When The Motley Fool’s* co-founder David Gardner was in his 20s, he gained something invaluable: perspective. This was gifted to him by a piece of paper. David’s father, an avid investor, gleefully taught him and his brother, fellow Motley Fool co-founder Tom Gardner, how to invest, but a study of a brokerage statement for an account managed by one of David’s uncles may have presented the most poignant lesson.
On that statement, 25-year-old David saw a list of stock holdings alongside purchase dates and cost bases that would have impressed any investor, let alone a young one. Listed were stocks initially bought decades earlier, and now (after stock splits) they carried average costs per share the likes of $1.57, $2.34, and $0.88, while the current prices were $30, $40, $50 per share.
Many of these were industry-leading companies, and almost all the account’s value was the result of appreciation. That, as David tells it, is when a bell went off. A brokerage statement displayed to a young man how buy-and-hold investing can generate tremendous returns. He wanted that sort of investing success.
Flash-forward three decades, and one of David’s longstanding philosophies is to “buy companies that reflect your best vision for our future,” as he puts it, and to rarely sell. Your winners should more than make up for losers, and (simply put) you should succeed as an investor—perhaps far beyond what you ever dreamt as your returns keep compounding. After all, it’s hard to imagine how a company can create more value year after year, until you see the end results on paper, as David did. This perspective helped David since then strive to own his favorite companies for decades.
David gained first-hand perspective on what worked, and adopted it. To put this experience into a memorable framework, I created an acronym, WIN:
David witnessed a winning strategy; initiated something similar; and ever since has been navigating it through the years, making tweaks, seeking improvement as he learns and gains more experience. But all along the way, he’s been using the perspective that he gained early on to win. This sort of perspective doesn’t just come from a brokerage statement. For all of us, it steadily arises from past experiences, too.
I started investing alongside David and Tom in 1996, when we were witnessing the emergence of the Internet. Similar to a life-giving body of water, countless companies emerged from the space onto the public markets, and we had to navigate which ones we wanted to buy and hold. A single Amazon.com (Nasdaq: AMZN)^ purchase from those years could make your investment career two to three decades later. What we witnessed firsthand was the tremendous potential for wealth creation during times of great innovation. Of course, much value was created only to be quickly destroyed—like the billions of species that have gone extinct on earth—and we needed to navigate away from the flameouts and own the companies we thought most likely to thrive.
The big-picture takeaway is that we witnessed what was starting, and initiated a strategy to win by it, and then navigated that path to this very day. This has succeeded more than any of us likely imagined. Did we believe that Amazon.com would grow from $856 million in value in 1997 to $1.86 trillion today? No. We would have been happy with a fraction of that.
Meanwhile, thanks to capital-light business models with strong margins and growth prospects, software stocks have interested me more than any other sector since the early 1990s. I witnessed what I believed would be an attractive industry for years to come, and initiated a strategy to win by it. I’m still navigating it today. Software businesses now account for more of my investments by number than do any other sector.
Which brings us to AI, or Artificial Intelligence. It is, of course, another form of software, and a particularly potent one: it has been coupled with powerful microprocessors and databases to in essence learn from itself, and get more useful over time. It still takes the guiding hand of programmers to set it on its way and to keep it on the right path, so it’s entirely a human-created product, like all software. But the world’s expertise with hardware and software has reached a point where AI can almost seem sentient. You can communicate with it as you would a person, and therefore it can be incredibly helpful in real time. Ease is everything in tech, and ease may reach a new tipping point with AI. This could unleash all kinds of advances.
We’re witnessing another enormous leap in tech innovation, perhaps the greatest since the 1990s, and we’re excited to invest in it. From what we’re hearing from several companies, AI is as game-changing as hoped, increasing company efficiency and effectiveness at a rapid pace.
As some examples, we’ve spoken to a representative at a large online company who said AI is reducing costs in one key division by as much as 10%, and those savings are available to invest into still more growth, which means the savings can benefit several other companies, as well, via additional revenue (in this case, through increased advertising spend). A large software leader tells us that its AI product has seen the fastest sales uptake in its history, partly because the product so quickly pays for itself at companies that use it. A social media leader shares that AI is increasing the effectiveness of the ads it shows to people, which helps multiple parties, including itself, perform better—and the company believes it’ll only keep improving from here.
We’re fortunate to have the perspective of the last three decades to tell us that tech advancement in general is no passing anomaly. It’s here to stay, and so far, tech’s value creation has been unparalleled. Perhaps that’s because tech is so universal, a daily part of our lives that, for good and bad, society now relies on to function. AI stands to make tech easier to use, still more useful, and more universally essential to daily life. And AI is just beginning.
We believe we are witnessing the emergence of something awesome. We are initiating investments to aim to win by it. And we are ready to navigate the many years of promise ahead. We strive to win.
—Jeff Fischer
*1623 is an affiliate of The Motley Fool (“TMF”). 1623 is a separate entity, and all investment advisory services are provided independently by the asset managers at 1623. No TMF analysts are involved in the investment decision-making or daily operations of TMF.
^The mention of specific companies is for illustrative purposes only and does not constitute a recommendation to purchase or sell a particular security.