Are These "Have It Both Ways” Stocks Beating the Market?

The stock market is in a serious slump right now -- all the gains the major indexes tacked on earlier in 2018 have left the building, and then some. In fact, the S&P 500 is just about where it sat 12 months ago, when Motley Fool co-founder David Gardner debuted a five-stock sampler dedicated to "false choices" like time vs. money or low-risk vs high-reward. His premise was that it's possible when faced with choices like those to get yourself a stock that does both.

On this episode of the Rule Breaker Investing podcast, it's time to measure how those picks have done. On the one hand, this is a terrible moment to schedule a performance review because so many stocks have nosedived. On the other hand, we measure against the S&P as our benchmark, which lowers the bar we have to clear to essentially ground level. So how did the mini-portfolio of Amazon (NASDAQ: AMZN), CBOE (NYSEMKT: CBOE), Match Group (NASDAQ: MTCH), Nvidia (NASDAQ: NVDA) and 2U (NASDAQ: TWOU) do? In this segment, Gardner reports and reflects.

A full transcript follows the video.

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*Stock Advisor returns as of November 14, 2018The author(s) may have a position in any stocks mentioned.

This video was recorded on Dec. 14, 2018.

David Gardner: A year ago in that podcast, I picked five stocks, each of which I created a false choice. Then, the punchline for every one of these five stocks is, actually, you don't have to choose, because it does both. It has both. Let's go through them right now and talk about, of course, their performance.

The date was 11/22/17. I have my cost basis, my opening prices for them. I should note that we're taping this podcast a few days ahead of time. We're taping this on Friday afternoon, December 14th near market close. Those are the prices I'm using. But you're going to be hearing this Wednesday, December 19th or later, depending on when you tune in and listen to Rule Breaker Investing. The prices will have changed a little bit. The market has been volatile. Who knows whether they'll be higher or lower. Of course, we're taping right now, so those are the numbers we're using. So, from 11/22/17 to 12/14/18, how are we doing?

Stock No. 1: Amazon. I asked you a year ago on this podcast, which would you rather have? Would you rather have the world's No. 1 e-commerce company, the company that's No. 1 globally at e-commerce, or would you want to have the stock that is No. 1 at cloud services? The cloud? Which choice of those two would you opt for in the stock that you're going to buy? And the answer, of course, is both. does both of those and is many other things beside.

A year ago, the stock was at $1,156 a share. Today, I'm very happy to say, to kick it off with stock No. 1, it's gone from $1,156 to $1,604. That's a gain of 39%. It's been an outstanding year for that stock that will let you eat cake.

Now, we're always comparing every one of these stock picks to the market. That's the boogie man. That's the bogey that we're pursuing at all times. We're always trying to beat Jack Bogle and his index fund. Here's a funny stat. The market from that podcast a year ago through today? The S&P 500 index is flat. It's at 0%. So, this is an easy number to calculate. Amazon's up 39%, the market 0%. Therefore, we put ourselves with a plus 39 in the win column for stock No. 1.

Now, I have to tell you, that's one of the better picks among these five. We've got some light and some darkness. It'll be interesting to see how it all shakes out. That's stock No. 1.

Stock No. 2 is CBOE, the Chicago Board Options Exchange is what that acronym is for. About this company, a year ago on the podcast, I asked you what you would rather have? Would you rather have a low-risk, low-reward stock, or a high-risk, high-reward stock? And of course, the answer is, you'd like to have a low-risk, high-reward stock. You'd like to have both of the good things. In my experience, you really can have that.

A lot of people assume that everything correlates directly the reward of something with the risk that you're taking for it. A lot of people think it's either got to be high-risk, high-reward, mediums, or lows, but you couldn't seemingly have low-risk stocks that can grant high rewards. And yet, I believe that our portfolios here at The Motley Fool, for anybody who has owned stocks for a long time with us, I think you have a lot of low-risk companies that have earned you high rewards.

I think the world misperceives risk. A lot of us just think of risk as volatility, the beta of a stock, how it goes up and down. But they really should be looking at the business and asking, how truly risky has Alphabet been? It sounded like a really risky stock back in the days when it used to be Google. People thought of Google as very risky because it was a new thing. It IPO-ed, it bounced up and down. But really, this was a company that was becoming the dominant, No. 1 player of global search. That's an incredibly robust and very profitable business, much lower risk, I thought at the time, and I'm happy to say the reward has been high for those who've owned Alphabet for years. The risk is pretty low.

I feel the same way about CBOE. It's a totally different business. It's not as big an idea as Google or Amazon. In the parlance we use, our risk ratings here at The Motley Fool, which is a feature in our services, CBOE is a low-risk company. But I believe it has high reward.

How's it done? Well, a year ago, it was at $119. Today, it's at $101. The stock is down 15% over the last year. The market is at zero, so that's a -15.

By the way, it's hard for me not just to look back a few months at these companies and see where they were. Because at one point earlier this year, this list of five companies was rocking. In fact, for each of these, I'm going to highlight briefly where it was earlier in the year. We've already covered Amazon. Amazon today is about $1,600. In September, the much-vaunted announcement of the $1 trillion market cap crossing for Amazon, the stock was at $2,050. It's gone from $2,050 down to $1,600. That's a drop of 20%. For CBOE, in January of this year, i.e. it had a great move from Thanksgiving last year when I picked it into the new year, it was at $139. Today, it's down to $101. That stock is down 40%. It was really a great pick initially.

Anyway, let's go on to stock No. 3 now. About stock No. 3, I'd like to ask you this, as I did a year ago: if you were buying a stock that was a leader in online dating, would you rather have a stock that was a leader for people who are a little bit older and more mature, people who have a higher net worth and can spend more, more of a premium dating service, maybe second marriage kind of thing? Maybe, like Or, would you want a company like Tinder, which is a really hot dating app for younger people? And here's the good news -- I think you know the punchline by now -- Match Group has both. They own, they own Tinder, and dozens of other sites for many different tastes and demographics. Match Group is the world leader for online dating.

A year ago, the stock was at $30. Today as we tape, it's at $43. That's a really nice move of 43%. $30 to $43, rocking. And of the five, this has been the best performer.

I love this company. I was mentioning it a year ago, of course, on this podcast. But throughout the year of 2018, it's become increasingly clear to me that this is a great long-term player that you want to be invested in. While the near-term performance is great, I think what really matters is the longer-term performance, not just looking backwards, but we've had it for several years, so, yeah, that's good, but how about going forwards?

I should mention, even though the stock is at $43, up 43%, in September, it was at $61. You're catching Match Group right now down from $61 to $43. I'm not going to complain too much because the whole market's down, and all of these stocks are down, too. But, wow, it would have been more than a double just a few months ago reviewing this five-stock sampler.

Anyway, let's do the math. Plus 43, we had a -15, plus 39. Right now, if you're scoring along with me at home, we're at plus 67 through those three stocks. Let's go to stock No. 4.

Stock No. 4 is Nvidia. About this company, I asked a year ago, let's think about a CEO. Would you rather have a CEO who is an extremely brilliant engineer -- this is, after all, a technology company -- would you rather have an outstanding engineer running your company, or an extremely capable executive? In Jensen Huang, the founder and CEO of Nvidia, you indeed have both. It turns out, both of those attributes can exist in the same person. We don't need the trade-off mentality that so much of the world seems to have about people and things. Nvidia has been a spectacular long-term winner on the American markets, and he had recently been named CEO of the year as I picked this stock a year ago. I'm happy to say, I really picked this stock almost 15 years ago. It's a long-term holding in Motley Fool Stock Advisor.

But a year ago when I picked it, with this group of Five Stocks Letting You Eat Cake, it was at $215. I regret to inform us all that it's dropped from $215 to $147. That's down 46%. It's been cut in half from where it was a year ago. And yet, it's amazing to me that in October -- that's right, just two months ago -- Nvidia, a worldwide leader at what it does and a megacap, was at $293. It's dropped from $293 to $147 in two months.

As this podcast attempts to deal as much as possible with reality, we're scoring it where it is today, down 46. We have to subtract 46 from our 67. We're down to a plus 21. Still ahead of the market, with one final stock to review.

Let me ask you about stock No. 5: would you prefer a business that's a bricks and mortar company, or an online company? That classic battle, bricks and mortar vs. online. We're not even talking about retail sales right now. How about a company that lives within the educational world of big, bricks and mortar, expensive universities, but also cheaper, seemingly less-adopted so far, online learning? Well, with 2U, ticker TWOU, you have the leader in bringing people through online learning to some of the best bricks and mortar universities, earning, often, graduate degrees, sometimes undergraduate degrees. 2U is the leader at uniting those two worlds. We didn't have to trade off. We can have a company, once again, that has both.

A year ago, 2U was at $67 a share. Today, I'm sorry to say that it has dropped from $67 to $55. That is a drop of 18%.

In a weirdly happy way, I'm here to let you know that looking over these five, we ended up with a plus three number. A tiny amount of incremental outperformance of the market. We kept it positive. It was pretty dramatic for me as I went down the numbers. I lost my breath briefly as I looked, "How has 2U done over the last year? Oh, it's down! Oh, but not so much that we're negative with this sampler of five stocks!"

Now, of course, it's worth mentioning, this is only one year later. We always pick stocks for at least three years on this podcast and at The Motley Fool. But it's fun to note that over a really tough year -- by the way, talk about tough. 2U's stock in May was at $99. I just gave you the closing price at $55. This is another company down more than 40%. In fact, looking over all five of these companies, they are down respectively 20%, 40%, 30%, 50%, and over 40% from where they were just months ago. And yet, I'm still happy to say, we're beating the market.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), Amazon, and Match Group. The Motley Fool owns shares of and recommends 2U, Alphabet (A shares), Alphabet (C shares), Amazon, Match Group, and Nvidia. The Motley Fool recommends Cboe Global Markets Inc. The Motley Fool has a disclosure policy.