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Not All That Retails Is Profitable

Chris Hill, The Motley Fool

In this week's Motley Fool Money, host Chris Hill chats with senior Motley Fool analysts Jason Moser and Ron Gross about some of the biggest market news. Results from retail giants Walmart (NYSE: WMT), Macy's (NYSE: M), and Tapestry (NYSE: TPR) could hardly be more different. Fraud accusations hurled at General Electric (NYSE: GE) could spell big trouble, or could fizzle away. NVIDIA (NASDAQ: NVDA) put up some solid numbers, continuing a slow turnaround. Plus, the analysts share some stocks on their radar.

Stay tuned for an interview with Motley Fool co-founder David Gardner. David talks about how his investing style has changed over the last 20-odd years, some takeaways from his recent trip to China, and much more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.


This video was recorded on Aug. 16, 2019.

Chris Hill: Shares of Walmart up more than 6% this week after a strong second-quarter report. Ron, it was Walmart's 20th straight quarter of sales growth. 

Ron Gross: Yep. Not all retail's suffering. Strong second quarter from Walmart. Comparable sales up 2.8%. Up 7.3% on a two-year combined basis. That's the best two-year comp growth in more than 10 years. E-commerce accounted for half of the same-store sales growth, and that was up 37%. The company continues to get it done. 

Hill: It really is amazing that they've put up this kind of growth quarter after quarter, now for five years. Is the stock expensive? If you're a shareholder, you've had a really nice run.

Gross: It's about 23 times forward earnings. That is actually not that expensive relative to Costco, with 32. Seems expensive relative to Target at 14. But Walmart is putting up the numbers to deserve that multiple. The strength in grocery is really impressive, and continues. There are 2,700 grocery pickup locations now, 1,100 stores doing delivery, they've got their next day delivery program that covers 75% of the U.S. population now. For those of us -- and I guess I put myself in this category -- who were really down on Walmart a bunch of years ago, kudos to them for turning this business, especially in the U.S.

Jason Moser: It was easy to be down on them during that time. I think we were all guilty of that. Whether you're Amazon or Walmart, you need a physical infrastructure in place to get stuff from point A to point B, whether that's people buying stuff in store or you shipping stuff to people. And Walmart's done a very good job of utilizing that physical infrastructure they already have, and becoming more of the omnichannel retailer yet. Like Ron said, they really have executed well on that front.

Hill: On the flip side, Macy's second quarter featured profits that were much lower than expected and guidance that things were not likely to get better anytime in the near term. Jason, Macy's stock down more than 15% this week.

Moser: We were talking about Walmart's valuation at something like 23. Macy's shares are trading at around 5.5 times full-year estimates.

Gross: Sold.

Moser: And that's after they ratchet back --

Gross: And that should tell you something, right there.

Moser: It really does. And I've said this before -- it feels like with Macy's, you're never surprised when this happens. When they guide down or miss, and the stock gets hammered, that seems like it's par for the course for these guys. It's a difficult job being a retailer in today's environment. But if you look back over the past several years, it's never been a good time to own this stock. Sales from 2015 to now down 11%. Net income is down 33. Earnings per share down 22%. They've burned through a considerable amount of cash along the way. And now, because of the stock's suffering, the dividend yield on this thing is closing in on 8%.

Gross: Keep an eye on that.

Moser: That is unsustainable. There are a lot of reasons to be concerned. Now, I will flip this coin over on the other side. There is a real estate angle, at least, to the business. They have a lot of real estate, and there is a partnership with Brookfield to try to exploit some of that real estate. It's possible, maybe, down the line, you see Macy's try to pursue this REIT strategy. I'm not sure. Regardless, a lot of this is self-inflicted.

Hill: Didn't we hear something about Sears and real estate back in the day?

Moser: [laughs] Well...

Gross: How'd that go?

Moser: I was hoping you would mention that. I do want to say for clarity here that I'm not calling that a thesis by any means. I said angle, OK?

Gross: This cycle of, whether it's department stores or specialty retail stores, of inventory-ing up, then going promotional, and margins getting hit because everything's getting discounted, and then there's price wars among the various players -- it just doesn't seem like there's an end to that. This is a tough business. Getting not only the proper inventory right, but the amount of inventory right, it's a tough game in this world of Amazon and other online players.

Moser: It is, and I think that was one of the biggest problems Macy's had here over the past several quarters, it is on the inventory front. Now, that said, it seems like they maybe have gotten rid of that excess inventory. It's just a matter of whether they're able to get those inventory levels right going into the back half of the year. If they do, I could certainly see a world where this stock is a nice performer from today's price. Again, I would think that's a value investment, not some type of a long-term buy and hold the stock.

Gross: Agreed. But I think investors, as you said, should be watching that dividend. A cut could easily come.

Hill: The roughest week in the retail world belongs to Tapestry, the parent company of Coach, Kate Spade, and Stuart Weitzman. Shares down more than 25% this week after, Ron, kind of what we saw with Macy's. Fourth quarter results didn't look good and guidance for the first quarter of the new fiscal year was lower than expected.

Gross: Yes, not good, but it was mixed. It wasn't as bad as a 22% decline in the stock it would perhaps indicate.

Hill: Really? Because the stock did sell off that much and more.

Gross: [laughs] Yes, but that's not always warranted. But in this case, yes. Things are not great. Total revenue up 2%. A little anemic, but up. But that was below expectations. The Coach brand itself, revenue was flat. The bright spot, Stuart Weitzman, was up 17%. That was good. But the kind of thing I think folks are really focused on is the Kate Spade brand, where comparable store sales were down 6%. The company continues to struggle to clear that excess inventory. We keep talking about inventory. I sense a trend. But, they really are struggling. And even when they introduce new lines, they don't seem to be reacting with consumers. They really need to turn the Kate Spade brand, I think before you start to see any combined strong operating results. And as you said, the guidance was disappointing as well. Overall, that's not that fun in a bad retail week anyway, so investors sold off the stock.

Hill: I get that retail is hard to do well, but we are in an environment where consumers are spending money, and it really seems like this week is one of those weeks that illustrates who's doing a good job just on the operational level and who's not. You look at the Tapestry brands, those are decent brands. It's not like they're damaged in any significant way, as we've talked about in the past. Sometimes we talk about apparel retailers -- Abercrombie & Fitch comes to mind -- where they've had their troubles over the years. It seems like this is, what's the Buffett line? When the water goes out, you see who's naked. This is one of those weeks. Walmart, they're getting it done. Some of these other retailers just aren't.

Moser: I have to say, I feel like we're in a new age where brands just don't matter, perhaps, as much as they used to. We see recently Barneys, for example, is filing for bankruptcy. There's this online luxury goods market place called Farfetch, a publicly traded company, their earnings came out. It was abysmal. Lugubrious, you might say, Ron.

Gross: Ooh. I might!

Moser: And the stock got hammered because of it. I don't think brands necessarily are resonating with younger consumers today as perhaps they did once before. Amazon, for crying out loud, is developing their own private line of clothing. I've gotten some of those Amazon dress shirts, and I'll tell you what, they fit really well and I don't care so much about the brand label.

Gross: Especially luxury brands. Stuart Weitzman, Kate Spade, these are high-priced items. It seems more and more consumers are looking for a value, a price point that makes sense for them. Not always. Obviously, things that are sold out of J.C. Penney don't seem to be getting purchased, as that stock is a mess and that company is a mess. But in general, I think luxury is less in fashion right now.

Hill: Yeah. If you're Macy's, I think you're looking in the mirror and saying, "Well, at least we're not J.C. Penney," because they got a letter from the New York Stock Exchange, they're in danger of delisting. You were saying during the break, Ron, they're probably going to do a reverse stock split.

Gross: Yeah, which has to get shareholder approval. That can't happen overnight. But the stock is under $1, and it can't stay forever like that. They have to do something. But the business just keeps deteriorating. They're cutting inventory about 12.5%. They're trying to do what they can do to improve margins, which they have. The new CEO is doing a decent job. But the company's got about $4 billion of debt. They just don't have the time or the balance sheet, or even the business, quite frankly, to turn this.

Hill: Here's where we are. We've got the two most important seasons for retailers coming up from now to the end of the year. We've got back to school shopping that's going on right now, the end of the year, we've got Thanksgiving, Christmas, all of the shopping that goes with all of the holidays. For some retailers that are struggling, this seems like an opportunity to turn things around. For others, where they're doing pretty well, there's a chance they could blow it.

Ron, I'll start with you. In the next six months, which retailer do you think has the greatest opportunity to change their image, for good or for bad, with investors?

Gross: To change their image, not only just do well. That's interesting. I've always been a fan of Nordstrom. They've had their ups and downs. I think they still have the ability to execute and get their merchandise assortment correct and make this a destination shopping place, even though it's a mall retailer that people go to. So, I'll go with Nordstrom. But I don't necessarily think they're the best positioned for the holiday season. 

Hill: Jason?

Moser: Certainly, Macy's has an opportunity there, but I don't want to call them out because I'm going to go a little bit more specific here and call out Under Armour. Under Armour had probably a better quarter than the market gave it credit for here recently. But I do feel like this relationship with the consumer is becoming only more important as time goes on. Nike is the blueprint of success here. They are doing such a good job of nurturing and developing that relationship. That's something that Under Armour is doing. I think, if they keep on following this path, they will bring those numbers back. You mentioned it a couple of times before, they have really good stuff; why can't they make this work? I think it all goes back to some bonehead business decisions Kevin Plank made a little while back. But the brand itself still works, and ultimately, the product is a good one. They've got things going in the right direction, and if they can pull some good numbers this holiday season, I have to believe this stock is going to see better days.

Gross: I do think, over the next six months, that the discounters still end up winning the day, whether that's Walmart, Costco, even Target, perhaps. Not the mall-based retailers.

Hill: On Thursday, shares of General Electric had their biggest drop in more than a decade. Harry Markopolos is an accounting expert best known for blowing the whistle on Bernie Madoff. He published a report accusing GE of issuing false financial statements as far back as 1995, and calling the whole thing, quote, "a bigger fraud than Enron." Ron, GE denies it all.

Gross: The report claimed $38 billion in accounting fraud. The report claims they need to raise insurance reserves by $18 billion, that they're hiding a loss of more than $4 billion on its holding in Baker Hughes, that there'll be another non-cash charge of $10 billion when new accounting rules take effect. Analysts came out the next day and defended GE, and said this report seems to be a bit disingenuous, and even inaccurate. And there's some conflicts here, quite frankly. Markopoulos is being paid based on the success of the trade, a hedge fund is paying him for this report and he gets a little cut of the success. So, there's a conflict of interest there as well. Larry Culp, the new CEO, who actually is highly respected, came out and bought $2 million worth of stock personally this week to show his confidence in both the company and the accounting. 

I think it might have been a lot to do about nothing. We'll have to wait and see if any of the stuff pans out. But I also saw a lot of analysts say, a lot of this stuff was already known and it's already priced into the stock. We understand that Baker didn't do well and a writedown is probably coming, and that there's some accounting things that may need to be updated; but it's not as bad as the report would indicate.

Hill: It feels, though, like one of those moments where a year from now, we're going to look back and say either, "That was the time to buy shares of GE," or, "That was the first indication that it was all falling apart."

Gross: Yeah, that's fair. It's been a rough multi-year run for GE. The stock's down 66% over the last five years vs. a 44% increase for the S&P. This has been a dud, even without this.

Moser: Yeah. I don't want to come to the defense of GE. Regardless, it's just not a stock I want to own. It seems like this accusation, this piece, it certainly implies that the auditors are complicit, in some regard, too. It's not like these companies can just do whatever they want and their books are never looked at. You're saying that this is a systematic failure of many, many different forces at play. 

Gross: Over decades.

Moser: Right. I have a hard time buying it. I mean, it's been a horribly mismanaged company from a lot of angles. I have a hard time swallowing this pill that was lobbed up this week, though.

Hill: Shares of Nvidia up this week. Second quarter profits and revenue for the high-end graphics chip maker came in higher than expected. Jason, Nvidia's had a roller coaster year in terms of the stock. A report like this certainly helps. 

Moser: It does. I went back to May of this year, when we were talking about it on this show, and I was saying it's a good business that's just dealing with some self-inflicted injuries. Looking further out, I think there are plenty of reasons to be optimistic. But I also look at Nvidia, and I think it's fair -- Ron, I don't know how you feel about this. Give me your opinion here. It's fair to look at something like Nvidia like a Disney movie segment. In other words, it's going to be lumpy from time to time. It's not necessarily as sustainable as something like maybe a Coca-Cola where you know they're selling all this Coca-Cola all over the world. So, it is a bit hit-based to a degree. But the nice thing about Nvidia is that they deal with a number of different revenue streams. 

Now, for the quarter, data center spending was down 14% from a year ago, but up 3% sequentially. Their RTX technology is helping reshape the gaming world, which is encouraging. Sequential gross margin improvement of 140 basis points. On a year over year basis, probably not the greatest picture in the world. On a sequential basis, it seems like things are starting to recover.

Hill: This week, Chick-fil-A rolled out a new menu item -- mac and cheese. It's the first time since 2016 Chick-fil-A has added something new to its menu. Jason, I know you selflessly did some boots on the ground research.

Moser: Selflessly. My lovely wife and I last night tacked on a little mac and cheese to the dinner. Hey, listen, you're probably going to go find the independent BBQ joint where they have this mac and cheese that's worth writing home about. I will tell you, I was thoroughly impressed. It was delicious! It has the opportunity, in my eyes, to replace the car fries. For listeners who've been tuning in for a while, whenever I go to Chick-fil-A, you know I like getting the car fries. The mac and cheese is really that good. 

I thought about it this way. For all of the heat that Chipotle gathered for their queso, I think Chick-fil-A deserves as much credit for how they pulled off the mac and cheese. It's good stuff!

Gross: It's a great run business!

Hill: Just don't eat mac and cheese while you're driving. We don't want that.

Moser: You'd need a very special spoon.

Hill: Darden Restaurants, the parent company of Olive Garden, knows when it has a hit on its hands. For the sixth year in a row, Olive Garden offered the never ending Pasta Pass for $100, but for the first time, consumers had the chance to upgrade to a lifetime pass for $400 more. Steve Broido, our man behind the glass, the dozens of listeners want to know -- did you take advantage of either?

Steve Broido: I did not. But I think it's a good thing. It's a good thing!

Hill: [laughs] It seems like a good thing for all Olive Garden.

Gross: It brings in $2.4 million right off the bat, and it gets folks like us talking about it. For the consumer, a good deal. If you eat their fettuccine alfredo two times a month for 30 years, that's a $10,000 value you get for $500.

Hill: Alright, real quick, radar stocks. Ron Gross, you're up first. What are you looking at? 

Gross: Berkshire Hathaway, BRK-B makes a lot of sense in this market. Highly diversified holding company. Insurance, energy assets, manufacturing, retail. Good hands on both the money management and the operating side. Trading at only 1.3 times book value.

Hill: Steve, question about Berkshire Hathaway?

Broido: Sure. What's your second favorite biggest holding company? 

Gross: I like Leucadia. I think the new name is actually Jefferies. They do a nice job. A little bit hairier, but they do a good job. 

Hill: Jason Moser, what are you looking at?

Moser: Taking a look at Hologic, ticker HOLX. Medical technology company focused on women's health via diagnostics, imaging, and surgery. Nice, diversified revenue stream. $13 billion market cap. They've got some traction behind the business. Digging into it for the AR service.

Hill: Steve?

Broido: How do virtual doctors play into this business?

Moser: You do see, in imaging, they're starting to leverage that workforce around the globe. There's that.

Hill: Steve, you got one you want to add your watch list?

Broido: HOLX.

Moser: Hey, now!

Hill: Alright, Jason Moser, Ron Gross, guys, thanks for being here!

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Hill: David Gardner is the co-founder, co-chairman of the board, and the chief Rule Breaker here at The Motley Fool, and he joins me in studio. Thanks for being here!

David Gardner: Thank you very much, Chris!

Hill: There are some investing things I want to get to. But let's start with a trip that you took recently to China. You and I chatted a little bit about it in the hallway one day here at Fool Global Headquarters. I remember you said one of the things that was an adjustment for you was the lack of Google in China, and just how prevalent Google is as something that we use in our everyday life. Besides that, what struck you about China, particularly to the extent that it falls in line with business and investing?

Gardner: We've been, in general, China bulls here. I won't even say on behalf of The Motley Fool, but I'll at least say the services that I have overseen for a couple of decades. Rule Breakers, some of our very best performing stocks have been the Chinese companies that people said, "I would never trust the finances. Those financial statements, you can't even trust them. A lot of those are frauds." And they were saying that back in 2000, and 2010, and 2020. But in fact, some of the best companies in the world today are Chinese companies. They're doing lots of important work. Companies like Tencent, Alibaba. Baidu has been a longtime winner. Not great in the last few years. But these are really important franchises.

So, one of my big takes, having just gotten back from China -- for the first time. I know many of our listeners have been multiple times, and are like, "It took David this long to figure that out?" Yeah, it did. At the age of 53, I finally went to China. And one of my takeaways was, no matter what big market cap you see on any company today, like $1 trillion at Microsoft, that's going to be small relative to what it might be 10 or 20 years from now. The experience of going to a totally different place in the world, for us in the U.S. halfway across the world, and seeing how much humanity and really how much business is being done, and yet still so inefficiently in a lot of ways, not with a real global mentality, trade wars slowing that down and retarding that -- although I also think trade wars are going to be an overplayed story. I think 10 years from now, we're going to look back and say, "Yeah, that was a thing that lasted for a few years." I don't think it's the story of this next generation at all. 

So, for all these reasons, I think I've been rewarded for being a Chinese bull. Whether or not you want to buy Chinese stocks, companies like Alphabet or Starbucks that look like they have really big market caps, hold those stocks because they can get a lot bigger as the world continues to grow in population and we do more and more business with each other, trade wars or not.

Hill: We got an email, radio@fool.com is our email address. Not to make you do my work for me --

Gardner: Let's do it! 

Hill: We got this email, and I thought, "Oh, this is actually a perfect question for David Gardner," because you've talked before about the concept of adding to your winners, looking at your portfolio and thinking, how can you add to your winners? We got a question from Marcus Lum, who identifies himself as a millennial investor/ Fool in Vancouver, Canada.

Gardner: We need more of them. 

Hill: Marcus writes, "Can you give me some clarity on when I should add to my winners? In my case, I've been averaging up, which seems counterintuitive in some regard, so this is the question that I'm wrestling with." And I think it's a very natural question because, yes, we want winners in our portfolio, but we like it when our cost basis is low.

Gardner: Yes. But with that long-term mentality that any millennial should be taking, and that Marcus is taking, I bet, he's already doing the right things, we should realize what happens in markets over the course of time? 10, 50 years? And great stocks? And the answer is, if you step away and look at a graph of the S&P 500, or a great company like even Microsoft, over 30-year periods, they go up. They go up over time. You know this, Chris. Most of our listeners know this. The stock market itself on average goes up about 9% or 10% a year annualized. That is amazing! And winning stocks exceed that. So, what you're really looking at -- the mental picture, Marcus, that you and all of us should have -- is, picture a little line that starts in the lower left, and it goes to the upper right over a meaningful period of time. So, of course, you should be buying all the way up. Winners win. Chris, what do winners do? 

Hill: They win.

Gardner: They win. Now, not every company's a winner, and not every stock market is a winner. Argentina had a big loss based on pretty rational thinking, which is, if the regime changes over in Argentina back toward (unclear 25:08) backward, capitalism doesn't count kind of mentality, yeah, it's going to suffer mightily, as Venezuela has. Not everybody's a winner. But when you find winning economies, winning entrepreneurs, winning companies, typically, you should expect the New York Yankees -- it hurts me to say this -- to keep on winning. Even if you're not a Yankees fan, you should respect why they win and expect that to continue. 

So, Marcus and everybody else, it's the right mentality to continue to add to the things that go up and not add to the things that go down, even though most of the world things buy low/ sell high and sees parabolas where I see hyperbolas.

Hill: I know you've added to your own winners over time, but have there been points where you've looked at a stock and thought, "Not under these circumstances"? Maybe it's a valuation thing. Maybe it's, "It seems like I can find better value elsewhere." Or even something as simple as, "You know what? In my own personal life, I've added to this a couple of times, and if I keep on adding to it, it's going to get to be an outsized part of my portfolio"?

Gardner: Yeah. All of us have our own calculus and need to have an awareness of our own situation. There's no cookie cutter answer to it. You don't always add to every winner, you don't always ignore every loser. But a couple of the things that I think about, Chris, are, when you're looking at stocks that are down, I always ask, what does the balance sheet look like? Does this company have a lot of cash and no debt? Or does this company have a lot of debt and no cash? That's a huge difference. Cash gives companies permission to evolve to the state that they need to if management has not done a good job innovating. You have time that you can buy with cash to get your company to a better place. That might be a stock, if it's down, that I would add to.

Now, another situation is, Chris, when we're looking at a stock that is up, as you're mentioning -- when, as you asked, would I not want to add to that? The distinction that we drew early in our book, The Motley Fool Investment Guide, between what I'll call open and closed situations, has always been helpful for me. I like to ask of a company, does this feel open? Is this Google early days, and we could almost become anything? Or, is this a closed situation? Let's say we're a steel manufacturer, and we're No. 3 in the U.S. market, and things are cyclical. It's not like we're going to be able to all of a sudden open up an online site to begin to sell --

Hill: steel.com.

Gardner: steel.com is not going to save that kind of a company. I own both. I typically favor open situations, certainly. I've been mostly rewarded for having those kinds of companies. But if I feel like we're in a closed situation and that stock is doing really well, I'm not going to add to it because it feels cyclical, it feels like this company doesn't have -- this is a big word for us -- optionality. I know we've used it on Motley Fool Money in the past, but this is a word we probably never use enough. Just ask yourself, does the company that I'm investing in have more options than just what it's doing? And when you find those companies, those are the ones I like to add to. If I can't see that, I'm less likely to add to that winner.

Hill: I know you don't like to sell stocks, but I'm wondering if your approach to selling stocks has changed over the last 25 years.

Gardner: I would say that the biggest change is not much of a change, but the biggest change is that I almost don't ever sell at all now. In the past -- and this has been demonstrated through the investments that we put on our website when we opened on AOL in August of 1994. 25 years ago this month, The Motley Fool debuted at keyword Fool on AOL. From that day, right through to Motley Fool Stock Advisor, which now has a track record running 17 years, you'll see that we've tended to hold our stocks. But sometimes, we'd sell after a good three-year gain, or we'll often sell our losers. Those are the ones we sell. We hold onto our winners. I would say I'm only more that, to the nth degree now. The lazy bum in me really takes solace and enjoyment in not feeling like I have to make a lot of decisions. I've been so rewarded for being lazy. 

I'll give a quick example. On our Rule Breakers scorecard, I was just noticing the other day, I picked a company called Copart, which basically helps used cars get sold in America. It's a platform. It's a very interesting company. But lower key. Not a lot of people know Copart. I don't think we talk a lot about it on MarketFoolery each day of the week. Copart, CPRT. Picked it 10 years ago. Just double checking with my scorecard on Rule Breakers, it's a 10-bagger today. It's up 10X in 10 years. 

I have to admit, I don't spend a lot of time looking at Copart, even though I'm the overseer of the Rule Breakers scorecard. I personally was surprised by just how spectacularly Copart has done. And I was kind of asleep at the wheel, pun not intended here, for this company, which helps so much in the used car industry. This is a great example to me of what happens when you are less active than more active. You'll be pleasantly surprised far more if you sell less.

Hill: I'm glad you mentioned the launch. The 25th anniversary this month of The Motley Fool launching online. You and your brother start this newsletter --

Gardner: You were there, too, weren't you, Chris? I feel like you've been at The Fool almost forever. 

Hill: Soon thereafter. Although it was interesting for me, because I joined the company in '97. I was online. I was not an America Online subscriber. When I first got to the company, one of the adjustments for me was this ingrained sense of the importance of AOL, which I didn't quite get at the time, because, as I said, I was not an AOL subscriber.

Gardner: Understood.

Hill: But it was one of those things I was thinking about when you mentioned the 25th anniversary, that AOL as a brand has all but disappeared. And it was, as a business, so instrumental in the 1990s.

Gardner: That was the decade that America came online. It was an incredible growth period. In fact, on the first day that we launched keyword Fool on AOL, we started our real money portfolio. We put $50,000 of our own real money right out front. We said, "Anybody can tap into keyword Fool and see exactly what we're doing." We're growing up in a world where you're told you can't beat the stock market, that would just be luck. And we intended to demonstrate that, by sharing it out, we're going to show you how you can beat the market, and you will beat the market. And that's always been Fool full spirit. I'm really happy to say that we crushed the market over 10 years with that portfolio. These days, in a new version of The Fool, we have Motley Fool Stock Advisor and Rule Breakers and other scorecards that show that truly, you can beat the market. But it was AOL stock on that first day that we added to our little Foolport, The Fool portfolio. And AOL stock went on to become a 150-bagger at its height. It was an incredible winner. 

And yet, Chris, yes, time passes, and life changes, and some companies can evolve. And AOL, to go back to what I said earlier, was more of a closed situation, wasn't it, than an open situation. It really was tied into the dial up infrastructure. Even in the first days, when we launched in The Fool, remember, it was $4 an hour just to connect online. Maybe, Chris, that's why you weren't using AOL, because people had to pay $4 just to hang out on the internet for an hour. And if they came to keyword Fool, by the way, we got 10% of that. So we got $0.40 for every hour anybody came to keyword Fool those first few years. But the world changed, and AOL, as big a dog as it became in the merger with Time Warner, it didn't change with it. And partly bad timing. 2001 was horrible for the stock market and the economy.

Anyway, some reflections on AOL. A company I really admired at the time, great people. Look what people like Steve Case have gone on to do, and Ted Leonsis, who owns all our sports teams, it seems, here in the Washington area, at least I wish he did. I wish, Ted. Please by the Redskins. So, we've seen really good people go on to win in other ways, even though AOL ultimately ended up being an afterthought.

Hill: Since you mentioned the New York Yankees, I want to spend a couple of seconds on your favorite team, the Minnesota Twins. As of right now, very much in the hunt for the playoffs. I know that, for you as a baseball fan, a metric that you value, maybe above all others, is run differential. It's not just wins and losses. It's, how many more runs is one team outscoring its opponents by? And I'm curious, is there any metric in investing that you value as much as run differential as a baseball fan?

Gardner: Well, run differential gives you a good overview, in terms of how many runs a team is scoring and how many it's giving up. It's a simple way of thinking about baseball. What is our goal? To score as many runs as possible and not give up as many runs as possible. So, it's a simple metric. It's not the best, even. By the way, if you're a baseball casual fan, plus nine equals a win. So, if after 162 games, which is what's awesome about baseball, so many games, if your team has scored nine more runs than it gave up over that whole season, then on average, you should be one game above average. So, instead of being 81 and 81, you'd be 82 and 80. So, plus nine. Every plus nine should be one more win above 500 expected. And yes, the Twins are one of five teams right now that have plus 100 or more run differential at this point in the season. There's still about a quarter of the season left. It's been tremendously fun as a Twins fan to see them have the season that they're having.

All that said, is there the run differential equivalent for investing? I guess the closest thing I can think of, just like I said plus nine for runs in baseball, I'd say plus nine for the stock market averages overall right. Plus 9% or so a year. The reason that I go to that is because that's a big picture, like the run differential is, it's a big picture view. Thinking about, how do world markets do, not every world market goes up, Chris, 9% or annualized over a century. Some are much dodgier. These are great, though, take-the-temperature reads on how our stock market has done or is doing, and anybody else's. In particular, that plus nine, I think a lot of school kids don't know that from their parents. And in a lot of cases, Chris, it's because the parents themselves don't know how the stock market has done over the course of time. We hear about the Dow Jones up or down. Often, we hear most about the markets in general headlines when it's down. You did a beautiful job on MarketFoolery earlier this week just speaking to that. You invoked the moose, not the bear, but they both work really well. A lot of people typically only hear about the stock market when it's down. I personally started to get annoyed by that, because we'd be invited onto things like ABC News Tonight, and we'd always be speaking as Fools -- you, me, my brother Tom, a bunch of us have appeared before the media for 20 years. We typically only show up in general news when things are down. We're having to explain, "Stay with it," that kind of thing. And that's just boring for me. I'm much more interested in thinking about what wins and why. 

Anyway, there's a meditation on run differential, the stock market averages, and the media.

Hill: Real quick before I let you go. You mentioned Rule Breakers, Stock Advisor. A more recent service that you launched back in December is Blast Off 2019. Can you share one or two things about your mindset around this new portfolio?

Gardner: Sure. This is a portfolio of stocks that we started to pick at the end of last year. We're adding a few a quarter. Blast Off is a service that people could join today if they wanted to. I'm really excited to talk about the performance of that because it's far exceeded anything I could have ever expected. This is all a matter of public record. If you're a Blast Off member, and I know some Motley Fool Money listeners are happy Blast Off members, the portfolio's up 67.5% vs. the S&P's 16.5%. That's just since December of last year, adding in the stocks that we've been adding since then. So this is basically the equivalent of almost five or seven years of returns of the stock market in just seven months. It's been spectacular. And the market's been good. 17% bounce-back from where the market was last December always feels good for the general markets. For us to be up more than 50% above that, again, far exceeds my own expectations or what any of us should think. 

But I think the big takeaway here is, what are the companies? What are in the Blast Off portfolio? What are we going to add to the Blast Off portfolio later this year? That's the real story. It's finding the biggest innovators of our time across many different industries. Being willing to be wrong in a few cases. A couple of those stocks are down 30% or more. But only two of them are down 30% or more. But there are four that are up 100% or more. Again, we would never expect that in any given year. But from this group of companies, Chris, this approach to investing, Rule Breaker Investing, which I talk a lot about, it's right there in a real money portfolio called Blast Off.

Hill: If you're interested in learning more, we're going to be holding a one-day-only investor presentation on Tuesday, August 20th -- myself, David Gardner and Aaron Bush. You can go to blast.fool.com for all the information for this one-day event. David Gardner, always a pleasure! 

Gardner: Thank you, Chris! And thank you for all you do for The Motley Fool! Motley Fool Money, one of the most listened to podcasts in the entire business world. Every day as I drive home, I hear either you or Mac Greer with one of our talented analyst guests, and it's a true pleasure to work together now since I think you founded The Fool in 1990 something.

Hill: [laughs] Soon thereafter the founding. That's going to do it for this week's edition of Motley Fool Money! Our engineer is Steve Broido. Our producer is Mac Greer. I'm Chris Hill. Thanks for listening! We'll see you next week!

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon, Starbucks, Under Armour (A Shares), Under Armour (C Shares), and Walt Disney. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, Baidu, Chipotle Mexican Grill, Starbucks, Under Armour (A Shares), Under Armour (C Shares), and Walt Disney. Jason Moser owns shares of Alphabet (C shares), Amazon, Chipotle Mexican Grill, Nike, Starbucks, Under Armour (A Shares), Under Armour (C Shares), and Walt Disney. Ron Gross owns shares of Alphabet (C shares), Amazon, Baidu, Berkshire Hathaway (B shares), Costco Wholesale, Microsoft, Nike, Starbucks, and Walt Disney. Steve Broido owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, Costco Wholesale, Microsoft, NVIDIA, and Walt Disney. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Baidu, Berkshire Hathaway (B shares), Brookfield Asset Management, Chipotle Mexican Grill, Jefferies Financial Group Inc., Microsoft, Nike, NVIDIA, Starbucks, Tapestry, Under Armour (A Shares), Under Armour (C Shares), and Walt Disney. The Motley Fool has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, short January 2021 $200 puts on Berkshire Hathaway (B shares), long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2020 $180 calls on Costco Wholesale, long January 2021 $85 calls on Microsoft, and long January 2020 $115 calls on Costco Wholesale. The Motley Fool recommends Copart, Costco Wholesale, and Nordstrom. The Motley Fool has a disclosure policy.

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