A Fool's Game: Rational Investing in an Irrational News Cycle
At a time when portfolios often own thousands of securities thanks to the abundance and availability of index strategies, knowing the companies you own can make a difference. Bill Mann, Chief Investment Strategist at Motley Fool Asset Management, shares the “Foolish” approach to investing that includes long-term ownership of high-quality, often founder-led companies in this sit down with ETF.com’s Dave Nadig from the ETF Oasis at Future Proof. The following is a transcript of their conversation.
The Value of Being Foolish
Dave Nadig: I first started following the Fool approach, and the way you guys think about what a portfolio is and means to an individual, way back when this was only available on AOL CDs, right? That was the only way you were getting access to it. And honestly, I went through that window of being an active manager right around the dot‑com boom, where I did everything exactly the wrong way based on your principles, and I went bankrupt. So that has given me a lot of respect for the Fool way of thinking about a portfolio. Help us teach new people what that is. What does it mean to have a foolish approach to a portfolio?
Bill Mann: I guess, should I apologize for the bankruptcy?
Dave Nadig: No, I got better.
Bill Mann:Okay, good. It feels like you’re doing okay. So, the Motley Fool has been around since 1993, and we have always been about long‑term holding of high‑quality companies, which we define as being founder‑led, as being companies that have what we think is a super‑long ability to generate growth. So what it means is, if you were to go back to 2004 and look at the companies that we’ve recommended, a lot of them are the ones that are still recommended by us today. We believe in no strangers in our portfolio, and we believe very much that you getting to know a company is one of the best moats that you can create for yourself.
Dave Nadig: I want to lean into that phrase, there should be no strangers in your portfolio. That feels very out of favor right now. If you look around this whole place, we’re talking about index funds, 500, thousands of securities in them, quant models, AI models. That all seems to push against this idea of, look, I really know this fund or this company, and I really trust this CEO because he does these things. How do you square those two? Because not everybody wants to get to know every company in their portfolio.
Bill Mann: So, Dave, I would say that if you are someone who doesn’t want to do that, an index fund is fine. It’s absolutely fine. We’ve long said that there really isn’t an either/or; even better, it can be both. One of the things that we believe in at Motley Fool Asset Management is that you can take that principle of knowing companies and put it into a single package, into a single ticker, and it does become much more simple to track. Because, let’s face it, everybody’s got a lawn to mow, or they’ve got a boat, or they’ve got kids, and so not all of us are hobbyist investors. So it is absolutely fine and admirable to choose to know yourself and to make sure that your portfolio reflects that.
Dave Nadig: So how does this have anything to do with the name of the company, and the funny hat, and all the crazy stuff on your shirt?
Bill Mann: So the funny hat actually came from us. You remember television, right? You would click and click and click, and we wore these jester hats, so if someone was spinning the dial, they’d go, “What was that?”. The Motley Fool was actually a Shakespearean reference, and, again, coming from the 1990s when it was really hard to find information about companies, the Motley Fool was the person who could tell the king the truth and keep his head in the process. So we really believe in ourselves as being honest brokers. I’ve been with the Motley Fool since 1999, I was in telecom before that, and I met Tom and David Gardner, the founders. I was like, these are decent people, and I want to be in a decent‑person company. So that’s what I did, and that’s been my path. But we have always been about radical transparency, and trying to make sure that we help people make better financial decisions.
Dave Nadig: One of my first interactions with the way you guys think about companies really came about during the dot‑com craziness, which, I’ve got to say, feels like a relevant comment right now. We were seeing the news cycle just take over, and meanwhile companies were digging trenches and laying down fiber and all the things we did in that dot‑com boom, but mostly it was just this frenetic news cycle, which feels very much like the now.
Bill Mann: It feels familiar to you.
Dave Nadig:Yeah, it does feel very familiar. Can you compare and contrast the sort of business cycle you have to evaluate when you’re getting to really know a company, versus the 3,700 headlines that are going to happen between now and the next quarterly earnings?
Bill Mann: Yeah. So I would say that the primary difference we have today is that most of the companies who are at the forefront of the AI build‑out have a tremendous stream of cash flows. Back in the dot‑com boom, you saw companies that were being created out of whole cloth. They came out of nowhere, and then you had the telecom companies that were trying to keep up. So we feel a lot of that today. But true leadership for us comes in the form of looking for companies that are in a part of the market that seems to have more permanence to it. And so, if you’re doing it properly, it allows you to not overreact to the headlines on a day‑to‑day basis.
Dave Nadig: How do you translate that? I understand that modality, because that feels very “Foolish,” with quotes around it in my head, of like, no, no, no, this is a long‑term company, it’s going to be building factories, if it’s not data centers it’s part of the infrastructure, it’s part of the ecosystem, we understand where it is. How do you pair that with something that is aggressive growth and a brand‑new idea, some AI company that’s just coming public? How do you think about those companies, where clearly you’re just not going to have that data? It’s a bunch of 29‑year‑olds and a good idea and a pile of capital.
Bill Mann: Yeah. I would describe 2025 and 2026 as being wholly unique, in that we have seen massive companies going public. I think it’s probably unprecedented, I don’t want to say unprecedented, because there are certainly examples from before. One of the core elements of how we think and how we put our funds together, and how the Motley Fool thinks, is that we are willing to stand with companies that look like they are doing something huge. And so the big companies that are coming public now obviously are not going down that same path, and we will evaluate them as to whether the market has properly analyzed their moat. I mean, they say, what, $30 trillion?
Dave Nadig: But I’m going to push on this a little. How? Seriously. We’re talking about companies that didn’t exist a couple of years ago that have just, you know, ridiculous numbers associated with them, that seem so far removed from a consulting company that’s really good at connecting data centers to power production.
Bill Mann: And yet. Part of it for us is that you don’t need to be right all the time.
Dave Nadig: So you’ve never been on the internet.
Bill Mann: Well, if you come from the Motley Fool, you know that you’ve been raised by wolves. You can have 40 great picks in a row, and one goes bad, and someone is like, “Well, Bill Mann’s an idiot”. So, yes, I’m aware of the internet, and I’m aware of the unforgiving nature of that audience. But you have to be comfortable with being wrong, and I think that’s a magical component of the Motley Fool.
In our business, none of our analysts have ever had their jobs put at risk because they were wrong about a stock pick. Your job can be at risk for having a bad process. For us, it’s all about the process, all about what types of companies and what process you put into place that properly puts a company into context. So we think of these companies that are going to become public at multi‑trillion‑dollar valuations, and that price is in itself a factor, right? It may be the most important factor. And you can be 100% wrong, or, well, let’s say 95% wrong, about that price as a factor, but you do have the ability to continue to evaluate the underlying business. You’re not necessarily on the hook for that price at a point in time, because the market opens every single day and it does something different and funny every day. Some days the rates go up, and some days, you know. So you do have the ability to course‑correct, and I think that is valuable.
Dave Nadig: How do you be wrong well? Because I’ve read your man‑on‑the‑street pieces, you talk about mistakes, you talk about learning. But how do you actually be wrong well, in a way that is both positive for the portfolio but also helpful with the client? I think that’s a valuable lesson advisors can learn too.
Bill Mann: I am awesome at being wrong well. I’m super, super good at being wrong. One of the ways that you can do it is, you have to leave the results to chance. This last month I wrote about a newspaper company in western North Carolina, a tiny town, and they had a circulation of 500,000 people, which was incredible at that period of time. But they missed the fact that the radio was coming. You can’t hold a company responsible for a disruption of that nature. So what we do, in terms of being wrong, is we practice a lot of full‑contact Socratic method in terms of talking about what we’ve learned from where we are. And would we make the same decision over and over? And sometimes, honestly, the answer is yes, and the outcome itself takes care of itself over time.
Dave Nadig: It sounds like you must have a very different kind of analyst joining your firm, because my experience has been that active‑management shops that are doing stock‑picking, it has become an engineering field in a lot of ways, where there is a right and wrong answer, and it’s about large data and data integrity, which is all very important. But that doesn’t necessarily lend itself to that kind of conversation. So how do you grow people in an organization like this?
Bill Mann: We come from a liberal‑arts background. In fact, if any of you have kids in college now, or people who are trying to make their way in the world, we want history majors who’ve studied accounting more than anything else.
Dave Nadig: Is that a big pool?
Bill Mann: We’ve got some. But honestly, if you think about what a history major brings to the table, they are capable of analyzing a lot of information, they can write well, they can communicate well, and they can put things into context. And the context is probably the most important thing. So, as you started opening this conversation, you’re like, this feels a heck of a lot like the dot‑com crisis. A history major might say, this feels a heck of a lot like the railroad build‑out, when the railroad companies made up 75% of the market cap of American stocks. There have been precedents in time. So for us, someone who has that perspective and is a generalist, that’s someone we can build upon, and those are the people who turn out to be really, really good analysts at Motley Fool.
Dave Nadig: I’m going to hold your feet to the fire, because I have a bunch of quotes from your blog here that I love. One of the things you said was, “There are two intangible analytical superpowers, patience and the willingness to be wrong, which more broadly is described as optimism.” I really want to understand that connection.
Bill Mann: Well, it’s either optimism or obnoxiousness, right? You can be stubborn. I think that optimism really comes from a capacity where you have identified a trend, or you have identified a business, and you just need to get out of the way and let it do its work. Maybe that’s optimism, maybe it’s realism, maybe it’s being countercyclical in nature. But I think ultimately you have to assume, once you’ve identified someone who is running a company the right way, that they’re going to continue to do so, and forget about the externalities that may upend them along the way.
Dave Nadig: But you point out there’s a difference between conviction and stubbornness. So can you give me some examples, maybe, of places where you’ve been all in on a company and it’s been like, nope, these guys completely messed this up, they’ve got bad management now, that’s on us, our bad, we’re selling?
Bill Mann: It’s such an unfair question. Yeah, we are wrong a lot, an awful lot. We held a company until it was absolutely nothing. And we actually got a lot of criticism for that type of decision process and our sell-discipline. Our sell‑discipline is to make sure that we aren’t stepping in the way of a company that was doing the right things. And as companies show that they’re not doing well, it becomes less and less of a problem for you. It looks awful.
Dave Nadig: But it becomes easier to sell once it’s obviously wrong.
Bill Mann: Yeah, exactly. It looks awful, but we have had so many companies that have looked like they were dying, and it turned out that they were not, that we are actually okay with that level of wrong‑looking‑ness. Especially when you do it publicly and your picks are out there to be consumed and commented upon by anyone, it takes a real fortitude to be able to do it.
Dave Nadig: All right, we have literally a minute and a half left, but I’ve been dying to ask you about this. Tons of AI everywhere here, I’m going to be talking to some AI people right after this. How is AI impacting your processes, if at all, whether it’s helping you write your letters or whether it’s actually analyzing stocks?
Bill Mann: Dave, I write my own letters. Come on.
Dave Nadig: I’m sure you do. But you do research.
Bill Mann: It has helped us tremendously at the top of the funnel. The challenge with AI is that it’s going to give you the latest consensus view. Now, if you are investing, and unless you are straight indexing, the consensus view, it helps you to know it, but it also helps you to ignore it. So what we’re using AI for is really the top of the research process, and it allows us to generate a huge amount of data that we then start to work on for our non‑consensus views on any number of things.
Dave Nadig: And you guys have historically had just so much data, because you’ve been doing this for so long, I’m going to guess a lot of that’s looking inside, into your own processes.
Bill Mann: I think that’s one of the most powerful components for AI: for any company that has a walled garden, that has internal data, AI querying that, I think, is one of the most powerful things that you can have.
Dave Nadig: Well, Bill, this has been a fantastic conversation. Sorry we ran out of time. I’m sure we’ll see you again soon. Great to talk to you today.
Bill Mann: All right, thanks.
Disclosure
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