In this Motley Fool Money podcast, Motley Fool senior analyst Jim Gillies discusses:
- Why his rule is to never buy stocks on a day the market is up.
- The types of companies he’s been buying shares of lately.
- Takeaways from Starbucks‘ (SBUX -0.99%) Investor Day event.
Also, Ollen Douglass, managing partner of Motley Fool Ventures, talks with Jenny Abramson, founder and managing partner of Rethink Impact, about investing in private companies and what she looks for in company leaders.
To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Sept. 14, 2022.
Chris Hill: We’ve got a closer look at Starbucks Investor Day, and a closer look at the world of venture capital. Motley Fool Money starts now. I’m Chris Hill. Joining me today, Motley Fool Senior Analyst Jim Gillies. Thanks for being here.
Jim Gillies: Thanks for inviting me, Chris.
Chris Hill: Let’s go back in time. Shall we?
Jim Gillies: Always a good time.
Chris Hill: If we go back in time 24 hours, it’s pretty awful, because Tuesday ended up being one of those days where the financial news bleeds into the mainstream news, because the Dow dropped over 1,000 points or whatever the total ended up being. But I wanted to talk with you about something that Asit Sharma and I started to touch on yesterday, which is this thing that — and maybe I’m showing my age here, but the thought that I have when days like yesterday happen is, I feel like I’m getting a second chance as an investor. Because if you invest for long enough, it’s easy to daydream about going back in time and saying, “Oh, if only I had bought this stock 10 years ago, 20 years ago when it fell,” because now, with the benefit of hindsight, I can see that was the time to buy.”
I’ll be honest, Jim, I’m not doing that type of daydreaming. I’m doing more of the generic kind, which is to say, I think back to the Great Recession, 2008, 2009. I think, “Boy, that really was the time to just be buying in general,” even if you were just buying the index, the S&P 500 index, the QQQ. As I said, I feel like I’m getting a second chance because now it’s like, oh, OK this is happening. We can get into what some specific companies’ CEOs are talking about in terms of the near-term forecasts that they have. But this really does seem like a good opportunity for investors with a long time horizon.
Jim Gillies: Yes. Oh wait, we should probably extend on that.
Chris Hill: No. That’s fine. We can wrap up.
Jim Gillies: Podcast is over. Yeah, yesterday was interesting. I don’t really go in for points on the Dow. But I think if we look at a percentage basis, the S&P 500, I believe, was down 4.3%, the Nasdaq took a 5%-plus kick in the chin. Everyone is going, “Oh, interest rates are going up harder and faster than we thought they were,” even though what they thought they were going to do was not what the Fed has been signaling. So I’m not too sure why everyone got excited yesterday, but that and two bucks buys you coffee down the street, I suppose.
I have a personal rule actually, Chris, I have a personal rule that I actually don’t buy on up days. I am constantly investing. My partner and I are investing every paycheck. But one-third of our money, most of the money under her banner is indexed. Probably combined, about one-third of our money is indexed, and so we’re constantly buying the index. We are dollar-cost averaging where we can, any dividend plays.
Then as someone who runs a stock-picking service and also contributes stock picks to other services — in Canada mainly right now, although I have from time to time been known to show up on the U.S. services — quite literally my day job is to compile a list of companies that I would like to own and think that you should own at the right price. I was just going through it. We had a rough June, if you recall. Because the other thing: We all have kind of short-term memory. Like, yesterday was bad, but does everyone remember how bad June was? Because July and August were pretty good actually. So we had a pretty rough June. Most of this buying was done in June, but between June and then a couple when things rolled over in August, and even a couple last week when I had the moment of, “Hey, wow, these stocks have gotten really cheap.” This does not include indexes that I’m constantly adding to. This does not include any dividend reinvestments — that’s just automatically going through.
These are just active buy decisions of the past three months, I went through my list for the show. I have purchased or added to 19 different companies in the past three months. Again, mainly clustered in June, little bit in August, and two last week. The importance of having a watch list, the importance of having done the legwork, so when you do get market sell-offs, whether they’re as sharp as the one-day one yesterday, or whether it’s a steady grinding down, you can be prepared. Now, they’re not all winners, since purchased, of course, but some of them have actually been pretty decent. More importantly, among the names, there’s none that I look at and go, “OK, that was a mistake.” Even the ones that are down 10%-plus. I don’t think I’ve made a mistake with them and I could enumerate why.
But if we have a time machine … (If we have a time machine, boy we could do a lot of damage) … If we have a time machine, yeah, going back to the global financial crisis? Boy, that would be fun. Would anyone like to buy Starbucks for under $4 a share? It’s about $95 this morning. Pays a very large dividend relative to that $4 share credit-crisis low. Would anyone like to buy Home Depot, which bottomed at, I believe $19 maybe sub $19 — $18, $19 a share in 2009, I believe, in March of 2009? Today it’s $277. They’re paying an annual dividend of $7.60. I mean, if you’d bought then and held till now, not only have you gotten multibaggers, but you’re getting your money back every two and a half years — hard life, man! So yeah, [for] someone with a long-term ownership mindset, days like yesterday were a gift. Periods of time where the market sells off are a gift. I understand they’re emotionally challenging, perhaps. You hate to buy something and watch it fall 10%, 15%, 25%, 30%. But if you’ve done a lot of the homework upfront, and you understand what you’re buying, and you understand the valuation, like I said, days like yesterday are a gift, man.
Chris Hill: Let’s move on to Starbucks then.
Jim Gillies: Let’s talk Starbucks.
Chris Hill: Yesterday, Starbucks held their Investor Day presentation. Howard Schultz, the interim CEO, holding court, as he does. Always does a great job with these types of events, and a bunch of headlines coming out of that. They’re going to be investing close to half a billion dollars, improving coffee machines and stores. They’re really looking to speed up the process for baristas, which makes sense. Because if they can increase their throughput, that is certainly going to help same-store sales numbers. Especially important because cold drinks, some of which are very complex, make up 70% of coffee sales, which I think is a number that surprises hot coffee drinkers like you and me. Yet as a shareholder of Starbucks, I appreciate that there are people out there buying those expensive cold drinks. What, if anything, stood out to you? Because after a rough couple of years — a lot of which had nothing to do with the operations of the business and had everything to do with the pandemic — this is a very optimistic sounding management team from Schultz to the CFO on down.
Jim Gillies: I, like yourself, long-term shareholder of Starbucks, probably haven’t owned as much as I should have owned over those years, to be honest with you. I like Howard Schultz as this senior emeritus leader. I think it will be very difficult for the new gentlemen coming in underneath him, which I believe he’s coming in soon, and they’re going to spend six months as an understudy to Schultz to learn the business. I think that will be very difficult for (I’m going to mangle his name) Mr. Laxman Narasimhan, I hope I’ve got that reasonably correct. He’s got a pretty good resume, but I think coming in under Schultz is going to be difficult. I like that, apparently, at Investor Day, Schultz apparently has handed over a gold coffee bean given to him by a Guatemalan coffee farmer 40 years ago. It’s like a symbolic passing of the torch.
I’ve just been around long enough to remember the last couple of times there has been a symbolic passing of the torch from Schultz, and yet he always seems to come back, and they all seem to leave for family reasons or whatever. 2008, the first time Schultz came back, he promised very similar things that came out of yesterday: that Starbucks’ best days are ahead of it; that they were going to try to better the process for baristas, better the process for getting hot food to you. As someone who has been to Europe a couple of times this summer, specifically France, and I’m seeing what food they offer in French Starbucks versus what they offer in Canadian and U.S. Starbucks, I wish they would improve the overall food quality, frankly. But you and I have talked before — I’m not sure North American Starbucks has ever really gotten food correct, if you will. I think there is a lot here that we’ve seen before when Schultz passes the baton to someone else.
Chris Hill: That’s true. Although if it works out for the business and shareholders the way it did post-2008, then I’m all for history repeating itself.
Jim Gillies: That’s where I’m going with it. I think Howard Schultz has the ability to — just observing him for the better part of the last 20 years — I think he has the ability to know when to jump in, to be there leading the resurgence charge, and when to walk away when…
Read More: Talking Over the Latest Starbucks Transition | The Motley Fool