BiggerPockets Money Podcast

Episode: The Case for Picking Stocks w/ Co-Founder of The Motley Fool
Date: August 22, 2025
Guests: Mindy Jensen & Scott Trench (hosts), David Gardner (co-founder of The Motley Fool)

Episode Overview

This episode dives deep into the debate between passive index fund investing and active stock picking, featuring legendary investor David Gardner, co-founder of The Motley Fool. While the FIRE (Financial Independence, Retire Early) and Boglehead communities tend to favor index funds, David challenges listeners to consider the benefits—intellectual, financial, and personal—of including a select few individual stocks in their portfolios. Sharing insights from decades of experience, David unpacks why, how, and for whom picking stocks can be a path to accelerated wealth and meaningfully deeper engagement with the financial world.

Key Discussion Points & Insights

1. Index Funds vs. Stock Picking: False Dichotomy

• David's Stance: Both are valid. Index funds are great for most investors—cheap, diversified, simple. (“If you just want to go index funds, that's much better than actively managed mutual funds... we're huge fans of making your investing as cheap as possible.” – David, 01:51)
• Big Point: You don’t have to choose only one. Even including a few stocks you know and believe in can enhance returns and your investment experience.
• Memorable Quote:

  “Buy a company that you think makes the world a better place over the next 10 years, you're going to do better and I wouldn't be surprised if you beat the market with that stock.”
  — David Gardner, [05:12]

2. Rule Breaker Investing: What It Means

• Definition: David’s strategy is not about frequent trading but about identifying “rule breaker” companies—industry disruptors and visionaries—and buying and holding for years, even decades.

• Buy & Hold Champions: Amazon, Nvidia, Netflix—bought and held far before their legendary growth.

• Critical Habit: Let your winners run high; don’t sell just because a stock looks expensive on traditional metrics.

• Differentiator: Many of the best companies always look “overvalued” (e.g., Costco, Starbucks, Amazon) but deliver outsized returns because they aren’t adequately measured by financial ratios alone.

• Notables:

  “You can only ever lose 100% with a bad investment... But what is the upside that is available to us when we find a great company? Good news, it's not 100%, it's actually infinite.”
  — David, [08:48]

• The Importance of Visionary Leadership & Brand

  “There is no line in the financial statements that puts value on a company's CEO... their stock looks overpriced because nobody's factoring in Jeff Bezos.”
  — David, [09:19]

3. Handling Volatility & Letting Winners Win

• Losses Are Inevitable: Even professionals hit losing streaks—David had 63 picks lose 50% or more, but his winners like Tesla, MercadoLibre, and Intuitive Surgical wiped out those losses and delivered astronomical returns. ([36:44])

• Behavior > Stock Selection: Success depends as much (or more) on your habits—especially patience and discipline—as on which stocks you pick.

• On Withstanding Big Drops:

  “If you take a whole life approach, then you end up owning all these great companies, knowing that Netflix will come up with a quick stir once every decade.”
  — David, [24:06]

• Citing Housel's “The Agony of High Returns”: The best returns (e.g., Monster Beverage) require sitting through sometimes gut-wrenching temporary drops.

4. How to Construct a Portfolio with Stocks

• David’s Approach:
  • Start with at least 20 investments (not all need to be stocks—could be a mix).
  • For beginners: Maybe 18 funds + 2 stocks you understand and believe in.
  • Allocate equally at the start; let future performance naturally shift allocations.
  • Don’t blindly rebalance—often that means selling your future Amazons and buying more of your future duds.
• Advice for New Investors:

  "If you’ve got $20,000, divide it into $1,000 lots across 20 things. Start with commissions-free, fractionally traded accounts. Pick at least a couple of stocks you’re passionate about, and put the rest in diversified index funds."
  — David, [45:02]

5. Transitioning Approaches Near Retirement

• FI/RE & Drawdown Strategies:
  David admits his method is best for lifetime investors seeking growth, not those who want to “tune out” at a certain net worth and live passively off withdrawals.
• Purpose-Driven vs. Goal-Driven Investing:

  “I'm a purpose directed person. So I believe the purpose of our money is to provide us freedom as much as we can find in our lives and to spread that freedom to others…”
  — David, [26:38]

6. Risk Management: The ‘Sleep Number’

• Definition: The maximum percentage of your portfolio you’ll allow any single stock to reach before you’d feel nervous and want to rebalance.
• David’s Sleep Number: As much as 50%—but he cautions, yours will be (and should be) different and likely much lower.

  “What is the single largest allocation you would allow your biggest holding to become as a percentage and still sleep well at night? That is your sleep number.”
  — David, [40:52]

7. Doing the Research (or Following Someone Who Does)

• Motley Fool’s Core Value: Deep, ongoing research—either do it yourself or learn from those who do. Don’t invest in stocks because “your best friend's sister's boyfriend's brother's girlfriend” tells you to.

  "You either do the research or you find somebody who's done the research and listen to them and understand why they think that's a good stock."
  — Mindy, [49:17]

Memorable Quotes & Notable Moments

On Inspiration & Intellectual Curiosity:

"I truly believe that our money should be expressing who and what we are. And for a lot of people, they don't have that much curiosity about business, don't have a lot of interest in following the markets or even companies...but I do want to make a case for finding great companies, buying and holding them, adding more to them over time."
— David, [04:07]

On Portfolio Construction:

"If I have a bone to pick with 'You can never beat the market, just passively index all the time,' I would say you're never going to beat the market if you passively index...But if you're serious about financial freedom and accelerating that, I think you should take a look at least at adding some stocks that you know well that you esteem to your portfolio."
— David, [19:25]

On the Limits of Diversification:

"You can only ever lose 100% with a bad investment...but [gains] are infinite."
— David, [08:48]

Actionable Steps for Listeners

• Consider blending index funds with a small allocation to individual, well-researched stocks you admire and understand.
• Let your winners run—don’t sell too soon just because gains look large or “overvalued.”
• Diversify: Especially at the beginning, hold at least 20 investments if you’re picking stocks; use index funds to cover what you don’t know.
• Define your ‘sleep number’—don’t let anxiety ruin long-term compounding.
• Think long-term: Accept volatility, realize some stocks will crash, but a few big winners can more than make up for losers.
• Do your research or lean on a trusted research source (like The Motley Fool).

Timestamps for Important Segments

• [01:51] – David’s case for stock-picking alongside index investing.
• [04:07] – Why your investments should reflect your interests and values.
• [08:48] – Infinite upside vs. finite loss: the asymmetric potential of stocks.
• [17:29] – Portfolio construction: number of positions, diversification.
• [22:24] – The impact of habits and patience on investment outcomes.
• [24:06] – Whole life investing and enduring volatility.
• [40:52] – The “sleep number” concept for risk comfort, personalizing allocation caps.
• [45:02] – Practical first steps: How a young investor with $20k should start.
• [49:17] – Do the research or follow someone who does.

Tone & Final Reflections

Throughout, the tone is optimistic, practical, and humble. David speaks with the perspective of someone who has seen it all—mega-winners and spectacular losers—and his clear goal is to empower listeners to learn, grow, and craft a strategy that fits their personality and ambitions. He emphasizes that “it’s not all or nothing,” encourages curiosity, and reminds even index-fund devotees that a little adventure and personal investigation can lead to wealth—not just measured in dollars, but in understanding and engagement with the world.

Links and Further Reading

• David Gardner on X
• Rule Breaker Investing Podcast
• Rule Breaker Investing (Book, September 16, 2025 Pre-order now)

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