10 Years Later: 5 Winners in a Thinking World

0:00Ten years ago, May 4th, 2016 to be exact, I launched my fourth five-stock sampler, five winners in a thinking world. Michael Bloomberg had just given a commencement speech to the University of Michigan, and my pal and longtime fool Morgan Housel had excerpted in his social media feed this line from Bloomberg, and I quote, For the first time in human history, the majority of people in the developed world are being asked to make a living with their minds rather than their muscles, Bloomberg had said. And so it was time for me to pick five stocks that would seem to do well in an increasingly thinky, thinking world.

0:44Well, today we fire up the time machine 10 years later to see what actually happened through recessions, pandemics, acquisitions, and all the surprises a decade can deliver. We're going to score our returns against the S &P 500, then ask the only questions that matter. What do we get right? What do we get wrong? And what can we learn from that? I've invited back my longtime fellow rule breaker, Tim Byers, to bring the goods, some numbers, some stories. We'll talk about the lessons you can use on your next 10-year journey. Five winners in a thinking world 10 years later. Only on this week's Rule Breaker Investing.

1:27It's the Rule Breaker Investing Podcast with Motley Fool co-founder David Gardner.

1:35And welcome back to Rule Breaker Investing. A delight to have you with me for this episode of 10 Years Later, which we're about to get into. But before we do, I want to mention next week's podcast. It's my birthday. It's my annual birthday present from you to me. It's what you have learned from David Gardner. I've done this every year, the last several. If there's something that you've learned from me, from this podcast, from my book, from our business, The Motley Fool, or any random board game suggestion I may have given you, whatever you may have learned from me, I would love to hear that back.

2:12You can email us, rbi at fool.com. You can also tweet us on Twitter, X, at RBI podcast, but specifically best are probably emails here. And if in your subject line, you say what I have learned or something to that effect, we'll know to route it right to me for next week's podcast. We are recording in advance of my actual birthday, which is May 16th. I'll be turning 60 in just a little less than two weeks. But next week's podcast is my What You Have Learned. And I'd love to hear a story or a point or an idea. Again, our email address, rbi at fool.com. Thank you so much in advance. All right, every 10 weeks, we open up a time capsule on this podcast.

2:55It's a past five-stock sampler hitting its 10-year birthday. And this very week, in 2016, I picked five stocks that I hoped would benefit from an increasingly cerebral world. Five winners in a thinking world. And now here we are, doing something you're going to rarely see on financial TV or podcasts, or really any medium. We're going to review the results 10 years later, the very week of. As already foreshadowed this week, we're looking at number four of the 35 stock samplers featured on this podcast over the years. 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.

3:40And then comes the real work done this week by longtime fellow fool Tim Byers, who's joining shortly with his best answer to this question for each of the five stocks. What is the single biggest reason this stock did what it did? We're going to discuss that together, what this decade actually taught us as investors. We're going to finish with the sampler's overall result, probably a lesson or two, maybe a quick go-forward view on a couple of these companies. If you're new here, that's our 10 years later episodic series, and that's what we're doing this week. We're not just keeping score, by the way, though we are.

4:17We are all learning together how and why Rule Breakers win. And oh, by the way, sometimes lose, too. And over the long game, playing stocks the only way that counts, even if so few people, seem to do this. I want to now welcome back Tim Byers to Rule Breaker Investing. Tim, hey-ya. Hey, David. It's great to be here. Thank you so much for having me on. I know we're going to talk about some stocks. We're going to talk about where I am. But I do want to answer quickly your first, like everybody else is going to email in. So I'm going to give a template for people if they want to email in a lesson from you.

4:58I'm going to give one you might not expect of what I learned from you, which is this. Rule Breakers can come from anywhere. And I mean anywhere. There are, I will refer you back. If you've been a longtime Rule Breakers member, you may remember two stocks that made it to the Rule Breaker scorecard that I don't think anyone would have ever expected. One was an airline, Virgin America, and that was a winner because it got taken out by Alaska Airlines at a pretty significant premium. We had an airline as a Rule Breaker. And second is Yahoo. Yahoo was, at the time that we recommended it, a brand that seemed like it was on the way down.

5:41What the pitch was, And I like that you took this to heart, David, as you said, you know what? Sometimes a rule-breaking leader makes a rule-breaker. And we thought Marissa Mayer at the time was a rule-breaking leader. Now, it didn't work out exactly the way we wanted, but it did beat the market. We did make some money on it. But I still believe that. Rule breakers come from anywhere. Do not limit yourself. I love that. Thank you, Tim. And given, I was just checking, you started at The Motley Fool in December of 2003. So here we are, 22 plus years and all that you and I have gotten to do and learn together.

6:19And this is just the latest chapter. And thank you for that lovely thought, Tim. And maybe one more question before we get started with these five stocks. Where are you right now? Yeah, I'm in Bethesda, Maryland at Foolapalooza, which is our annual meeting for employees of the company. It's a great gathering of old friends, new friends, and we're talking about things that matter to our members, that matter to us as investors. Naturally, a big topic right now is AI and how we can use it. I've heard something about that. You know, how we can improve the experience for members using AI. I'm a firm believer in AI as an enhancer, not a replacement.

6:59I think AI plus human ingenuity, human creativity, human expertise and curiosity is arguably an unmatched combination. So that is where my focus is. I am going to take the more optimistic view that I think if you think of AI as a replacement, I think you are missing a massive opportunity in front of you. And so that's how we're thinking about it and what we're talking about at Fulapalooza. So it's always a great time. It's fun to see friends. It's fun to talk about the future of the business. And we always come out of it refreshed, a little bit energized. And yeah, I'm looking forward to it. We sure do.

7:38And thank you for sharing that, Tim. And yeah, we're all trying to do the best for our members. And that's been the focus of our company from day one. And I love that you're having that conversation year and day. Well, we'll just say year 34. All right. Well, speaking of the past, the date was May 4th. May the 4th be with you, by the way. 2016 literally 10 years ago this very day we're recording this sampler was five winners in a thinking world feel free to go right back and listen to it by the way intrepid fellow fool listeners it's right out there on apple podcast spotify wherever you find your podcasts the five stocks we're going to cover them in order were selgene walt disney splunk twitter and zillow some really fun words there and those five What the market did over the same 10 years, and I always just use the SPY ETF to measure this, ticker symbol SPY, it's up 249.6 % as we speak.

8:37So it's more than tripled over these 10 years that week to this one. How did I frame up these five stocks? Why this theme? Well, as I mentioned at the top, following Morgan Housel on Twitter, I'd come across something in his feed. He'd been reading an article that was basically a summary of Michael Bloomberg's commencement speech to the University of Michigan graduating class that spring. And Morgan pulled out a few really key lines that struck me. Let me just start with a short read of what Bloomberg said. And I quote, think about the global economy. For the first time in human history, the majority of people in the developed world are being asked to make a living with their minds rather than their muscles.

9:17For 3 ,000 years, humankind had an economy based on farming Till the soil, plant the seed, harvest the crop It was hard to do, but fairly easy to learn Then for 300 years, we had an economy based on industry Mold the parts, turn the crank, assemble the product This was hard to do, but also fairly easy to learn And then Bloomberg went on You can picture all those happy University of Michigan parents because, well, now they don't have to pay tuition anymore, but also the new soon-to-be grads listening to this next line. And I quote, now we have an economy based on information. Acquire the knowledge, apply the analytics, and use your creativity.

10:07This is hard to do and hard to learn, Bloomberg said, and even once you've mastered it, you have to start learning all over again pretty much every day, end quote. Now, there was more to it, but that was the gist. And I was saying on my podcast 10 years ago, by the way, that almost feels like it could have been said today about AI, Tim, but we'll get to that in a sec. As I was saying on my podcast 10 years ago, while the information age is important, and while certainly his business Bloomberg is all about information at your terminal, truly, I think what we practice every week right here on Rule Breaker Investing is thinking and thinking about thinking.

10:52And it's really the creative use of information. And Tim Byers, that led me into this five-stock sampler. So Tim, let's you and I strap ourselves now in because we're going back in time this week into the Rule Breaker Investing Time Machine. Let's strap in.

11:17Doc number one, Celgene, ticker symbol C-E-L-G. Celgene was, note the use of the verb tense, Celgene was a biotechnology company focused on developing treatments for cancer, especially blood cancers, led by its blockbuster drug Revlimid. It combined deep scientific research with strong commercial execution, built a powerful pipeline of future therapies. You know, back in 2016, it stood as a dominant innovation-driven biotech leader operating at the intersection of science, data, and life-saving medicine. And I like Celgene Tim as a category-leading biotech driven by intellectual capital, real-world impact.

12:03In fact, it was perfectly aligned with what I saw as a thinking world company. Tim, any initial reactions of yours to Celgene either back then or now? Yeah, you know, my major reaction to it, David, is disappointment because Celgene, we're going to talk about this, but got taken out by Bristol-Myers Squibb. And I mean, ultimately, we like to invest in the world's best companies. And sometimes other companies recognize that this is one of the world's best companies. and decided we want that inside of our company. So a little bit of disappointment there, a little bit of regret, because I wanted that on the scorecard for as long as we could get it.

12:43Thank you, Tim. And that theme of a little bit of disappointment may come back more than once before we're done this week. The performance of the stock. So the stock was trading at$100.90. So right about 101 when I picked it 10 years ago this week. As Tim just mentioned, the year was 2019. It was bought out by Bristol-Myers Squibb at$108.24. So it had a return over three years of 7.3%. Not great. The stock market over the exact same period, 51.6 % up. So again, our stock up about 7. Mark it up, Tim, about 51. I record a minus 44. It's in the loss column for Celgene. It was up a little bit over those three years, but the market was up a lot more.

13:35Tim Byers, what do you see as the single biggest reason this stock did what it didn't? And what happened? I mean, I think it's diversification here, David. this is a Peter Lynch term, Bristol-Myers Squibb and taking out Celgene was getting an electric company. But in order to get that company, it had to do some things that I think gutted the company just a little bit. So it did get trapped. I would say the headline here is it got trapped inside a legacy pharma, you know, without enough growth opportunity. The growth opportunities just got a little bit limited and that hurt it over the long term.

14:13And this is a company, Bristol-Myers Squibb, obviously these days we're talking about, well, it always was, Tim, a big company. Just checking the market cap for ticker symbol BMY Bristol-Myers Squibb these days, Tim, over$100 billion. It's not a mega, mega cap. This is a large tech pharma company that is diversified. Yeah, it is diversified. And I have to say, when you look back at this, so let's take a couple of points here from the story here. If you look at Bristol-Myers Squibb, which is now, you know, if you took on the Krum Seljean, you decided, you know what, I want to have some Bristol-Myers squib.

14:53I think you've been disappointed. And just for context here, over the last three years, three of the last four years, you've had declining gross margin. You've had declining revenue, which is a little bit hard to take. And some of that starts from back around the time of this acquisition, because, I mean, it certainly has been consequential. You know, Revlimid is obviously one of the big success stories there. That was a treatment for multiple myeloma. But then, you know, as soon as it got absorbed into Bristol-Myers Squibb, the consequential nature of such an amazing therapy is just different once it is housed inside a much bigger company.

15:32And look, I mean, there were other pieces. You mentioned that Celgene was a company that had different treatments, particularly for blood cancer. It was very, very good in providing multiple treatments. And it's one of the things we loved about Celgene at the time. Bear in mind, Carl Thiel is our biotech expert. But even I, as kind of the plebeian biotech investor here, could see something that Carl would just keep reminding us about Celgene, like some other big biotechs that we still have on the Rule Breaker scorecard. Vertex comes to mind, for example, is as these companies gain scale, they have a huge pipeline of options.

16:14And that was one of the beauties of my Celgene was such an attractive buyout target for Bristol-Myers Squibb because they didn't just have therapies that were generating cash flow now. They had things in the pipeline that promised to deliver cash flow in the future. But as a consequence of getting this transaction over the line, David, the FTC said, you know what, you got to sell some stuff. And so they sold to Tesla, for example, to Amgen for$13.4 billion. That's good. I mean, that's cash, and cash is certainly good. But cash is never just a straight-up substitute for something that can generate more cash on an ongoing basis.

16:57So I think the way this transaction went down, David, maybe was more of a destroyer of value than it was a creator of value. And that was, to be fair, I don't know that that was so easy to see. Well, I really appreciate that breakdown. And, you know, looking back over this now, Tim, I was just checking it. The actual buyout of Celgene was for a$74 billion cash in stock deal. So, I mean, thinking about Bristol Myers today with a market cap of$117 billion, I mean, stock, by the way, Bristol Myers has not been great over the last five years. It's slightly down with the market well up over the last five years.

17:36So it really, in some ways, was a turning point for Bristol-Myers Squibb and one that hasn't been great. They paid up for a great franchise. They're not worth that much more than it. Now, six, seven years later. So just a quick thought there. So let's let's maybe now move on to stock number two, a little bit more interesting to Rule Breakers, maybe than Celgene, which is not exactly a word that comes trippingly off the tongue or a company recognized by the man on the street, so-called. but certainly was a very fine biotech company, now part of a larger company that has been underperforming. Thank you for that, Tim.

18:13Let's move on to stock number two. The ticker symbol is DIS, and the company is, of course, Walt Disney Company, a global entertainment company spanning film, television, theme parks, yeah, and, sure, streaming. Built, by the way, on some of the most valuable intellectual property in the world from Marvel to Star Wars to Pixar. It combines storytelling and technology and physical experiences at massive scale, constantly adapting as media consumption evolves. Back in 2016, Disney was navigating the shift from cable dominance toward a more digital, more direct-to-consumer future. And the reason I like this stock for this sampler, well, I just like Disney anyway.

19:00It's a world-class, creativity-driven franchise machine that would just need to keep learning and evolving in a rapidly changing thinking world, I thought, at the time. Tim, what were you thinking about Disney either 10 years ago or today? I thought, and the headline here for me is that this is the uncomfortable pivot that was ultimately necessary, you know, into the streaming world. But I have often thought, and I still think this is true, David, is that brand is one of the deepest and most valuable moats that you can find. I mean, I just think it is unequivocally true that Disney has an unbelievable brand.

19:43It just does. Like, people all know Disney all around the world. And you have probably engaged with Disney brands multiple times per day. I mean, it really is incredible. So, I mean, you put it as part of the sampler. I have owned it since it transitioned from Marvel shares into Disney shares, and I've never sold in that period now. I've underperformed the market as a result, but do I regret that? No. I mean, it is a great brand, and so I don't apologize for holding it for as long as I have. Well, getting into Marvel back in the day, this was one of our great early picks in Motley Fool Stock Advisor.

20:27And it has been a big winner from that price. But as you're pointing out, Tim, Disney's not been a great performing stock. And over different periods, it's been a real underperformer. Let's just take a look at the numbers for this pick from 10 years ago this week. Disney was at$103.67. That was the cost basis, right around$104. Today, it's right around$102. So it's basically down 2 % 10 years later. Kind of shocking when you think about how important and relevant this company is, how beloved this company is. And yet, as you pointed out, Tim, it's got a lot of different things going on. It's had to make some transitions and evolutions.

21:08This is a thinking world that we're living in, and entertainment has changed in a lot of ways and will continue to change. So just to finish the numbers then for my Disney stock pick, unfortunately, with the market up 250 % and this stock down around 1%, that's a minus 251 in the loss column for this stock pick. Basically, the stock is flat over 10 years and the market has more than tripled. Tim Byers, what in your mind is the single biggest reason this stock has been flat over the last 10 years? I do think we have to come back to the uncomfortable pivot, but I'm going to take you to a date in time here, David, because I think this really informs the discussion, which is, believe it or not, you know, March of 2019, Disney closes its acquisition of 20th Century Fox Studios for$71.3 billion.

22:02And I think that created an uncomfortable boat anchor, which is going to feel really weird when I talk about what the boat anchor was. And I think what happened here, David, is that there was an uncomfortable pressure amongst Disney leadership. And at this point, it is not Bob Iger. It's Bob Chapek at this point. Remember that Bob Iger had retired. Bob Chapek had come in. And so there was different leadership here. And I think that leadership, Chapek in particular, said like, all right, we put all this money on Fox. And what that meant at that time, David, is we have got to exploit the heck out of those Fox assets.

22:50And that was really two things. It was a lot more Star Wars and a lot more Marvel. And we got so much of both that I think we saturated the market and the market got tired. And it really did turn on Disney. Now, part of that too, we have to mention is that during this period, you already mentioned this, David, but we do have to talk about it, is that streaming was really cutting into the linear TV, cable TV. There just wasn't enough buying of cable bundles. And so distribution became a real problem. And so at the moment that Disney was really doubling down on its most valuable content and exhausting its audience, it also said, and hey, look, we're going to take all of that stuff that is exhausting you and pipe it through this new thing that we call Disney Plus.

23:47And they priced that at such a stark discount that the money machine just dried up almost overnight. And it was really hard to see how Disney was going to come back and start being the really aggressive cash generator it had been. Cash flow started to dry up. Since then, they've done some really smart things since Iger has come back. But I do think the leadership under Chapek of over-indexing on superheroes and Star Wars at a time when they had to figure out the transition from linear and cable TV just really cost them, David. Well, thank you, Tim, for that tour down memory lane. I had forgotten about Chapek and the way you explained the Fox assets and the need to monetize or derive profit, sometimes faster than you'd think, from assets that could, yeah, get tired.

24:45There was a day where I, maybe you too, Tim, would go to every one of the next Marvel movies, but then there came even more than that, and I just didn't quite keep up in the same way. I was still a fan, but I do agree with you. I mean, how many times are we going to remake Spider-Man? But I guess people still want to see it, bud. Anyway, we'll leave stock number two right there for now. We're well in the hole after these two picks, particularly Disney going flat for 10 years.

25:17Serial killers, strange disappearances, unexplained mysteries, terrible disasters. I'm Nate Hale, and in my show, The Conspirators, I'm here to tell you all the stories from history your teacher never told you about. Hear the real story behind the Bermuda Triangle, or about the serial killer operating in Nazi-occupied Paris, or what dark secret lurked within the walls of a Scottish castle. Listen to The Conspirators on Apple, Stitcher, Spotify, or wherever you get your podcasts. Let's move on now to stock number three. Stock number three is Splunk, ticker symbol SPLK. By the way, no longer traded.

25:57We'll talk about that in a minute. Splunk, a data platform company that helps organizations collect, analyze, and also visualize massive amounts of machine-generated data from their IT systems to cybersecurity logs to operational workflows. Its software turns raw data into real-time insights, enabling companies to monitor performance, detect threats, and make faster decisions. Now I'm using the present tense because Splunk is very much still around today, just in a slightly different form. Back in 2016, it was an emerging leader in the fast-growing big data and analytics space, helping enterprises make sense of an increasingly digital world.

26:42And I liked Splunk as a smaller, high-potential leader in big data, enabling the kind of real-time insight and decision-making that defines success in a thinking world. Tim, any initial reactions to Splunk? This one is a particular disappointment for me on the Rule Breaker scorecard. This is a story that we'll get into in a minute where disruption really does destroy the revenue model. I think Splunk in some ways was a victim of its innovative past because it just created so much to do the things that it did.

27:24around the time of this stock sampler were suddenly under threat and maybe not needed as much as they once were. Well, you say that, Tim, and I'm sure you're right, but I do want to mention this was a winner. So the way that you cast that makes it sound like it didn't do well, Tim, but just reviewing the numbers. Of course, it's no longer traded today, so that's part of your point, I think, but it no longer exists today. Back then, it was at$48.87, and Cisco came along, Cisco Systems, that's Cisco, and bought them, bought them out in March of 2024. Had a nice premium. Yeah, that was at$156.90 a share.