Motley Fool: Disruption Surprises Nearly Everyone — Especially the Disrupted


That which humans collect, we have a natural urge to categorize. Books, rocks, baseball cards, whatever — and stocks are no different. Some we classify as “growth stocks,” because their revenue — and, hopefully — earnings are rising relatively rapidly. Others are viewed as “value stocks,” because based on the fundamentals, they look underpriced. If the business has been in the habit of distributing solid, often rising dividends, it might get called an “income stock.”

And then there are “story stocks” — the ones that are trading less on their current numbers, and more on the narrative that investors and the media have built to describe why eventually, the revenue and earnings will surely arrive. Paint a compelling enough picture, and investors will bid your company up on hope and faith.

But Motley Fool co-founder David Gardner sometimes takes a different view of the “story” concept — he prefers to think about the way occasionally, an addition to your portfolio creates a story that’s unique to you, and that clarifies a specific nugget of investing wisdom.

In this episode of Rule Breaker Investing, he invites several of his colleagues into the studio to share some of their favorite “stock stories” and the lessons they learned from them. For this segment, his guest is analyst Karl Thiel, who back in 2009 was feeling unsure about the long-term investment thesis for Intuitive Surgical (NASDAQ:ISRG). At the time, its da Vinci system was used mostly for prostrate surgeries, so he thought, who better to ask about it than his urologist? Here’s why he wound up taking that second opinion with a big grain of salt.




To catch full episodes of all The Motley Fool’s free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on May 1, 2019.


Karl Thiel: OK, so my story begins around 10 years ago when I was having some minor elective surgery done that meant spending some quality time in the presence of a urologist.

David Gardner: [laughs] OK.






Thiel: [laughs] I’ll just apologize for the TMI for our more sensitive listeners, but it is relevant.

Gardner: Sounds like you’d had enough kids at that point.

Thiel: Yes.

Gardner: All right, keep going!

Thiel: So, Intuitive Surgical had already been on our scorecard for around four years at that point. But if you recall, 2009, you’ll know I wasn’t the only person feeling pretty vulnerable that day. The market was in disarray. It just seemed like everything could just drop forever. Intuitive Surgical had been a multibagger for us. You probably remember this well. This is one of your many great picks. Our Rule Breakers original cost point was just under $15 a share. And the stock had run up to a high of around $120. It had gone up like eightfold. And then just dropped. Dropped way back to the point that, I think it got back down to around $30. So it was still a nice winner for us, but boy, a lot of money have been taken off the table.

Gardner: Yeah, down about 75% doesn’t feel good, even we still have a two-bagger! [laughs]

Thiel: Right. And to make it perhaps worse than that, by 2009, it was a four-time recommendation. I think one or maybe two of those positions were actually losing money at this point. Anyway, since I had some time on my hands, I was asking the urologist about the da Vinci system, since he also did other kinds of surgery. I wanted to know about its uses. At the time, you may also recall, that really, the da Vinci was finding its way in prostatectomy, which is the surgical removal of the prostate. It wasn’t really being used for a whole lot else in volume, but that was really where it was finding a home. And this urologist who did those surgeries told me, “No, it’s a flash in the pan. It doesn’t let you do anything that a competent surgeon can’t do themselves. The machines are expensive, you use a lot of expensive accessories with them. It still requires a lot of the same expertise and training. It’s not going to be successful.”

Gardner: I remember that. I’m not going to say that was the party line, because the medical world is full of many different viewpoints and different practitioners and professionals. But it wasn’t uncommon back then. Even still sometimes we hear it today, Karl, from people who are surgeons in the field, who say, “That robot is not necessary. It’s expensive. By the way, it might not be something I’m trained on, it might be disrupting my whole field. Maybe I’ve been around for a few decades doing the work.” Regardless, that was back then, I would say, probably the dominant viewpoint. It sounded disruptive and a little crazy to have a surgeon use the da Vinci Surgical robot, which was Intuitive Surgical’s big product.

Thiel: Right. So, sitting there, thinking about this, I know this is a person, obviously, with an expert opinion, and has a heck of a lot more reason than I do to know where the field is going. So that’s an influential thing to hear. But I ultimately — and I hate to say this, but I foolishly have never personally owned Intuitive Surgical. But I was really trying to think about the best way to cover it for members. And we talked about it on the boards at the time, but I ultimately decided that is a single data point, let’s dismiss it. This was a guy who was entrenched in a way of doing things. He had a lot of an investment in the expertise that he’s already gotten. I’m glad to say that he proved to be a very competent surgeon. [laughs] But he wasn’t a known thought leader in the field, who maybe would weigh a little more heavily at that.




So I ultimately ended up deciding, this is a blip, don’t take it too seriously. Listen, obviously. Put it out there, let people talk about it. But don’t take it too seriously. I don’t have to say that, A, the da Vinci did not turn out to be just about doing urological procedures. It’s used for a lot more than that. B, the stock is over $500 today.




I think about this, because it’s come up, actually, with our most recent recommendation, ShockWave Medical, which just went out. I have heard expert opinions from heart surgeons both for and against already. I am very interested to hear what those opinions are and why, but it’s not going to necessarily weigh too heavily until it really becomes more than a single data point.

Gardner: Maybe I can guess at it, Karl, but what’s the big one-line takeaway for listeners?




Thiel: One expert opinion is still just one data point.

Gardner: [laughs] Part of the benefit of the discussion boards that we’ve hosted on fool.com for a few decades now is that a lot of us do just have one data point. It might be our own opinion, or it might be a professional in our life — a lawyer, a money manager, or in this case, a doctor. It’s hard for us to know what anybody else thinks of things until we start to use social media or discussion boards, join a community — the Fool community is a great one for me anyway — and hear other people’s viewpoints. I think ultimately, the reason that we recommended Intuitive Surgical in the first place is because we heard a wider array of viewpoints and started to realize that this disruptive technology really might change the world. I’m really happy to say yeah, you’re right, the stock had gone from $15, where we recommended it, to $120, as you mentioned, then down to $50 at the time you were having that conversation. And today, it’s $500 a share. It has absolutely rocked! Thank you for that lesson, Karl! I really do believe that a single data point is just that. I think we owe it to ourselves, especially with our money in our portfolios, to seek more opinions, sometimes ones that might surprise us or be different from our own. Alright, so Intuitive Surgical. Karl, your title, “Disruption Surprises Nearly Everyone, Especially the Disrupted.” Thank you very much for joining me, once again, on Rule Breaker Investing!

Thiel: Thank you!

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Source: fool.com

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