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Chit Chat Stocks
DAVID GARDNER INTERVIEW: How To Find the Next Nvidia -- And Other Massive Multibagger Stocks
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Welcome to Chitchat Stocks. On this show, host Ryan Henderson and Brett Shafer analyze businesses and riff on the world of investing. As a quick reminder, Chitchat Stocks is a CCM Media Group podcast. Anything discussed on Chitchat Stocks by Ryan, Brett or any other podcast guest is not formal advice or recommendation. Now please enjoy this episode.
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Welcome into Chit Chat Stocks, the podcast to help you find your next great investment. Today we are joined by a special guest, David Gardner, co founder of the Motley fool and the author of several investing books, including and I have it right here to show the audience, Rule breaker investing out September 16th. We got an advanced copy and I think I'm really enjoying it. I'm gonna send it over to family, friends, people that haven't gotten to investing, people that are maybe into investing but could use a different viewpoint on the markets. We're gonna get into things but one housekeeping item. If you are listening to this show, make sure to follow the show Chit Chat Stocks on Apple Podcasts, Spotify or your podcast player of choice to never miss an episode. Now, David, welcome to the show. We are going to get into the investing side and the Rule breaker strategy in a minute and the strategy that has led to dec of market outperformance. But first, let's talk about the Motley Fool, a giant in the investment industry. What inspired you and your brother to start the Motley fool and take us through the early days Building the Internet or not building the Internet. Building on the Internet in the 90s, the early days. One of the first companies to be a truly online business.
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Well, thank you very much, Brad and Brett and Ryan. Great to be with you guys and I really enjoyed you. Did a review of my overall strategy earlier this year on the podcast and I really enjoyed that. I think we see, we get it and you guys get. And I really appreciate the invitation to join you today. So, you know, we didn't build the Internet. Thank you though, Brett. But we did build a company that was even pre Internet because back in the day, 1993, I was signing on to AOL America Online, the decade that America went online, by the way, my first great stock. But we were signing on with our computer dialing in over our phone. If anybody else picked up another wall phone somewhere in the house, you immediately went offline. It was, it was quite, it was an annoying time, but a very exciting time because I started to realize, wow, I can type in something and then people can read it from anywhere and then they can respond back and that's Basically forums, but chat rooms in a sense, back in the day. And I just was thinking, this is phenomenal for investors. I was raised by a dad who loved the stock market, but I learned out of Value Line, which is a big black tome these days. It's probably online somewhere. But mostly Value Line isn't as relevant anymore. But back in the day, it was the best source of data that you could get for numbers for public companies, seeing 10 years of financials, stock charts, et cetera. Just a phenomenal resource. And that was really what I was used to. Investing was like a math exercise, but for me and for Tom, as we started the Motley fool and we started to realize, wow, we can learn so much by having conversations like the one we're having today, which we take for granted now in video for free online. But truly, as we launched the Motley fool, people were paying $4 an hour for connect fees. And, you know, to even have a single photo download as you're tapping there on forums would take like a solid 90 seconds for that photo just to fully load in. And that's the environment in which we started our print newsletter. Because just before we came online, we had a print newsletter called the Motley fool for our parents, friends. They were the only ones who'd pay US$48 a year. Therefore, they were our customers. They were just being kind and floating our early business. But we were writing about the stock market and we're doing right about the age you guys are just talking about, you know, how we think everybody should be an investor. And in fact, the first four words of my book, rule breaker Investing, which you guys are kind of discuss with me today, the first four words is, are everyone is an investor. And it's that spirit that we started the Motley Fool. And that's exactly what we're still doing now, 30 plus years later, is we think that everybody should be investing and doing it right. The opposite of investing is trading. We can talk about that later, et cetera. So that's a little bit about the starting of the Fool. Of course, launching on aol, then getting some publicity on the AOL front page, and then getting to be on the COVID of Fortune magazine within two years of that launch was absolutely stunning for us. We weren't expecting the degree of excitement and interest. We were a big fish in a small pond. The Internet was just dawning. The phrase World Wide Web was brand new. And it makes me feel old to say these things, but we were right there in it. And here we are, a private company, 30 plus, years later, Ryan, you've been a former intern with the Motley Fools. You've hung around foolhq a little bit. Brett, you guys have followed some of what we're doing. You guys are rocking your own thing. And there's a lot of simpatico between what you're doing today and what we were doing at your age. So thank you.
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We've got some investing philosophy and approach specific questions. But I do want to stick to the fool for a second because there might be people that aren't as familiar with you don't know your career. Obviously going back to the print newsletter to today, the Motley fool has been a huge success. And I think a lot of people have heard of some of the great investments that have come through there. What were some of the tougher days? Going back through the history of the Motley Fool? What were some of the moments that stand out to you as like a difficult time? And what did you learn from those periods?
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Thank you, Ryan. Yeah. First of all, anybody who's been involved in a startup that's eventually reached scale has the near death story, usually more than one of them. The one that comes first to mind is simply the 2001 dot bomb era because all of a sudden the market started declining throughout the year 2000. And some of my best stock picks, like Amazon, which I had a cost basis of $3 in went to $95 a share 30 bagger over over 3 years. And all of a sudden Amazon started going from 95 to 85 to 75 to 65, kept holding 55, 45, 35, 25, 15, kept holding 7. As a lot of things fell down. The World Trade center fell down. People stock market closed for a few days. 2001 was absolutely brutal. We had 435 employees, which is by the way, more than we have today. We have 435 employees. At the peak of 2000, we had to do our first layoff and we thought it was going to be our only one. We let 100 people go and it was the summer of 2001 and we thought, you know, we're not going to do that again. That was brutal. And then about a month and a half later we were like, oh my gosh, we have to let 100 more people go. We were an ad financed free content company at that point. That was the best way to scale the Motley Fool. So AOL had basically gone from $4 an hour to connect to it to eventually a flat fee, maybe 29 bucks a month just for you know, all in online all the time. And so businesses like ours shifted from trying to make money off of people connecting into your site, paying per minute, which is how we started with the Motley Fool. Neat business trick if you can pull it. And all of a sudden to just free ad based financed kinds of companies. We had venture capital behind us and all the rest. And all of a sudden our best advertisers were the discount brokers, TD Ameritrade, Schwab, et cetera. And they were pulling back their spend. And then they're like their spend was completely gone. And we're like guys, you've been such a good partner. We've been partners for five years. Like listen, we're not advertising anywhere right now. This is a bad situation. And then of course 9 11. And so after that that was like a gut punch and we had to let 100 more people go. So we base a little bit more. So we went from 435 employees to 85 employees in less than nine months. And that was brutal. And we had to retrench everything we were doing. We shifted to some new business models away from free ad spend. It became a subscription business all over again. Which is how we'd started basically eight years before. For our parents, friends, let's just be a stock picking newsletter. Except these days it doesn't have to be paper. Although it continued to be paper for 10 years from 2001 to 2011. Of course we started going digital early, but we had a mix of digital and paper and that was what really took. We had a number of irons in the fire we tried. But the one that really worked best of all was a subscription business for our next stock pick each each month. And a lot of good things happened from that point forward. There's a whole Motley fool business story that we've really never told. We're not hiding it back, we just haven't gone there written that story. So it's fun to talk about a little bit. But whenever it comes to time to write a book, it seems like the world would be more interested in stocks and stock picking and rule breaker investing. So that's what, what I've what I've written about. But of course I love talking about the history of our company. We're now in our fourth decade of being a private company. The purpose of the Motley fool is to make the world smarter, happier and richer. I was telling you guys offline beforehand. I think I've internalized that purpose myself. I don't pick stocks for the Motley fool anymore or for anybody else. I retired from stock picking four years ago, but every day I think about making the world smarter, happier and richer. Never one without the other two. And what is the next good move I could make toward that end? And for me, it was writing Rule Breaker Investing.
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Yeah, I think this next topic here segues perfectly from the career into the investing style. And it's really the you mentioned in the book, which I thought was fascinating, how running a business helps you become a better investor and learning about investing and studying companies helps you run a business better. I want to just ask about that. Plus, maybe as a extension there, I read the Jeff Bezos letters now, like recently, and there's a whole book and you can just get them online. But I'm curious, when you were running your business and then investing in Amazon is a huge winner for the Motley fool, but you know, that had that huge dot com bust. What was it like reading the Bezos letters in real time as someone who, okay, you know, this is one of my biggest picks. And then also how that relates to you, how maybe Bezos helped you run the Motley Fool.
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Well, great question, Brad. And you know, Jeff Bezos, I think, is the great entrepreneur of our time. There are others, in fact, there are so many great entrepreneurs, and there's no great stock pick without a great entrepreneur usually behind that. Most of the great companies, the rule breakers, are founder led, not all of them phenomenal. People like Tim Cook show up and add unbelievable amounts of value. But Jeff Bezos, for me, is an iconically great entrepreneur, always will be. And I really haven't read many of his letters. Brett, so you're actually way ahead of me in that regard. That reminds me to say that I really haven't read that many investment books. Whenever it came time for me to read stuff and learn, I was usually reading business books and then just drawing investment lessons from them. I've. I've spent very little time reading investing books per se, so that same would be true of letters. I've never read a Buffet investing, you know, year end letter, annual letter. I mean, I respect the man, obviously I love Bezos, but I basically put a lot of my reading time into straight business reading and, or technology, cultural or just fun reading on my own podcast, which is also called Rule Breaker Investing. Every August I have authors in August where I have people whose books I loved and I just interview them. And I just did that this August for the eighth year in a row. So, I mean, I enjoy reading, although I read Slowly. But to answer the question more directly, Brett, the first iconic Bezos letter where he said, we're going to try to be Earth's most customer centric company. That is the one that stuck with me from the beginning. And since I was sort of a Bezos defender in early days, because he was portrayed as this young guy who came from hedge funds, didn't really know what the heck was on. Going, going on, was going to get crushed by Barnes and Noble and borders.
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The 60 Minutes interview where they are just making fun of him for 10 minutes.
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There you go. There you go. I mean, and by the way, it's not personal. Bezos. This is a pattern. And that's one of the things I look for as a rule breaker. This is a pattern you frequently see. Most of the great entrepreneurs are young and they're coming up with a new idea and a lot of them seem silly. And so it's quite normal for the financial media to take shots at them and then often the financial media, without being conspiracy theorists here, because one of my beliefs is no conspiracy theories are true. So I don't want to be a conspiracy theorist. But it's not uncommon that the financial media is itself being funded by financial institutions or businesses that are like the big dogs. And so when you have this new upstart show up, and we saw this at the Motley fool because. Because this gets back to what you were saying about being a better investor because I'm a businessman and a better businessman because I'm an investor. I saw when we were challenging the powers that be coming out saying mutual funds, so many of them are overpriced, overrated, don't buy mutual funds, things like that. I mean, when we're on CNBC, who's advertising @ the break, Mutual funds or financial magazines. So we would get hammered sometimes by people who often professional journalists were being funded by the industry that we were criticizing. Right. So I'm very familiar with that dynamic and I never took it personally. And this example is about Bezos, not me. And, you know, you could just see how when Steve Jobs or Jeff Bezos or great entrepreneurs show up and they have. Twitter sounded so silly when I first heard it. 140 characters is all you can type. And people are saying what they had for lunch. Right. I mean, we all kind of react. Electric cars, those are a thing. Didn't they already fail? Like most of the great rule breakers, people react that way. And then because the CEOs are these visionaries who sound crazy and they're young, they're easy to dismiss. And so when Bezos comes out and says we're going to be Earth's most customer centric company, just incredible. He basically has achieved that at scale and we've just bought and held all the way through. My cost basis is $0.16 on my Amazon stock. And this is just incredibly instructive and obviously a story I wanted to tell in Rule Breaker Investing because I think most people, they followed Amazon, they're aware of Amazon, maybe they read some of Bezos's letters. I love that you've read a bunch of them, Brad, and I think the man's a genius. So you're well rewarded for doing so. And they just don't have a long term knowledge or attention span or association so they don't know the story. Part of what I do in Rule Breaker Investing in chapter one, you guys will have seen is tell the story of Nvidia and how I bought and held Nvidia and just you have to go through this incredible roller coaster to ever get a hundred bagger, let alone a thousand bagger, which is what they both have been for me. So I think there's incredible reward for being in business or having a business minded approach to investing and vice versa. As investors, you guys are, are better at business. You're just flat out you're noticing things by studying great companies that you could do in your own business or your own professional life.
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I thought an interesting anecdote that's stuck with me from I think listening to the Rule Breaker podcast is when you told this, it might have been back in maybe even 2019, but a good while ago you said you met Bezos after a long time at some conference or something. Like that. And he introduced yourself and hey, hey, you remember us from back in the day. And he said, yes. And then you, you mentioned, I think we're probably the only two people that have held Amazon stock since 1997 and not traded it or not sold it. And I just thought that was great because it exemplifies part of the rule breaker investing strategy, which I think we're about to get into.
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Well, thank you, Brett. And I'll just say, spoiler alert, keep reading. Because I do indeed tell that story with additional context and reflection near the end of the book. Because for me, it is. It is an iconically beautiful story. It's just a personal story, but any great story should be making a bigger point that everybody can kind of take away. And that's maybe my favorite chapter that I wrote. It's not just that story, but it's right near the end of the book. And you guys have just gotten early copies. I don't expect anybody to have read it yet. But it's funny you would remember that from six years ago of me talking about on the podcast, because it's right there front and center in chapter X, which comes after all the others.
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All right, let's shift gears a bit to investing specific questions. I've got my book here, my advanced copy as well. Thank you for sending that over there. Brett mentioned this, I think, before we hit record, but there are a lot of books that are recommended to investors as they're starting their journey. And they can be. Not that they're bad books, but they can be misleading in some ways. And oftentimes they are meant to be these lasting evergreen books, but they end up missing out on some of or maybe teaching some lessons that might cause people to miss out on some great investments. What do you think are some of the reasons that a lot of the popular investing books lead to that lead to people ending up missing out on some of the best investments in the world?
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It's a great question. Ryan and I have read some investment books, just not as many as a lot of other people. But when I think about a book like the Intelligent Investor or William o' Neill's how to Make Money in Stocks, these are sort of generational books, the can slim approach that o' Neill wrote about, not as well known probably as the Intelligent Investor, but I think both of them contain fundamentally outstanding advice and frameworks that are just broken or not helpful for people and cause I think the irony to me is they cause readers of those books to miss the best stocks of their own. Generation. And I've thought a lot about why that is and what the dynamic is. And I would say, at least in the case of intelligent Investor, it's written by somebody who at that point in history, about a century ago, the understanding of how to value things was rudimentary. There really wasn't a lot of standard frameworks or thinking about how to actually value stocks. I mean, the buttonwood tree on Wall street, which launched the New York Stock Exchange, that was a century before that. I mean, people were still kind of figuring things out. We didn't really have a lot of data a century ago. And so you could get a real edge by learning just some basic valuation frameworks. And the intelligent investor does that well. However, I think it's really locked down a lot of people's thinking to this idea that you would never want to buy stock in a company that didn't have earnings because there's no price to earnings ratio calculable off that. Or you would never want to pay over X times earnings or cash flow. And people have different numbers that they would fill in X, solve for X. But I think the reality is that's very mistaken thinking in this day and age. And so for people who are like locked in to those approaches or a quick other example I mentioned oneals how to Make Money in Stocks, a book that I absolutely loved and hated at the same time. And there are things I can talk about that'll appraise it. But I'll just say for now o' Neill promotes an idea very influentially and strongly for some people that you would never want to hold a stock that's lost 7% or more of its value. If you do, you're out. And so he basically wrote like the Trader's Guide to the Markets. And there's just very little sense of being a persistent investor in the face of any form of loss. So those are examples of like really influential books that I think have caused people to do the wrong things. And Ms. Nvidia, Ms. Amazon for reasons that go to valuation or trading out of them, never being willing to hold great stocks to let them be great.
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It is, when you put it like that in the book, it was so stark that you know, the intelligent investors, so many people read it and it's not like they're smart people that are reading this book. They usually do fairly well in investing. But I go, well, I don't think any of them have probably bought and hold some of these great hunter beggar stocks of the 21st century. And that comes up to Our next question here, which if we're talking about, say, the analyst type listener that we have or someone that, you know is really into the markets, the type of people that we try to cater to on this show, when I say, hey, you know, the Motley fool, you mentioned that, you mentioned the subscription service, they might just go offhand. Oh, they're just momentum traders. Right. And that is one of the things I think people misunderstand about the rule breaker investing. And what you address in the book is, you know, this, what rebuying, what doubling down is on a stock that is a huge winner. What buying something that has gone up 100% over the last year. Many people think about it as well, like, well, it's up 100%. It's going to revert to the mean, right? What is the point of going out on a limb and buying something that has already been a huge winner when some people might just call that, hey, well, isn't that just momentum trading?
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Yeah. Well, first of all, momentum trading is trading, so it's going to be very active. People are in and out. We never do that or I never do that. I do want to mention I'm not speaking on behalf of the Motley fool in this interview. I'm just me. DAVID gardner, Author So because the Motley fool has many different approaches, Ryan, you've, you've interned at our company, so you'll know that I invest differently from a whole bunch of other people who are on staff at the Motley fool who may favor dividends or real estate. So we're very motley. And so I would always say there's not a party line or just because I like a stock doesn't mean any of our analysts or summer interns have to like that stock either. So that's just a fundamentally important thing to say about the Motley fool to understand. But specifically, rule breaker investing, Bret, or the notion that we're just momentum traders, first of all, we're not traders. We're the opposite. And second, I do favor. So going back to William o' Neill's book, there's a genius point that o' Neill makes in there that I adopted as a young investor, and I made it trait number three of the rule breaker stock. So the middle of the book, we're going over the six traits that we look for in stocks. And number three, which I've used since I wrote about it in the late 1990s. And by the way, the six traits are the same ones that I said in 1998 as I wrote Rule breakers, rule makers that I'm going to use. The only difference they're the same is that I now have 27 years of public results to show using the approach that I was writing about three decades ago. And that's what's exciting about this book today, I think. But anyway, the third trait, guys, is stellar past price appreciation. And to some, to one crowd, that might sound like momentum investing. Oh, okay, so whatever's hot, you're just buying more of that. To another crowd they're like, that is crazy. You're saying that one of the traits you're looking for before you buy a stock is that it's already done great. Like, I would never do that. Buy low, sell high. And this is a really important point and I think a big reason rule breaker investing works. This is not the only thing we look for. I guess momentum traders probably only look at charts and tickers and you know how it's done. What have you done for me lately? We're actually the opposite of that. We're looking at the business, not really even the stock. Except that this trade, stellar past price appreciation, is all about the stock and is all about the recent stock. And. And it's the opposite of what people think. And that's why it's so rule breakery. So, Brett, you know my. Maybe one of my favorite parts of the book was the start of chapter nine, where I laid out seven stock graphs of seven of my best picks. A number of my hundred baggers. I've had seven 100 baggers with maybe apple thrown in. It's only been up 35 times because I only found it in 2008. I wish I'd invested when it came public in the 1980s. But anyway. So this is the amazing thing about the seven stock graphs. Each one of them goes lower left, upper right. It's just what you want to see. And each one of them is a three to nine month price chart. And so on the face of you might be like, dude, awesome, the stock's up 60% in six months. Is that what this chapter is about? Like finding stocks that just make big moves. And the punchline for every one of those graphs is, where did I actually buy the stock or recommend it to our members? It wasn't here. It was in every case at the very top of where the stock cuts off seven graphs, seven multi baggers. And every one of them went on from that point where I looked silly because I was buying after it had already made a big move. 30 to 90%, three to nine months up from that point, each of those became basically a generationally great stock and an iconic pick for me, whether it was Amazon, Nvidia, Intuitive, Surgical, the list goes on. And so that is such an important point. But you wouldn't want to isolate that on its own. This is not momentum trading. This is. That's one of the six traits. You have to have the other five present and buy those stocks, not just any stock that's up 30% last three months. So I hope I've taken pains to make very clear that this is not momentum investing. But it is so contrary to what most people do is they read the Intelligent Investor or in their NAIC investment club, they're like, well, we would never buy that stock because it's up 50% in the last five months. And that's actually a great indicator if it's a rule breaker.
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Yeah, it is psychologically tough. A lot of people have that instinct. It's expensive. I missed the boat, all of that. And for people that want the full details and everything, we're not going to be able to hit everything on Rule Breaker investing in a podcast interview. Definitely go read the book. And I want to ask this question. You can take it anywhere because there's a lot of different ways you can go about it. It's kind of the question that everyone would want to ask, I think, because everyone wants to do well as an investor. How does one build a portfolio to maximize the odds of finding the next Nvidia or any hundred bagger?
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C
Well, I love that question, of course, and you're right, and I'm going to answer it here in short form. But truly the answer is in rule breaker investing because what you just asked Brett has a number of parts to it. You're asking how do you build a portfolio that would have stocks like Nvidia in it? That would be the next Nvidia. And I will just say that the three parts of the book. Part one is the habits you need as a rule breaker investor. You need to have the mindset. I can say Nvidia, but if somebody trades out of it when it goes down 7%, then I may look great that I made such an amazing pick. But our members or listeners don't benefit because they don't have the right habits in the first place. So I lead off the book not with stocks and stock picks, but with the six habits of the rule breaker investor. And then the second part is the six traits we're looking for in the stocks. And the third part is the six principles that you want to have in your portfolio. So again, your question, Brad, is how do you build a portfolio? Part three, that would help you find the next Nvidia Part two. But the only way you're ever going to get that big return is part one. If you have the right habits in place in the mindset, that would allow you to lose grandly for a while, which you're going to have to watching Amazon go from 3 to 95 to 7 as we discussed earlier. And I'm still holding and my cost basis has now gone down from 3 to 16 cents because of stock splits. And so this has been an unbelievably great investment. So to answer the question directly now, my indirect answer was, you need to read the book. And I'm not just trying to sell a book here. I'm literally saying like, it's a short book, but the full answer can't be done with a sound bite. It's the three things your habits, the stocks you buy, and the portfolio. But I'll just pull out one of those right now, Brad, and that is that I think you said portfolio, and I think most people don't really have coaching or thinking about what a portfolio should look like. The most common question I get on my podcast over the years has been how many stocks should I have in my portfolio? And I've often said, first of all, thanks for asking. Great question. Also, it's the wrong question. There's no right answer. There's no number of stocks that somebody should have. I have ways to answer that, but it's the wrong question. And so that, to me reminds me that most people don't have coaching or thinking or frameworks about how to build a portfolio. But I would say that you should start with 20 or more investments. You should not maximally allocate anything more than 5% to any initial starting position. Therefore, you're broadly diversified from the get go. And you guys know you're growing up in an era where there are zero commissions. If you want to avoid commissions, you can, and you can buy fractional shares. Both of those things are unbelievably great for investors and were not true 30 years ago. So you really can start with a diversified portfolio. And so since you said portfolio, that's the first thing I think of. And then you need to know your sleep number ahead of time, which is principle number four of the rule breaker portfolio, which is your sleep number stolen from the mattress industry. And it's what is the largest allocation you would allow your biggest holding to grow into and still sleep at night. And everybody has a different answer or should to that question because there's no right answer to that. We're all different. A lot of the world operates off of a sleep number of one. That means they're in broadly diversified mutual funds. There's nothing that would have more than 1% of their money represented in that portfolio. They're broadly diversified sleep number one. A lot of people have a sleep number. I would say around 10. I was at an investment club once and the oldest member of our club would raise his hand and and he'd say there's a Stock that's up 11.5% of the club portfolio. I say we sell it down to below 10% because we don't want to have anything be more than 10% of our portfolio. So our club had a sleep number of 10. So that's another thing you need to think about when you're managing your portfolio. And if you have a spouse or partner, you should make sure we're all good with this. You might be willing to take more risk, but if he or she isn't, it's a team effort. So understanding ahead of time what your sleep number is, by the way, it changes over the course of your life. How you answer that question at 30 is different from 60 probably. So those are some of the building blocks to put in place to have an amazingly great portfolio that wins over the long term. We didn't even talk about which stocks to put in the Nvidias. I mean that's the six traits. We can go there more now if you guys want. But that's how I would start answering that question if I'm not given 230 pages but instead three and a half minutes.
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D
That is a good point. I imagine the older gentleman in your investing club might have a slightly different concentration tolerance than the 25 year old who's got a whole career of earning in front of him. A couple questions for you. The first one. And Brett and I were trying to do the math on this. On our episode that we did about you. Have you ever had a 100 bagger on your cost basis in a day?
- [33:27]
C
That is an amazing thought. I love it. I would say I haven't quite got there yet. And thank you guys again for that episode you did. And for anybody who wants to do a deeper dive into some of the stocks I picked, go back and listen earlier this year to the breakdown you guys gave of my approach. This allows me to define a new term for many viewers. Anybody who's a huge mega fan of Mine. And by the way, there aren't that many. But will know my phrase spiffy pop. Because stocks pop and people hear about pops all the time, that stock pops, it's always good, usually right pop things pop up. And usually I would say the minimum of 5%. So if a stock is up 5% or more, you might say pop this morning or after hours. Good earnings is popping great pops. But what about a more remarkable form of a stock popping? And I settled on the phrase because it was a write in ballot and a competition among our membership and a woman named Carol Binion came up with the phrase. And I was like that. I already had the concept that I'm about to share right now, but I didn't know the word yet. And so we got 330 submissions and I picked Carol because I loved spiffy pop. And so here's what a spiffy pop is. A spiffy pop is when a stock pops, the amount it goes up that day is more than your cost basis. So for example, if you bought a stock at $100 a share and you know, you hold it for a few years, it's a big winner for you. So it goes, it's a 10 bagger. It goes from 100 to 1,000, and then it has good earnings that following week and the very next day it opens up $200 a share. So it goes from 1000 to 1200. That's a 20% move. But for you, that's not just a pop because your cost basis was 100 and it just went up in a single day, $200 a share. So you actually spiffy popped. You made more than your cost basis in a single day. In fact, I would say that's a spiffy 2 pop because once you start getting multiples of spiffy pops, you can start tagging numbers on them. So I think, Ryan, you just asked me in so many words have I ever had a spiffy 100 pop? And I think the best I've done so far is a spiffy 64 pop. Which means that when Amazon or Nvidia went up at some point in the last year or two with a big move, it went up 64 times my cost basis in a single day. And so that's that. So the ever elusive Spiffy 100 pop is still out there. But a really fun coincidence that I think you've been picking up on is that I have the same. Maybe I haven't put it out there. I have the same cost basis in both Amazon And Nvidia, it's 16 cents. And that's only thanks to stock splits. Nvidia has now split 120 times from my April 15, 2005 recommendation in Motley Fool Stock Advisor. So my cost of $32 a share that day now looks like I recommended it as a penny stock, which of course it never was. And I totally avoid penny stocks. And anytime you hear ridiculously low cost basis, I hope it's because of splits. But anyway, both Amazon splitting over time and Nvidia have gotten a $0.16 cost basis for me, which means that if they ever go up $16 a share now, I will have had a spiffy 100 pop or members who followed me who have those cost basis back in the day. So I'm not keeping up every day necessarily with the dollar movements of Amazon and Nvidia. But it's probably it may have happened and I may have missed it or it's not far away.
- [37:04]
D
All right folks, if you are a regular listener to chitchat stocks, then you know that we use Fiscal AI, formerly known as FinChat Daily. Fiscal AI is our complete stock research terminal. It's where we have our investment dashboards, it's where we create financial charts, it's where I read all the transcripts for conference calls, sell side events, shareholder meetings, and it has Morningstar's high quality reports on more than 1700 companies. It really is the complete research platform for stock focused investors. If you use our link Fiskel AI chitchat, you will automatically get two weeks of Fiscal Pro for free. And if you find that it's worth upgrading, which I think you will, you'll get 15% off any paid plans with our link. Again, that is fiscal AI chitchat. The link will be in the show notes. It's, I think that's such a good illustration of like the benefits of long term focus. Like everyone always, you hear it all the time. Oh, you got to think about the long term. But when you hear about okay cost basis of $0.16 on Amazon, it's like you think, okay, this is you've owned the stock for almost three decades now. So when you have a great business and you've owned it for three decades, things tend to go well. A couple more questions. So how, I guess would you describe yourself as being in the quote never sell camp? And if, if you've got a big winner and you've decided it's kind of in that never sell bucket, how does that impact your psychology as an investor? Does it change the Way you, you look at earnings results, the way you look at news, how does it adjust your psychology?
- [38:54]
C
Well, first of all, I would say I'm not in the never sell camp and I'm real close, so you're obviously barking up the right tree. But I'm a never say never person. Like those who know me personally, they know that I'm not an all out, firm statement, yes or no binary kind of a person. I try to be. Yeah, grays, not blacks and whites. So I'm definitely not a never sell person. But compared to virtually everybody else providing financial advice at scale in the world, I am a never sell person. Because we have held our positions in Amazon for 1997, 28 years. We've held our position in Nvidia for 20 years. And I have position like my personal best performance in my largest holding is Netflix, which is about a 700 bagger. And I've held that for 21 years. So. And I just, you know, I've done this for our members. This is not for me. Like Intuitive Surgical has been a phenomenal about 100 bagger. And we have a lot of stocks that aren't 100 baggers. They're just 50 baggers, like Shopify or Chipotle or Starbucks. So I'm never going to be the one trick pony because it's not just that I picked Amazon or I actually picked all the stocks I just mentioned, but I did it and I held and that's the key. So it's not a never sell position because by the way, each of those positions I sell off, right? Because when you have a stock that blows up in a good way in your portfolio, it probably exceeds your sleep number if it's a hundred baggers. Unless everything else in your portfolio is also a hundred bagger. And I don't think any of us can do that. So you are selling off bits and pieces as you go and you're probably redeploying and, you know, what do you redeploy into? That's a whole separate conversation, et cetera. But just to make sure I kind of round out my answer. Ryan. I think that most of the time I feel like I'm a part owner of a company that I believe in. I'm a conscious capitalist. That means I believe that business is good and doing well by doing good. Most of the companies that do good in this world do well. And I would say Amazon and Tesla. Some people completely hate Elon Musk for lots of different reasons these days. Some people love him. I definitely like him. I'm not an Elon fanboy per se, but I definitely not a hater. It's unbelievable what he's done. Like the entire auto industry is trying to catch up and go electric and he's got five other companies that are doing new and interesting technologies that would benefit the world as well. At scale, he is the greatest entrepreneur, I would say probably of all time just in terms of being in the United States of America. At scale, what he's done and he's still got a lot of years ahead of him anyway, I've done really well by holding Tesla stocks since 2011. Another great 14 year old hundred bagger plus. But I think the key is that we are, we're willing to sell. But the number one reason I'm selling most of the time is because it won so much and so well. And you know, obviously the o' Neill camp, not meaning to call them out because I really appreciated William o' Neill and what he did in this world. I call him out positively in my book because chapter nine, stellar past price appreciation. It was O' Neill who said you should be looking at the 52 week highs, not the 52 week lows if you want to beat the market. And that again goes against most people's instincts, especially when they learn basic stuff from basic books. They're like always be looking for a bargain. And I'm like, I don't look for bargains. I look for opportunities. Opportunities greater than sign bargains. So a lot of this comes down to the language that we're using that determines the thoughts that we have, that actually determines our actions. And I've tried to be as unconventional as I can as a fool. Capital F and being a rule breaker and to finally end this shaggy dog ranty kind of answer. Ryan, you know what I've done that most people don't do is I hold, I actually hold stocks for long periods of time and it's so much easier. I'm lazy, I do less than most other people and I'm just looking for greatness. I try to find greatness, buy greatness and add to greatness over time. And I try to sell mediocrity. That's how I invest. Basically.
- [43:15]
B
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- [43:46]
C
This.
- [43:46]
B
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- [44:12]
D
That's a perfect little sound bite there that will hopefully clip the last one. I want to ask here on the winners that you've had. And I think that buy and add to great winners over time philosophy has allowed you to be one of the few investors I know that has had multiple hundred baggers. My question to you is, have you ever sold a big winner, like entirely the whole position too early?
- [44:42]
C
Certainly. I mean, I'll give two quick examples that come to mind. But it's having these experiences that caused me to start realizing, you know what? I'm not going to do that again. I'm going to really. The worst we could ever do, this is straight math. The worst we could ever do is minus 100%. And I've still never quite done that. Fortunately for Motley fool members, gotten close a bunch of times. And I've lost more than anybody who's ever picked stocks in Motley fool history. I have more losers than anybody. This is really important to point out because the math of it is you can go down 100%. The upside is unlimited. So when we talk about 100 baggers, a single hundred bagger basically wipes out for the services I manage. Like every other bad stock pick that I've made in Motley Fool, Stock Advisor or Rule Breakers, Netflix or Nvidia, Amazon Intuitive Surgical, Mercado Libre, Tesla. Each of those stocks on its own literally wipes out every single minus 50 percenter. And I've had dozens of them over 30 years of picking stocks, three a month. For years and years, I've had dozens of minus 50% losers, which sounds horrific. And yet Mercado Libre on its own wipes out all of them. And that's just one of my hundred baggers. So again, you have to get up there, you have to go all the way up the roller coaster. You need to be up in the clouds to really see this. But once you do, you start realizing, why are people so fearful of a minus 50%? No big deal, dude, 100%. That sucks. I've never done that. But when you actually can make 10 times your money or 100 times your money or 137 times your money, the mistake you ever make is selling off the big winners. So quick examples that come to mind for me, Ryan. One is ARM Holdings. ARM holdings, which is basically a British tech company that designs chips, sells its designs to the big manufacturers semiconductor chip industry. ARM holdings was a significant, though minor winner as I added to it. And then it went sideways through 2009 into the early teens, and I'm like, we're out. This thing is just doing nothing. And four years later, it went up nine more times in value and was bought out and taken private. And I was like, face plant because I had recommended it. I then later re recommended it and then we sat on it, went sideways for five years. Now you said big winners. That was a winner in the sense that it was actually up for us. But another example that comes to mind is Martha Stewart. So, so I bought, I recommended to Motley fool members Martha Stewart's stock. Some of us will be old enough to remember in 2001 too, she was in legal trouble for taking inside advice from her broker. And even though she's not a trader at all, she's basically a brand that's in home products and around the kitchen. Martha all of a sudden was in trouble with the SEC and her stock got nuked. Martha Stewart Omnimedia. And I watched it go down and I'm like, I'm going to recommend this stock for mobile members. Because I think this is not really about Martha Stewart's company. This is about Martha being targeted for good reasons by the SEC for an insider trading infraction. But this doesn't affect, this is not going to kill the brand, I thought. And so I became the only guy in the Hulbert Financial Digest database, which tracks all of the different advisors and newsletters. And I was the only one. He wrote an article in 2002 that had a buyout on Martha. And my buy was in there at six and by a year later it goes to nine. And I'm like, this was just coming out of dot bomb. Like it was a dark market there, a dark Martha. And I was like, we're out. Like it's 50% gain in one year, beating the market. I, I love this. We were the only ones in. This isn't even my style. You guys know I'm the rule breaker. What am I doing with this bottom feeding? Martha and I sold and told members to get out. And that became the worst decision for that decade that I made, because Martha went not from 6 to 9. She kept going up to 35. It was basically like a fortified bagger in the succeeding few years. And again, I watched that happen, and I'm like, that is so sad, because I was the only guy, and I had the great call, and it just kept going. And I cost. The opportunity cost of missing a winner is so much bigger than the opportunity, than the cost of a real loser. And I hope you guys get that. I'm pretty sure everybody watching Chitchat Socks gets that, or I hope came in already knowing that. But it's amazing, the world at large, how people don't do the math. And our psychology has us fearing the downside so much that we don't claim the upside. And the stock market guys, you know this 9% annualized for decades. We're picking stocks to do better than that. Like, you want to be on that train. And so the times that I've caused Motley fool members to jump off the train just before it kept going up, hurt and were educational.
- [49:53]
A
Okay, this is a. Maybe a selfish question I'd want to ask you or always wanted to ask someone like yourself, what is a stock that you regret never recommending? It's one that you go, I should have seen that. That's a rule breaker trait. It's something that it's sitting there, and I could have recommended this year. This year, this year, this year. Obviously, it's been a lot that have been good that you've talked about. What was that stock that comes to mind and why. Why do you think you missed it?
- [50:22]
C
Yeah. So this. This is the first and last time I did this. And this is a long time ago, Brett. And I'm glad you asked, because it basically unleashed rule breaker investing. So there was a stock in the late 1990s that I was like, these guys are king of the Internet. And I really think this is going to be a good stock pick for Motley fool members. I'm not going to say the stock quite yet. And it was at 29. And I had run my valuation because I was very valuation focused as a young investor. For me, investing was like a math exercise. And yet, with the eyes of an entrepreneur, I'm a better investor because I'm a businessman. Warren Buffett, and I'm a better businessman because I'm an investor. So as a businessman working on the Internet, I was like, these guys are killing it, and I should recommend this stock, and yet it's worth 25 and a half, and so we're not going to recommend it at 29. And I never did end up recommending Yahoo, which these days is an also ran kind of like AOL is not around anymore. But back then it was a monster. Yahoo never went down to 25 and a half. It went to 1,000 to 1,000. From 29 to 1,000, it was basically a 30 plus bagger. And I missed it. And why? Because I was looking at the mathematical valuation I calculated determining the market was irrationally priced maybe by 15% more. And so that became my iconic I'm not going to do that again. And basically forever after. You know what especially emboldened me and forced me to learn was when other people are following your advice. Like again, we'd already been on the COVID of Fortune magazine. We were building out a whole business. There are a lot of people following them all the fool and I could have created such a win there. And so when you kind of screw up with lots of other people counting on you at a young age, you are forced to more rapidly cycle your learning. And I basically said, I'm never going to let that. I'm not going to do that again. I am going to. If I think something is going to dominate or be king or queen of an industry or the future, we're just going to buy the stock. And later on, I started figuring out more about efficient markets. I think, for example, the market is pretty efficient pricing itself. So I don't think prices are dramatically wrong that we're seeing on any given day, unless it's a ridiculous meme stock. But here's the key. The market's only efficient for about the next six months. If you just look at six years or maybe even just three years, which is to me, my minimum holding period. You are playing a totally different game than the stock market's efficient market. But anyway, to look at Yahoo@29 and go, no, it should be 25 and a half. I now view as almost arrogance on my part to think that, you know, the market should be obeying my belief about what the math should be for this stock. And I paid for it with an opportunity cost that I can still talk about. Yeah, I'm getting old 35 years later.
- [53:24]
A
Yeah, that is a perfect antidote. I think it's. It's almost like if there's a chance this could be a hundred bag of stock, as you say, the great businesses of our time, you don't want to take the chance of missing it.
- [53:34]
C
Yeah. And you know, I really say the rule breakers because not Every rule breaker is going to be a hundred bagger. Some of them are just 30 baggers. They're not in industries that can explode that way. But they are breaking the rules. And that's, you know, that's not been our focus this, this discussion. But the six traits that I look for, you guys have spoken to these in the past. Those are not designed to get you 100 baggers. They're designed to get you the rule breakers, which I believe are the best stocks of every era. And they are the ones that go up 100, 100 times as well. But you know, at one point I make a joke in the book, Brad, about how let's not get too locked in on just a round number 100. Like I've got a. At the time of publication, my return on Amazon was 1371 times. I prefer 1371 to 100. So I don't want to get people locked in on a single number or start thinking you should sell if it hits 100 bagger. We're talking about the rule breakers. You, you're talking about finding the companies that are the Davids that are taking down Goliath by not playing by Goliath's rules. And they are out there in every industry. And I believe that those are where you should be focusing your attention as an investor.
- [54:41]
A
Okay, David, thank you for taking the time joining today. The book is Rule breaker investing, out September 16, I believe. But I think people can pre order it if they want. We have one final question I think will be a fun wrap up one for you and it is if you could snap your finger. I'm using the Snap test from the book a little bit and have every investor adopt one belief or one mindset. What would it be and why?
- [55:09]
C
Thank you. I love that question. You know, I love the Snap test which is in the book and talk about that another time. But if I could snap my fingers and everybody would do something better, who's an investor. And I'm going to steal this line from my brother because it's Tom's line and I've always loved it since he first gave it 20 years ago. It's no matter who you are, double your holding period, whatever that is, and you will do better. And I think that is a great universal statement that works for virtually every context I can think of. And so that's what I'm going to slap down with a shout out to Tom Gardner, CEO of the Motley fool, because that would be a better, more prosperous world with people who are less stressed, who have better performance and can go on about their lives. You know, one thing I love about rule breaker investing is this is crazy. We actually spend less time investing and we do better than people who are investing and we do way better than people who are trading and we spend less time. That is a devastating one two punch for for lifetime enjoyment and productivity. And so yeah, a lot of it is about our holding period.
- [56:23]
D
Okay, before we sign off here, I do want to recommend to listeners David alluded to the six rules or the six characteristics that make a rule breaker. If you want to learn about them, maybe even already know them. I seriously do. Could not recommend this book enough and I know our listeners. If you listen to Chitchat stocks regularly, you're already kind of in the weeds. You like researching stocks. You probably are looking for stocks on a regular basis. There is so many good reminders in here and refreshers of the characteristics that matter. In the long run, it's easy to get bogged down in the weeds. There's this is. It's always good to have a refresher. So thank you, David for joining us. This was a pleasure. We I think you might have been on our Mount Rushmore of interviewees when we first started the podcast. So this was a pleasure. As we sign off, want to give a quick disclosure. Brett and I are not financial advisors. Anything we say or discuss on this podcast is not formal advice or a recommendation. Thank you everyone for tuning in. Thank you again, David for coming on the show and we'll see you all next time.