David Gardner: Conclusion No. 6: Which brings me to my grand conclusion to "200 Stock Advisor
Picks Later," and that's Conclusion No. 6.
Stated simply the conclusion is maybe the best lesson of all: “the math of losing to win.”
Let me throw a little bit more math at you this week.
It's been a more math-heavy conversation, but that's appropriate when we're talking
about 16-plus years of performance of a portfolio's annualized numbers and stock picks.
I want to share with you [that] this kind of re-channels Conclusion No. 2, which is
“understand your real biggest losers.”
And ARM Holdings' sell was a far bigger loser than Satyam Computer Services.
This kind of gets back in there, but we're going to look at losing to win and the math
of it through my side of Stock Advisor. And here's how I do it.
And by the way, the same thing applies to Motley Fool Rule Breakers, as well.
The numbers are a little bit different, but the concept is timeless and really important.
Over the course of 200 monthly stock picks, I am embarrassed [I already shared with you
my 10 worst ones] to say that I have picked a bunch of stocks that have lost 50% or more.
And since I took the time to count down through our scorecard, which has been transparently
up there for members from day one of our service, so anybody who uses Motley Fool Stock Advisor
or really any Motley Fool service can transparently see the scorecard of every good and bad thing
we've ever done, and I think that's a great exemplar to the investment world at large
and something that we take a lot of pride in here at Fool HQ.
So how many 50% or worse losers have I picked over 200 picks? The answer is 21.
More than 10% of the time [and that sounds horrible, and I've never wanted any of them
to go down], I have selected a stock that would lose 50% or more of its value.
And that's not even against the market.
The market will go up, let's say, 50% itself, so we're 100% or more behind the market with each of these.
Before I share with you the win part of the math of “losing to win,” let me just restate
that every one of the monthly picks that Tom and I make in Stock Advisor we think is going
to be a winner. I put it out there. It's kind of like when you swing a bat and baseball.
You're not really sure if you're going to hit the ball or not.
You're definitely swinging for the fences, or you'd at least like to get on base,
but you're not sure what's going to happen.
And circumstances play out from there, and it takes a lot longer in the markets than
it does in a baseball game to see exactly where the ball winds up after every swing we've taken.
It takes years for us to figure out whether that was a good decision that I made that month or next month.
It takes years.
But do know that every time we're doing our best and we think we're going to do well,
and the bad news is about 10% of the time or so I do very poorly.
But here's the win part of the math of losing to win. 21 50%+ losers.
I've already read a bunch of their names off earlier. But how has the 21st best pick done out of those 200?
21 50% losers. What has been the 21st best performer?
It just so happens to be [I looked it up earlier today] when I picked Pixar in July of 2003.
Today it's no longer Pixar. I think most of you know that Pixar was bought by Disney.
And when that happened in Motley Fool Stock Advisor we said, "Great!
We'll just roll our Pixar shares right over into Disney, because it wasn't a cash deal."
Disney said, "We're going to buy Pixar shares and you're now Disney shareholders," and that
happens to have been my 21st best pick historically. And as of this week, that pick is up 824%. 824%.
500 plus points ahead of the market and that's our 21st best pick.
So if you've heard me say we've had 21 50% or worse losers, you can see that a single winner,
almost on its own, wipes out all of those losers and that's my 21st best pick.
I'm possibly guilty of bragging a little bit this week on the podcast.
I apologize if it sounds like that, but I'll just give you the facts.
That doesn't include picks like Nvidia, which is now up 3,473%. That's right.
That's the 10th best pick I've ever made on my side. It's up 35x in value.
There are nine that are doing better than that. The best ever -- is it Amazon? Well, close.
Amazon is up 113x in value since I picked it in September of 2002, but that's just the third-best pick.
The very best pick was Netflix, which I selected in December of 2004.
It's up 17,865% for members who bought and have held; and while not everybody found
Motley Fool Stock Advisor back in that month of December 2004, a lot of you have discovered it since
and that's been a tremendous performer no matter how you slice it.
So the math of losing to win reminds us that you can take your biggest losers, you can
put them all together, and if you're investing Foolishly, and if you're a Rule Breaker along
with me, you can take your 21st best pick and almost wipe out all of those losers
[this is using real math; imagine $1,000 or $10,000 in each] and you can almost wipe all of them
out with just your 21st best winner. So there's a little bit of math -- losing to win.
I think it's a natural question to wonder, "Hey, if I had invested $10,000 at the start
of Motley Fool Stock Advisor and I got those 20.7% annualized returns, how much money would
that $10,000 at the start of Motley Fool Stock Advisor be worth today?"
And, well, as of last Friday, October 12th, $10,000 invested on my side of Motley Fool
Stock Advisor would have been worth $228,184.
And please note, to close, that every one of those bad losers is implicit in that number, as well.