Stock Stories With the "Rule Breaker Investing" Podcast

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In this podcast, we’ve got five stock stories full of ups and downs, lessons from history, hopes for the future, and more.



Stock Stories With the "Rule Breaker Investing" Podcast


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Stock Stories With the “Rule Breaker Investing” Podcast

To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Alyce Lomax has positions in Apple and Microsoft. Auri Hughes has positions in Coupang, Meta Platforms, Microsoft, and Xpel. David Gardner has positions in Apple and Zillow Group. Jim Mueller, CFA has positions in Microsoft, Nvidia, and Redfin and has the following options: long January 2025 $120 calls on Apple, short February 2023 $7 calls on Redfin, and short January 2025 $130 calls on Apple. Rick Munarriz has positions in Apple, Coupang, and Zillow Group. The Motley Fool has positions in and recommends Apple, Coupang, Meta Platforms, Microsoft, MongoDB, Nvidia, Redfin, Stitch Fix, and Zillow Group. The Motley Fool recommends Bayerische Motoren Werke Aktiengesellschaft, Boston Beer, and Xpel and recommends the following options: long March 2023 $120 calls on Apple, short February 2023 $7 calls on Redfin, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

 

This video was recorded on January 11, 2023. 

David Gardner: Some people like fantasy stories and we’ll spend, I don’t know, about $1.7 billion at the box office the past few weeks to see Avatar, fantasy stories. Others like sad stories. We can all think of a favorite bedtime story. It’s often set of as human beings that we are a story-telling race, the call of the story, the prehistoric campfire where stories were acted out. Huge industries today have been build up just around celebrity stories. Or how about sports? The news, scores, results, the stories we remember from our own athletic exploits, however scanty they may be in my case. Stories, stories, stories. Yeah, every stock tells a story. As investors, we get to know our company’s mission, maybe know their marketing tag line. That’s a story.

We follow the share price. We experienced highs and lows, sometimes dizzying highs or cavernous lows, sometimes both. The experiences investors gives us the long view. The Foolish with a capital F view acquaints us with great prosperity creating stories, especially look across a portfolio, look up and down your brokerage statement and I bet you see stories. Well, for the seventh time in this podcast’s history this week, we focus on telling stories. We’re a stock market podcasts, so here’s a stock stories. Visiting me around the campfire this week are four other talented Motley Fool contributors, each of whom has a story to tell. Me too, so five stock stories to make you smarter, happier, and richer. Only on this week’s Rule Breaker Investing. 

Welcome back to Rule Breaker Investing. Thanks so much for joining us this week. We’re getting our story on. I’m really looking forward to this. I have four of my friends from The Motley Fool coming into share their stories. I’ll throw in one myself, that makes five stock stories for this Volume 7 of our stock stories, episodic series. Anybody who’s spent any time with this podcast knows that I love episodic series. Over our eight years in the podcast biz, we’ve built up more than two dozen recurring series. Stock stories is, of course, one of those. We do this one typically pop out once a year, so this is a little bit special for us to be talking this week to you sharing stock stories. Now before we get started, I want to mention the opposite of stock stories, at least the linguistic inversion. That would be story stocks.

Now, I think a lot of people recognize that story stocks can be good or bad. Story stocks are the ones where you don’t necessarily check the numbers. You don’t necessarily hold near-term results or any real feet to the fire. There’s not necessarily a lot of accountability on your part in terms of management or where they are today with the company because, well, there’s a story there and you’re driven to invest perhaps by the story you see in that stock. Now I think that can cut both ways. That can get you sometimes over the hump with your eyes closed because the valuation might just look too high and you’re like, I’m going to buy it anyway though because I like the story. That can help. It can also hinder. Sometimes we buy stocks that are just stories.

Maybe they sounded good for a little while, but it turns out as you turn the page, there isn’t a lot left to that story, maybe not much behind it. The phrase story stock for me has a neutral connotation, but let’s now invert those words once again because I like stock stories. Having invested for a few decades, perhaps you have too, or even if it’s just for a few years, you probably already have a few of the classic types of story yourself. Like maybe the one that got away story or the big fish that your bragging about that you’ve caught story or any one of many other types of stories. Joseph Campbell’s Hero’s Journey, maybe patterned, templated stories that we recognized, and maybe as investors start to see some of our own stocks within those stories. But in particular, this week I’ve asked my friends and fellow analysts here at the Fool to tell the story of the stocks.

They’re not just going to be talking about the company, although they will be because, well, we love business-focused investing at The Motley Fool. But in particular, I’ve asked each of them to identify where the stock was at a few different points. Include the stock in their story. If we do our job this week, we’ll be making you smarter, happier, and richer. You will be enriched by these stories. Now as we get prepared here, I do have an exciting announcement due to the growth of this podcast over the years. As explained last time, we can now afford more sound effects than we could in past years. My talented producer, Rick, will be bringing some sound to the stories that you hear. Now we’re going to keep it simple and augment over time. Rick, I’m going to ask you to queue up the single sound effect to start story number 1. All right, that helps me start to get in the mood here as I welcome my friend, Rick Munarriz.

Rick Munarriz: Thank you. It’s great to be here. Happy 2023 and maybe better for investors than 2022, at least most investors like myself.

David Gardner: Me as well, Rick. I mean, how could it not be? I can’t think of many worst market years to live through. But enough about 2022, Rick. Do you have a stock story for us?

Rick Munarriz: Yes, I do. I have a story, I have a stock, I have a story stock or a stock story. I have it all. I’m calling this you dropped out of Harvard for this.

David Gardner: Excellent. I already like your title, Rick. I do want to remind our listeners right upfront this episode that our model for stories, stories should a matter. I hope you’ve got that for me, Rick. They should be entertaining, they should be didactic. The fourth attribute I like is if they’re memorable. Rick, can you give me at least a three out of four?

Rick Munarriz: I can at least try. It’s 2023, New Year’s resolution. Let’s go for it. Let’s go for four out of four maybe, we’ll see.

David Gardner: I like it. Four out of four. All right. You go, Rick.

Rick Munarriz: Once upon a time, 1636 to be precise, the college that would eventually become Harvard University was founded. Now, Harvard is a pretty prestigious institution and it’s a long list of historically relevant graduates, but it’s also well known for its dropouts that would go on to become tech billionaires. Bill Gates dropped out to start Microsoft. If you saw the social network, you know that Mark Zuckerberg launched [Meta‘s] Facebook or the Facebook initially, if you will, on the Cambridge campus. However, you don’t hear enough about Bom Kim, so let’s go there. Kim was born in South Korea. He moved to the US when he was seven. Smart guy, goes to Harvard, does an undergraduate work. Six months into the MBA program, he drops out.

He has some entrepreneurial interests in magazine publishing, does a work from Boston Consulting Group. But in 2010, he sees Groupon exploding in the US and it all comes together for him. He’s going to start a Groupon-like service as a limited liability company in the US so he can raise funding here, but headquarter is in South Korea. To do business there, he entered into the flash sale market that was booming at the time. He calls it, and Groupon IP lawyers, please pay attention, Coupang. Ticker symbol CPNG. That is the birth of Coupang, a company that’s trading for a couple of years now. But that is our story, where it starts with a Harvard dropout, not with the same fanfare as we had with Gates or Zuckerberg, but the story gets better.

David Gardner: Yeah and before I let you go on Rick, I remember that time. I know some people still use Groupon. I never really did. I even remember Amazon had its competitor. That was the day in time for Groupon. Now I know there’s still around but Rick, did you use Groupon?

Rick Munarriz: I did. To me it was a great way, especially locally was OK but I liked it when I was traveling places, like the tourist traps that I was going to wind up falling into any way, I can get it for like 50 cents on the dollar. The poor merchant would only get like 25 cents on the dollar because Groupon took a big chunk out of it. But yeah, everyone, Amazon, they bought LivingSocial, so they got into this game. Everybody was in this game back then and he saw it. Kim saw this and said, hey, I want in on this. This is a good idea. It’s going to work in the town where I was born in South Korea. We know how things played out for Groupon, the fact that you have never been a Groupon customer and I can just reflect fondly on some of purchases in the past. I think maybe I got a bubble tea coupon about six months ago that seemed right and it expired worthless because that’s Groupon.

It’s still around and still offering these experiences but Groupon operating income peaked in 2012, and revenue maxed out two years later. Coupang is running a similar business in South Korea, and it’s doing OK. But again, Kim the smart chap, he went to Harvard, remember, for four-and-a-half years. He sees what’s happening with the hyperlocal flash sale model in the US and he pivots. Instead of going to following the path of Coupang, he decides to become an online retailer of South Korea. Instead of following at Groupon, he’s now following Amazon. It’s a big pivot for the entire business model. You were mentioning Amazon having interest in this market. Now it’s a company that had that interests pivoting to Amazon’s market, just a full-blown retailer down. Does he change the company’s name to Camazon? No, the brand has power and Groupon IP lawyers were probably working with someone else at this point so he can do whatever he wants.

He’s armed with the financing connections than the US, and he realized that the scalability is everything. He starts to build out this network and he builds out more than 100 logistics centers. These are like fulfillment centers, placing it within 70 percent of the country, within a seven-mile drive of its growing fleet of drivers. Coupang now isn’t just the Amazon of South Korea, it’s actually better. It delivers 99.6 percent of its orders within 24 hours. You place an order by midnight and it’s at your door by 7:00 AM, they call it dawn delivery. You need to return something, you leave it on your porch, and Coupang will pick it up the next morning. Coupang is growing, they’re not public yet. They’ve raised a lot of money in that moment, finally happens two years ago, Coupang goes public in March of 2021 at $25 a share.

This is obviously a big moment. The stock pops. It trades at almost $70, so it nearly doubles on its first day of trading, but it did not last. After a few months, it becomes a broken IPO, which is when it falls below its IPO price. That’s where it’s been for the last year and four months. It’s now in the high teens half of its IPO price. But despite the fact that the stock has been cut in half, it has 18 million active customers. That’s roughly half of the South Korean online shopping customers. A third of South Korea is an active Coupang customer, and many of the other two-thirds are living with a Coupang customer. The silver lining here is that the stock is starting to bounce back. It was in the high single digits in May. Here we are, eight months later, and we’re now in the high teens, so it’s practically doubled.

The stock is bouncing back. Revenue is strong, 55 percent up in 2019, 91 percent in 2021, normalizing to 54 percent in 2021. The top-line growth has slowed now in 2022 where we’ve gotten through three quarters that we’ve heard of. The last quarter was just 10 percent revenue growth, but in local currency is 27 percent growth. It posted its most profitable quarter in its history in that quarter, so at least there’s a silver lining to that. Yes, David, it’s OK to drop out of Harvard and seemingly fail out of the gate. But the cool thing here, and I guess the moral of the story getting to there is that everyone knows that Kim is a smart guy. The MIT Technology Review and Forbes Magazine, they’ve rank Coupang as one of the 50 smartest companies in the world, and they’re only nine other companies that are in both lists. Coupang is in good company, but I guess the moral of the story here is that if at first you don’t succeed, copy a better business model.

David Gardner: Well said Rick, and for a lot of us who may be hearing about Coupang for the first time, market caps $30 billion. We’re not talking about a fly by-night operation and Bom Kim roughly owns how much of that of the company, Rick?

Rick Munarriz: He’s a majority stakeholder. I don’t know the exact amount, but again, it’s a large market cap, but revenue was like north of $20 billion. It’s not a small company trading at a ridiculous revenue multiple, it is a very large established company.

David Gardner: Well, and it looks like they’re not presently profitable, which might in some ways explain why the stock has been beaten up some so-called broken IPO, as you mentioned, but now over 18, more than double where it was eight months ago, worth paying attention, Rick, because this is a stock you own?

Rick Munarriz: I do own it. I deal in Coupang and yes, it’s a stock that I think, again, it’s barely profitable now, margins are improving. I don’t think it’s fully out of the woods yet. It will continue to have red ink as the quarters go around but I do think that once the income comes around and you’re seeing the margins improve more than the sales growth, now that is the fashionable look that growth investors look for, I think it’s going to be a very uplifting 2023. It’s clearly has momentum right now.

David Gardner: If at first you don’t succeed, Rick, try a different business model.

Rick Munarriz: Yeah.

David Gardner: Wonderful. Well, onto stock story number 2. Now, as we hit the second stock story, it’s time for an additional sound effect that you’ll hear masterfully threaded into the initial sound effects. Now we have, you can hear it, right? We have two sound effects celebrating stock story number 2 and 4. I’d like to welcome back my a friend Auri Hughes. Auri, welcome back to Rule Breaker Investing.

Auri Hughes: Thank you for having me. Happy New Year, David.

David Gardner: Happy New Year, and the market’s going up this year, right Auri?

Auri Hughes: Oh, yeah, we hope so.

David Gardner: That’s good, OK. Well, I know one thing for sure whether or not the market does go up, you have a story for us and what is the company you will be featuring in your story?

Auri Hughes: The company I’ll be featuring is called XPEL.

David Gardner: The ticker symbol?

Auri Hughes: X-P-E-L.

David Gardner: Oh my gosh, it spells XPEL, kind of.

Auri Hughes: Yes, exactly.

David Gardner: Excellent, and more importantly, as we get started here Auri, what is the title of your stock story?

Auri Hughes: The title is Discover My Biggest Winning Stock.

David Gardner: Excellent, Discover My Biggest Winning Stock. Auri, take it away.

Auri Hughes: Once upon a time, this was three to four years ago, I had just started as a young analysts at The Motley Fool and I was in the midst of our investor development program and I was researching a tiny stock called XPEL, it was a microcap company. I was voraciously reading about this company and finding whatever information I could. What they do is they create paint protection film for cars, which is a clear wrap that goes over the car that you cannot tell. It’s pretty much invisible and it guards the car against scratches, debris in the elements and things that happen just as you naturally drive and the business is also ventured into other glass protection businesses. I brought this stock to another Fool. I pitched it and I told them how I liked it and explained the stock’s potential and I was hoping to get some feedback and the Fool, they respectfully disagree. They didn’t see the potential of the business. 

David Gardner: Do you want to name that person or are we going to protect that person’s identity?

Auri Hughes: No, we’re going to protect that person’s identity.

David Gardner: Before you go on Auri, how did you even hear about this company? How did you find this?

Auri Hughes: Just reading on the Internet, blogs, screens. Venturing in that small-cap world is how I discovered it. It was tough. Feedback is this person is really smart and respected.

David Gardner: It’s not my brother Tom, is it?

Auri Hughes: No, it’s not. That’s not to knock on this person, but I’ve illustrated this story to just teach you about the lessons of investing. We can all disagree. Smart people can disagree but ultimately we want to think clearly and take educated guesses. I did my research, I bought the stock at six dollars a share and I held on. It was a small listing on the Canadian Stock Exchange, so they were a little undiscovered at the time. As time went on, they got a little bit bigger, the sales grew. They moved over to a larger exchange, which I think they’re listed on the Nasdaq, which helps with discovery. I just went about my job. I was doing research and still in this learning process and getting to know David and Tom. Then finally, I checked the stock about 3-4 years later.

David Gardner: That’s years later. That counts.

Auri Hughes: Yeah, and the stock was at $66 a share. It was a 10x in three years, which isn’t bad. I think that’s pretty rare.

David Gardner: Wow.

Auri Hughes: I was really excited about the returns and the story, and then I didn’t get in early enough. But if you got in early enough, the stock was actually 100-bagger for some folks, especially the CEO, Ryan Pape, who took over when the market cap was 10 million and it’s almost at two billion today.

David Gardner: Oh my golly. This is just over the last few years Auri. This is not a company that I know, but I do see now looking at the stock chart, it was three years ago. We’re talking about the start of 2020. Feels like a long time ago, but it was right around 10. I see today as you mentioned it’s $66 a share. Crusting over 100 briefly last year. Auri, is the company still in the same business as it started out when you first researched it?

Auri Hughes: Yes. It’s still is in the same business. They’re still doing these paint protection for cars, so this glass and that type of specialty. They also do tint. Now, they also have expanded to buildings. If your building has like a commercial building has big windows, covering it or tinting it, or doing other operations to prevent too much sun exposure, and that’s where they specialize. They’ve expanded in that business as well. They have great management. I think it’s one with their track record we’ll ideally see where they can keep going. My biggest lesson was, I don’t want to discredit anyone. This isn’t to attack my fellow Fools. But do your homework and sometimes people may disagree with you, but have your own convictions and do your research. Sometimes you have to be contrarian and see things that the larger audience may not see and there in lies some of the biggest victories, especially in the stock market.

David Gardner: It is such a powerful lesson. The earlier we can get that the better. It’s always going to be a little bit ambiguous. Because we all probably also have stories where we shared it with somebody and they’re like, “I don’t like it,” and they might’ve been right. It’s an interesting question. When do we know or when can we have slightly more confidence that that wise person that we might report to who doesn’t think we have a good idea, that we actually might be right versus when we’re not? Have you had a sense any time through these few years of a moment of growing conviction, or a catalyst or trigger, or an earnings report? When did your confidence continue to build?

Auri Hughes: I think my confidence continues to build when I start to see a track record. When the business is executing and I think without getting in the detailed financials, it’s simple. We like to see growth and cash flow and you start to see that track record like a straight A student as I call it, these managers. Then you’re like, wow, this product is building traction. Obviously, I didn’t get it at 10 million. 

David Gardner: Yeah. I don’t think I’d want to buy a stock that had a market cap of 10 million.

Auri Hughes: Of course, but you know with that potential and when you’re able to recognize that leadership, I think you have ample time to buy a stock with tremendous runways like that.

David Gardner: That’s great. I don’t know if you paid attention to CES at all, the Consumer Electronics Show, but BMW was showing off its concept car for the second year in a row, which can change colors.

Auri Hughes: Wow, that’s incredible.

David Gardner: Looks like something that XPEL might want to up partner on or take a look at. I think last year at CES, BMW showed off, it could go black, white, or gray. This year they showed off something like 36 colors. Fast forward, looking back our kid’s kids might say, “Wait, mom and dad, you had to stick with a single color when you bought a car? It always had to be blue?” The Rule Breaker mentality has as always searching for new possibilities. That’s obviously what happened here Auri, that’s why I like to have you back on Rule Breaker Investing. Thank you for sharing your story.

Auri Hughes: Thank you for allowing me to share my story.

David Gardner: Now onto stock story number 3, and it’s time for a third sound effect to begin to enrich our surroundings threading in with what you already know. There’s a real milieu. There’s a sense that were transported to a new place together, and I really don’t think it’s anything I’m doing. I think it’s what Rick’s doing with these amazing sound effects. For story number 3, I’d like to welcome in my friend Alyce Lomax. Alyce, welcome to Rule Breaker Investing.

Alyce Lomax: Thank you for having me, David.

David Gardner: How’s your New Year been? I’m not saying happy New Year because it might be a little tired at this point. I’m just going to say how has your New Year been so far, Alyce?

Alyce Lomax: Well, my New Year has been so far so good.

David Gardner: Has there been a moment where you said it’s completely different now from last year?

Alyce Lomax: No. 

David Gardner: It has gone up a little bit. That could be a thing that’s different from last year.

Alyce Lomax: Yeah. Absolutely.

David Gardner: Where were you for the holidays? Where are you physically located on December 27th?

Alyce Lomax: I was right here in Alexandria, Virginia.

David Gardner: Beautiful.

Alyce Lomax: Just having a really nice mellow time. What about you? Did you do anything exciting?

David Gardner: Well, I was in Barcelona. Actually, I was flying to Barcelona and it was a wonderful six-day trip. It’s hard to adjust six hours for your body in just six days and then come back after just six days. I think I’m still trying to catch up on my hours. It was lovely though. Thank you for asking Alyce. Now you have brought a stock, to stock story number 3, what is your stock?

Alyce Lomax: My stock is Microsoft.

David Gardner: I’ve heard of that one. I think I even know the ticker symbol, but I’m going to let you say it, Alyce.

Alyce Lomax: MSFT.

David Gardner: Excellent. That’s what it’s been pretty much since this company came public. I think somewhere around, is it the late ’80s? Something like that. Anyway, Alyce, what is the title of your Microsoft stock story?

Alyce Lomax: It is better late than never.

David Gardner: Excellent, better late than never by Alyce Lomax, take it away. Once upon a time.

Alyce Lomax: I am going to age myself by saying that my knowledge of Microsoft goes way back as both a consumer and an investor. I have been a lifelong Apple computer user. Used that in the ’90s when Apple was still quite an underdog. Indeed. It’s funny to look back on that era because Bill Gates was not always known as a benevolent technologist and philanthropist, but he in fact started a very successful personal computing and software company that if you rewind the tape long enough, it was questionable whether there would ever be PCs in everyone’s home not to mention a computer in the palm of your hand. At any rate, super successful obviously Apple Macintosh computers were the underdogs. But in the late ’90s, the government actually went after Microsoft for antitrust issues. As a consumer, this is where I started to get a little bit of a distaste for Microsoft and how it was being shown as being this 500-pound gorilla and difficult on little guys like Netscape Navigator was a browser that made life difficult for them.

David Gardner: But Alyce, you were a Mac person anyway. Were you ever pro-Microsoft? Were scales falling from your eyes or had you ever shown any love at all for Windows?

Alyce Lomax: I had never shown any love at all really other than I did like Microsoft Word, that was a very good piece of productivity software. As a writer, I used it extensively but seriously as a consumer, I had a pretty bad feeling about that company in terms of how it came across to the public. Its reputation wasn’t great. Again, I don’t want to denigrate but Bill Gates obviously was one of the OG technologists, like I said, who brought us to where we are today.

David Gardner: I think for me Microsoft Office Suite was a powerful suite of software initially, because that idea that you could share from your spreadsheet over to your word processing program, that was pretty revolutionary that you could actually use the same interface and menus for a database application as well as your word processing. Most of us, I think we’re just using Microsoft Word. I was with you there too Alyce, but I still remember and appreciate the early days of Microsoft for the standardization that Microsoft brought across multiple different types of apps and ultimately the integration. I will say I did make the jump over to Apple, but I was way behind you in 2008 and for me, it was at my daughter’s behest. She was a young teenager going, “Dad, I want an iPhone.” I was, ” Well, we don’t have that. We’re a Windows family.” One thing led to another and all of a sudden we had MacBooks and phones and all the rest and I don’t think I’ve ever looked back 15 years later. But Alyce, talk about the OG. You were the OG with your Mac back in the ’90s.

Alyce Lomax: Yes. I was indeed. I was also one of the OG people who had an iMac when those came out when they were the big heavy computers with the cute colors.

David Gardner: I remember the ads.

Alyce Lomax: I remember being teased for having a toy instead of an actual computer and it’s interesting after all of that stuff that went on with the antitrust situation and then Steve Ballmer started as CEO of Microsoft in 2000. He was there until 2013 and that was another interesting phase. I started at the Fool in 2003, so I’m starting to think of Microsoft as a stock and that was an interesting era because Mr. Ballmer arguably miss some major opportunities during that time. Underestimated the iPhone and the iPad, tried to maybe copy a few things like coming out with the Zoom music player which is not able to dislodge the iPad. I just saw a New Yorker quote from when he resigned that said that his reign had done more to defend Microsoft and the justice department could have ever hoped to do. At that time, I was just, “Forget it. I will never ever invest in Microsoft.” Then Satya Nadella came on board and let me say according to my quick research I did, the stock was priced at $36 at that time, and fast-forward to today and it is at $228 per share. Now, when he came to the home, I have to tell you, I was, “Good luck guy.”

David Gardner: I think most of us were Alyce. He was relatively unknown.

Alyce Lomax: Relatively unknown.

David Gardner: Stock had gone sideways as you pointed out for more than a decade. The day Ballmer took over to the day he retired and as I recall when he announced his retirement the stock zoomed up that day and he made like a billion dollars on the announcement of his own retirement. Highly ironic, but we had watched that stock for more than a decade go sideways, one of America’s greatest and biggest companies.

Alyce Lomax: It looked to me like dead wood. I admit it now that it was in my personal discard pile. I did not have high hopes. I don’t think I was thinking it was going to go out of business, but I wasn’t thinking it was going to go on to do great things. Fast-forward to today and it has been just such an amazing turnaround under Nadella. We not only have Office, we also have SharePoint, Microsoft Teams, Skype, LinkedIn, Xbox, all of that under that Microsoft umbrella. A

round 2019, I remember looking into the company and being,” Oh my God. I missed a huge business and cultural shift that happened under this CEO.” I like to look at the ESG lens, I feel like they do great things and sustainability in that area, things that are very innovative and then I also have to admit that over the years I’ve appeared occasionally on Motley Fool Live or on a podcast and been like, I really admired this company and I haven’t bought it yet. I am happy to say that I did actually purchase the Microsoft shares last year and even though that so far has not been a winner for me, I still feel very good about the idea that they have the type of balance sheet where they can continue to pursue interesting things. We heard today that they may be investing in OpenAI, the ChatGPT.

David Gardner: Did I see that recently or this past week?

Alyce Lomax: Interesting stuff going on. I think that my real takeaway is that I recognize that I stubbornly refused to see a cultural and business shift happening and I also would like to say I don’t believe it is ever too late to go ahead and change your mind. Take a stock out of the discard pile and consider it. I also want to include the caveat that some companies do rest on your laurels and never actually break out of such a cycle. But it’s so important to be able to question. The beginning of this I was sounding so negative and cranky but to be able to just go, “Wait a minute. I think I might have had this peg wrong.”

David Gardner: I think that’s the big takeaway and a lot of us, I hope, if haven’t already, will come to learn that. I have experienced that as well. I remember back in the day when there were computer graphics cards were a bigger hot emergent market for video games and two big competitors were 3dfx and Nvidia and I favored the former and thought the latter was our big evil rival and 3dfx disappeared and Nvidia has become one of the great companies over the last 30 years in an American business and I’m happy to say I’ve mentioned it is was like, “You know what? Can’t beat them, join them.” Recommended Nvidia. It’s been a wonderful winner.

I think it’s really important to remain fairly agnostic. I know this is particularly important to you and to me, Alyce, unless you feel that the company that you’re investing in is not right for the world, is not creating a better future, that’s when I would sell any stock. But many times it’s neutral to positive, but for whatever reason, it’s on our discard piles, you just said Alyce Lomax. I think a lot of us can relate. Microsoft’s a good example. I’ve still never owned it myself and I so admire the company and I’m grateful for my Xbox and all the rest. Well, Alyce, thank you for sharing a lesson from your own experience and I love that you are Apple OG. Have you ever owned Apple stock?

Alyce Lomax: I do. I own both.

David Gardner: Excellent, good. I’m glad to know that. That’s been a good one to have over the years. Well Alyce, thank you for sharing stock story number 3 this week and Foolish best wishes for your New Year.

Alyce Lomax: Thank you. You too. Fool on.

David Gardner: Well, a Motley array of companies thus far Coupang and then XPEL, and then Microsoft. Next up. Well, we’re getting here from Jim Mueller. Jim, welcome back to Rule Breaker Investing.

Jim Mueller: Thanks, David. Glad to be here.

David Gardner: How’s your New Year been? Have you visited your latest majorly baseball park? Wait, we’re not in season right now, Jim.

Jim Mueller: We’re not in season. 

David Gardner: But that’s something that you’ve been purposing. To get to every one of the major league baseball parks in America.

Jim Mueller: Yeah, I’m up to 33, I believe. I think I have seven left.

David Gardner: Seven left. Do you know, your next one and do you have a date circled on the summer calendar?

Jim Mueller: Not yet, but it’s probably going to be down in the Tampa Bay Rays, I believe is the team. That’s the other Florida team I have to go down to and I might try to hit the Atlanta Braves also on the East Coast.

David Gardner: That sounds like a good trip and something ahead in your New Year. Well, happy New Year, Jim, great to have you back on Rule Breaker Investing. What is the stock that you have today for us?

Jim Mueller: Well, I’m going to talk Redfin which is ticker RDFN on the Nasdaq.

David Gardner: Redfin. Now, I’m not asking Rick Engdahl, my producer specifically to theme our fourth sound effect threaded in to this campfire setting that Rick has really created for us through audio. I’m not going to ask him to pick something that would somatically fit with Redfin because it’s really not clear, even though I know Redfin is digital online platform for buying and selling homes. I don’t know how that would play into a sound effect but maybe Rick can somehow make sense of that. Now as we settle in around the campfire, Jim Mueller, what is the title of stock story number 4?

Jim Mueller: Well, the story is called changing the world is hard.

David Gardner: Excellent. Changing the world is hard, by Jim Mueller, take it away.

Jim Mueller: Once upon a time, there was a company that had a new way to sell homes. Not by agents and visiting you and taking around a visit various homes, but online. You were to meet up with an agent online, you’d have a virtual tour online, and because of this, they offered lower fees for buyers and sellers and they’re doing pretty well. At one point they would even buy your home from you at your price, fixing, update things and then resell making a profit, business called iBuying. They were not the only ones doing that, Zillow was doing that as well and there are couple others others still doing it. It was capturing market share, handling more and more of the sales in the country. In 2015, it handled 0.44 percent of all sales in the US. May not sound a lot, but that’s a lot of home selling.

David Gardner: Especially for a company, Jim that was founded in 2004 just a decade or so earlier to have one-half of one percent of the whole market. Not bad, by the way, I do notice now that I’m on their Wikipedia page briefly, this is a Seattle, Washington-based company, Jim, I think of you as a Pacific Northwest man yourself.

Jim Mueller: Yeah, definitely. I was raised there even though I was born on the East Coast, I consider the west coast my home. By 2017, the share climbed up to just about 2/3 of a percentage point and they came public that year at about $27 per share. They kept on slowly increasing the market share, and getting better at selling things online. Then, as happened to so many companies, the pandemic hit and at first it was bad. At the beginning of 2020, shares were down a bit about $21, with the lock down where everything froze and house sales slowed way down. As a result, they laid off a bunch of their agents thinking that’s going to be the way it’s going to play out for awhile and their share price dropped all the way down to 10 bucks.

David Gardner: A brutal summer of 2020 when we’re trying to figure out in a locked down world what it even means to buy a new house?

Jim Mueller: Well, they figured it out pretty quickly, they were caught by surprise because work-from-home started growing and people moved to the suburbs in record numbers. They had to hire a whole bunch of those agents back, and things were turning around that summer in 2020. Their market share climbed up to a solid one percent and shares had risen from a low of $10 in that COVID drop in March of 2020 to $42 by the end of June. Quadruple in what, three-and-a-half months. By the end of the 2020 shares had almost doubled again to $78 by the end of December.

David Gardner: Which is amazing to think back on it. I do want to mention there’s been an active Rule Breaker pick over the years. I picked it, I’m going to put myself out there, Jim. It was $19.97 summer of 2019. I was feeling pretty good as the stock crested. As you mentioned, it got up to as high as about 90 in February 2021.

Jim Mueller: One more point on December 2020, countrywide, across the US, the most existing homes were sold since the Great Depression. Huge booming business in 2020. Meanwhile in the background, they announced the purchase and closed on a company out of bankruptcy called RentPath. They handle online rentals and pairing up landlords with potential renters. They appointed a new CEO and tried to get that business off the ground again. They did that because cross-selling and getting people places to live, that really wasn’t an adjacent business for them. They deal with homes, getting people places to live, and now they’re dealing with rentals, getting people with places to live. 2021 though the crack started showing the peaks. Stock peaked about $92 in early February. RentPath was generating losses.

It was bankrupt after all. iBuying was abandoned by Zillow, but Redfin continued because they thought they had better discipline, but that started getting into trouble. Stock started to fall, end of June $63 down, 30 percent. Redfin announced the purchase of Bay Equity, which is a mortgage broker out in the San Francisco area and abandoned its own in-house efforts. That turned out to be a good deal. I’ll come back to that in a moment. By the end of 2021, as losses mounted and home sales started slowing down, shares had fallen to $38, less than half of what they were earlier in February that year. 2022, we all know what the story was there, inflation and higher mortgage rates and a sky-high housing prices, because those kept on climbing and existing home sales really started to decline. Especially where the price is too high and the mortgage rates climbing. End of June, again, a year after they were at 63, now they are at eight dollars in a quarter.

David Gardner: Eight dollars. My initial recommendation around 20 cut in half at that point. 2022, Jim, a perfect storm for a business like Redfin especially an emergent younger business with not as powerful balance sheet up against a lot of competition. I hate to say it, no spoiler here and I don’t know what your lesson takeaway is going to be for us, but it’s down further from where it was summer of last year.

Jim Mueller: Bottomed out at the end of 2022 at three dollars and 78 cents a share.

David Gardner: Astonishing.

Jim Mueller: Down another 50 percent  from June of 2022 to the end and down another 50 percent. It can always drop further, folks. They announced they’re getting out of iBuying completely, but they had a couple of good points at the end of the year. Their rent business had basically turned around. They’re expecting revenue growth year-over-year for Q4 of 2022, which they report in February just next month. Their mortgage business, Bay Equity, is helping make Redfin sticky for its customers. Its own in-house-built mortgage business the all-time high of customers of buying through Redfin, eight percent went with Redfin mortgages. Now 15 percent are going with Redfin mortgages because Bay Equity was a much better business and I liked that because it shows that if they’re willing to try something and if it’s not working and there’s a better solution, they’ll abandon what they tried and write-off the loss and buy something that will do better for them in the future.

David Gardner: I’m hearing a little bit more optimism for me, Jim, are you a shareholder of Redfin?

Jim Mueller: I’m a shareholder and it’s also a recommendation in the option service I run. Shares are now up from the lows of 378, about 515, and we’ll just see how it goes from here.

David Gardner: One fun fact about Redfin I noticed, Jim, is they have about 100 million shares outstanding, so when you know their share price, you can fairly quickly say what their market cap is. Their share price around five-and-a-half means their market cap is around $550 million, which is really in micro-cap territory for a business that wow, a year ago was at 90 or so down to five?

Jim Mueller: Yeah, it’s down well over 90 percent, but I don’t think the story is over. The CEO has been with the company since the start, he’s the co-founder, and he’s been through other housing crashes. He took the company through the great housing crash of the 2007-2008 time period. I think he’ll manage to get through this one. I know he’s really focused on the business. I think they’ve lined things up so that once they get through and once mortgage prices stabilize and housing prices stabilize, they’ll be able to start growing again.

David Gardner: Well, Jim, the story for this stock is of course not over. We hope, not nearly, but your story is just about over, what’s a didactic takeaway that having just heard the ups and the downs 19 years later for this business founded not so far from where you grew up, and yet at a fraction of where it was just a year-and-a-half ago. What’s the takeaway?

Jim Mueller: I think the company is on the right path in moving things online. Software will take over the world eventually, but it’s rocky and there’s a lot of outside forces that can affect how a company does as a stock. I think the company is doing well as a company, but as a stock, not so much, but eventually I think the two will lineup again.

David Gardner: Well, a lot of Rule Breaker members and members of your options service have their fingers crossed here. It has been a brutal last year. After all you did entitled stock story number 4, changing the world is hard and it has been. But I think a lot of us cheer on those online players who are disrupting in some senses, or trying to improve the experience of transactions across many different types of industries. The real estate industry, no exception, so fingers crossed. Jim, thanks so much for joining us again on Rule Breaker Investing.

Jim Mueller: My pleasure, David. Thank you.

David Gardner: On the stock story number 5 and oh my gosh, you and me. You dear listener and I were the only one stilt at the campfire. Yet we’re joined by one final ambiance sound that brings it all together here for stock story number 5. Thanks Rick Engdahl.  Well, the company that I’d like to present for stock story number 5 is Boston Beer. The ticker symbol is S-A-M, SAM, as in Sam Adams. The title, and if you go back over the series history, you will see that I always invent the lamest titles, is listen to and learn from our Market Cap Game Shows. Once upon a time, it was May of 2010, and I was casting about for what stock to pick for May for my Motley Fool Stock Advisor members. I had been picking stocks for Motley Fool Stock Advisor from inception, which was March of 2002. Here we were in my ninth year or so, it’s May the month of my birthday.

Maybe I’m a little bit distracted and I don’t have a great idea, and even though I had pretty much used all of my own ideas exclusively for those first eight years or so and would continue to do so almost exclusively right through into 2021 when I stepped away from picking stocks for Stock Advisor over those 19 or so years, one or two or three of the selections came from someone else, a friend of mine, an analyst, maybe right across one or two desks down from me at Fool HQ, and this particular month, May of 2010, it was Matt Argersinger. Matt who knows beer a lot better than I, who grew up in the Boston area, went to Brandeis University, a Patriots fan from the start, certainly a fan of Sam Adams. Matt said, “Have you thought about Boston Beer ticker symbol SAM?” I was certainly somewhat familiar with the brand and the story. Jim Cook, the founder, the charismatic founder of Boston Beer, somebody that I’d not got to know personally but observed and admired from afar, and so I thought, OK, yeah, that’ll be our pick.

Boston Beer stock was at $61 a share that month, May of 2010. Fast-forward, five years later, 2015, the stock crosses for the first time over $300 a share. We’re sitting now in a five-bagger after five years, feeling pretty great, and yet there were some war drums beating from the competition. Those of you who know beer a lot better than I, especially craft beer, may be able to appreciate a big line some years ago. It’s still out there today is how there are a lot of craft beers, aren’t there? How many more craft beers do we need? Is Sam Adams getting crowded out? Of course, Boston Beer has always had many brands besides just its signature brand Sam Adams. But a lot of doubt about whether there’s enough shelf-space for all of those craft beers out there, the stock would decline. It would get cut in half over the next couple of years.

By the summer of 2017, it had gone from $300 a share to 150. Then came the first appearance of the stock on the Market Cap Game Show of Rule Breaker Investing. We just did one a few weeks ago. I know we’ve got some Market Cap Game Show long-term fans out there listening to me right now. You may remember that Matt Argersinger was the original player. I would just play the game with him, not even against him. He was my one contestant and the goal of the first iterations of the Market Cap Game Show was that Matt, as the player, had to guess within 20 percent either way of the stocks actual market cap and you, as my player at home, could agree with Matt or disagree with him, but that’s how we played the game. It was just one person trying to call somewhere near the actual market cap. I’ve recorded it here. I brought that stock at twice in 2018. Both times, that overestimated the market cap of the company. He didn’t do poorly.

The first time, SAM’s market cap was 2.1 billion, Matt said 2.5. Six months later, September of 2018, the stocks market cap had grown to 3.7 billion. Just six months later, Matt said 4.5 billion. One of the old saws, one of the lessons I’ve always returned to when it comes to listening to and learning from our Market Cap Game Shows is when you tend to guess high for a given company and it turns out the market cap is much lower, I’ve often said, isn’t that a pretty bullish sign. After all, you thought it was much bigger than it actually is, and so why wouldn’t you add that stock to your watchlist? Consider purchasing shares, the stock around $300 a share. As Matt overestimated not by much, Matt was really good at the game, the market cap. Well, by 2019 it gone from 300 to 400, and at its peak during COVID in March of 2021, when a lot of other stocks peaked to about two years ago, SAM had arisen from 300, where Matt misguessed it that day in 2018, with its market cap has gone from $300 to $1300 a share.

A spectacular winner now. I wish we had sold that. I wish the market stock we’re going to close down a couple of years and hadn’t traded since then. But unfortunately, we’ve watched the stock lose a lot of value over the last couple of years. As I move toward my didactic lesson, I’d like to point out that SAM went strong into hard seltzer, its brand Truly, certainly a category leader in the hard seltzer market. Hard seltzer became a big growth area for not just Boston Beer, but this whole industry. But through 2021 and into 2022 a hard seltzer crash, everybody also brought out their hard seltzers. You may have noticed the ads out there, and all of a sudden, SAM wasn’t selling as much truly as it thought, and so Boston Beer watched its inventory of unpurchased hard seltzer grow and the costs of carrying that inventory in 2022 pretty much wiped out the company’s profits in the near term.

All of a sudden, the stock dropped from $1,300 a share at its peak to where it sits today, as we speak. Second week of January 2023, at around $330 a share, about five years after it had been at 300 when Matt made his Market Cap Game Show call. Two quick takeaways from this one. The first is that take it all-in-all for truly Foolish long-term investors, truly a little bit of a pun on the hard seltzer brand, truly, it has been a winning stock. From May 21st of 2010, ticker symbol S-A-M Boston Beer has risen 450 percent for investors, the market over that time 250 percent so almost twice the market’s overall return. You’ve gone through a lot of volatility to get there, but more important, the stock has returned to levels now that have been attractive in the past when a lot of us thought, hey, the market cap must be higher for that company. Well, I’ll give you a quick quiz here at the end of this week’s podcast, dear listener, asking you, can you guess within 20 percent of Boston Beer’s market cap today? I’ll give you 5-10 seconds to think about your answer.

What do you think Boston Beer’s market cap is today? Got your answer. Okay, great. It’s now $3.9 billion, which is a pretty small market cap for a pretty big company. When you consider where its stock price has been recently and how far down it is, might be worth adding to your watch list, but it’s still worth pointing out as far down as it is. It’s still been a spectacular winner over more than the last decade. There is how I want to close out stock story number 5. Listen to and learn from our Market Cap Game Shows and in particular pro tip, pay attention to stocks where you thought the market cap was much bigger than it actually is. Well, I hope you enjoyed this addition of Stock Stories, Volume 7.

If you did, there are six others you can listen to for didactic lessons in other companies from the past, including some of the same voices you heard this week telling other stories. I’m thinking about Matt Argersinger who told the story about Twitter back in the day, or Emily Flippen last time on Switch Fix, Tim Beyers on MongoDB. Just a few of many examples of lessons to be learned, illustrated by stories, stock stories. Also, I sure did enjoy our expensively post-produced campfire setting just the right tone, making our stories that much more memorable. To close, the reason that you and I even could read the Odyssey and the Iliad when we went through school is because there is an oral tradition that handed down those stories over centuries, which means great stories need to be memorable. I hope at least one of these was memorable for you.

This go-round to celebrate them, I’ll just conclude with the titles to remind you of what you’ve heard this week. Rick Munarriz telling, you dropped out of Harvard for this Coupang. Auri Hughes, discover my biggest winning stock, XPEL. Alyce Lomax, better late than never, speaking of Microsoft, Jim Mueller, changing the world is hard, Redfin. I close to that. Do I have to give my title one more time? Fine. Listen to and learn from our Market Cap Game Shows talking about Boston Beer. That’s Rule Breaker Investing for you this week. Next week, our Reviewapalooza, looking forward to five stocks rolled up at random and five stocks that spark joy, which will enter Foolhalla for good or for ill. We shall see. In the meantime, have a wonderful week. Fool on.

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