I owe so much of my investing curiosity to David Gardner, the co-founder of The Motley Fool. Each month on David’s podcast Rule Breaker Investing he responds to listener questions and emails in his Mailbag episodes.
I reached out to David this month to pitch a small-cap company that I absolutely love called Xponential Fitness (ticker: XPOF). In my email, I took the company through David’s Rule Breaker framework and made the argument that Xponential is a great example of a Rule Breaker and is worth an investment today.
I found this company through a Motley Fool podcast where an analyst pitched it to listeners. I spent the next few months researching the company and listening to the company’s executives talk about the business and their growth plans. My life experience with a yoga studio gave me additional insight into the business and what challenges the boutique fitness industry faces and how Xponential would solve those pain points for operators and for members of the studios.
David liked enough of what he read and chose to include my note on his most recent April mailbag. He brought on the analyst, Sanmeet Deo, who I first heard talk about the stock and they talked through my note point-by-point. Find the podcast here. The part about Xponential Fitness starts at 16:30.
My experience finding Xponential Fitness, and investing in it, highlights some key points about being an individual investor.
1. Look around in your daily life for investment opportunities. I drive by Club Pilates, Yoga6, and Stretch Lab on a daily or weekly basis. These are all brands owned by Xponential Fitness. Once I learned about the parent company, I realized I already knew a bunch about the businesses it was operating.
Every Sunday I drive past the campus of Graco (ticker: GGG), a manufacturer of fluid transfer equipment. I was shocked to hear this company that I’d seen on a weekly basis show up on a podcast expressing its huge competitive advantage in a niche industry. Before long, I happened into a conversation with someone who knew a customer of Graco. Some of my favorite investments are the ones I can learn about and see in my daily life and often times even get specific customer insights about the company.
2. Use your expertise to your advantage. I have life experience working in the fitness industry that other investors could never replicate. I know certain things about the industry that helped me really understand the value proposition of Xponential that outsiders may never have understood.
You also have this niche knowledge that no one else could possibly have. This can tip you off to investment opportunities that other’s might miss or wouldn’t notice until much later in the growth cycle. Use your industry knowledge, whatever industry it might be, to your advantage.
3. Do some boots-on-the-ground research. I haven’t visited one of Xponential brands yet, but I hope to very soon. There are countless other investment ideas that I’ve purposely tried or asked friends about their experiences. I drank a Celsius energy drink for research. I test drove a Tesla for my birthday with no intention of buying one anytime soon. I took a short road trip to Tractor Supply just so I could walk around the store. I bought cat litter from Chewy and Petco and compared the experiences. Public companies surround us in our daily lives and we can have fun testing products and having real customer experiences to help learn about those businesses right in our backyards.