The top 5 performing stocks of the past 10 years are all Rule Breakers. David takes a deeper dive into these all-star Rule Breakers.
Rule Breaker Investing
The Top 5 Stocks of the Past 10 Years
It's the Rule Breaker Investing Podcast with Motley Fool co-founder, David Gardner. Welcome back to Rule Breaker Investing. I'm David Gardner, and it's a pleasure to be joined by many new listeners. I'm really excited to see the success of our podcast in its first several weeks. Number one, in investing, number nine overall, last we checked iTunes, not that we refresh every hour to check up, but it's exciting to see and know that so many of you are tuning in. And I know we have a lot of Motley Fool members, and we have a lot of people who don't really know the Motley Fool and are just learning about investing for the first time. So a lot of different types of people to speak to, but it's my pleasure to do so each week. I'm David Gardner. I'm the host, and I'm here this week to talk about the top five stocks of the last 10 years. So I got a lovely letter from Roger King of Tampa, Florida, a Motley Fool fan. He just dropped me note, pointing out the Fortune 500 issue, which came out last month. So the Fortune 500, which looks at 500 of the largest companies in the world, American companies, and looking at the performance of those companies by many different metrics, one of which, of course, of great concern to us is how their stocks returned. And I just wanted to go over the top five companies and then draw five lessons about these companies. So the first one is we're going to count them up. So we're going to start with number five, the fifth best performer, salesforce.com, salesforce.com, which returned about 30% annualized from 2004 right through to the end of 2014. I'm really happy to say that Motley Fool Rule Breakers recommended salesforce.com January of 2009. So we didn't have it all 10 years, but those five years or so and counting the stock is up. Last I looked around 900% so it's been a wonderful ride. And this one, which is covered in Motley Fool Rule Breakers, came from Tim Byers, which reminds me to mention that especially Motley Fool Rule Breakers is a team-based service where I get some of the best ideas from some of the best thinkers that I know and Tim and I picked salesforce at $6.89. It's now right around 70 as of this taping. We also added to it in 2011 at 25. Salesforce is a company that helps businesses monitor their interactions with customers, with prospects, customer relationship management software to the cloud explains a lot behind that company. So as I go through the list, just ask yourself as we're talking about these companies, why do you think that company is in the top five? So salesforce.com. Number four. Number four is Selgene. Selgene is the blood cancer biotech company. Selgene, I'm very happy to say, is the Motley Fool Rule Breakers pick as well. We picked it in February of 2013. So much more recently, it's been around a lot longer. Obviously I had a great 10-year run. We've enjoyed it though, since Carl Teal on our team picked it at $50.52. It recently crested over $130 or so, as I speak, and here's a company that's been a dynamic leader in blood cancer solutions, and recently it was in the news for acquiring Receptos, which was another company we had on our watch list, which means that company's not on our watch list anymore. Number three. The third best performer of the Fortune 500 of the last 10 years is Apple. Apple has performed about a 38% annualized return over those 10 years, 2004 to 2014. I'm really happy to say that that stock is a Motley Fool Stock Advisor selection multiple times. I think that when I was first picking it and thinking about it in January of 2008, when it was at $21.65, I remember thinking, "Have I missed it?" I mean, I still love Apple. I believe in Apple. In fact, at the time, as many Apple fans as there are in the Fool community, we didn't have any of our services, with the stock as an active recommendation. Of course, this is well after the iPod has been a raging success, and yet Apple has just been a tremendous performer over the six and a half years that we've seven and a half years now that we've held it, going from $21 a share to a recent new high around $130, an all-time high for Apple. We did add again in 2008 at $23 and in 2011 at $43, so you're maybe starting to notice a theme here. The second best performer of the last 10 years is Netflix. Netflix, for many great reasons, everything from its culture, which is one of the strongest places to work in America right through to its position as the world was going to start streaming movies and TV shows. Netflix got ahead of that and took the world, increasing amounts of the world there and made it possible for you and me to stream and binge and all the things that Netflix is rightly celebrated for in addition, of course, its original content. I picked Netflix in October of 2004, so I'm happy to say most of that 10-year run Motley Fool members have enjoyed. The stock was $2.33 split adjusted that day, so for it to be cresting over 110 in recent weeks makes me, and I know many, many Motley Fool members, pretty happy. I am also going to point out that the stock dropped from there in 2004, and I decided to add to down position, so we actually got it down below $2 a share of buck 85, and then added twice in 2006 and added again in 2013. I also want to mention one other little mini theme for our podcast this time, which is that my brother Tom also picked this stock, so Tom and his team picked it in 2007 for stock advisor, and I've had a lot of friends who said it wasn't until Tom picked it that I also, with Dave and Tom, that's when I finally bought, so those of you who've owned it only eight years, not all 10 of these years, I know you're still very happy, and I'm going to introduce the top performer now, but before I do, I'm going to remind you that we're about to draw five lessons about these five companies. The top performer in the Fortune 500 over the 10 years 2004 to 2014 was Priceline. I'm really happy to say the Priceline is also an active Motley Fool recommendation. I picked it in May of 2004 at $23.71, so today for it to be tipping the scales over 1,200 means that we've had more than a 50-bagger for Priceline. By the way, Netflix has been just about that good right around 50 times our money. I'm also happy to say that I added to Priceline in 2010, and that's a fun one just to mention because the stock was up eight times in value from May 2004 to 2010. I remember a lot of members saying, "Dave, we like this one again? This one is up, I think, eight times in value, and you're going to pick it here again in the good news is we did." The stock is up another six times from there when we paid $193.09 in 2010, so finishing up this list, I do want to mention for this one as well. My brother Tom selected Priceline as well in 2012, and so a lot of Motley Fool members own these stocks. Now five quick lessons. The first is, I guess, to point out the obvious, we had them all, and I'm pretty excited about that, and I hope you're excited about that. I'm glad you found us. I'm glad you found our podcast and our way of thinking about investing. Two other quick notes. We actually have number six and number seven on the list as well. I just present the top five, but LKQ and Gilead Sciences are number six and number seven. We didn't enjoy those for all 10 years at all, but both of those have been substantial winners for Motley Fool members. One other thing I'll point out with this point, number one, is that we've added to these companies. You'll notice a number of times I mentioned we bought it initially back in that year, but then we added it, added to it, and so we've built up big positions and a lot of members, I hope, have added along with this, and I hope it makes sense to you that you would add to winners over time. We'll talk about that in another Rule Breaker investing podcast, but many of us think only to add to things that are down, hoping to lower our cost basis or, as they say, sometimes, get back to even. In our experience at Motley Fool Rule Breakers, Motley Fool Stock Advisor, what I've written over the years, I much prefer to throw not good money after bad, but good money after good and make it better. Lesson number two about these five companies is that every one of them is a leader and a world beater. Most of the great stocks that we're going to find over the course of time are going to be the companies that were the lead huskies that were, in the case of Netflix, developing an industry around it, really leading the creation of new technology. Or Apple just flat out becoming and being the best brand in the world and the biggest company in the world. In fact, Apple, at the end of 2014, when these numbers, where these numbers come from, Apple was about twice the size of the second largest company in the Fortune 500. My third lesson about these companies is look how they conform to our six Rule Breaker traits. We've covered them in the three previous podcasts. If you haven't heard those, I hope you'll go back and listen. I cover each of the six Rule Breaker traits two at a time. If you go back and look at these five companies, we don't have time today, but you'll notice that they tend to conform to traits like top dog and first mover in an important emerging industry or outstanding past stock price appreciation or people thinking that they're overvalued the entire way up. Rule Breaker traits, I think, are very much in evidence with these real top performers over a decade long periods. Number four, every one of these looked expensive when I bought it. I already mentioned that Apple had already had a huge run before it began another great run for us. Netflix never looks cheap except when Quickster shows up once a decade, but for the most part, each of these companies was always with a high price to earnings ratio by most measures that traditional analysis uses. They looked overvalued and you would have been crazy to buy them when we bought them. That's the reason some people don't buy them along with us because they sit back and for understandable reasons because we're wrong about one time and three. They sit back and say, "That one just looks -- I'm going to wait for that one to drop. I'm going to buy that on a dip." But I think more often than not, I simply have been rewarded in life for just going for it and not waiting for dips. In fact, I once wrote a column that I still remember with a smile on my face entitled to dips by on dips. Anyway, five and the final lesson from this list is that you actually had to hold these stocks in order to achieve these kinds of returns. I think a lot of people may have said, and I've heard it many times, from members and other Motleyful fans over the years, I had Apple way back in the day at X price, but I sold at Y price and Y is usually higher than X, so that's good. But Y is often a fraction of where these companies are today. Part of the magic of this list and of the returns that I'm talking about that we're achieving in our services is not just that we're finding great companies or we're getting them early, it's that we're holding them all the way through. A classic example to close with here is just Netflix. In recent memory, we can all remember Netflix collapsing, but let me just go back to my 2004 recommendation. When I bought it $2.33, it dropped to $1.85, I added a little bit more than the stock then cruised up to $42.00 in 2007, $8.00, pre-the-quickster debacle. The stock dropped again, our cost bases were about $2.00 a share, it was at $42.00, it dropped to $8.00. That's not easy to sit through, and there was a lot of anguish certainly among our community, and I didn't feel too good about it either. Let's be clear, I didn't know that the stock would in fact rebound from $8.00 where it touched down in 2008 and $9.00 to about $110.00 today, five years later, so I'm absolutely delighted, but to close the podcast this week, let's just remind ourselves of the power of holding on, of being a nerd, of being let's have fun with it, of being lazy, and just not acting so frenetically around our stock market positions. Closing lesson number five, the real magic to these returns is that you had to be there. You had to lean in, and sometimes you had to take it on the chin from multiple directions multiple times over these 10-year periods, and each of these stocks remains an active recommendation here in 2015. In fact, the list I gave you and the stats I gave you were from Fortune 500 through December of 2014. Netflix has more than doubled since then, so a wonderful list. I want to thank Roger King for his letter that he took the time to tap out and send up to us at Full HQ. Before we wrap up this week, I want to mention another one of our podcasts, and that's Motley Full Answers. Let's a weekly look at some of life's biggest financial issues, and this week's special guest on Motley Full Answers, well, it's me, so I had a great time with it. Please check it out when you have a minute. That's Motley Full Answers. You can find it on iTunes, on Stitcher, and, of course, on Fool.com. All right, with all that said, thank you for tuning in this week, Fool on. As always, people on this program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Learn more about Rule Breaker Investing at RBI.Fool.com. [music] [BLANK_AUDIO]