It’s not uncommon to see these pitches that are based on daydreams of, “What if you had bought Brand Name Stock X 50 years ago?”
And there’s a reason for that: They’re compelling, they help you to think about long time horizons, and they play off of a huge bias that we all have to ignore historical failures and fixate on winners.
That’s often called “survivorship bias,” and it’s one reason we daydream about buying IBM (IBM) or Apple (AAPL), companies that beat the market handily over 40 years, but don’t give a second thought to companies that disappointed investors and no longer exist, like Digital Equipment or Packard Bell or Gateway Computer (just to stay in the same industry).
When you talk about broad market investing returns, the survivorship bias fails us because you only look back at the historical for the stocks that now exist, failing to account for the ones who disappeared along the way… but it’s true when you think of specific companies as well — we are hard wired to think about the winners and ignore the fact that at one time they were part of a cadre of competitors that, in many cases, lost or were swallowed up or just disappeared along the way… and identifying the eventual winners in those early days would have probably required a lot more skill (or luck) than we like to admit.
And, of course, we all think that deep down, we’re smarter than the average bear — so of course we would have chosen Apple over Packard Bell or Gateway Computer, but we forget how much enthusiasm there was for these now-defunct (OK, almost defunct) companies at some points in time. Gateway, for example, was a beloved brand for a while and went public in a hugely popular IPO in 1993 at $15 a share, four years before Steve Jobs came back to Apple and eight years before the iPod was introduced. At the time, Apple was just a struggling computer maker steadily losing share to the Wintel cartel… 14 years later, in 2007, Gateway was acquired off the scrap heap by Acer, which itself has gone almost nowhere in 20 years, for less than $2 a share (coincidentally, Acer later also bought Packard Bell — which had the largest market share of any computer maker in 1995 — and for a little while it even made Apple-compatible computers when Apple toyed with licensing to other manufacturers to try to keep up with Microsoft in the mid-80s… but it is now just another discount brand that’s sold mostly in Europe and Africa)…
… so Gateway, which was certainly a more popular and faster-growing computer maker than Apple in 1993, generated 80% losses for shareholders over the next 14 years… while Apple went on to gain 3,000% by the time Gateway was acquired by Acer, which was still before the iPhone was released, and a total of more like 30,000% if you held it for another dozen years to today.
Which has nothing to do with this latest Motley Fool Rule Breakers pitch, of course, but I thought it was worth throwing in a little perspective before we dig too deep into the promises. Everything is obvious in hindsight, including Ray Kroc’s ridiculous idea to franchise a hamburger stand into every town in America.
So what’s the story being pitched by the Fool this time? Here’s a little taste of the ad:
“I just read that buying $2,250 worth of shares of McDonald’s in 1965 would have given you a $15.55 million stockpile right now.
“That’s enough to fund your retirement and then some.”
And the letter, which is signed by Shahin Dehestani at the Motley Fool but is an ad for David Gardner’s Rule Breakers service (that’s their growth-oriented “entry level” subscription, $59/yr), goes on to point out something you may have heard: That Ray Kroc didn’t really build McDonald’s financial might by franchising and selling milk shake machines… he did it by leasing properties to those franchisees.
More from the ad:
“It was a brilliant move that led Kroc to STOP signing ‘franchisees’ and START signing ‘tenants’ on land he began buying.
“Today, McDonald’s earns $30 billion from leasing grounds to franchisees… and has made a lot of money for its i