David Gardner - Mastering the Art of Long Term Investing

Ladies and gentlemen, welcome to the Business Brew. I am your host, Bill Brewster. As always, thank you for listening. This episode features David Gardner of The Motley Fool. David has a new book out. It's called Rule Breaker Investing. This is David's. This is the culmination of all of his work. OK, it's called rule breaker investing. How to pick the best stocks of the future and build lasting wealth.

If you have followed me for a little while, you will know that David pushed my brain to think in a different way. When I first read him, I thought this guy thinks so, so differently than what I think is correct that I have to understand why he thinks the way he does. And I have. I've gotten myself to understand it and I see the wisdom in it. So I hope that you all enjoy this episode. I enjoyed it. I refer you to our first episode that we did. I'll I'll link that in the show notes.

But that was a heck of an interview. I was worried that this one would not be as good, but I think it came out pretty pretty nicely. Pretty, pretty, pretty good. Anyway, nothing in the show is financial advice. Everything in this program is for entertainment purposes only. Please consult your financial advisor before making investment decisions and do your own due

diligence. This episode is sponsored by Fiscal dot AI. You should listen to my recent podcast with Braden Dennis in order to really understand what fiscal AI is and where they're going. He lays out how they're looking to eventually compete with FactSet. I will tell you that, you know, my experience is on the consumer side of the platform. I find it to be quite slick and I think that Braden and his team are extremely responsive to comments, questions, feedback,

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dot AI forward slash brew. All right, ladies and gentlemen, thrilled to be joined by the one and only David Gardner. David, how you been? I've been really well, Bill. It's been a great few years since we last talked. The market's been volatile, but mostly up and personally and professionally, it's been rewarding and fulfilling. But that's what I'd hope for I guess any four year period or so. So I'm excited to be here with you today. I had so much fun talking with

you before. I'm looking forward to talking about Rule Breaker investing well. I thank you for coming back on. I have a fair amount of anxiety about this conversation, in part because I really, you know, am like impressed by you. Not to be a fanboy, but two, I was listening to our first conversation. I was like, I don't know how I'm going to do a better interview than that. And, you know, it was kind of funny. It was at the end of 2021.

You said in it, you said, look, if 2022 is a down year, that's just kind of how it goes. 2022 was indeed a down year. Ouch. At A at a point it looked as though some of these stocks had no chance of coming back and then they've come roaring back. So I mean, I, your new book lays out the mentality of investing for the long term.

And I, I think you foreshadowed the mentality pretty well in our first discussion, But how would you say the last three years have have solidified previous thoughts or like, how would you, you know, 2021 we were talking about look, it, it's, it may be frothy, we may have a correction. The correction seemed deeper than I thought. But do you say that these stocks have bounced back for the most

part? They have and you know, I, I do believe that that is what you should expect as an investor, as somebody live in the United States of America today in 2025. Now I think that you should expect continuously over the course of your life that the market will one year and three drop. And that particular year Bill, I was cut in half. My Portfolio was down 50%. Like that was a brutal, that wasn't just a, a down year, that

was a brutal year. And I am happy to say yes, all time highs again, I never expect things to do anything other than the writ large probabilities that we talked about that two years and three the market should go up and over the course of time 910% annualized. I do count on those things that seems really important to to be able to consider foundational or bedrock assumptions that you can make.

Therefore, when we do have a horrendous year, which I was not trying to forecast at the end of 2021, I had absolutely no idea. And it just like, I don't know what will happen tomorrow or next year, but but I'm going to be invested through all of it. And I've certainly been wildly rewarded for for simply being continuously invested my whole life. And I'm 59 now. I started 18.

So I hope I have 41 more years to invest that that will hit a Big Magic round Number for me. Yeah, that would be nice if I get there. But you know, I, I, how's, how have things been with you? They've been pretty good. You know, I, I, one of the things that we had talked about in that first interview was I, I've sort of embraced diversification a little bit more. I, I was, I guess a younger me before I had kids and before I

had like real responsibility. I used to want to, you know, I, I think I was a little bit too much gas and I've let off the gas a little bit and I'd, I'm, you know, it, it's been a little bit less stress. So I, you know, I don't know, do I have to work on my returns? I I guess maybe, but I think I need to work on owning the businesses and letting them generate the returns and whenever they happen they happen. Yeah, there's a great line somewhere in my book. Most of the great lines in my

book are from other people. And one of them was from the mom of one of our employees who said to her son Mark at an early age, Mark, there are three ways to make money in this world. The 1st is with your brain and the second is with your brown, and the third is with your money. Which one are you interested in? And Mark said, could you tell me more about that third one, making money with your money?

And that really is literally what happens if you if you invest and it is by far the easiest way to make money, at least for me. I will say my psychology is willing to lose. I'm willing to be cut in half just months after I said, I don't know what's going to happen next year, Bill. And and so I I think that that's something that's probably disconnected in me. And yet that's for good. And so I do try to make money

with my brain. Very little of the course of my life with my brown wouldn't have made much. Yeah, well, you and me both. With my money though, that that is a that's a neat trick and it's not a, it's not a magic trick. It feels like magic, especially as you let numbers compound over the course of your life. But it it really is very logical and it's a lot more stress free as long as you don't sweat the downside.

How, how did you get, you know, you talk about in the book, what one of the things I like about in the book is, is you do a good job at framing how personalized all this can be, right? And and you talk about selling down to your sleep number. And you know, how did you personally get so comfortable allowing A portfolio to be as concentrated as you have allowed it to be? And has that shifted as you you are maybe closer to the years of not earning as much income as

you were when you started out? Yeah, I, I think that I am, I think I've been comfortable allowing My Portfolio to be outsized in a few positions relatively because the only way those positions ever got there is because they earned it. And so when you allow a company like Amazon or NVIDIA to blow up in your portfolio in the best sense of the term, you are as the stock goes up 10 times in value or 100 times or my God Bill, 1000 times in value, you really get to know it pretty

well. And also when something gets to be much bigger as those companies among some other rule Breakers to have done, they actually become safer and stronger. They do become more disruptible potentially. That's one of the brilliant insights that Clayton Christensen offered the world with disruptive innovation, which is that bigger companies actually become easier to compete with because sort of like the Roman Empire in its last 100 years, it just can't

guard everything. And it just, it's slower moving, etcetera. And the employees aren't as motivated and there's not as much incentive. And so but I'm happy to say for just the best companies of our time, that has not been true. Alphabet does not strike me as this flabby thing waiting to be taken down by gnats and mosquitoes and. Well, haven't you heard that

it's dead because of AI? I have heard that and you know, I will say that it's own AI has hurt our business a little bit at The Motley Fool because when people searched for things in the past, they would get a link to fool.com to define that term or talk more about that company. And now Gemini just captures it right on the Google screen and says, oh, we think you're probably referring to The Motley Fool. And here's the definition of market capitalization.

So yeah, everything is an ecosystem constantly changing, which is always worth remembering. But I have definitely been rewarded for allowing to win in My Portfolio. And that does mean that I've been in balance. But also I take pains in the book to talk about Sleep Number, which we can talk more about. Or to point out that even though I would say a majority of my wealth is concentrated in my top five positions, I've got 50 ish

others. And you know, some of those will, will be awesome over time and some of my big dogs will will decline or lose a step. And so everything is changing all the time. And most of the time stuff is going up. If we're doing capitalism right and if you and I are making good calls on what we're investing in, those things should be sort of rising over the course of

time. And I'm OK allowing certain bars on my histograph of My Portfolio holdings, certain bars to be bigger, taller bars because those companies went out Netflix, Tesla and earned that in the public markets. And I loved what they did at the start. And I've gotten to be a fan of theirs as consumer and investor. And so I just feel more comfortable.

If you told me that I was highly over invested in a micro cap or in something in a genomics company that was new age that I loved but I didn't fully know it, I wouldn't feel as comfortable having as much in that as as I do in Netflix. 11 interest Well, there's a ton of interesting things in the book, but one of the interesting things that you had had alluded to is or said not alluded to. You said I, I believe that you said when I have over allocated to an initial position, it is

almost never been like a great idea. You want to talk a little bit about that and some of the the rule prescription that you have around initial positions and how you came up with that? Yeah, I think that's that's really important. I mean, so much of what I'm writing about in the book is what I've learned, and I'm not intending it to be a direct lesson for anybody reading that page. It's sort of pick and choose, choose your own adventure. We all have free agency, free

will. We're each unique creatures. We try to get to know ourselves over the course of our lives. Just figuring out who you are is enough for many of us. So I'm never trying to impose what I am or the things that I do on anybody reading. But overall, I guess actually let me let me retake that bill if I could. All right. We're, we're, we're, we're going to come back into the conversation here.

So the question was the the book talks about a 5% initial allocation and you had mentioned that whenever you come in historically it seems and whenever you've over. Allocated to a new initial position, that has not been a great idea. So how'd you come up with that and you know, you want to talk about that a little bit?

Thank you, Bill. Yeah, I would say that for me as an investor, typically whenever I have initially put in an exciting amount and at different stages of our lives, that amount changes, right. Probably it augments over the course of time. But whenever it was an exciting amount for me generally that hasn't worked out for me as an investor. Most recently, I could just think about some of the light non public market investing that I do, a little bit of Angel investing, a little bit of VC.

I'm like I think this could go to the moon. Therefore, if I put in this slightly larger or maybe even larger than that amount, this is going to be amazing. Yeah, I'm going to be a king. It pretty much never has been. And now that it's happened several times, I, I'm now clear that I shouldn't do that. And I in fact, I was saying to a friend recently, you know, maybe I should just give up venture capital investing. I mean, I basically am like a VC investor but with public market companies.

But whenever I try to go to the private market, I just haven't done that. Great. And that friend of mine said, well, David, cut yourself a little slack here because I think you're reflecting on a few non public investments you've made. And that's not a big sample size. Like you bought hundreds, recommended hundreds of stocks over time. And you're cutting yourself slack there because you're losing a lot there too. And it's working out really well for you.

And you're not saying I can't do this, I shouldn't do this. So I think, Bill, my answer is that if these words are helpful, then dear listener, dear viewer, take them to heart. But I'm not trying to say my own experience will be yours. We're all different. And I guess that all brought me back to what I would say is the 5th habit of the rule Breaker investor, which is Max 5% allocation. And I, I abide by that and I recommend that to all.

We're all different. But that just means that I never enter a position at any point that is more than 5% of my net worth or overall portfolio and you? Know what did you say? If If it works, all you need is a little, and if it doesn't work all, you'll be glad that all you had was a little. Right, that's right. And that's a great line from Tom Angle, one of the great Motley Fool customers slash volunteers slash contractors of all time.

And that is Tom's great line, which we have used many times around the Fool. And I've, I've even seen in third party books quoting Tom Angle. It's a great line if, if it really works out, a little is all you need. And if it doesn't, a little is all you wanted. And, and so, yeah, but that, that, that takes me back to like how I structured the book because while it's natural for people to want to hear what's the next stock? What's the next Amazon, what's

the next NVIDIA? What are the traits that lead the to those stocks? I very intentionally made the first third of the book the habits that you and I need to have, the mindset that we need to have as a rule breaker investor because we can give you great stocks or bad stocks, but we can give you great stocks, but if you don't behave well with them, then it wasn't great advice from us.

If you were to sell something because it dropped 20% or you have some mechanical rule around trading in and out of things, then you're not going to enjoy the great benefits of Intuitive Surgical, which has been an absolute monster stock over the last 20 years. And we can pound our chests and say how awesome we are that we at the Molly full recommended Intuitive Surgical at a much, much lower cost basis 20 years

ago. But if you didn't participate with us, then that's not worth a lot to use. So we need to, we definitely want people as investors. We want them to behave in the best way. And for me one of those best habits is Max 5% allocation. So a good segue there. Why don't you talk a little bit because look, if somebody is looking for the next great rule breaker, why don't we talk about Starbucks in 1990? What 8? When you got invited on the show. Or was it 99 whenever it was 90? 8. Right.

I mean, this is how you open up the book and it's a great illustration of the mindset required to, you know, realize the benefits. So why don't, why don't you tell that story? That story had me chuckling when I read. It I'd be happy to Bill, let me also call you out because an early version of the book, specifically the 1st 50 pages I sent to 18 people who I really esteem, whose opinion I wanted you were. One of that makes me thank you very much.

That's a high compliment. You were one of them and I really appreciate your comments back. And those are my 17 other beta readers. It was basically a beta test of the 1st 50 pages. And so you got to read that more than a year ago now and the book is finally coming out in September of 2025. And that story only gets better with time. And you know, there's a slightly longer form version of it in in the book. I did make it the introduction.

That's really where we lead off the and and so in so many words, we were going to be on a television show. It's the view on ABC, which is still a television show, which is not true of every daytime show on ABC or any other network. Not a small one, right? You get your big moment. Introducing David Gardner, he's going to tell us the the stock to own. That's right. And they had a new host, Lisa Ling on on the show younger, so the youngest member of the crew.

So they had me and my brother Tom on to pick a stock for Lisa and we we had a pre interview with her. We're like, we should pick something that Lisa knows, something she likes, etcetera. And and so we did. We decided, OK, this is going to be the stock. So we got to the show and studio audience had fun, like putting it out there, here's the stock, here's why we like the stock, and Lisa likes this company too. So let's make it, let's make it

that stock. And then they had us back on six weeks later, 'cause they're like, let's update the story just six weeks later. Not exactly out of time. Yeah. Yeah. Remarkably, it only took Starbucks six weeks to lose 1/3 of its value. So I these dates are seared in my mind. July 2nd, 1998 was our first appearance on The View. August 16th, 1998 was our second and historically to date final appearance on The View where we basically said we're so sorry. You know, we still love the

company. But Lisa, here's the thing. Howard Schultz, the CEO of the company, basically said while they had good earnings that they just reported, he was favoring the lower side of analysts, future projections. And you know, great companies and CE OS tend to over deliver as they under promise, under promise over deliver. That's what we think Howard's doing. But unfortunately the stock dropped like 12% that day and

then it just kept going down. And here we are in 1998 and sorry for the stock pick six weeks ago, we're down 33%. And you know, again, for studio audience members who are not probably stock market investors for the most part, that probably sounded like a lot. And it, it really is a lot of people live in fear of losing 10% or 20%. And we have people who will join a motley full service and call after our first bad stock pick and they're like, should I,

should I sell? I don't know what to do now. I'm losing. Should I cancel your service? And sometimes they do, sadly. So, you know, we are hardwired not to want to lose as humans. So there we were doing it in a in a grand gesture on ABC. And yeah, I guess the punchline and the reason I put it at the front of the book is because Starbucks is actually up 34 times in value from where we first picked it before the 33% drop.

You would have gotten an even better return if you bought on that second appearance and and you know, and that's way up over the market over the same period of time. And Starbucks is a company that has absolutely mushroomed in size and for really good reasons. We could talk more about Starbucks, but ultimately this is not a story about ABC, Lisa Ling or Starbucks.

It's a story about investing and what it really looks like, what it really feels like in a world where that word is tossed around a lot. Bill and I'll all business brew fellow listeners. The word is tossed around a lot, but it's being misused a lot because really what you're getting most of the time is trading and information that is

all about the short term. And therefore of interest on CNBC, Bloomberg, etcetera, Wall Street Journal calling out all the grand financial media companies of our time doing good work. I appreciate what they're doing, but they're very, very short term focused. And so the notion that you would actually hold Starbucks 27 years later comes very naturally to me. That's basically what we've done.

And not just Starbucks, but it's so contrary, ironically, I think from the vast majority of activity today on the markets and the coverage of the markets themselves. So I, I love the leading off Rule Breaker investing with our Ling's money thing. That was the branded feature

segment story. Because it's in fact, the reason I even decided to do that, Bill, just before sending you the 1st 50 pages of the book was that I was speaking to a women's investment club here in Old Town Alexandria, VA. I was like, what's a fun story just to tell in front of the club? And I was like, here it is. And the best way to tell that story is not to say the company name in the book. I don't say the company name until we finish the story because you're like, what was

the stock? Yeah, Lisa. And so I told it to the women's club, and they loved it. And I was like, oh, my gosh, That is the opening of the book right there. They just helped me realize that this is such, such an investing story. Yeah, well, it's, I mean, one thing that I really appreciate about the book is, you know, look, if you see the traditional Motley Fool advertising and I I totally understand why it is this way, but it's like we pick this stock at pennies or

whatever. You spend a lot of the book talking about the frequency of losses and how you have to lose to win. And I feel like that is a real service to the readers because you, you do not shy away from the fact that it's a slugging game and that you know, you are going to have the losses. An interesting thing that I'd, I'd should have known, I guess, but I did not realize is you do not average down. You like to make your stocks get out of their own mess. Do you want to talk a little bit

about that? And then like, where did that, where did that come from? I, I assume it's somewhat related to why you don't oversize from 5% like. But yeah, it's a it's a good way to keep yourself out of disaster. Yeah, I think, you know, what's funny is that I, I think my actual stock selection, the choices that I make strike people as radical or higher risk

and rule breakery. But the underlying mindset and a lot of the constructs which obviously emerge through the book are very conservative by nature. So you have this sort of I'm in a weird style box because I'm willing to to overpay constantly for companies that, you know, look like they're totally overvalued. And yet when we're actually buying and managing A portfolio, we're doing things like, hey, no more than 5% in any initial position. I want to make it clear they can

go above 5% after that. I think that's already clear to anybody who knows my work, reads the book or knows bills stuff that you know, we're not talking about a cut off where you rebalance anytime you hit 5%. Absolutely not. And I, I guess, you know, another of my conservative approaches or assumptions is that I don't want to throw good money after bad. You know, dandled on my daddy's knee. As a little investor, I was raised to think, let's not throw good money after bad.

And really what we mean by that, of course, is don't add to your losers. Yeah, which is so contrary, right? It's it's the old. Well, if you liked it, you know, higher, you should love it lower but. Yeah. Like what? I guess what, what led you to the idea of, you know, I'm, I'm just going to make them earn their way out of it. Yeah.

So I think that one of the benefits of starting The Motley Fool in 1993 and then just growing a community over 30 years is you get to watch people and you meet them at book signings and some of them visit your office and you have employees and all the rest. And so you just sort of experience how a lot of people invest, talk about their money,

trade in many cases too. And so I started to realize especially right after 2001 when the market absolutely cratered, especially for Internet companies, Amazon went from 95 down to seven in 18 months and our cost was 3.

So and before it went to 95. And then as it went all the way back down to seven, I what I realized is the only way to really lose money, like really lose money, become poor using the stock market would be to have this strong conviction that something that kind of actually sucks, but you don't get that is going to come back is clearly undervalued.

And having seen people who would tell me their stories at, you know, Motley Fool gatherings, talk about how they lost it all as a younger investor, It's, it's that there's there's really no other way to lose a ton of money on the markets. I mean, I guess you could have a broadly diversified portfolio, all of which went down. That would be one way.

But really, the vast majority of people who would ever go poor, which is so sad using the stock market would be that they keep adding to losers and the company ends up being, you know, Peloton and. Which arguably is turning a corner now, interestingly. Enough. I do not mean to make it sound as if Peloton is toast. I I guess I could have gone with some I mean. No, no, I understand what you're saying. I mean, yeah, I see what you're saying.

I mean from 2021 till now. Totally, Yeah, yeah, So right. Like I, I, I could have gone a generation ago and and said like buy.com, which was, you know, competing with Amazon back in the day isn't around anymore. So I mean, that really is the case that as long as you keep balancing out and then adding to the things that go up and specifically that is habit number two of the rule breaker investor add up, don't double

down. So I, I, I really emphasize Bill, not adding to losers, but I think you're also asking about that very contrary feeling of adding instead to winners. And that is a very rule breakery thing that I say rule breakery when things go against our natural instincts. Yeah. Well, so as as I was reading it, I was thinking, OK, this in a way makes no sense. David's checklist is looking for theoretically overvalued

companies, right? The companies that people are saying are overvalued and he's looking for strong past stock performance. So you're looking for the things that have gone up that are overvalued and you're not buying back down. How is the how does this make any sense? This man's a fool.

But but you know that I sat there and I was thinking about it and I said, OK, the probability that you get yourself like if it's overvalued and the stock has gone up, there's the market is not completely irrational. There's there's almost certainly some fundamental reason for that, right? So you're probably fishing in a pond of companies that are growing in cultural relevance and likely the earnings are following.

And if you're not doubling down on your losers, you are removing the risk of ruin from being enamored with a company that just isn't what you're thinking, right? So I kind of like I saw the genius in it, assuming that I understand the genius, but I was like, man, this is this is so different, but it's it makes actually quite a bit of sense. Well, thank you. And it has made quite a bit of

sense. And a difference between writing this book that comes out here in 2025 and my first Rule Breakers book, which was 1999, is, is the performance that we've generated over the succeeding time. And so part of what I can do now is I can write the same things in some ways, in fact, surprisingly similar things 26 years later. But now I can say, let's look what happened. Let's look how the stocks did, the ones that won and the ones that lost. And yes, I always talk about

both. Very important and now I really have drawn conclusions about and I don't think it's in doubt anymore. Like people would review our book back in 1999, rule Breakers, rule makers would say

it sounds crazy. I mean, he's basically saying he's looking for the companies that people say are overvalued and and he already wants them, as you point out, Bill to have gone up before he recommends them, which could it's stripped down worst form be mere momentum investing, which is not what it is. It was, it was thoughtful, it was done purposefully, and it was enacted with kinetic energy one month after the next Pick, pick, pick.

I was picking three stocks a month for 20 years for The Motley Fool. And we saw what happened. And it it was, it was incredibly successful. And so I think that there's no longer a debate about whether

you should do that or not. It's not the only way, by the way, there are many ways to invest, but the rule breaker investing way I think has demonstrated ability to squeeze as much juice out of what the public markets give us in the fruits that they bear for us. So that we are squeezing about the maximum amount of juice in terms of return by following these habits and these traits. And so, yeah, and it and, and you lose there, too, which is why we don't add to our losers.

We're going to stick with what wins. And in a lot of ways, Bill, I love your depiction of yourself because you're sitting there going, this seems crazy, but maybe there's some reason in it. And you know, I totally can appreciate that. What what I sometimes like to get back in touch with is what actually happens graphically with the market over the course of 25 years, which is it tends

to go lower left to upper right. And therefore it's constantly making new highs in order to go from lower left to upright. And that's also true of the great stocks of every era, the ones that are dragging the market in that direction. And so it's actually as simple as what keeps going up. And let's buy some of that thing, those things and let's realize some of them won't always keep going up GoPro.

But the ones that do Tesla, even when they go sideways for five years, Tesla are going to be, are going to lead us to alpha, are going to be wild out performers for us. And so it's as simple as buy the ones that are going up. I mean, I'm obviously oversimplifying and having fun, but if you're trying to get go, this is so contrary. Realize it's not really that contrary.

It's actually quite logical. It's it's what happens over the course of time to the overall market or the the winning stocks that drive the overall market. Yeah. Well, it it's, I mean, if you're pulling up a long like a truly long term chart and this chart is not going up, like what's the probability that this time is different?

Yeah, I I think it's low. Yeah, I mean, and, and the other thing that it that game can really kind of mess with from a mathematical standpoint is OK, fine, you can swing trade, you know, maybe some an industrial that never trades it more than two times. Book and real earnings don't move. Like fine, you can maybe make 4X, you know, risk reward if you buy it really right. But I, you know, I don't know the math of your strategy.

What you're looking for is the ones that can be 1000% returns right or or more right or grow infinitely. Yes. And you know, you said something earlier, a great phrase I wanted to call back out and pull back up because you were talking about how companies that I would say the rule Breakers, which by my definition are the companies that start as David and overcome Goliath and end up the best ones becoming rule makers. These companies have increasing

amounts of cultural relevance. That was the phrase that you, I think it was either that or very near that phrase you threw out about 20 minutes ago. And that really is an important factor that we should all be thinking about when we asked what are the stocks that can rise to the moon or keep going? Because by the way, the moon's pretty close. They're starshot stocks that that we've had the experience of 1000%. Great. But what about 10,000%? And, and the only way that

you're going to get that kind of investment, two factors. 1, you, you need something of high, high cultural influence and relevance. And two, you need to keep holding it because you're never going to make 100 bagger if you're not willing to let it become a 100 bagger. And there are a lot of people who who are not, they don't have a habit of doing that or they don't have a predisposition to allow themselves to win like that.

And again, not everybody should. And I've had stocks where the IT went up 10 times the value and I sold it a loss. And that hurts. And some people for them that would be like, I am quitting investing. I give up because I had made 10 times of my money and I just sold it a loss. And I can only say, you know, welcome brother, sister. Like I, I have done that and I've done that not just in my own portfolio publicly.

I recommended that to people who pay us for our advice of The Motley Fool and we had a nine bagger and I'm so sorry. We're selling at more than 50% overall loss in the position. I hope you're enjoying this program.

I'm interrupting it to remind you that this show is brought to you by fiscal dot AI. Use my affiliate link fiscal dot AI forward slash brew to get a two week trial and should you want to upgrade from after your two week trial to fiscal pro, you my link fiscal dot AI forward slash brew will get you 15% off any paid plans. Again, that's fiscal dot AI forward slash brew. If you don't know what fiscal dot AI is, please listen to the episode that I did with Braden Dennis. He lays it all out.

I think it's a great episode. It's one of the ones that I think I'm I'm uniquely decent at. If you just want the Cliff Notes, Fiscal dot AI is a complete modern data terminal for global equities. It combines a powerful user experience with all the financial data capabilities that professional investors need. You get up to 20 years of historical financials for all stocks globally. The data is updated almost

immediately. You get segment and KPI data and it is rumored that the product will make you the best analyst in the world. So why is that you just the the starting valuation was just too high and the business eroded or something like that and then you held it long enough that it came back nine times. Is that what you're saying?

Well, I'm thinking specifically, let's say of 3D systems when 3D printing heated up 10 years ago and we generally love new trends and possibilities and there are more in our society today than 30 years ago when we started The Motley Fool. There are more rule breaker possibilities and amazing things coming then we could have foreseen a generation ago or 100

years ago. And so get excited about all of the possibilities that technology is going to bring us, our kids, our grandkids, because those are the companies that we want to own. But thinking back to 3D Systems, it basically shot up. I mean, there's a hype cycle, Gartner's hype cycle specifically. I think it's a good framework for people to know, and the peak of inflated expectations is one of the phases of that cycle. And it's almost always going to happen.

There's no way not to for it to happen with AI or the Internet or genomics, electric cars, the list goes on. There's always going to be early stage. We humans can see new possibilities. That just can't come to market soon enough. And if they do, they may not even be relevant when they arrive or they may not work out. But we can see ahead of that. And then people are paying up for those stocks in advance of

that. And then, you know, things come crashing down and we end up with deflated expectations. And a lot, a lot of times we just write it off all together. 3D printing I think today is a bigger business than it was in 2016, but for that stock anyway, yeah, that jumped up 9 times in value for us in Motley Fool Stock Advisor, I think in less than two years. But then company was trying to get big fast by being acquisitive and, and you know, in the end 3D printing wasn't a consumer revolution.

You I, I, I appreciate some 3D printing that I noticed in my, I don't have my own personal 3D printer, but we were for seeing that possibility and I think the market was as well. So that's an example, Bill, very specifically of basically a 10 bagger that we sold at a more than 50% AH. So it went up. Nine years later. And came down. Interesting, and I should have made that more clear when I explained it, but. Yeah, well, now we have. Yeah, and you know my own habits

can come back to bite me, right? Because I'm pretty sure as it went up three times in value we added and then now we're up 9 times in value and I don't remember adding right then. But the point is as it devolves unravels and and doesn't just come back down to earth because town closer to hell, the burning flames of hell somewhere below the surface of Earth. I was like, yeah, this one didn't work out. Unfortunately, we also added to it.

So but I'm willing to look like an idiot, a common fool if you will. I'm willing to have egg on my face or air ballot from the free throw line 10 times in a row in a way many people probably would not be OK with. I am. I do think I benefited from that, but it's part of my nature, therefore to adopt this approach to investing where for others it may not make 100% sense. Yeah. Well, that I mean, that makes sense to me.

So one thing that I've heard you, I mean this, I think you said this on Patrick O'shaughnessy's podcast way back was you said you like to be the first to buy and the last to sell. You know, how do you figure out like the, the 3D printing story? When is it the time that you say, OK, maybe this isn't what I thought, you know, how do you, how do you figure out when you're the last to sell? Because if I recall correctly, you had a similar ride on NVIDIA, but that was a good one to hold.

So where, where do you sort of massage that decision? Making. Well, first of all, I default, as you know, because you've read the book. I, I, I, we invest for at least three years. So before I were were to enter a position or recommend a stock, I'm I'm there for at least three years.

So there are additional implications of that, like we need to have a sustainable competitive advantage, which is the second trade of the six traits of rule breaker stocks, because if we're going to be sustaining our investment for a long period of time, we darn well better have some great dynamics in place. So I guess, you know, that's part of my mentalities. I go in right away playing the long game. And I do believe I don't have statistics for this, but I believe I'm in the minority of

the market. Well, you had the graph in the book that that what the Twitter poll that showed the average person's 18 months, right? Yeah, well, it's not the average person. Market. Participant. It's actually institutional money managers. And yeah, it is there in the book. It was a Twitter pool done by my friend and fellow former fool Joe Magar. And it was it was from Bank of America and it was surveying professional institutional money managers saying what is your

time frame? And it averages to what I had always on my own adopted as my answer without any statistics. So when Joe showed that it's six months, I was like, that's what I've been saying. That's. Yeah, that's right. It wasn't 18, it was 6. I'm sorry. What did you, what did you say? You said that you thought that maybe 18 months is the longest that anybody. Yeah. And you know, whether it's 6/12/11 or 18, it's not three

years. Yeah, the main point is, and again, so many of the people I roll with, people who are, you know, part of women's investment clubs, long time Motley Pool members, my good friend Bill Brewster, others, most people have a longer term time frame than that. And we're talking about your money and we're talking about your entire life. I think we should have whole life span Is is the the the real time frame we should be living our lives and investing our money.

And so that's why I'm always fully invested at all times and that's through every down period for a stock or the overall market. I think we should be investing getting on that train as early as possible. First Depot, we can get your kids started and and be there the our whole lives. You will be wildly rewarded and there there's a huge opportunity cost that people have paid by not taking that approach. So therefore, obviously, yes, we start with a three-year minimum position.

So Bill, when 3D Systems and NVIDIA are both active pics of mine and they're both going up, I'm like, great, that's what I thought. These are companies that are top dogs and 1st movers in important emerging industries. That is the first trade of a rule breaker stock. They they conform to that. They're going up, we're going to keep holding them. And then I keep holding and holding some more, and one of them gets dunked on and the other one goes sideways for three years, and we're still

holding. Because I've already experienced in my life watching great stocks lose a lot of value and then come back. And, you know, part of the trick there of holding is you're looking at the company and what it's doing, not the stock. Because stocks are always exaggerating the movements of what's actually happening with the underlying businesses. And, you know, I'm not blaming

the market. The market's trying to forecast what this means for the future, but we're all guessing, and the stock market price discovery mechanism is one of the single best predictors you'll ever find for guessing where the world is headed. So you know much respect to the market and how it prices things. And most of the businesses Netflix quick stir 2011 that make mistakes, even if

self-inflicted gunshot wounds. These companies are actually more resilient and stronger than you would think from a market movements and B, the media, which is often integral to driving market movements up and or down. And so you start looking at Netflix going, OK, so Quickstir, I'm a Netflix customer, let alone shareholder. I don't, I don't like this move. This is very frustrating. I'm going to have to separate my streaming queue from my DVD

rental queue. This is back when we were still renting DVDs and that just feels customer unfriendly. And the stock is dropping and Netflix lost 2/3 of its value inside of a year based on a decision that it made and then retracted. And the worst we could ever do is lose 100% of our money and I've never quite done that, though I've gotten near. The best we can do is infinite upside, as you already mentioned, and therefore tie

goes to holding. And so when I said on Patrick O'shaughnessy's podcast, I try to be in ahead of most others, never first in I'm not AVC and then I try to be out after most everybody else. When you're out holding the bag on a bad stock at the bottom, you just look like, again, a small F fool. And I'm always happy since I named myself from the very beginning of our paper newsletter for parents friends a fool. I'm OK, I'm actually OK with that.

I'm OK people saying you know you're an idiot, you suck. How could this happen? Because the upside of being right and just being lazy and holding both NVIDIA and 3D Systems next to each other is so amazingly awesome. But most people don't know that because most people never hold stocks long enough to realize that Ling's money thing should have been a thing. And Intuitive Surgical is a

monster. And so is Booking and so so's tracks and MercadoLibre other, you know, stocks that we haven't mentioned yet in our time together that have just been gigantic winners for us at at Motley Fool rule Breakers.

And, and most people don't have an experience of having a monster winner, like the idea of a spiffy pop, which you know, some of your listeners will know, but most of the world doesn't know what that is. When I say that the idea of having that is for many people an alien experience, like how could you do that? And yet it's happened thousands and thousands of Times Now for for me. Too many people chasing teenies man. There you go. And I love that phrase, and I

think we've had fun with that. Indeed, we have Mercardo Libre actually was, I was kind of it popped into my mind when you were talking about what happened with Starbucks, right. Just because this previous quarter they kind of invested in I guess fulfillment expense and and maybe took this the the foot off the gas a little bit on profitability in favor of market share, which we'll see how it all turns out.

But seems to me not the dumbest management decision if you're actually running the business for the long term, right? Yeah, I feel really good about Marcada Libre and I have for for well more than a decade it has been, it has been the single best stock pick for the two services I picked for in this case a rule Breakers it is AI think it's 178 bagger over the 15 years we've held it and that includes, you know, any recent

drops. The company, one of the things I've done on my podcast is I did this over six years. I picked 5 stocks as a little basket and I did that. I did that 30 times in a row space by 10 weeks each time. And it's just all part of my free podcast. I was like, hey, these are just samplers. Like we already own all these stocks in our services. We have lower cost bases usually.

Then the sampler you're getting like the same sample you get a Whole Foods when they give you a little piece of cheese or a little sip of wine, a sampler. I was saying here are samplers of the stock picks from my services. And the very first five stocks sampler I picked was when I started my podcast. It was the, IT was, It was September. It was September 2nd. You and I are recording this on September 2nd. Oh, there you go. How about?

2025 and it was literally 10 years ago today that I picked my first sampler was called 5 stocks for the next 5 years and it's now 10 years later, which is more like my time frame. And yeah, I was going back and reviewing what I was saying as I made MercadoLibre one of the five stocks I picked 10 years ago today. And MercadoLibre was at a $5 billion market cap. And I was saying at the time, and by the way, I was right, so I'm bragging.

I was saying at the time, MercadoLibre at a $5 billion market cap today, 10 years ago, is basically like saying if you could go back in time and buy eBay and Amazon in the 1990s at their respective market caps, do you think that would be a good buy? And the answer is yes, You would have loved in 2015 to get the cost basis of Amazon and eBay from 20 years before. And I'm really happy to say the Maracana Libre's market cap today is 122 billion. So yeah, that was a hell of a buy.

And by the way, it looked overvalued and they probably had dropped, you know, 30% twice in the year leading up to me picking the stock and re picking the stock in 2015. Anyway, in some ways, this is like a great microcosm of what I try to do, which is get people realizing it's not about where things have been, it's about the future. And so, Bill, I love MercadoLibre right here today at $122 billion for the next 10 to 20 years.

Didn't you have like one of the all time great Amazon calls in like 98 when you said something along the lines like people say it's just a bookstore but think about all the other places they can go. Wasn't that you? I'm pretty sure it was you. It was I I will say that you know, it's I mean, I, I, I can't say if it's all time great because I think others can decide what what's like Hall of Fame worthy, but. Well, it came into my feet.

Is somebody saying David had one of the all time great calls? Well, I mean, what's fun about that is that, you know, we we're still holding and, and, and it's right there on the Internet. You can Google it for free. And it was the summer of 1997. And yeah, you could read my exact write up from, you know, first paragraph to the last one. And we're now 28 years later and my cost basis is $0.16. So it's, it's been, it's been

smoking hot. And and I mean, what an incredible object lesson in what I ended up calling Rule Breaker investing because all of the factors, all of the bears, the dark clouds you had to see through were so evident from the very beginning, including the stock having doubled before I picked it. Like all of the things that I've tried to teach the world are implicit in that one story.

And I think it's been maybe the best stock you could have owned since 1997. And in a really weird, this is kismet, this is destiny, this is outside of my own control. But in a really weird fun coincidence Bill, I would say the other stock that is a clear rule breaker that would become the next generations great stock is NVIDIA and I picked that and my cost basis is the same for both really and NVIDIA it is $0.16. Thanks. Well, the next time you get anything close to that,

everybody should. That's that's the magic lesson right there. Well, I guess, but you've had. Splits and whatnot, yeah. As you well know, those stocks were never penny stocks, but literally my cost basis is $0.16 now for both of them. NVIDIA has split 120 for one over the years. Wow. And so, but, but both of them exhibit this, the pattern that we're talking about, the six traits of rule breaker stocks.

And, and I was just like I said in Patrick's podcast, I was in early and we're still holding for both of them. And they've been, I think they've been probably two of the best stock picks you could have made on the markets in the last 30 years. And I used the same methodology to pick both. And at the time I picked both, there were a lot of bears there. There were a lot of people saying I would never buy the stock there.

I'll wait for a dip. Yeah, one of the things that I like that you did in the book was you had like, I don't know, call it 8 to 10 charts maybe. And they went from the bottom left, you know, they, they corrected a little bit, but they were quite a bit higher than where they started. And you, you said, like, I'm proud to say that I recommended all these, but not at the bottom right.

I, I recommended them after they had run up a decent amount, which, you know, I just, I felt like through the book, there was a real sense of honesty and embracing of, you know, the

things do go wrong. And I, and I, I appreciate that in an industry where most people boast about their wins, you kind of let your wins speak for themselves and, and rub your face in, in the downside, which I believe sets up the new reader at least, at least you've done what you can to prepare somebody mentally, whether or not they have the psychology is sort of outside your control. I appreciate that Bill. And you know that that chapter was a lot of fun to write.

And specifically, that is Chapter 9 of the book where I talk about trait #3 of Rule Breaker stocks, stellar past, price appreciation. And the fun of writing that chapter was realizing, because I didn't realize it until I started to write that chapter here a year ago, that seven of my best picks ever all together had the same chart pattern before I picked them. They were up 30 to 90% in the three to nine months before I picked them.

And so hilariously, that chapter leads off as you mentioned with their stock graphs. And in every case it looks like, you know, you must be bragging, Dave, because in the lower left, you know, it started there and then look, it goes up like 80% like 6 months. And the, the main point is you already pulled out is that I didn't pick it there at the bottom. I actually picked it at the end of the graph at the top, and those weren't my losers.

Those were my best picks. And so it was such an eye opener for me personally as I wrote the chapter to put those up. And I hope that just jumps out to people. And again, not every stock that you buy at its new high is going to work out well. There are cyclicals, there are junk stocks, there are meme stocks.

The list goes on. But for what we're talking about during our time today, Rule Breaker investing, if you're finding companies that comport themselves to what I'm looking for, stellar past price appreciation, as it turns out, is an excellent indicator of future winning results. And it's the opposite of, again, what most people would think.

Well, and I, I think when you layer on the 5% Max position size and then the ability to add up over time, it encourages fishing in a pond where things are on average going well. Trying to look for companies that you think can dominate 10 years out in a world where most people are thinking no more than six months. And you know, it's sort of sets yourself up for maybe playing the game in a different.

Way very well summarized. That is exactly how I would describe what I'm trying to do. Do you want to talk? I would be remiss if we didn't chat a little bit about the, you know, how to build your portfolio. What I'm I'm going to, I can't. You can think of the words better than I can. You wrote the book. So let's let's talk about the sentence that you've is sort of the foundation for. Portfolio construction. You bet so so the structure of the book is 3 parts.

Also it's a short book. One of the things my. What goes it flies by? Thank you. One of the things my wonderful editor Craig said is he's, he's a Brit. So this is a slightly affected accent. He's like David, you know what people like. And I was like short books. Like what? Do people like short books? Yeah, that's right. What? People don't like is 100 pages of filler. So I was like, you're right. And really, at heart, I think

I'm a writer. That's what I started out as in school and what I've loved doing. And I've written a lot of things over the years, including more than one book. But this is the first book I actually wrote all by myself. And with that guidance from Craig, I'm like, you're right. Let's make this a fun, ripping good read. We're going, we're, we're going to a subject that matters deeply to me. So it's not that we're treating it lightly, but let's make it

entertaining. That's what we have to do with The Motley Fool. Otherwise, we're not very foolish if it's not fun. But let's also, you know, let's cover a lot of ground all at once. And since this is my final stock market book, I'm leaving it all out there on the field. So the, the organization of the book is 3 parts. The first part is the six Habits of the Rule Breaker investor. We've talked a little bit about

that. Second part, because we got to talk about stocks, the six traits of the rule breaker stock. And then the third part in my mind, inevitably, if you're talking about habits and then stocks, what results is a portfolio yours? And so the six principles of the rule Breaker portfolio. SO3 lists of 6. I like the number six because it's enough to remember, but also not too much. So you can keep it in mind. I think you can remember all six of these. At least I can for all three

lists. If it, if I started saying 7 or 8, you wouldn't get it. If I said two or three, it's not enough. So I like the number six. And so the six principles of the rule breaker portfolio and you know, the very first one is the one that matters most. In fact, the 1st in each of my lists of 6 is the big, big one that matters most. And for portfolios, it's to make your portfolio reflect your best vision for our future. So there's no asset allocation in there.

There's no numerical guidance. There is a very strong belief on my part that you and I will do better with our portfolios if we can look up and down the portfolio and say, I love those companies. I admire what they do. They express me. If my buddy at work saw My Portfolio statement, they'd be like, yeah, that's Dave. Yeah, no, he. Those are his companies. Just like our books on our shelves kind of show who we are to people who pass their eyes across our bookshelf, Our books

are our friends. The exact same thing should be true of your portfolio. And obviously we're all seeing different parts of the elephant. We all have different tastes, passions, interests, hobbies, professional insights. We're all unique. And I literally strongly believe you will do better if you're investing right along that

dynamic. You will literally have better numerical performance then if you don't or if you give your money over to somebody else, if you just mail it in with an index fund, etcetera, you will do better. And that's why it's the most important of My Portfolio principles and it's kind of about you and getting to know yourself and over the course of time, getting smarter about what

wins. We should all be fans of the game and seeing why does this person or stock win in that situation, company and those don't. We should all constantly be learning and leveling up. I'm a video gamer still at 59, just as I was at 19. Leveling up is a phrase that means a lot to me. What do winners do? They win.

Let's learn from them. And and once you have your own winners, then you have your own lessons that you can base your future decisions on. And I think your money should be inside your circle of competence. You should be constantly growing your circle so that the perimeter keeps extending. And yeah, make your portfolio reflect your best vision for our future. And that phrase our means that we need to think beyond

ourselves sometimes. Like ask yourself, it might be something that you personally as a pet project or product or stock feels right for you. But also get outside your own head and just ask what's important for the world at large. All of the great stocks of every generation are going to be monster winners because they were relevant. They were adding value to the lives of many, many people. And so it's that expansiveness that defines rule Breakers to me.

And so for our own portfolio, we want to constantly be learning and growing. And especially if you're going to buy stocks directly, which by the way, is another thing that people will tell you not to do. And there's another place where I, as David, love to take on Goliath and say that's such a shame if people think that they shouldn't buy stocks directly. Doesn't have to be with all your money, but just tuning out and just going, yeah, I'm just DCA ING into whatever.

I'm not really sure giving it over to my money guy, you, you are robbing yourself of so much growth and and fun. And I would say success if you do that. And I realize we're all time starved and not everybody has time or interest in investing in stocks directly. But at least for those who want to read my book, I'm speaking to you because I believe that you're the person I'd invest in

any group of people. If you have that degree of intellectual curiosity, willingness to take risk, to be responsible for your own actions, I'm investing in you. And you and I are investing in companies by doing that. And we're going to we're going to win a lot in this world where most people don't seem to want to do that. So I think I just went off and ranted, Bill, I think I lost. No, it's always a good. Rant you didn't lose anybody.

You didn't lose anybody, especially if they, if they're the type of person that gets the portfolio section then then they really are and. A minority. The reason I sent you my first 50 pages is because another thing I learned from Craig, my wonderful publisher is one person in three is still reading non fiction books typically after page 50. Therefore, David front load your best stuff. Let's let's lead off with NVIDIA and Ling's money thing. And those are great stories and

fun to tell. But I sure hope that I've written a book that people, if they're taking themselves and their money seriously, would want to read all the way through. It is a short book, but that's that section on portfolios is just as important as as anything

else really. And each of the six principles, I think should be really helpful in a world where many people have not been coached at all on how to build or maintain a portfolio that's that's a secondary or tertiary thing For most people, if they're even investing in stocks, they're like, what's the next one? But they don't necessarily have frameworks that they can rely on to help them build that portfolio over the course of their lives.

Yeah, well, I mean, I said it to you in our first interview and I, and I'll say it again. One of the things that I appreciate so much about stumbling upon your work has been that it's such an antithesis to the my interpretation of the traditional Buffett teachings and the idea of buying overvalued securities and diversifying while, you know, the, the, the contrast is concentrate. You know, I mean, I, I think Charlie is very misunderstood sometimes when he says he'd had

50% in his best idea. But nevertheless, the quotes out there and then you combine that with rule #1 is don't lose money, rule #2 is, you know, never forget rule #1 It's just such a different method of thinking. And I and I think both approaches can probably lead to the same path for the right personality. I do think your approach is almost certainly more anti fragile for most people. Appreciate that.

And you know, I wanted to talk some about what's maybe my favorite chapter in the book and what would be for me what was the deepest insight. And you know, I go there more with business brew than I would with the view, right? So this is a conversation, this stage of our conversation is about for people who really want to think hard about valuation, which most people don't and really which in some ways I don't. But this was the key insight, I think, that I had in recent years.

So we probably didn't talk about this four years ago, but in chapter 12 of the book, I basically ask, why is this true? Like why is this happening? That specifically, I am targeting stocks that are quotes overvalued and by most measures and media reporting and all the rest, they're crazy overvalued. Since I completed picking stocks for The Motley Fool in May of 2021, I'm not as actively researching or looking at stocks, but I am still adding some to My Portfolio.

And in recent years, for example, a nice rule breaker winner for me. I credit my wife Margaret for this even more than myself has been Palantir. And so Palantir, once again, poster child for crazy overvalued. True today, true a year ago, true three years before that. And and it's a monster. It's a rule breaker, it's a multi bagger and it's so quotes

overvalued. So in chapter 12, I think I hit on the key insight and you know, I hope people will buy the book, but if you don't and you're listening to us right now, I think this gives you a lot, a lot of juice. And here it is. Most of the things that matter most in business that cause businesses to win and lose are not measurable, are not captured with a number, therefore do not appear in the financial statements.

And all of the best companies therefore look overvalued because all of the conventional people are using price to earnings, price to cash flow, maybe price to book in some contexts, and they're just doing ratios off of outputs. They don't look at the inputs and specifically I'll give two quick examples. Specifically, two of the biggest factors for companies that have been my biggest winners are who is running that company and the brand slash reputation of that

company. And part of being an entrepreneur myself is that I know how important these things are because I see it in my own company. And I'm, I'm an acute observer of other people's companies because I am an entrepreneur myself. And so I know how important it is the culture of a company, the brand of a company, the, the leadership. And there are no numbers for the things that matter most.

And so I believe the big mistake being made, Bill, is that we're not actually putting a number on Jeff Bezos and we're not putting a number on Howard Schultz. We're not putting a number on bad CE OS that subtract value. They're out there, no question, people subtracting value from the enterprise they're overseeing. And so, I mean, is there a more important single input probably than that? Probably not. In my mind, it's kind of like NFL quarterbacks, they are the highest paid.

It's about a lot more than them. The offensive line is almost always underrated, but nevertheless, they still are the focal point. And imagine if we didn't even look at them as we're valuing NFL teams because that's what people are doing with stocks they're not looking or caring about. I mean, they may well speak to it and they may care, but they don't have a number and their valuation models don't price in Jeff Bezos.

And once you start to realize that for visionary founder CE OS, in some cases, it's incalculable how valuable they are. Elon Musk is incalculably valuable. I realize there are mixed feelings about him and there are a lot of Elon haters out there as well. But I mean, if you simply look at the value that he's created, that he's behind, it is, I believe it's higher than anybody living today. And and that's one factor. I said I'd give two quick examples. The second is the brand of a

company. There is no number on the financial statements for the value of Apple's brand, Starbucks's brand, brand. And so you have people who are valuation focused, who are academics or they're analysts or they're just armchair investors, and they're so focused on their traditional valuation metric. And for me, they're missing who's running the company, the brand value of the company. There are no numbers on the financial statements.

I would also add the innovative capability of that company. Can they innovate their way out of a box or not? I would also say because I've seen it first hand, corporate culture, the culture of companies is rich and deep. Those things are actually the gating factors that create wins in, in in life, business, in the world. And when they're invisible to valuation models, you end up saying about all the greatest companies, they're overvalued.

And you often end up saying for crappy companies that are that have bad features among those four that I trotted out that they're so undervalued and that they look undervalued to you and you're willing to buy them. And so I think because I'm trying to leave it all out there on the field with this stock market book, my final stock market book, that's like my grand conclusion. And it's just one chapter.

But I think it explains why it was a stroke of genius 27 years ago when I said I am looking for things people are calling overvalued. And at the time I wrote that and said that, I didn't understand fully why that would work. I just had watched it work like AOL. The first great stock for me was so overvalued and it went up 150 times in value as people talked it down all the way up Wall of Worry. So Bill, I wanted to go there at

some point in this interview. We didn't probably talk about that four years ago because I was still thinking it through, but that's sort of where I am on this and why it works. How much? Of the of the results, do you think, OK, let me let me ask this in a way that actually makes sense. The overvalued portion of what you're looking for, how much of of that do you think comes from the life cycle relative to Tam and potential Tam expansion that these companies end up with? Right.

You talk about how much Nike paid for Tiger. Well, Tiger at 22 is a lot different than Tiger at 40, right? So like, I mean, I, I, you know, I saw that NVIDIA, I mean, I opened up the cash flow state. I just went to fiscal AI shout out to them. I just went to the cash, you know, the cash flow statement for that company. I mean, you're looking at a company that in April of 2023 did what, 7 billion of LTM cash from operations. Now it's 77. Incredible. Like that is, that is wild.

And I realized that AI was maybe not foreseeable, though some did. I, I don't know, you know what, what you had said about it. I suspect you saw it. Can you just talk a little bit about the size of the company relative to the Tam and then also the myth of the law of large numbers? You bet, fun topics. So I, I would say first of all that, yes, the total addressable market is, is something that we should be thinking about, no question. And, and here we get into in my

mind, AVC mentality. That's what venture capitalists do. They're sitting there at earlier stage, Series A, Series B, we have a motley flow venture capital fund at Series A like we do this now too. I'm not on it because I'm not a professional VC, but I think it really matters. You want to be asking that and you raise a really important point, which is it's not fixed.

And so for my greatest stock picks, and these really were, I think pretty much the greatest stocks you could have had on the markets over the last 30 years, Amazon, NVIDIA, Tesla, the list goes on. Intuitive Surgical, we never talk enough about that amazing company, but the total addressable markets keep expanding. And of course, this is always been true, right? Going back to Amazon as Earth's biggest bookseller, like that's all they were doing at the start.

And then they added music and videos, and then it became ladders. And then all of a sudden they bolted on Amazon Web Services, and then they're competing with Netflix on Amazon Prime Video. And all of these things emerged over time. And I foresaw none of them in 1997. I don't, not only me, I don't think anybody understood what cloud services would be. I'm sure there was a visionary that was talking about it maybe in a futuristic book, but there was no sense of that popping up

for at least a decade. So part of what you're doing is you're discovering along with the stocks you're owning. If you're finding the top dogs in first movers and important emerging industries that stocked pond you were referring to earlier, Bill, you're you're going to over index to to discovering these various sorts of companies.

And now that I've watched my caterpillars become butterflies over and over and butterflies become even bigger, crazy, crazy butterflies, I know this is this happens. So I would never have predicted when we first recommended NVIDIA as a video game graphics card company in 2005, tax day 2005, I would never have understood what you just described the, the, the cash flow of the company becoming and just mushrooming.

It's not just not possible to know that even five years ago, that's shocking and I know it can happen and we're invested in such a way by following I think the traits I'm laying out that we're discussing, we're putting ourselves in great position to have those companies in our portfolio. We don't have to be geniuses predicting what's going to happen next because that's increasingly hard to do. So I think that total addressable market is such a

valuable statistic. I hear you on Tiger at 22 versus Tiger at 42. I agree with that statement. And the good news is, companies are different than human beings. Their life cycles can extend, and they can actually all of a sudden be 20 times more youthful and powerful 15 years later than they were at their youthful and powerful peak, supposedly, right? And that's a really beautiful thing to know ahead of time. And I've just seen it happen

over and over. Intuitive Surgical, you know, started by basically trying to provide the da Vinci surgical robot for doctors who wanted to use robot assisted surgery to remove the male prostate gland from men around my age who get prostate cancer. That was it. That's all they did. And then they're like, except that I think we could also do hysterectomies for women. And, you know, now that we think about it, we could bolt this on

or try this new indication. Sometimes it was the doctors themselves who love the machine, wanting to experiment with it. And now more and more forms of surgery are becoming robot assisted, which by the way means that you and I walk off the table minimally invaded a day or two later when it used to require 3 days of recovering at the hospital because we got cut up. And we may be living through a time where all surgery will be robot assisted before we're

done. And Intuitive Surgical basically has no Pepsi to its Coke. If it's Coca-Cola, I cannot find the Pepsi. Intuitive has a higher R&D line than many of its competitors have revenue lines. Blue Ocean my friend out front. It is a beautiful company and what what I love about our conversation. I love many things and thank you for having me back. And you know, I think you. Dude, anytime, anytime you want to come on, just be like, I want to come on.

You get it like and and and part of what I love about you is that you're very open minded. You're not, you're not being a plemicist, you're not defending old school valuation techniques or being some wild eyed crazy futurist and not being bugged out of that. Like I'm always trying to hit golden means generally. But I really appreciate that that we're having this conversation.

So. So dude, you've been you've been doing it for too long with results that make too much sense to not at least try to figure out where is the genius in this? Right? Like if, if you just look at that and you say, well, I'm not going to even think about it, then like, I don't know, you're not, you don't grow.

Yeah. And because I'm specifically investing trying to Max out my returns and, and do that especially for our members, because in the end, picking a stock for our members that goes up for, you know, hundreds of thousands of people versus just me and my little portfolio is much more deeply meaningful both personally and for the valuation of my own company, right? You're trying to pass the Bezos test of creating wealth for others, right when he wanted the list. Yeah, no, I I didn't even

remember. That was the Bezos test. But by its very nature, if you're a financial services company, or in our case, an advice company, that that's the heart of what you do. That's why learning like part of the reason I wrote the 1st, 3rd of this book, which is material I've never put out before, is because I've had those conversations with Motley Fool members who are like, you know, I wish I'd stuck with Apple because, you know, you guys picked it and then I, you know, it went up 100%.

I was like, I sold out. I sold half because, you know, you're playing with the house's money. Silly things that are in people's heads about how they should invest because they haven't been taught habits. And so I know that we haven't maxed out for our own members what they could have done in part because they don't have the context. They didn't have the habits or the portfolio principles that I wanted to make sure I laid down here as I exited the stadium and said, like, this is my final

stock market book. I want to make sure it's not just about NVIDIA or Amazon. It's specifically about holding them. And it's specifically about managing A portfolio that lets you sleep at night so that you can win with a smile on your face and not get stressed out because you're adding to losers all the way down or you have too big a position in one monster stock and you're not sleeping well at night. So, so it's the whole context.

I think it's, it's, it's the habits and the stock trades and the principles of your portfolio that to me need to all hang together and speak to each other. And one thing I say near the end of the book is I hope any one of these 18 chapters is helpful on its own. I hope any one of these just UPS your own game. But when you start letting them play into concert like instruments with each other, that's really when the beautiful

music happens. And for me, these are the 18 that I have going on all the time and I'm trying to make them simple in 10 page chapters that are fun, punchy and give you like more than you knew when you started. One of the best compliments I've gotten about my book is from my friend Dan, who's an entrepreneur here in Washington, DC. And he's like, he was my first reader of the full book and he actually cancelled all his afternoon appointments to finish the book because he just started

in the morning. He's like, I can't stop. And he said this is not an investing book. This is actually a book for entrepreneurs and business people because what you're doing is you're talking about what, what wins and works in the marketplace, but you're actually doing it ostensibly from the position of picking the stocks of the companies that win in the marketplace. And I, I, I love that he said that because I hope.

Well, the companies that win in the marketplace are the companies you want to own the equity of. Hell yeah on average, right, Unless you pay an egregiously expensive multiple. And even then, over the long term, a lot of those can still end up outperforming. I mean, it's interesting because, you know, I mean, there's anyone that doesn't know the studies of how, you know, overvalued facts tend not to perform. You should read the studies, but also like, think about what

we're saying here, right? And I don't know. I appreciate you for opening my mind. I think it makes a lot of sense. Well, thanks. You know, I, I, I would be remiss if I didn't mention that my mind has been opened 1000 times over now because of the business we started. I mean, so many Motley Fool members, I quote them in the book. Some of my best passages are just from something somebody put up on a, a forum, a Motley Fool message board. I was like, that is such a good point.

So I have been unbelievably accelerated and rewarded by just having conversations like this most of the time online, not on a podcast with so many people over the course of years. Like we started The Motley Fool as an AOL page like it was pre web, like the world, the phrase World Wide Web wasn't out there yet. And so but I was there from the earliest days with my dial up modem going.

This is awesome. I'm an investor and I can actually talk to people work in this industry who are using the product or service as professionals that I'm just researching. This is incredible. I, I grew up at a time where the big step you took as an investor was to call the company's, call the company's investor relations number, which itself was sort of a, a research item to find out what was the number. And it sometimes wasn't toll

free. So they could mail you their paper annual report from the past year, so you could read and learn about whether you'd want to buy that stock and maybe be assisted by by services like Value Line, which was a big black tome of lots of numbers. And since I love numbers, I was comfortable with that. But I mean, that was investing. And then there I am in my 20s going, wait, hold on, this is

crazy. I can actually, you know, that dial up sound in your computer that's in our heads, especially people over the age of let's say 35. I mean, that is amazing. I can talk to people and ask them questions about stocks and they can ask me back. And that's how the fool started. So thank you for saying that I've helped open up your mind. My mind has been so greatly enriched by so many people over the course of 30 plus years just running a community site about investing.

Yeah, I would think so. We got we, all right. We got 4 1/2 minutes before you got a hard stop here. So I got AI Got a simple question for you. How do you defend against AI taking some of your content off the fool? Yeah, well, first of all, I think the answer is realize that's going to happen. And really the truth is the content has been taken off the fool by many people for many reasons over the years.

And I think if you're a secure, successful person, you should take some pride in that and say go for it. In fact, when they're the a couple of years ago when Open AI and ChatGPT was just starting to come out, there was a list of the 20 most scraped sites that created Chad GBT. We were #8 at full dot. Hey, that's a compliment. I mean, it was. Now the New York Times has tried

to turn that into a lawsuit. And I kind of understand why they might cause intellectual property should be defended up to a certain point. But so, yeah, I, I mean, obviously I'm, I'm proud that that we've built up something that people would want to scrape as much as it has been and is Reddit is also scraped. Reddit is very much a community site, kind of like ours. Reddit's bigger than we are, even though they started after we did, so good on them.

But yeah, I, I would say, you know, slightly more broadly, one of the things I'm writing is a bonus chapter for the book, which I'm going to pin up on the book's website, which is Rule Breaker, investing.com. And I'm just going to answer some FAQs, kind of like the one you just asked, Bill.

We are running out of time, so I'll be brief, but I actually think that AI is, is an incredible help to our business because it I think enables us to do a lot of work we couldn't have done as fast as we could before. You can now basically take the entire market down to a simple screen or write an article that pulls insights that we could never have had before. Not everybody has the time, interest or insight to build machines like that.

So 1 great thing my brother Tom, our CEO, has done is really bring AI into our business. And you know, if you're a Motley Fool member, you are regularly getting AI enhanced content, whether it's words written or lists of stocks. And so we're of course embracing that because just like the Internet showed up about one generation ago, we're like, we love this thing, let's go. That's our attitude.

At the same time, you know, if AI ends up, you know, hurting us badly over the course of time, that will mean that we didn't we weren't relevant. Maybe AI became more relevant to people and you know, we're all using it. If AI personally helps me do better than I've done, I'm like, great, let's go because that sounds like I'm doing less work

now and getting better returns. But I also want to close this answer by saying, and I'm going to say this in my bonus chapter, but anybody who's been buying stocks directly over the last 30 years has been competing against AI all the way through. Well, AI just showed up in the popular consciousness in a lot of ways. Computer algorithmic driven trading has been out there in force for decades.

For anybody who's been buying stocks directly, you've been competing as AI on both sides of the trade all the way through. And I've done well. I've done. I'm not actually worried. I don't think AI is about to take away all the alpha that everybody had. In fact, most people are dialing their computers to try to make money inside of a second. Yeah, well, I was going to say my sense is your time horizon. What AI is trained in is likely

quite different. I agree, in fact AI doesn't even have enough sample size in some ways to be meaningful or have deep insights for the long term. But if and when it does and gets that, I'll be using it too, my friend, because I love power tools and AI for our business has been 1 and I expect for all of us, Me personally, it's been an incredible tool for the last two years across all dynamics in my life, just like the Internet was one generation before. So there's a quick thought.

All right. Well, thanks for coming back on and Congrats on the book. People should get it. I'll drop it in the show notes and appreciate you. Thank you Bill, really enjoyed our conversation. Once again fool on my friend all. Right, you too fool on. None. Music. The.