10 Years Later: 5 Lesser Known Rule Breakers

0:0010 years ago this week, November 11, 2015, we launched our second ever five stock sampler, five lesser known rule breakers. Lesser known, none of them was a household name. In fact, I'd say even today, 10 years later, how many people really recognize company names like Middleby or Globus Medical? Well, today we fire up the time machine 10 years to the week later to see what actually happened through recessions, pandemics, acquisitions, and all the surprises a decade can deliver. We'll score our returns against the S &P 500, then answer the questions that matter. Mostly, what do we get right? What do we get wrong?

0:45Were we missing anything? I've invited longtime Motley Fool writer Anders Bielen to join me as we talk through some lessons you can use on your next 10-year journey. Five lesser-known rule breakers 10 years later, only on this week's Rule Breaker Investing. it's the rule breaker investing podcast with motley fool co-founder david gardner

1:13welcome back to rule breaker investing 30 times i picked a five stock sampler on this show 30 times where i said here's a theme here's a basket let's go beat the market and learn some great lessons together well as history shows we did beat the market not every time but most of these samplers were picked to play a game that lasted three years and we won. We beat the S &P 500, but three years is just three years. I'm much more interested in seeing how they play out over the only term that counts, to me, the long term. So with every passing year on this podcast, we did a Review of Palooza check-in one, two, and three years later to see how these stocks had done.

1:56But then we ended it. We just said, after three years, we're done. We'll be spending all of our time on Review of Palooza episodes if we keep updating every one of these 35 stock samplers every single year. And yet, in September of this year, just 10 weeks ago, this new series was born. Every 10 weeks, we're going to open up a time capsule. It's a past five stock sampler that's hitting its 10-year birthday this week. We're going to score each pick equal weighted from the original air date. We're going to see its return compared to the S &P 500 over the same span. And then we do the real work, what we got right, what we got wrong.

2:35Well, actually, I'm not going to do most of the real work. I'm going to have on a Motley Fool friend to help me do that work. And this week, it's longtime Fool contract writer Anders Bieland to join me and discuss together what the decade teaches all of us as investors. So we're going to finish at the end with the sampler's overall result. Maybe a quick go-forward view on each company. So that's 10 years later, not just keeping score, but learning how and why rule breakers win. And oh, sometimes lose too. Anders Bieland has been a Motley Fool contributor since 2006, mostly writing on a daily basis on the free side, our fool.com articles about stocks moving in the news.

3:16But he's also done a couple of stints for our premium newsletters along the way. Anders plays lots of chess and guitar in his spare time while watching three kids go through college and high school. Welcome, Anders, to Rule Breaker Investing. Well, thank you, Dave. Thanks for bringing me in for this. It's exciting. It's an honor, really. I'm glad to be here. Anders, you've been writing for our company since 2006. Do you remember first clicking into The Motley Fool? Was it on AOL back in the day or the web? No, it was the web. I was a reader for two, three years before I applied for a job. But yeah, and I do remember my first article here.

3:54It was Volvo keeps on trucking the truck part of Volvo that is not the passenger cars. I don't write about that anymore, but, you know, that was first. I love that you remember that, Anders. Some of our discerning listeners may detect that you speak more than one language. Could you remind me where you're from and when you first came to the United States? Yeah, born and raised in Sweden. Then I met a girl online in 1995 when online was hardly even a thing. Don't really know how that worked out, but there you go. She's still my wife today, and she's why I moved to Florida in 1997. That's fantastic.

4:32And Anders, when did your interest in the stock market first develop? I wish everybody in the United States cared about it, let alone everybody in Sweden. I feel as if you are a rarer breed from your home country, but where does your interest in the stock market derive? Yeah, so my first job after college was for CSX, the railroad. Yeah. On the technology side, I was running their computer systems, system administrator for them, and they had a 401k plan that sounded like a good idea. So in order to know what I was doing with that, I started reading The Fool, for example, and that turned out to be one of my favorite things to do when I wasn't working and you know the interest deepened from there and a few years later I saw a job opening on fool.com like yeah we're looking for writers now and that turned out to be what I did in college uh the computer thing was really a side gig was the idea of what I work on the great American novel or something but um yeah it didn't really work out that way so I went back to the writing that way.

5:41And John Reeves, who hired me back then, said it was easier to teach a writer to invest than teaching an investor how to write. So that's how I got the job. That's wonderful. You're referencing long time, Motley Fool, writer slash editor slash, I don't know, fool about town, John Reeves. And I'm delighted to hear that name again. Before we move on to Middleby, our first company, Anders, CSX, still a public company, still a pretty robust railroad. Do you own shares? Do you have any opinion about railroads or CSX? I don't own shares in it or any railroad, not even Berkshire, which would count as the railroad these days.

6:20I kind of shim it away from that industry over time. And I still know people who work there and all that, but it's just not my gig anymore. I was more on the technology side anyway, so it doesn't really matter what the base industry was. Well, that makes sense to me, Anders, because one thing you and I have enjoyed together over the years is a rule breaker mentality. And I really appreciate a lot of your articles. You and I share some of the same stocks in our portfolios. It kind of makes sense that you didn't fall in love with railroads and maybe more with technology. Well, let's start with a somewhat industrial company for whom technology has mattered quite a bit.

6:59So we have five stocks we're covering from five lesser known rule breakers. We're going to do them one at a time. We're going to do them alphabetically, which is how I presented them on that podcast, November 11th, 2015. By the way, any discerning listener is welcome to go back and re-listen to that. It was only 17 minutes long, and that can be good prep for this week's podcast. But I'll be summarizing my thoughts as I ask Anders each time, what's happened since? So let's kick it off with Middleby Corporation, ticker symbol M-I-D-D. Well, anytime we go this far back in time on this show, we bring out our Rule Breaker Investing time machine.

7:35So, Anders, are you ready to strap in with me as we get ready to go back 10 years in time this week? Yeah, I can't wait. Let's go.

7:52So, the year was 2015. Middleby was a quiet powerhouse behind the world's kitchens. both commercial and residential. It was best known for industrial ovens and newly for acquiring Viking range. Now, Middleby was led by Dynamics CEO Salim Basoul, whom I praised as one of my favorite living CEOs. Middleby's growth by acquisition model had built it into a global supplier for fast, casual, and fine dining restaurants alike, with technology and automation driving what they were calling the kitchen of the future. Basul envisioned half of all commercial kitchens becoming automated by the year 2020, positioning Middleby as the unseen architect behind that transformation.

8:37Now, listening back, my bullishness came from Middleby's steady innovation and certainly Salim Basul's visionary leadership. Anders, I loved its knack for taking small regional brands global, adding tech and efficiency along the way. It was a smart, under-the-radar compounder automating the kitchens of tomorrow. Anders Bielen, before we go over the numbers for this one, just any initial thoughts you have about Middleby? Yeah, so Middleby was always interesting to me because it's not exactly a brand you see out every day, but you see their brands all over the place. Like, I can't help but looking for a turbo shop every time I go to a sandwich place, you know.

9:19it's a that's one of their big ones and um they're still around you know more than ever to be honest yeah things have changed and they had a few bad years after after the inflation crisis of 2022 under different management and all that their strategy has changed a bit and now they're working to spin off some of their brands into a separate standalone company and that specifically seem to be some of Salim's creation that they're dropping now, the food processing mostly. Yeah. Yeah. I don't know if I'm in love with that strategy shift, but somebody must have crunched the numbers and figured out that that was the way to go.

10:05And their new CEO, Tim Fitzgerald, was the CFO for many years. Okay. So if anybody knows numbers, it should be him, I guess. But things have changed and it's not really the same company. It's the same umbrella organization over 100 brands, but it doesn't feel the same. Yeah. And just looking at the company today and now, of course, the numerical performance that I have generated for this stock, for this sampler over now 10 years this week. The stock back then was at$112.84. Today, it's at about$124. So it's up 10%, 10 % in 10 years. Now, the stock market overall over the last 10 years is up 228.8%.

10:55I can even take it out one decimal place. We're recording mid to late afternoon, Tuesday, November 11th, exactly 10 years later. So unders, the stock's up 10%. The market's up 229%. Therefore, Middleby Corporation is way, way behind the market and no longer has that visionary CEO that I liked so much at the time. In fact, as I'm sure you'll mention shortly, Salim Basul has since moved on to Six Flags, an entertainment brand that many Americans will know, and that company itself has gone through a merger and an acquisition. So it's been an interesting time for CEO Basul, who built Middleby into a compounding monster over the 15 years or so leading up to me picking the stock for this sampler.

11:41Now, for each of these honors, I've asked you to give us maybe two or three reasons as to why the stock has done what it's done. So now looking back at Middleby, now that I've given this performance 10 percent gain, what are two to three big reasons in your mind for this happening? Right. So a key part of Middleby's strategy is to buy up smaller companies and bake them into its brand and into its whole package deal. You got everything from ovens to air conditioning units to, you know, food processing, everything you need to run a professional kitchen and home kitchens to these days, you know, thanks to the Viking brands and other acquisitions.

12:24But it's an expensive strategy and it's hard to do that when interest rates are high and, you know, it's hard to come by good bank deals, you know. So that's been working against them since 2022 at least, and arguably before that too. Yeah, and growth by acquisition, Anders, itself can be very accretive and very growth-oriented initially. But as a company becomes bigger and bigger or more successful in its field, it starts becoming harder to find acquisitions at scale that will make a difference. Yeah, that's right. Once you bought all the good stuff, what are you left with? The quality kind of has to go down over time.

13:09Either that or prices go up because you'll have other people bidding for the same deals. Good point. So, yeah, it's not easy, even if you were the CFO for 10 years. All right. Well, this is a company, as you mentioned, Anders, where the CFO has become the CEO as well. Do you have another thought in mind explaining Middleby's last 10 years? It's not so much explaining how it happened, I think, where you looked at that, but the results of that is that it's been trading sideways for 10 years. There's been a big jump and a down. The end result is that it's been growing, but the stock hasn't. So as a result, it's a modest value that just the 10 and a half times pre-cash flow and the 13 times forward price to earnings.

14:01So, you know, it may be a decent ticker to look into these days, but you do have to set modest expectations because it's not the fast growing buyout machine it used to be. Thank you very much. And I think at the end, you and I will reflect just on this overall group of stocks and any additional thoughts we might have about Middleby, we can park till then. But thank you for stock number one. And that was Middleby. Again, up 10%, the market up 229%. Let's see what happens with stock number two. This one's had a name change. 10 years ago, as I introduced stock number two in the sampler, it was MicroStrategy.

14:40Now, in 2015, MicroStrategy was a comeback story from the dot-com ashes. It was an early business intelligence pioneer that was still led by its intense and sometimes polarizing founder, Michael Saylor. The company's software helped enterprises turn data into insight just as the mobile and cloud revolutions were reshaping how information flowed. I described Saylor at the time as a visionary who'd seen the data wave coming and built for it early, even if Wall Street was punishing his stock after a weak earnings report that October. The company was small. It had about a$2 billion market cap, but was aiming at a vast growing need for analytics in a data-soaked world.

15:28Now, my why for this stock and its inclusion in this sampler was simple. I believed in the persistence of visionary founders and in the rising strategic value of data. So that was my one-two punch here. And MicroStrategy under Saylor looked like a survivor-turned-innovator positioned to ride the next wave of enterprise intelligence, an overlooked company with unfinished upside. Now, Unders, before I give the numbers, your initial thoughts about this company, which has changed its name? No, that's right. They changed the name from MicroStrategy to Strategy earlier this year. and that's after being around for a long time.

16:10Michael Saylor did a Super Bowl commercial in the year 2000 at the very height of the dot-com bubble before it popped and to market his company's data analytics business and walking around the stadium and looking like a cool guy and all that. I had completely forgotten about that. Yeah, you can look it up on YouTube these days. Everything is forever on the internet, right? But things have changed. They still run that business. It's still something they make money from. But it's really just another financing source for their Bitcoin buys. In the year 2020, at the height of the next big thing, the pandemic, they switched their business plan from making software to investing in Bitcoin.

16:57And so the idea is to be a Bitcoin maximalist. This is the only asset that's worth holding in the long run, if you're one of those. And the idea is, as Bitcoin goes up over time, then if your money is invested in anything else, like, for example, dollars, you're losing. So they are doing a lot of that. There's a 21-21 plan where they're borrowing$21 billion and raising another$21 billion from stock sales over the next few years to buy more Bitcoin. Wow. It's an all-in kind of thing, and it depends on how Bitcoin works out, whether that's a good idea or not. So far, so good, but you never know, right?

17:45Well, you may have done a good job, Anders, already covering in part why this stock has done what it's done. But let me pause you there just to provide the performance. This is the eye opener. This is the stock that has powered this sampler. And spoiler alert, none of the other stocks has done anything like what this stock has done. And further spoiler alert, I had no idea 10 years ago that any of this would happen in the way that it did. And here are the numbers. We picked strategy at$17.49 on November 11, 2015. Today, it's gone from 17.5 to 235.5, which means this stock is up 1 ,249%. We'll just call it 1 ,250, again, against the market's 229%.

18:32So this stock on its own has outperformed the stock market, the S &P 500, by over 1 ,000 percentage points. Now, we'll be giving the overall results at the end of this podcast. But Anders, this is an absolute shocker. And those of us who are willing to allow companies to evolve and adapt and turn into their next butterfly, this was not a butterfly I was expecting to see at all. And yet this has been a remarkable performer. Let me ask you then, what are a couple of reasons in your mind as to why this stock is now up 13 times in value? Yeah, so the fundamental driver of that is that Bitcoin has gone up.

19:14the fundamental driver of that uh it's a twofold it's a you know the the greater fool kind of thing right uh that's how warren buffett sees bitcoin in a way uh it's only worth whatever someone is willing to buy it from you for and um in a way he's right i mean it's really just an accounting system with a different uh you know encrypted transaction ledger and um that's all it is And from that perspective, it's really just worth whatever somebody else wants to pay you for it. On the other hand, producing more Bitcoin is analogous. It's in the white paper and everything that it's analogous to gold production, where gold miners invest in mining equipment and time and money spent to actually use it to dig gold out of the ground.

20:08And Bitcoin, you invest in hardware and electric power to generate more Bitcoins. And it's a limited thing. There's a hard cap on it. There will never be more than 21 million Bitcoins in the world. Although you can split them up. So it's a supply and demand kind of thing from that perspective. If you believe in Bitcoin, like Michael Saylor clearly does, and a lot of people do with him, then it could be uh you know replace gold and gain 10x more value from here to you know serve the roles that gold serves now uh in investing terms you can't use a gold to you know plate the connectors on your speaker bar you know that that's not gonna work but uh yeah so it may or may not work out and it may or may not be vulnerable to quantum computing hacks and i don't know where Bitcoin will be in the next 10 years, it'll be either a million dollars or nothing.

21:08And that will make Michael Saylor look like either a genius or the opposite. That is very well put. And Anders, I suspect we may circle back near the end and just hear a few more of your thoughts about Bitcoin. Because part of the reason I invited you on for this week to look over this five-stock sampler is that you do follow Bitcoin very carefully. You often write Motley Fool articles about strategy and other companies in this space. And I really appreciate that analysis. This is almost sort of a single factor company at this point. I mean, the whole data and mobile business and the stream of new data and the value of data has all just converted, talk about strategy, to a single strategy, it seems, which is more Bitcoin.

21:53Raise money, we'll buy more Bitcoin. There are, of course, other forms of cryptocurrency and other ways to play Bitcoin, but there's really no public company like strategy at this point, which is one of my five lesser known rule breakers from 10 years ago this week. Did archaeologists discover Noah's Ark? Is the rapture coming as soon as the Euphrates River dries up? Does the Bible condemn abortion? Don't you wish you had a trustworthy academic resource to help make sense of all of this? Well, I'm Dan Beecher, and he's award-winning Bible scholar and TikTok sensation, Dr. Dan McClellan. And we want to invite you to the Data Over Dogma podcast.

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23:10Let's move on now to stock number three. Stock number three, you know, 10 years passes and things happen, Anders. And stock number three no longer exists. In fact, it no longer existed inside the three-year game that we were playing when I first picked these stocks because NetSuite, ticker symbol N, was bought out by Oracle one year after I picked it back in 2016. So in 2015, NetSuite was a rising force in cloud-based enterprise software. It was a pioneer in letting businesses run all their financials, their operations, their analytics from just one online platform. It was a company that had one of those rare one-letter ticker symbols.

23:54It just had ticker N. And NetSuite had become a go-to solution for fast-growing companies like GoPro at the time, and even the Oakland Athletics, whose Moneyball GM, Billy Bean, sat on NetSuite's board. It had a 30 % annualized sales growth, reflecting strong demand for cloud integration long before that became mainstream. I mentioned that even the Motley Fool back in 2015, we'd recently begun adopting part of the platform, underscoring to me its real-world utility and staying power. So my bullishness came from just seeing NetSuite as a pure play on the inevitable shift of business systems to the cloud.

24:35It was an agile, founder-led innovator turning the back office into a competitive advantage, exactly the kind of rule breaker that would attract larger players. And as history shows, one year after I picked it, almost the very weak Oracle bought him out. Anders, before I give the numbers, any quick thoughts you have about this company that no longer exists independently? Yeah, I mean, NetSuite was always a big name in the enterprise planning, call it a community, I guess. And it still is. Like, only last week, Gartner released their magic quadrant for that sector. And they were in the magic quadrant for that with a leader in both vision and execution under Oracle's leadership.

25:23And they had been out of that for a while, but they got back for the first time in a few years. So Oracle takes this seriously and gives them the resources they need to succeed. And it's a big business for Oracle. And I think it was a good buyout. Yes, it certainly was. And Oracle these days is on quite its own run. So just the numbers for this stock we bought, I recommended NetSuite at$85.63 as part of that sampler. By the way, it's worth me mentioning that for virtually every stock that I'm ever quoting in any of these samplers, our Motley Fool services, in this case Motley Fool Rule Breakers, had a lower cost basis.

26:02These were samplers where I was picking them at the time, but often we've held these stocks for much longer than the samplers themselves. Just pointing that out. We have certainly a lower cost basis in Rule Breakers for NetSuite. But it wasn't too shabby,$85.63, when one year later it got bought out for$109 even. by Oracle, as already mentioned. It was therefore up 27.3%. And it was a cash buyout. So the stock no longer existed. Shareholders just got a cash payout. The S &P 500 over that very year was up 2.6%. So just as I reflected when we closed this sampler seven years ago after its third year, it has the exact same numbers today.

26:43It was up 27.3%. The market was up 2.6%. So we beat the market with this one by 25 percentage points. I don't think we need to spend too much time preoccupied in a company that no longer exists. But Anders, would you like to provide any additional reason as to why you think this company was such a good one-year investment? Well, if you took the cash buyout from Oracle and reinvested in Oracle stock at that point, I did the numbers for that. in that case by now including the 27 percent gain in the first year you would have a 601 percent return that's a compound annual growth rate of 22 percent and you know even warren buffett would be happy with that sort of return so yeah depends on how you play things that's fantastic andres i really appreciate you taking the time to do that i was too lazy to do that or not quick enough too busy maybe, but I'm so grateful you did that.

27:43That's pretty awesome to hear. Of course, that is all thanks to Oracle. Now, as a strategy, as an investor, sometimes if you get paid out cash, you are forced, of course, to sell and you're going to be paying a capital gain on that. But if you really do like the company acquiring it, then yeah, you could right away have put that money back into Oracle. And as Anders is pointing out, it's a seven bagger since then, which is a really nice return compared to the market. We're not accounting for it that way. So for this sampler's purpose, all we're going to take is a plus 25 point alpha gain, foregoing the extra 600 points we might have had if we just bought Oracle.

28:21But before we go on to stock number four, Unders, one final point from you on this one. Yeah, I like what you said about taking your capital gains taxes on the buyout. But if you held that NetSuite stock in your IRA account or some other tax-deferred kind of trading platform, then you don't have to worry about that. You're right. And of course, a lot of our listeners are managing their stock investments in retirement plans, Roth IRAs, IRAs, et cetera. There's actually a lot more opportunity today to buy stocks in people's retirement plans. And I think the present administration is trying to open up even further than that to more forms of alternative investment.