in the 60s and 70s, and eventually he built this company, Wang Laboratories that was kind of one the leading war processing machine companies, calculators, and word processing. And it became a big company. I think at some point in the early mid-80s, it was employing tens of thousands of people.

Anyway, so I asked my parents, you know, hey, what should I invest in? And they said, well, you know, Wang Labs is a great company. It's right near us. I think it was based in Lowell, Massachusetts. And, you know, of course, I was like, this sounds really great. So I invested $500 in Wang Laboratories. I think it was like 1989. Well, in 1990, On Wang, the CEO died, and the company was passed to his son.

And two years later, the company went bankrupt. I have no idea how or why. But my first investment, my first stock investment ever went up in smoke. And the lesson I took from it, though, which is not the lesson you'd expect, which at the time, I remember I was into video games and computer games as a lot of kids were. and there was a computer company called Sierra Online, which made games like Kingsquest and Space Quest and these games that I love to play. And I remember asking my parents at the time, can I invest in Sierra Online?

And they said, no, no, no, no, no, you should invest in something established, like Wang Laboratories, right? So they convinced me, it didn't take much to convince me to do that. But I remember looking back, like way on, later on when I was adult, I could have invested in Sierra Online in like 1989. And I think the company went on to five or six X before it was acquired. So I could have had a great first investment, but I invested in Wing Laboratories. What's great about this, Matt, is there are so many people who have a similar experience to you. And that alone just drives them away from the stock market for the rest of their life. And not only have you continued to invest, you've made it your profession.

So, let me move on to, you know, because obviously you've been doing this for a long time, what's the worst stock you've ever bought? Because, you know, you could go with one laboratory is the company you bought that went bankrupt, but I'm guessing you have another choice. No, no, I have many, many other choices. But one that really comes to mind is a company that's still traded today. It's not bankrupt, and it wasn't even my worst performing investment, but it's a company called Biglari Holdings, the tickers B.H. And I think what really brought me into that company was,

as a young investor, especially, I remember 10 years ago or so, I was, we're all searching for the next Warren Buffett, right? I think everyone's, and we're always so quick to name the next Warren Buffett, right? Well, here I found a young entrepreneur named Sardar Beglahery who he had, he had run a hedge fund as a young person, had a really good track record. And he ends up acquiring this restaurant company called Steak and Shake, which you can still find in the Midwest and other states. And he kind of turns around the restaurant. And his whole plan was, you know, I'm going to, steak and shake is going to be this business that kicks off a lot of cash flow. I'm going to invest in all these other businesses. And he does. He invests in like an energy

company, invest in an insurance business. And in my eyes, I'm like, this is my Warren Buffett. This is the guy that's going to lead me to the promised land. He's going to build an Thanks, Berkshire Hathaway. And I literally went to every annual meeting for about five or six straight years up in New York. And I was so enthralled by it. And the reason it's my worst investment is because I sort of let the mystique of him and the company forced me to keep putting money into this business, even though I could see that

the way it was being managed was not right. The stake and shake business itself was kind of falling off. And it's really fallen off now, as you know the company. And I let myself just be lured in. in and not really objective about it as much as I should have been as an analyst. And so I think it's my worst investment just because of the time, the mental energy, and the amount of capital I kind of put in routinely into this company for years before I wisened up and sold my position several years ago.

I appreciate you making that distinction because I think the default thinking for a lot of people is the worst stock you buy is the stock that you lose the most money on or it has the greatest percentage drop. But as you said, there's a time element there. a mind share element that can cost you as well. Let's go in a more positive direction. What's the stock that means the most of you? Not necessarily because it's been the biggest winner, but because of some sort of affinity you have for the business.

Yeah, I mean, this is an easy one. When I, right about when I was about to finish college, one of my first investments I made, where it was me, my own brokerage account making the investment, was Boston Beer. You know it, Maker of Samuel Adams. And this was 2001, I believe, and the stock was trading for around $14 a share. The reason I love it is because in college, I mean, I love the Samuel Adams blogger. I mean, at that time, they really just had the Samuel Adams Lager. And now, of course, these days they've got dozens of labels.

They've got the Twisted Tea, Angry Orchard Cider, the Seltzer. They've got a lot of beverages, and they're a much bigger company. I just knew the company. I had an affinity for the brand. I love the story of Jim Cook, the founder and CEO, and I've owned shares ever since. And the cool thing is, one of the cool things is, I remember when I first bought shares for myself, I actually, my brother was graduating high school, and I ordered away one of those one share certificates that you can get. I don't know if you can do that anymore, but I got on one share of Boston beer at like $14 a share plus $10 or $20, whatever the shipping handling was for this certificate, right?

And the beautiful thing is, over the years, I could just tell him like, hey, you know that certificate you've got hanging on your wall? It keeps going up in value. I mean, at one point, Boston Beer was trading over $1,000 to share. The bad part about this story is that several years ago, my brother didn't tell me this, but he actually sold it. I know. In 2016 or 17, he sold it for some crazy. He was moving, I guess moving apartments. And he just was like, hey, this thing's worth like four or five hundred bucks now.

I should sell it. What a bum. But anyway, so it's just got an interesting story. I've held the stock for so long that, yeah, it's pretty much part of me now. Also, you know, when you're in college, you know, beer tends to be a commodity that people save money on. So like, if you're buying Sam Adams beer in college, like that's a premium beer. Well, see, it was the, it was the aspirational beer. It was like, we would buy the yinglings and the Budweiser's thinking of ourselves, you know, Someday, someday we're going to pay $9.99 for that six-pack of Sam Adams. Now and then, it's like a treat. Is there one that got away? Do you have your version of a stock that you sold too soon or just for whatever reason, never pulled the trigger on?

Yeah, the one, it's an easy one, because I bet you everyone listening on this has owned it, at least part of their life. But I never owned Apple. Can you believe that? I've never owned shares of Apple. And I think because I always assumed for years that this was, you know, Apple's, they're at their peak. It's really a hardware business and hardware over time, especially in the consumer electronics space. It's not exactly a great business. And I totally, totally underestimated their amazing transition to software services and just the hold they have on the App Store, which has become sort of the ecosystem of mobile apps and technology. And so I just, for some stupid reason, I admired the company.

I was always impressed by the company. I used their products like no one else, right? But I never bought shares. That's pretty sad. Apple is one of those companies that, from the standpoint of investing, it essentially broke two longstanding things that all investors tended to agree on. One is what you already spoke to, which is the whole, well, Consumer electronics, the price comes down over time.

And so for such a long time, that was the narrative around Apple. It's like, well, they're not going to be able to keep charging this amount of money for those phones, are they? And the other one was all of the debate around them paying a dividend. Like, are they going to pay a dividend? Well, if they do that, it will turn them into a stodgy old dividend-paying company, and it will just kill their growth. It's like they did that.

And then we've never had that conversation sense as investors. They've never had that. The Apple broke some serious rules. And it fooled me for sure, lowercase fooled. And I never bought shares. I missed down on huge gains. Is there a company you own shares of that you particularly admire? Yeah, I was thinking about this.

I think I have two that I need to mention. And they're similar but different in a lot of ways, but Amazon and the Home Depot. Just because what Jay, the scope and scale of this company that Jet Bezos has built, but just their ability to kind of always kind of to use that old analogy, you know, skate where the puck is going in terms of e-commerce, of course, but just third-party fulfillment, Amazon Web Services, cloud computing, I mean, mobile advertising, just so many streaming, they're always into the best places and they have such a great job. And I just so admired how they've been able to get into all these different businesses.

And I think the Home Depot, if you just think of their history as a, quote, big box retailer, the margins they put up, the growth that they've been able to achieve without actually growing that many stores. These days Home Depot owns maybe, they open maybe a dozen stores per year. But you just see the growth that they're able to continually put out and the affinity that people have for that experience that they get at Home Depot and the products and services. and the way they got into the big contracting business several years ago, that's been worked out. So two businesses, Amazon Home Depot that I think have always just seems like they're ahead of the competition, ahead of the curve, and I love owning both businesses, and I plan to hold them for a very long time. You have to assume that both of those businesses also have a lot of institutional discipline built in.

Just hearing you talk about the Home Depot, really not opening a lot of new locations year after year. And you have to believe there is, there are some people inside the executive rank saying, no, we can do more than this, even if we, even if we just go from 12 to 24 in a year, that sort of thing. And the same with Amazon. Like it's the discipline, not just to go after new initiatives, but to say no to a lot of others. Absolutely.

It's so impressive. What is the stock that is your biggest holding? Yes. It's a biggest holding by orders of magnitude. And it wasn't really by design, well, maybe kind of. Mercado Libre, which you know I've talked about on this show for years. And the reason it is my biggest holding, not only because it's been such an amazing winner over the last. I've held it for, gosh, now 13 or 14 years.

And I've added to it. But the reason I've added to it is because not only has the business been successful, but I was a part of this service called Supernova, which you know about. And we recommended Mercado Libre for our portfolio in Supernova. I want to say seven or eight times. And I kind of made it a point when I was the advisor of that service to really follow our own investment advice. And so I bought pretty much every investment we made, including Mercado Libre, seven or eight times. And so that was incredibly fortunate.

But I certainly love the business. I mean, as the e-commerce leader in Latin America, big presence in Brazil, Mexico, Argentina and other countries. What I loved especially is early on, they were actually owned by eBay. I don't know if many investors know that. And I was worried that they were kind of a little bit followed the eBay model, which is not a terrible model and not really go after sort of the logistics and fulfillment part of the business that really completes that sort of consumer shopping cycle. But fortunately, they really did go after Amazon starting about seven or eight years ago, modeling Amazon, but also modeling PayPal with payments and transactions. So it just

It just becomes such a big e-commerce powerhouse throughout Latin America. And I just see many, many years ahead of big growth for them. You're the reason I own shares of Macado Libra. All right. And I wish I had listened to you the first several times you'd mentioned it on the show before finally cluing in. But I do want to ask you about something you mentioned, which is the number of times you added to it.

What was that like to the extent that you can? Walk me through that mental process because I find this to be a challenge and I'm sure other investors do as well. The idea of adding to our winners sounds great in theory, but for me, the struggle is, well, wait, I have it. I already bought it at this lower cost base. I do have that hurdle. I need to get over.

I've gotten over it sometimes in my life, but not all the time. How did you do it? It took me a long time too. And I think it was really, honestly, just working closely with David Gardner for years and seeing him re-recommend these stocks that he'd recommended years ago that were up five, six, 10x, and he's recommending them again. It was, yeah, it was tough for me early on as well, but then I just thought, wow, why am I so focused on what David Gardner would say, which is what most investors do, which is they

water their weeds and trim their flowers? I should be watering my flowers and trimming my weeds. right? And I had to kind of pound that in my head, but eventually I did. And thankfully, you know, it's led me to buy Mercado Libre all the way way up, buy Amazon and other companies on the way up. And winners tend to keep winning. I think that's something also David Gardner says. And it is hard to get your head around as an investor. And as an investor was sort of hardwired to be looking for bargains, discounts from what we paid. But if you have a premium business, pay up and keep paying up as you go. It'll make a huge difference. The biggest, the biggest

The difference to my portfolio and my returns, my net worth over time, has come from adding multiple times to winners. It hasn't come from seeking bargains or doubling down on stocks as we like to do. Maddie, thanks so much for being here. Thank you, Chris. That's all for today, but coming up tomorrow, we will get back to the headlines with Montley Fool's senior analyst Bill Mann. 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 yourself stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.