Back in September, Alison Southwick and Robert Brokamp reviewed five things that might rightfully lead an investor to dump a stock -- or sell a big chunk of it -- even when there's not necessarily anything wrong with the company or the equity. This week on the Motley Fool Answers podcast, they're back as promised with five more, presented with a bit of help from Million Dollar Portfolio's Jason Moser.
In this segment, they discuss what happens when a platform shift threatens a company's business model and takes the wind out of its growth sails. It's not easy to pivot into a new paradigm, but if you don't think your company can pivot, you shouldn't be in it anymore, either.
A full transcript follows the video.
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This video was recorded on Nov. 14, 2017.
Alison Southwick: And our next breakup line is, "You're not growing as a human being." Or I guess as a company. Whatever. You see what we're trying to do, here.
Robert Brokamp: And this is sell if a platform shift threatens an investment.
Jason Moser: And technology, I think, is the poster child for this. Platform shifts are just the name of the game, there. You mentioned a good one before, Alison, where BlackBerry had its lunch eaten by Apple, or Apple ate BlackBerry's lunch.
Brokamp: But even before that there was Palm and Handspring. I mean, the whole story of the handheld device...
Southwick: Motorola and...
Brokamp: It's amazing.
Moser: So, you've seen a lot of that Nokia. Who's that? When you're walk in with a Nokia, people are like, "What?" They don't even know what Nokia is, but we all had a Nokia at some point.
Southwick: We all had the candy bar phone. We all had a Nokia phone.
Moser: But that's the nature of technology, right?
Southwick: It's kind of the nature of the world. The buggy whip, for example. I mean, we are always moving forward.
Moser: I think it's amazing to see what e-commerce has done in such a short time, and I think that Amazon (NASDAQ: AMZN) is the company that has led that movement. It's not to say that Amazon is the only company benefiting from it, but certainly Amazon has really helped sort of spearhead the way.
And it just goes to show you how really smart Jeff Bezos was to make those investments so early on. I think a lot of people really questioned "I'm not going to buy something on a computer. I'm not going to put my credit card on the computer. No way. That's my security," and everything.
Gradually consumer behavior shifts, and now they recognize the fact that we, consumers, care about convenience. We care about loyalty. We care about free shipping. And that is data. Study after study shows people care about free shipping more than their children in a lot of cases. You look at something like Amazon, and Bezos has built a model around that and it's worked out pretty well.
Southwick: There must be times in the history of the world where a company is losing market share.
Southwick: They're losing to some flashy new technology coming in, but then they did successfully pivot. That has to have happened at least once in the history of the world.
Brokamp: Well, we've mentioned one, although currently it's not doing so well. Nokia was originally... Anyone...? A lumber company.
Brokamp: In Finland.
Brokamp: Yeah. The company's almost 100 years old.
Brokamp: It just came up with different ways to do things.
Moser: Well, McDonald's. All day breakfast! I mean, that's a pivot. Everybody was leaving McDonald's and going to Chipotle, Alison.
Southwick: That's a really brave move, yeah. To have the fortitude to put that on the boardroom table is very exciting.
Moser: I will use Wal-Mart here as an example of a company that I think a lot of people early on were counting out.
Moser: Talk about market share or look at just the rate of sales in its retail growth. You look at the pace of sales for Amazon vs. the pace of sales for Wal-Mart and clearly Wal-Mart was getting killed. But I think they made some moves, partly in acquisition. Buying some internet properties. Partly on trying to mimic what Amazon's been doing.
They have a tremendous physical infrastructure and if they can build out the logistics expertise, they can certainly participate in that e-commerce environment and they are. I think that's a company that was a little bit slow to adapt, but they definitely have and they're still around because of it.
Southwick: But it sounds like the examples are few and far between.
Moser: They are the exceptions and not the rule. Look at Facebook and Myspace. Why did Facebook displace Myspace? I really don't know.
Southwick: I don't know, either.
Moser: But what we're seeing now is the behavior of kids out there. They're not really interested in having a Facebook page. Now, granted they are setting up an Instagram page, but that just goes to show you the shrewd acquisition skills that Mark Zuckerberg has in buying Instagram when he did. I think he recognized, even early on, that the best strategy in this space is to own as many of those social apps as possible. That's why he tried to buy Snap. Tried to buy Twitter. And probably they would have better lives if they had gone ahead and just accepted the deals. But here we are.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Alison Southwick has no position in any of the stocks mentioned. Jason Moser owns shares of Apple and Twitter. Robert Brokamp, CFP owns shares of Facebook and Nokia. The Motley Fool owns shares of and recommends Amazon, Apple, Facebook, and Twitter. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.