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Picking the Brain of the Head Motley Fool [Be Inkandescent Magazine, October 2011]

By Hope Katz Gibbs
Be Inkandescent Magazine

How do you master the art and science of investing? That’s one of the many questions we asked Tom Gardner, CEO and co-founder of The Motley Fool, a multimedia financial-services company based in Alexandria, VA, which provides financial solutions for investors through various stock, investing, and personal-finance products.

“Use your brain, your emotions, and your personality,” says the leader of the 265-person firm that he and his brother, David, founded in 1993. “If you harness these ideals, your investment returns will lead you to financial freedom in the Foolish fields of opportunity. But if they harness you, close your eyes because the chili won’t stop hitting the fan.”

What he means, as eloquently expressed in the foreword to LouAnn Lofton’s 2011 book, Warren Buffett Invests Like a Girl—And You Should, Too, is this: “Don’t sell when you should be buying. Don’t believe what you should have doubted. Don’t shout while you should be learning. And don’t trade when you should be investing.”

A Foolish History

Those “words to the wise” embrace the Shakespearean concept of the “fool,” a jester dressed in motley that instructed, amused, and could speak the truth to the king—without getting his head lopped off. That approach to spreading the word about how to achieve investment success is the basis of the company that Gardner, then 25, and his brother David, then 23, came up with back in the 1993, shortly after graduating from college.

“Dad taught us how to invest when we were kids, and Dave caught the bug as a teenager, but it took me until I was an adult to see how fascinating investing could be,” says Gardner, now 45. Of course, starting their own company also enabled the brothers to avoid getting a day job. It worked like a charm. Within a year, their online newsletter had 300 subscribers and about a dozen advertisers, and became renowned for its early recommendations of stocks such as America Online (AOL) and Amazon.com.

Then, the boys got lucky. “We made fun of penny stocks, and that led to an article about us in The Wall Street Journal’s humor section,” Gardner recalls. “It ran in the lower corner of the second section of the paper. We thought it was pretty cool, but had no idea that it would set us on a new path.”

In fact, the article caught the attention of now billionaire Ted Leonsis. By August 1994, the Gardners had parlayed their one-year-old investment newsletter into a content partnership with the company where Leonsis was an executive: AOL.

Soon after, The Motley Fool was featured in a cover story for Fortune magazine (1996), about the emergence of online interactive discussion as a new form of investment research. In April 1997, the “Fools,” as the site’s enthusiasts refer to themselves, migrated their home page off AOL and onto the Fool.com website. They also established a site in the UK, fool.co.uk.

But it hasn’t always been smooth sailing for the Fools.

When the plentiful financing dried up and the dot-com bubble burst in 2001, the company ran into trouble, resulting in the loss of 80 percent of the staff in a series of three layoffs, and the closure of its nascent operations in Germany and Japan.

Much like firms are having to do today, the Gardners recalculated. They added more services, such as a range of investment styles, from small-cap stock investing to growth and technology stocks to dividend investing. In April 2002, the company launched the first of its premium subscription services, and the brothers began picking one stock each month in a brotherly competition to best each other.

It caught on with gusto. Not long after, Mark Hulbert, publisher of The Hulbert Financial Digest, wrote: “In the last few years, The Motley Fool has earned an average return of 22 percent, annualized, versus a comparable return of 7 percent for the Wilshire 5000. They maintain a consistent buy-and-hold style, tending to let their winning stocks compound returns over longer periods of time.”

The dot-com bust also gave the Gardners the opportunity to buy back the shares of their company. Why did they take that step?

“Every investor wants liquidity at some point,” Gardner knows. “It’s usually written into the contract somewhere. So after the AOL/Time Warner merger, when they were looking to clean up their portfolio. We bought out their stake, and then we began buying out the other venture capitalists that had invested in us. The timing was perfect because most of them were 10-year funds, and needed to return the money to their partners.”

The Gardners also knew they could have gone public, but didn’t think it was a great time in the evolution of the business to do so. “We are not wed to being a public company, and since nothing was forcing us to do that, we were happy to stay private.”

Today, The Motley Fool is north of being 90 percent internally owned, and Gardner says it’s a nice feeling. “It could be dangerously bad if the owners are idiots, but assuming we aren’t, the good side is that we can take a long-term perspective. There’s no push to make valuation worth something high, or too quickly. We have the freedom to make investments that might hurt earnings this year, but that we feel will be incredibly great five years from now, so long as we play it right.”

The Gardners also know that their future success is based on their employees.

“I think our biggest breakthrough came a few years ago when we learned how to manage our staff,” Gardner believes, explaining that to keep employees happy, learning, and loyal, the senior staff sets aside an entire day multiple times a year to review the progress and potential of everyone at the company.

“The best athletes get coaching every day, but when you run a company, it’s more likely that your staff gets coached once a year,” he realizes. “When things got sketchy for us in 2002, we knew that if we didn’t take the time to coach, teach, assess, and encourage our team, we’d never get to the place we wanted. So now we are anchored in high performance, and we coach, mentor, and focus on internal training and development. Even if I had a company with six employees, I’d take the same approach.”

One lap around the two colorful, super-size floors of Fool headquarters, and you’ll find employees dressed in uber-business-casual attire (jeans, flip flops, sneakers). They are encouraged to roll their wheeled desk chairs around to collaborate with other staff members, and above each desk is a list of qualities that describes their role and goals.

Employees are also able to create their own job title, and some high performers also get to craft their jobs, says Alex Vidales, a man who at any other company might be considered the director of human resources, but at The Motley Fool is the “Spirit Guide.”

Recently, he says, a star employee named Ben Sterling came to him with a concern: “He wanted to work as a fitness trainer rather than a financial analyst, and was hoping the Fool would create a new position for him—or he might quit and become a fitness trainer somewhere else. After a little debate, we made him the Fitness Fool, and Ben now spends his days educating the staff on proper nutrition, and helping them meet their fitness goals.”

Concerts, Free Food, Massages, and More

The reason that Gardner and the other C-level leaders thought the new job was a good option for Ben was that they knew he was an employee worth keeping on staff. They also believe that good health—mental and physical—is a key ingredient in the company’s success.

Every Monday and Wednesday, the firm gets healthy sandwiches and snacks from the nearby Whole Foods market, which employees are free to take from the kitchen area. Each month, massage therapists, hairdressers, and other salon professionals (mani-pedi anyone?) come in to the office to spoil the staff. There’s also a monthly pizza day, cake day, recess during the warm summer months, a periodic scavenger hunt, and trivia night.

As a thanks for meeting a company-wide challenge, The Motley Fool also treats the staff to special outings. Case in point: See the photo above, by Chris Wisecarver. In August, the Fool rented out the 9:30 Club in nearby Washington, DC, and held a private concert for employees and friends with the band Thievery Corporation.

And that’s not all. Once a month, the name of an employee is drawn from a hat and that employee is then required to take two weeks off to expand his or her horizons. “It’s called the ‘Fools Errand,’ and in addition to making sure that everyone takes a vacation—whether they want to or not—it keeps the company from being too reliant on one employee,” says Alison Southwick, who joined the firm in January 2011 as its media relations director.

Another perk that she says keeps staff on track is the Foolish Internal University, where employees participate in classes given by each other—from six-month courses that focus on how the company works, to a photography class.

“The classes and fun activities help employees do their jobs better because we are always learning from each other, so there’s a real team mentality,” Southwick explains, adding that the only real downside to working at The Motley Fool is the fact that the turnover rate is so low. “So if you want to climb the ladder quickly, it’s not likely to happen. But the good news is that top performers have a great opportunity to carve out their own career path.”

Gardner says that’s what keeps The Motley Fool—and other forward-thinking firms—on top. “We are an intellectual property company, and therefore rely on the people who work for us. Performance goes up if you coach people; it helps them do a better job for you—and for themselves. That’s our recipe for Foolish success.”

Does Gardner think the economy will pick up anytime soon? Click here for more.


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• STEVE BARRETT, portrait of Hope on Bio page: www.stevebarrettphotography.com

Contact HOPE KATZ GIBBS by phone [703-346-6975] or email.