How Investing Has Changed In the Last 5 Years

0:04Heavily shorted stocks have outperformed the market 4 to 1 over the past 5 years. So is this a meme bubble or a new paradigm for investing? Motley Fool Money starts now.

0:25Everybody needs money. That's why they call it money.

0:36From Fool Global Headquarters, this is Motley Fool Money. Welcome to Motley Fool Money. I'm Travis Hoyam, joined today by Lou Whiteman and Dan Kaplinger. Guys, one of the themes of investing in 2025 and really over the past few years is the rise of meme stocks, short squeezes. This is something that's gotten a lot more attention. It seems like retail investors, which is us, that's what we do at The Motley Fool. That's our customers. That's the people that we want investing, have gotten ahead of the market by buying some of these companies that are maybe highly shorted, maybe they're not quite profitable yet.

1:11And these stocks, they have to put out a chart this week that showed that they have outperformed four to one, just phenomenal returns over the last five years. There's some stocks that have just gone crazy in 2025. So Dan, how do you think about this? This is very different than what I learned in business school about how we should be doing discounted cashflow analysis and all this stuff. The story is really what's driving a lot of these stocks. So is that a good or a bad thing for the market? So it's incredibly difficult. It makes things very difficult as a long-term investor. And the reason for that is that you suddenly run into all these situations you wouldn't normally run into.

1:50We got a question on Fool24 the other day talking about an investor bought a stock. They were interested in the stock. They thought it would potentially 3x in five years, it turns into a meme stock. It's, it triples in the first month and they're like, what do you do? Yeah. And, and it's hard to know what to do in that situation because there is non-fundamental stuff going on that's making that stock go up. Well, GameStop really started this right in 2020, early 2020, uh, GameStop was arguably a value stock that, you know, it was held in the monthly full held in some places and then it became a meme stock.

2:28And so some of these things start as something fundamentally driven, then become something else. Right. Or it can go the other way. Sometimes you can actually use the meme stock status to generate a business model to generate cash because investors bid up the stock. Suddenly the company can do a secondary offering a stock and raise a bunch of capital that it wouldn't otherwise have been able to raise. And that doesn't necessarily mean that the company is going to be able to start making money. Look at a company like AMC, for instance, they continue to lose money despite all the capital that they raised.

3:00But for GameStop, we've seen GameStop make some real progress in terms of making its fundamental business better, whether it's shifting its emphasis over to collectibles like Pokemon cards. They've jumped onto the Bitcoin treasury company strategy, all kinds of things they wouldn't have been able to do if they hadn't had that investor support keeping the stock price up. Yeah, Lou, I think this is interesting because AMC is a good example of a company that became a meme and then it didn't go anywhere. I believe the stock is down 99 % from its all-time high in 2021. But then you have a company that is actually building something.

3:38Well, one of the ones that I own is Joby Aviation. That is much more of a story stock. There is no cash flow. You can't do a DCF of exactly what their financials are going to look like. But if they can have investor confidence over the next few years, as they get their FAA approvals for their aircraft, as they build out their business model, they could benefit from having a higher stock price. The stock price leads to the business. This is actually something that Tesla did. I think we overlooked this. When Tesla went public, it was a couple billion dollar company, I believe. They raised tens of billions of dollars.

4:16and then that meme status really helped drive the business. So is that part of a new business model is, you know what, get investors excited and then we kind of become the VC funders? I don't think it's a new business model. I think it's a new application, but I think you're right. The first thing is, is that meme stocks is a terrible identifier because it doesn't really tell you much. There are some really crummy companies that have been memed and there have been some really good companies. And yeah, the good ones will take advantage of it. As far as, you know, Dan mentioned that problem. If, you know, you get all your gains in three months, may we all have such problems, right?

4:54But again, you know, at that point, I think that's when kind of the question is that. And, you know, in one sense, it could be a great company getting a real benefit and a real like just cash and fusion. Or it could be just, all right, time to sell. I can't believe it worked. I got to say, I have a soft spot in my heart for the whole meme crowd. I mean, I'm constantly looking to buy stocks where I think the market is wrong and I'm right and that I see something that they don't. That's value investing. And at the end of the day, that's kind of what kicked all this off, that everybody's short this, they don't see what I see, and it can go up.

5:36Look, I'm not going to try and predict the next one. I'm not going to join the crowd, but I like this crowd. I believe in this. I want to put this to both of you, and I'll start with Lou first. How do you think about taking profits in this? When you have a stock that you built a thesis, you think that there's this potential in 3, 5, 10 years, and then suddenly the stock grows crazy, do you take a little bit off the table? Do you ride the wave? This is something I struggle with is when to sell. So I'm curious what you guys think when you get these short-term gains. So I think, yeah, like you said, it depends on the company.

6:09You've mentioned Joby and that's one I have too. And I will say that Joby is not worth what the market values it at today, period. But if all goes well, I think it could be. So at worst, I'm going to take some off the table. I haven't personally done that with Joby. I've done that with a few others that have just kind of gone crazy in my head. But look, I think you have to, I'm going in with a five to 10 year mindset and you have to keep that mindset. And, you know, if you still see that potential, that should outweigh any kind of greed for today, I think. I look to management, Travis. I think that you really need to see how company management responds to their company becoming a focus of meme investor attention.

6:57So would you want them to raise capital and say, hey, you know what? We got a stock price that's worth five times more than it was six months ago. Let's sell some stock. Let's do a convertible debt offering. Is that what you're looking for? Often, but not always. And it's the attitude that management takes with it. For instance, I mean, let's get out of the meme stock universe just for a second and go to pharmaceutical stocks to biotech stocks. Oftentimes, biotech stocks, they will report a favorable clinical trial outcome. Stock shoots up. Immediately, the company comes in and says, we're doing a secondary stock offering.

7:38Why? Because biotech companies constantly need money in order to finance their business, and it's a great opportunity to do it. If, therefore, a particular meme stock is in a business where access to capital is going to be really valuable, then responding to a big jump from a meme stock craze by selling shares and raising capital for future use, it's going to validate the value of that company. It essentially issues shares. It improves book value. It improves the balance sheet. It gives them flexibility to do things later on. And then the question is, what are they going to do with it? And what I want to see management do is be consistent with whatever vision they had in the past, maybe augmented by this stroke of fortune, but not get full of themselves, not let their heads get too big, just treat it for what it is.

8:34So the blueprint for me right now for this is Rocket Lab. And I don't know if Rocket Lab counts as meme stock, but it is up, what, 400 % or 500 %? We'll put it in that category, sure. And Peter Beck, I think to his credit, the CEO who is an engineer at heart, almost seems to not see the stock price. He's on his pace to build a company. kind of, you know, look, it's overvalued today. It's valued based on the future. He's not adjusting. He's not saying, oh, no, I need to get there faster because of today's valuation. But they have also raised equity at a share price that's 10x what it was this time last year.

9:09So exactly to Dan's point, you don't ignore it. You don't mock it. But you also don't let that change your decision making in terms of how you build a business. You know, again, we'll see how Rocket lab turns out, but that's what I want to see. That's the template right now for me on how companies should deal with this. Another thing to think about is what is that cash burn? How do you get to building the vision that you've built this meme on? If we're going to keep going with that word, one company that didn't do this well in the last cycle was Virgin Galactic. That was a stock that I owned. Look, if they would have used that high stock price to fund their operations so that they could get to launch, which is going to be next year, but they still need to raise capital and the stock's down, what, 95%, 99%, something like that.

9:54And so it becomes harder if your stock value goes down. So sometimes taking advantage of these high prices is the right thing to do to be that long-term business. When we come back, we are going to get to earning season and see what Lou and Dan think about TSMC and ASML. You're listening to Motley Fool Money. The Civil War and Reconstruction was a pivotal era in American history. When a war was fought to save the Union and to free the slaves And when the work to rebuild the nation after that war was over turned into a struggle to guarantee liberty and justice for all Americans. I'm Tracy And I'm Rich And we want to invite you to join us as we take an in-depth look at this pivotal era in American history.

10:41Look for the Civil War and Reconstruction wherever you find your podcasts.

10:52Welcome back to Motley Fool Money. AI picks and shovels have been doing extremely well recently. ASML said they expect long-term growth. TSMC saw revenue jump, what, I think 40 % in the most recent quarter. Lou, is this still kind of the easy button in investing in artificial intelligence today? I'm not sure about that. Let's get to that in a second. Maybe. But look, I think at TSMC, we should have seen them react more to the AI boom than ASML. ASML is a great company. I own both of these companies. But ASML makes the big machines that makes the chips. These take years to build. They're half a billion dollars.

11:32You're not going to see quarter by quarter, blow by blow, demand surge. So I'm not surprised. Boring, slow, and steady is their game. TSMC is going to directly see, like, if there's more demand for chips, they are going to see that quarter to quarter. I'll say, here's my problem with the picks and shovels play in general. None of it's cheap. None of these companies are cheap. There aren't a lot of values. TSMC was cheap three years ago. I think that's what's interesting. You go back, you could have bought it for 12 times earnings. Right, Travis, but I don't have a time machine. So I'm looking at it now.

12:06Whether it's these, HVAC, energy, it all makes sense. But so many of these things, there's only so much capacity to deploy. And if you believe that it is temporary, even if it's an extended time temporary, you don't have the incentive to massively add capacity because these things cost money. So I'm kind of intrigued still by cabling. There's some companies there, Semtech, Astrolabs. They're still not cheap, but I do think that that is sort of, if there is an underappreciated aspect. But for the most part, it feels like that this dance has been danced. Dan, what were you thinking this week when you saw earnings from these two?

12:45So I was kind of surprised, you know, the headlines were talking about ASML, you know, talking about high growth. And I was kind of like, okay, where's the high growth? Because the backward-looking numbers... I said the same thing because I think revenue was down on a sequential basis anyways. Yeah, down sequentially, up like low single-digit percentage year over year. And even people were talking about positive outlook, but positive outlook, they released 2030 estimates for revenue implies growth rates as low as 6%. I think the high end of the range is like closer to 13 % per year. And it's interesting.

13:22Lou's absolutely right. This is, that's as much as they're going to be able to do. Capacity is a constraint. They can't just like ramp up production of these highly sophisticated, complicated machines. But that was what I thought with, with ASML agree with Lou, you know, Taiwan semi, I think in better shape, a more direct connection, a more, more easily ramped up, but there you get these rising geopolitical concerns. And so, you know, I just don't know how that's going to play out and it has to be part of the, that's the reason that Buffett sold. He held, kind of did a short-term trade on TSMC, bought a huge position, and then kind of went, you know what, I'm rethinking this.

14:05Investing in a company that's dependent on being in Taiwan is tough. Yeah, and it's just one of those things. And yes, you are starting to see some foreign companies looking at building out manufacturing capacity to a greater extent in the U.S. to try to address some of those concerns, but will it be enough? Not if AI demand is as strong as everybody makes it out to be. Let's move over to banks. We got some big banks reporting. We got a couple of smaller banks reporting. The market reacted to this pretty negatively yesterday, Lou. So what is the bank landscape and where's the risk that we should be thinking about?

14:42Because banks are really risk businesses. This isn't memes upside. Are people going to pay back their loans? Yeah. So back in the old days, when I used to look at banks for a living, we used to talk about cockroaches. I thought it was funny that Jamie Dimon actually brought up cockroaches. The old expression is, there's never just one. If you see one, there's 30 behind the wall. That's how you tend to look at bad loans. If something comes out, the question is, how many more are there? This week alone, earnings are strong, but J.P. Morgan was hit by Tricolor, which is a subprime auto lender that went bankrupt.

15:17First Brands has been in the news with a whole bunch of banks attached to that bankruptcy. The big blow midweek was Zions and Western Alliance both announced issues with the same unnamed customer. The reaction we saw, it wasn't about any one of these individual loans. It's the question, this cockroach question, what else is out there? To me, to be honest, I mean, I think we know what's going on. I think it's probably a lot of tariff strain and individual. I don't think it's ready to say, I'm ready to say the sky is falling. To me, the reaction is the story. We've known about debt buildups all summer.

15:52We've been talking about it all for a while. Wall Street didn't care. Suddenly, Wall Street seems to care. All these stories, they don't matter until they do. I think it does speak to perhaps a change in mindset, maybe a little bit a hint of risk off. But yeah, to me, the reaction is more interesting than any one of these loans. The banks are still pretty healthy, at least. Dan, consumer credit is something that, auto loans is something we've been hearing about. There's potentially risk kind of hidden with the weaker consumer. Is that something we should be worried about? And then the other thing that keeps popping up, and especially with this AI build-out is these creative financing structures, variable interest entities.

16:35They're calling them different names because that one got a bad rap a decade or so ago. So what are you looking at as maybe red flags in those areas? So for consumer credit, I've been surprised along with a whole bunch of economists that consumer credit has held up as well as it has in this relatively high interest rate environment as interest rates have refused to go down. I think that that's out there, but I will admit that I've been wrong so far. I would have expected it to come sooner. And so maybe it is just the fact that consumers have managed to do it. And like Lou said, there'll be a breaking point at some point, but until it comes, it won't necessarily show up really well.

17:15With regard to variable interest entities and other creative financing deals, what I tend to look at is transparency. And my view is that the less transparent a particular business model or funding mechanism is, the more problematic it is likely to be. because if there weren't problems, people would be totally comfortable just showing the terms. And so I don't really have a problem with creative financing. I think it's interesting to look into the structures. It's interesting to come up with different ways for different investors to benefit based on certain outcomes, but I need to be able to understand it.

17:56And once I stop being able to understand it, then it starts to feel more like somebody's trying to pull the wool over my eyes and pull a fast one. The question for me is, why? Why do you do this? Meta today just announced a$30 billion financing package for its Louisiana data center. They're using a special purpose vehicle. Meta, I've joked, has all the cash in the world, thanks to their advertising business. This is a reminder that that is a joke. The simple answer, and they may push back on me at this, but the simple answer of why you do this is because you have to. The market says, we don't want this on your balance sheet.

18:32You have to find a different way. That's fine. Like Dan says, they're disclosing it. There's nothing scandalous here. The upside is, is it will greatly expand your borrowing capacity. It allows you to do more than you could do on your balance sheet. The downside is, is that everybody is getting a piece of this exposure. It creeps through and it becomes more of a systemic risk if any of these projects or if AI in general isn't what we hope it is. So you are broadening your risk, which is a good thing for Meta. And arguably, it's a less good thing for the entire economy if things don't go well. One last thing I'll add is just that I think that the financial crisis, the housing bubble taught analysts to look out for things like this.

19:16We're not going to get surprised again. It's just a matter of now everybody's on the lookout. Might not get surprised, we could still get stung. Very true. When we come back, I'm going to see what Dan and Lou would rather own. I'm going to give them a couple choices, play a little game. You're listening to Motley Fool Money.

19:43In diesem Jahr werden über 10.000 Elektrofahrzeuge für Amazon-Lieferungen in ganz Europa eingesetzt. Für Lieferungen wie Fußbälle für junge Kicker. I don't know. 10.000 electric vehicles and it will be more. Based on the planned vehicles of our supply partners in the EU and Britain until the end of 2026.

20:23So Dan Kaplinger, would you rather be a holder of Bitcoin or gold today? I would rather be a holder of gold. I like the physical aspect of it. I like the chemical uses of it. I do own gold. I also own a smaller amount of Bitcoin. I'll take Bitcoin here just on the optionality. I don't know if I really, really feel a need to flight to safety into either of them. But look, I mean, both of them are up crazy. I think Bitcoin's up 800 % over the last five years. Gold is only a double plus in five years. Gold's having a better year this year. End of the day, gold, I know what I get. And I think I mean that as a compliment, but I'll mean it as an insult and say with Bitcoin, I at least have optionality on something.

21:08Yeah, gold has been going crazy. I believe it's beaten the market over a fairly long period of time. Is it since 2000? Something like that. But if you go back throughout history, there are actually kind of these boom and bust cycles, Lou with gold in the late 1970s, early 1980s, gold went crazy as inflation was picking up. But then it didn't end up being a great inflation hedge when there was actually inflation. So is that sort of the risk there that it's, again, kind of a meme? You get ahead of the story. And then when the actual thing happens, that's when it could crash. And that could go for gold or Bitcoin.

21:42I love you said that because when we were talking memes, I almost said that meme is just a new way to say conventional wisdom. And yeah, I think there's something to that. Yes. All right. The second one, I want to know, would you rather own Google publicly traded company, well-established business, not quite the value it was when it was trading in the teens price to earnings multiple, but still a pretty good value or the up and coming disruptor open AI. And let's put a$500 billion valuation on that. That's, I think where they're raising money right now. And the idea here is, do you want to be the disruptor or the potentially the disrupted?

22:16Lou, I'll have you go first. Which one would you rather own? I got to take Google here. I'm going to use the same word optionality just with Alphabet. You get so much more than just this AI thing that I'm honestly worried the core AI business is going to get commoditized. The other side of it is, is that I don't know what I think of Sam Altman. So I just, I'm Alphabet in a big way here. Yeah, me too as well. I have a lot of Alphabet stock in my portfolio and I'm very comfortable with both its AI exposure and its non AI exposure. Open AI, boy, I don't even know what I'm investing in at this point because they still haven't resolved this hybrid nonprofit for profit structure.

23:00There's, they still need to do that by the end of the year. I thought there was a deadline with, with Microsoft. They needed to complete that transition by the end of the year. It's getting pretty close. I don't think that you can ask the California attorney general to do anything on a deadline because it's complicated. It's incredibly complicated and it's dynamic. So once you think you have a solution, suddenly everything changes. OpenAI does a new deal. They get a new investor. They then turn around and invest in a company themselves. It just gets more complicated and it makes the whole transition question more difficult to resolve.

23:38So yeah, I'd be surprised if they make deadlines. And then as you point out, what's Microsoft going to do with that? Probably cave and give them more time. But I guess we'll see. I guess I fall on the same category. I think I keep going back to is artificial intelligence, are these things like chatbots going to be disruptive innovation or a sustaining innovation? And it's looking much more sustaining over a long period of time. That said, new consumer goods companies that can gather 800 million weekly active users don't come along very often. All right, let's go to the next one. A couple of relatively hot stocks.

24:14Maybe not the kind of stocks that you guys invest in, but Palantir or Coinbase. Lou, I'll have you go first here. You're already smiling about this one. Which one would you rather own? I can't believe you're talking me into buying Palantir. I mean, the answer for me is neither. And Palantir, I love the business. I just think it's overpriced. 124 times sales. But here's my Coinbase paradox, okay? A lot has to happen with the adoption of crypto for Coinbase to really, really pay off. But if all of that happens, it has to be in a world where Coinbase still has sort of this first mover advantage or just kind of dominates the ecosystem.