David Gardner (2:05)

and unlock the best rates with Sonesta Travel Pass here today, Rome tomorrow. Join now@sinesta.com Terms and conditions apply. Bloomberg Audio Studios Podcasts Radio News this is Masters in Business with Barry Ritholtz on Bloomberg Radio.

Barry Ritholtz (2:30)

This week on the podcast, I had so much fun chatting with David Gardner of the Motley Fool. I remember the fool back in 9394 when it first launched on AOL. What a fascinating career. If you're a stock picker, if you're someone who really is committed to finding the best companies and then riding them for decades. You're gonna find this conversation really fascinating. I thought his book was really interesting. His whole approach to life, to investing, is really great. I enjoyed our conversation. And I think you will also, with no further ado, my discussion with the Motley Fools. David Gardner.

David Gardner (3:09)

Thank you, Barry. It's a delight to be with you. Thank you so much.

Barry Ritholtz (3:12)

I have a vivid recollection of sitting on a trading desk and watching you guys pop onto TV at various times. And as soon as you guys showed up, I'm like, all right, let me pull up Nvidia, Netflix. I knew they would start running and then soon turn around and fade. So, as always, I mean, just intraday. We'll get a little later to the difference between investing and trading.

David Gardner (3:39)

Yes, sir. But.

Barry Ritholtz (3:39)

But first I have to go back to your background because it's so unusual. University of North Carolina on a Morehead scholarship focused on a bachelor's in English and creative writing. I assume Wall street was not the original career plan.

David Gardner (3:56)

It actually was a career plan. As I came to UNC Chapel Hill as a freshman, I was telling people, I think I'm gonna go to work on Wall Street. I had a formative summer in between my sophomore and junior year where I worked at Salomon Brothers back in the day, the Gut Friend era. I think Michael Lewis was writing Liars Poker somewhere around there.

Barry Ritholtz (4:16)

Late 80s, I think.

David Gardner (4:17)

It first dropped. The year was for me that I

Barry Ritholtz (4:20)

was probably overlapped with him at the same time.

David Gardner (4:22)

It was. I don't recall Michael. And I'm really glad to see where he's gone on to great heights. But that was the summer I learned I was never going to want to go work on Wall Street. That was a really wonderful experience. I just realized it's not a culture that I'm going to probably spend time with as an adult. And so that was so helpful. I love the markets. I just wasn't a Wall street person.

Barry Ritholtz (4:45)

And you grew up in a household where markets investing stocks were part of the daily conversation. Your dad helped you win a high school stock picking contest. Tell us a little bit about that.

David Gardner (4:55)

Sure. It was actually earlier than that. It was fifth grade. It was fourth grade, really. But my dad probably did what other dads did, pick stocks for their son in this all boys school. St. Albans School I went to in Washington, D.C. and I remember he had Harcourt Brace Jovanovich. He had Getty Oil. This is bad. These companies aren't around anymore too much. But that was my stock portfolio. And over the course of three months I outperformed my classmates and so I won a gigantic Hershey bar. To my 10 year old eyes, it was the biggest Hershey bar I'd ever seen. But it was a wonderful introduction. The real exercise then, Barry, was just to look in the newspaper to write down 16 and 5, 8 where the stocks closed. We would do that once a week over the course of three months and just start understanding the markets. So that was an early experience, but really dad was so formative for me as an investor.

Barry Ritholtz (5:46)

It's always fun talking to the youngsters who grew up with decimalization because I vividly recall what's the price? Up a teeny. You don't get that anymore. It's a whole lot.

David Gardner (5:59)

A lot of your listeners do. Barry and I get 16th and right.

Barry Ritholtz (6:02)

Yeah, right. Up a stick, up a half, whatever it happened to be. And then how did you end up writing for Louis Rukeyser's Wall street newsletter?

David Gardner (6:10)

Yeah, so I started out of college, took a couple years to read and write and travel a lot, got married without a job, and then it was time at the age of 24 to get my first job. And as it turns out, the newsletter that was supporting Louis Rukeyser, remember his show Wall Street Week?

Barry Ritholtz (6:26)

Sure.

David Gardner (6:27)

Longest running show on pbs. And he had a newsletter, financial newsletter. And I got to write the back page of that newsletter for that first job. We were reaching hundreds of thousands of people and I could pick whatever topic I wanted. So it was really fun, except it ended up not being fun. And the reason it wasn't fun is because I would pick a subject like discount brokers, which was a brand new amazing thing back then in 1992, Schwab. What's that? Or Quicken. There's now software you can DVD load onto your computer and track your finances and your stocks. So I would write these up and then the edited version would come back with all of my jokes, color and fun stripped. And the second half freshly written by my editor explaining all the reasons you wouldn't want to use a discount broker or Quicken. And that's because I was instructed. I was never, never took a journalism course, but I was just an English major. But they told me, you know, we have to balance it out here, David. In fact, Rukeyser is the personality, he's the color of this newsletter, not you. We're not, we're stripping out the color. And also you gotta be, you gotta talk about the downside of discount brokers and quick. And I was like, I don't wanna do that. I don't see downside?

Barry Ritholtz (7:37)

Well, the downside is you're taking money out of stock, broke children's mouths. I mean, what's the, what's the downside of paying less to trade?

David Gardner (7:47)

Yeah, well, I discovered that the downside was a job that just was kind of creatively deadening. It doesn't really reflect on Rukaiser. It was the goal of that newsletter just to, you know, supplement his TV show and all the rest. So. But after six months, I quit the job because I was just like, this is not fun.

Barry Ritholtz (8:02)

There's an argument to be had that Rukeyser was peak financial television. And it's been downhill ever since. I Like, an hour a week is plenty. Were they. Was he a half hour or an hour? I don't even remember, you know, an hour a week.

David Gardner (8:15)

I think it was an hour a week. It was generally Fridays. It would air different Fridays, but Friday

Barry Ritholtz (8:19)

night, you know, I remember him from Friday nights.

David Gardner (8:21)

And you remember his wit. He always had a monologue.

Barry Ritholtz (8:24)

Very. Yeah, right. Let's go over to our. What was it? Elves?

David Gardner (8:28)

Wizards.

Barry Ritholtz (8:29)

I'm trying to remember. Elves. Right.

David Gardner (8:30)

I think it was elves.

Barry Ritholtz (8:31)

And it was always fascinating. And I, you know, it's funny, I've seen as many of those on YouTube decades later that I saw as many as I've seen live on a Friday night. Like, I got no plans. All right, let's see what Louis has to say.

David Gardner (8:48)

That's really fun that you would go back and revisit. You know, I'll just say he was a wit. He was himself outside of Wall Street, I mean, he's sort of a journalist, but he enjoyed bringing together brilliant minds on Wall Street. You know, he had Peter Lynch. He would regularly focus lynch and others.

Barry Ritholtz (9:04)

Peter Lynch, Liz Ann Saunders.

David Gardner (9:06)

There you go.

Barry Ritholtz (9:07)

Down the list of people that I'm trying to remember, was it Paul Tudor Jones before the 87 crash?

David Gardner (9:14)

Might well have.

Barry Ritholtz (9:14)

Basically saying, I'm out of stocks, I'm short. I think something terrible is about to happen. And then Black Monday happened was like, there was no other place to see stuff like that. Except we take it for granted today that, oh, you want to see something? It's out there.

David Gardner (9:31)

Yeah. Bloomberg CNBC. Right. I remember CNN was like the early

Barry Ritholtz (9:36)

player, pre CNBC, definitely, and then CN, then FN was another one. You are right. And then.

David Gardner (9:44)

So now we're going down memory lane. Is this what, is this what your audience wants, Barry?

Barry Ritholtz (9:48)

No, no, it is not what they

David Gardner (9:49)

stay down memory lane here.

Barry Ritholtz (9:50)

They do not want that. But so, so let. Let's Talk about you go from Rukeyser. Where did the idea with you and your brother working in a shed in the backyard. Where did the idea come from? Hey, I want to put my own ideas, wit, personality into a newsletter. Like, how did that become an actual product?

David Gardner (10:13)

Well, I quit that job with nothing to go to. And then my brother's best friend from Brown University, they both went to Brown. Eric said, hey, David, I went to Brown. But shockingly, I really know nothing about investing in the stock market. I'm from great education, great family. I'm a television sports producer. What's going on in stocks? So would you teach me? So I spent a couple of nights just sitting down with Eric going, here's what I look at. Here's what I do. I was raised in a family where you buy individual stocks. We're not just gonna index here. We're gonna be choiceful. And we had so much fun. Eric's like, why don't we open up? This is a newsletter. You have no job now. You just work for a newsletter. I was like, okay, let's do that. And then I flipped through a book of quotations one night, and I settled on a fool. A fool. I see a fool in the forest. A motley fool. And I just thought, you know, Shakespeare, Shakespeare. Those are some as yous like it. Act two, Scene seven, for those keeping score at home. But for me, this was a character I loved studying. Certainly going through school, everyone loves Shakespeare's fools. They could tell the king or queen the truth, and they did so with humor.

Barry Ritholtz (11:13)

The only one who could get away with it all.

David Gardner (11:15)

That's right. They were given license to tell the truth. So I sort of loved it. Also. Great lines like a fool and his money are soon parted. You know, gave us a steep hill to climb as we tried to build trust with people. Why would you call yourselves fools? And it started there. And it started as a print newsletter. You mentioned that, Barry. It was July of 1993, was the first issue. $48 a year. The only people who subscribed, our parents, friends, they were the only ones who'd pay us 48 bucks a year. Our friends sure weren't going to for our financial advice back then. But as we started that newsletter, 1993, early 94, we were signing on, using our modem, our telephone, onto AOL, Prodigy, and CompuServe, the big three in the early private online services battle. And we were starting to discover this new medium and getting fascinated by it.

Barry Ritholtz (12:04)

And I recall AOL as a stock was 2 or $3 in the early 90s. Something really moderate before it had a hellacious run straight up for that whole, whole decade. What was it like? First of all, you guys got fooled.com

David Gardner (12:21)

today, nobody else wanted it.

Barry Ritholtz (12:23)

Every, every proper noun, every dictionary word is taken. Although who knows what what AI and the slow shift from Google from SEO to AI is going to do to. There you go, all these domains. But like domains changed hands for millions of dollars. It's kind of crazy. You went to get fool.com.

David Gardner (12:44)

no, but no competition. Yeah, nobody wants, nobody wants fool.com.

Barry Ritholtz (12:47)

oh my God. So the missed opportunity was I could domain squat every proper now. So you launched the website. How long was it before it was got some traction?

David Gardner (12:58)

So we really launched. First of all, Barry, it was August 4th of 1994. It was just on AOL, because this is pre World Wide Web. People were not using that crazy.

Barry Ritholtz (13:06)

97 was Netscape, right?

David Gardner (13:07)

Yeah, I would actually say 96 ish was when we started coming online on the web. But no, it was just keyword fool on aol. But AOL was going through a period of dynamic growth. It was fantastic for us. We launched in August. By November, we were written up in the New Yorker in the Talk of the Town section. And then we had agents and publishers saying, there's a book here, guys, and we're on television. We're, we're, we have a radio show coast to coast. We just, we were like the early pioneers who believed in this new medium and we were going offline as fast as we could while everybody else was trying to come on online. Exactly.

Barry Ritholtz (13:44)

So, so you were. You're already in. It's almost embarrassing to use the phrase cyberspace. So you were online, but you used

David Gardner (13:52)

on the information superhighway, but all the

Barry Ritholtz (13:56)

traditional media to point towards the website. How long did it take before you kind of said to yourself, hey, this is a real business. I don't have to go get a job. I could just build this.

David Gardner (14:07)

We started at such a good time because aol, as you'll recall, was a pay per hour service.

Barry Ritholtz (14:14)

That's right. In the beginning Anyway.

David Gardner (14:16)

Correct. Like $3.25. I think they raised it to four at one point. Right. And so the business model was remarkable for us. If somebody spent an hour at keyword fool, we would get 10% of that. So if they're paying AOL for four bucks an hour, 40 cents. 40 cents for any hour that anybody would spend at our site. And so with a tiny staff and a big dog that was mailing out CDs and DVDs to get onto AOL that serves as cocktail coasters at parties. We really benefited from that ramp. And so we, we began to be able to hire other people when, when the. So when that. Yeah, that was it.

Barry Ritholtz (14:55)

When the CDs started getting mailing, I think they had moved to like all you can eat $10.

David Gardner (15:01)

Yeah.

Barry Ritholtz (15:02)

A month or something like that.

David Gardner (15:03)

More like 30 bucks a month.

Barry Ritholtz (15:04)

29, 95. Yeah, I don't, I don't remember exactly what it was. I just remembered that that was the end of surprise bills. Oh, it's infinite. Okay, great. I'm on 24 7.

David Gardner (15:15)

And that hurt our business a lot. It also, it also more was a major inflection point. Yeah. Because we had built a site that was really fun to visit. We had very active forums. We were publishing multiple times a day. Lots of people are showing up. There were even chat rooms back then. Right. People were spending time online and 40 cents for every hour. So we were starting to hire people. And then within a few years, AOL went flat rate. And all of a sudden we had been the stars of aol. They were putting us forth at their partners conference. We were on the COVID of Fortune magazine just three years after we started printing newsletter. We were right out front. And then we became kind of poisoned for AOL in this sense. Every hour that anybody spent, AOL had to pay connect fees.

Barry Ritholtz (15:58)

Now it's a cost instead of a,

David Gardner (16:00)

yeah, they're only charging 30 bucks flat a month. And so all of a sudden, magnet sites like ours were not as popular. And then meanwhile, aol, understandably, no harm, no foul here, but they were starting to launch AOL Finance and AOL Stocks and competing directly with kind of where we camped out and built our holes. Might be.

Barry Ritholtz (16:20)

Or we're going to launch our own website, whether people access it through you or not. Yeah, that's fine. So. And we know the how, how the AOL story ended. At that point you're thinking, oh, this is a big issue. How long did it take before the website hit the same sort of, oh, this is a self sustaining business.

David Gardner (16:42)

So we launched the website alongside our AOL site with our first book, the Motley Fool Investment Guide, in the summer of 1996. And the website AOL took part ownership in us. So we gave a minority interest in our company to aol. And they're like, guys, go out on the web, compete with your own site, compete with us. Ted Leonsis, who is a real visionary. And Ted was like, guys, no one's making Money on the web. Show anybody how to make money here on the web. And so we built our website and we started pointing people to both our website and our AOL site. And as it grew and as AOL went flat rate, the good news for us is a lot more people came online at that point. 30 bucks a month versus $4 an hour, a lot. That's mainstream. And also good news for us is that we could survive as a free site. So we could now be free for a lot of people. The bad news was we've shifted business models. Straight up advertising, right? At that point, it's all about eyeballs and clicks and your customer. Our customer just changed because our customer had been the beloved fellow individual investor who was taking a risk to even go online back in the day. And there they were paying four bucks an hour and they loved us and they were our members and they were paying us directly. All of a sudden, they became the product that we sold to advertisers. Right, because that's obviously the free ad business is your customer, is your eyeballs are now your new product.

Barry Ritholtz (18:05)

And as a reminder for, for the youngsters listening, 96, 97. Wait, you want me to give my credit card to a random?

David Gardner (18:14)

This is such a, like early days

Barry Ritholtz (18:15)

of Amazon, early days of aol. All right, there were a handful of companies you might trust, but there's a million websites. I don't trust any of these guys. I heard that over and over again. How long was it before you people felt, oh, we could subscribe to this newsletter, we could give these people money to manage what was the forward timeline.

David Gardner (18:34)

So thank you for that memory because this is very important. Anytime a new technology shows up, it's generally we're fearful about it. What is AI going to do to jobs?

Barry Ritholtz (18:42)

Well, back then I had a tech buddy who always used to tell me, if you want to know where technology goes, watch the X rated stuff because they'll be the first with micropayments, they'll be the first with faster than real time and streaming and things like that. And it turns out that that's a big driver of online business even to this day.

David Gardner (19:03)

Yeah, and I think that's true. So you're right. Premium experiences and premium services are where the web has ended up. However, there was a whole shift. 98, 99, 2000. You really couldn't charge for anything on the web. If we had tried to say, you now shall pay for our site or we have a subscription service, we. We would have been laughed at. At the same time, though, As a stock picker, I was picking AOL stock saying, I think this is an amazing company. And it sure enough was it ended up being 150 bagger at its top. Didn't end there, but it was still a remarkable investment. And lots of people had followed us into AOL and other stocks like the Amazon. And it was really going against conventional wisdom at the time to say buy Amazon by aol. And so I want people to remember that because now it looks so obvious. I mean, AOL didn't end well. Amazon has ended really, really well. It hasn't ended right. That's right. So it's important to remember those moments because we tend to forget them. We also forget the dawn of AI. This is first inning in this ball game. And people will look back and go, it's all so obvious in retrospect.

Barry Ritholtz (20:08)

It's always obvious in retrospect.

David Gardner (20:10)

It is indeed.

Barry Ritholtz (20:11)

It's at the time it's really challenging. So last question in this segment. If you were starting the Motley fool in 2026 instead of 1993, so we have social media, we have free trading, we have ETFs everywhere. The world is so different today than it was 40 years ago. What would you do 30 years ago anyway? What would you do differently? How would you build a site and a business today this time around?

David Gardner (20:41)

Well, I think first of all, one thing that we know today that we didn't do back then that I think is very helpful in every era is to be a purpose driven business and to state what is your mission, what is your purpose? And really hew to that and breathe through that and hire for that and promote because of that. And conscious capitalism is one of my themes as an investor and a board that I've served on. So I now have those eyes that I didn't have back then. And I think that that is such a strong thing. Most of the best companies I know look at crazy business of fast food chicken. Chick Fil a is an amazing company. I wish it were a public market company. It would have been one of my stock picks. But they just fundamentally act differently than McDonald's and their competitors. And it's because it's like a leadership academy masquerading as a chicken joint.

Barry Ritholtz (21:31)

Still closed on Sunday.

David Gardner (21:32)

Yeah, exactly. Which is their choice. Radical. And so those are the kinds of companies that I admire. And that's what I've always wanted the Motley fool to be. I would do that in earnest today in a way that I think would cut through a lot of the noise and people saying there's too many choices and all the rest standing for something and then living that every day. Most of the best companies that I can think of do that. I would be trying to do that, Barry. But yeah, it is a different world. One thing that's changed, I think for the worst, and I'm an optimist. Almost everybody's mailing it in with index funds these days. I was raised in an era where it was normal, at least in my family, buy a stock. These days the conventional wisdom has become you'd be crazy to buy individual stocks. That's so risky. Just index. While I admire Jack Bogle deeply and I appreciate indexing and the Motley fool has always been a big supporter of index funds. Have we really got an era where you shouldn't even pay attention or care anymore and you can't probably beat the market because it would just be luck to pick Chick Fil A over Kentucky Fried Chicken? I don't think so. I didn't think so back then. And so I would be definitely sounding that loud and clear today. There's even more big dumb money sloshing around than ever before because so much is just throwing it at everything and not discerning this one versus that one.

Barry Ritholtz (22:48)

Really, really interesting. Coming up, we continue our conversation with David Gardner, co founder of the Motley fool, discussing his book Rule Breaker Investing how to Pick the Best Stocks of the Future and Build Lasting Wealth. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive and murky. Lots of firms throw a couple of flashy funds your way and call it a day. Vanguard takes a different approach. The Vanguard Lineup includes over 80 bond funds actively managed by a 200 person global squad of sector specialists, analysts and traders. Lots of firms love to highlight their star portfolio managers like it's all about that one brilliant mind that makes the magic happen. Vanguard's philosophy is different. They believe the best active strategy shouldn't be one person. It should be shared across the team. So if you're looking to offer your clients funds that are built to deliver consistent results, go see the record for yourself@vanguard.com audio. That's vanguard.com audio. All investing is subject to risk. Vanguard Marketing Corporation Distributor support for the

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Barry Ritholtz (26:00)

I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest is Dave Gardner. He's the co founder of the Motley fool and the author of the book Rule Breaker Investing how to Pick the Best Stocks of the Future and Build Lasting Wealth. So I want to talk a little bit about the philosophy around rule breaking, investing and stock selection. One of the things that jumped out of the book from your framework was top dog and first mover Customer love, visionary leadership Discuss.

David Gardner (26:38)

Yeah, well, thank you. These are some of the traits that I'm looking for in stocks and I think before we start this, Barry, I should just again underline. I believe it is a worthy thing to choose stocks. I really want to find the best companies of our time and I want to own them for a long period of time. And actually for many people it's actually easier to find Amazon or ebay back in that era or Nvidia more recently. But to actually hold them, to hold them, to allow them to multiply in the way that they will if you do. In my experience that's hardest for me to.

Barry Ritholtz (27:13)

Let's talk about that. Because Amazon after the dot com crash plummeted to single digits. Apple has had more near death experiences than I can count. Nvidia, go down the list. Google, Facebook, Tesla. Facebook's IPO was a disaster. It got cut in half like within few months of that. And then they kind of unlocked mobile and it was off to the races. Yeah, Tesla, these companies trade more like cryptocurrencies than companies. How do you find the confidence and the commitment to stay with something down 40, 60, 80%.

David Gardner (27:51)

So thank you. And I would say first of all, it's not worth doing that for every investment. Certainly if it were some dodgy crypto, I wouldn't be holding. But you used an important phrase a minute or two ago. You said top dog and first mover. So when I look at important emerging industries and I see a company with a large customer base, they may not be profitable yet, but they're doing good things in this world, a world I want to live in. And their stock's down, their stock's been cut in half. What's the reason? Sometimes it's the CEO, like Howard Schultz back in the day with Starbucks was just occasionally conservative and the analysts were surprised as he under promised. And then the stock drops 15%, you know. And you told the story about this

Barry Ritholtz (28:37)

going on the View. Yeah, the stock ends up down 30% and that was your last appearance. And then what happened to Starbucks?

David Gardner (28:45)

It went up 30 times the value and we've never been back on the View, but. And by the way, I'll return at any time. We'd love to close the loop on that story. But yeah, that was 1998 early TV appearance. We picked a stock for the ladies of the View and then it was Starbucks. That's the punchline, by the way. I shouldn't have given that. But yeah, the stock dropped 30% in just a couple of months and we went back on the show to update the story and they booed us good naturedly and they're like, oh well. And we're like, keep holding though, keep holding. And then they've never invited us back since and it's gone up 33 times the value from our first appearance, not even including the 33% drop. So I mean that was an iconic moment. I didn't realize it at the time, but as I wrote rule breaker investing, I was just thinking that's my story because that's what most people miss. Most people are following the headlines instead of following real progress. And they're chasing stuff. And if you just look and ask, who are the movers and shakers delivering products and services, Electric cars, robotic surgery, coffee houses, better fajitas, the list goes on. Who are the.

Barry Ritholtz (29:52)

So I'm thinking Stryker, Chipotle, Tesla.

David Gardner (29:55)

Yeah, well, actually intuitive surgical. Okay. Yeah, yeah. But yes, you're thinking exactly the company

Barry Ritholtz (30:00)

I'm using, the robot that did my surgery.

David Gardner (30:03)

I'm very happy to hear that.

Barry Ritholtz (30:04)

And when I recall walking into the surgical theater and looking around and saying, oh, this is where the future is. I've just gone 20 years forward because this whole thing is, here's the big robot with all the like, oh, now I understand. Like the rest of the world, we're living in the past. This technology is as cutting edge as it gets. It's really amazing.

David Gardner (30:27)

I love that. And I'm so glad to hear that for you in successful surgery, which is what we all want, robot or human. But yeah, it turns out there are lots of advantages to robot assisted surgery.

Barry Ritholtz (30:36)

Yes.

David Gardner (30:37)

And intuitive surgical has really been the pure play small company. Stryker is a more bigger diversified company. Yeah. Anyway, but for each of these, like,

Barry Ritholtz (30:45)

I just happen to remember what the little logo on the side, the last thing I saw.

David Gardner (30:49)

That's a good thing to do. They're like, this will help you relax.

Barry Ritholtz (30:52)

And then the next thing I know, I'm in recovery. But the last thing I saw was the striker logo.

David Gardner (30:57)

Great story. And, you know, so it's funny you mentioned the future and feeling like you're living the future. That's generally where I try to be as I pick my stocks. And just for the fun of it, one of my best stock picks in the last 15 years has been Tesla, which I picked in 2011. Still holding. I've owned a number of Teslas since. And I was driving around in Tesla in 2013. My license plate in Washington D.C. is future. No one else thought of it. So I'm watching out for the Future in Washington D.C. and I'm driving around going, I really am inside the future. And I'm surrounded by not just other cars that aren't yet, but, but a whole industry, gas stations, et cetera, of things. There's not as much maintenance needed. So that's a great iconic example of for me, whether it's Starbucks back in the day, which was questionable for a lot of people because it looked like a fad. That was the big rap on Starbucks early 90s. Where have coffee houses ever come from in America? There's no background for this. This is such a fad. Paying five bucks for coffee. Are you serious? Right, so AOL was all just chat rooms. They're all going to be hyped. No one will ever give their credit card over the Internet. Tesla. Electric cars will never work. Intuitive surgical. Why would you have a robot when humans can do it? Just as well. The list goes on other way around.

Barry Ritholtz (32:12)

Why would you have a human when a robot can do it? That is indeed not only just as well, but more consistently and it doesn't matter if they had a bad night, it's fine the next day.

David Gardner (32:23)

And minimally evasive. And speaking of the next day you're walking home the next day.

Barry Ritholtz (32:27)

Oh no. Same day you walk out of the hospital. Hospital. It's kind of terrifying. Although you're still on a lot of drugs at that point.

David Gardner (32:33)

Yeah, well, one of my heroes is Clayton Christensen who wrote the Innovator's Dilemma and he's somebody who helped me understand and think about disruptive innovation. And I've always invested in the innovators. And back to your earlier question, Barry. You know I can keep holding my Netflix when it loses two thirds of its value, when I believe in Netflix and I see visible proof every day of how important Amazon, back in the day, Netflix, Tesla, the list goes on the companies we've mentioned. So that helps me hold these companies. If you follow the company as opposed to the zigs and zags on the stock charts or the headlines, you're going to be much more patient. I think as an investor. And that has been my. That's been a superhero power for me.

Barry Ritholtz (33:13)

So walk us through your stock picking process. How does a company first land on your radar? What sort of analysis do you do? When do you decide you're comfortable to put it on your buy list? And are there any non negotiable checkboxes that you say, nope, that's a knockout. They don't have this.

David Gardner (33:31)

I mean every one of those questions I could possibly fill your ears up. So I'll try to be brief. I love the questions in reverse order by the way. I'll say any non negotiables. I don't invest in companies whose fundamental business is to take money from other people. And so you'll never see me recommend a so called gaming stock. And I think sports betting is a joke. And it's. While I think it always should have been legal, I think it is a sad waste of money for anybody who does the math. And so that would not be on my list. No Motley fool member has ever received a gaming recommendation from me.

Barry Ritholtz (34:02)

And they have been very destructive primarily to college age men. There's a growing gambling addiction problem and these companies just. That's their, that's their clients.

David Gardner (34:14)

Yep. And I will say I love sports. I know you do too. And I'm happy making a bet with friends. But if you really do the math of a 5050 prospect where the house takes out its 10% right. And you just do your expected return and play that forward with all your money, I know where that goes. And you could have had 9 to 10% annualized returns. There's a huge difference, you knuckleheads.

Barry Ritholtz (34:34)

There's a huge difference between doing a box for the super bowl or something for March Madness and betting on free throws. I mean it's, it's just, it has nothing to do with sports. That's just the medium by which they are tickling your adrenaline and dopamine. It's, it's so. And yet these have become giant businesses.

David Gardner (34:56)

Yeah. And you know, even something as innovative as prediction markets, which I am fascinated by, are also being turned into quick, quick money and, or sometimes questionable who can influence the outcomes of prediction markets. So these are unfortunate things where I think they're fascinating to follow. But if you're serious about your own money and you would like financial freedom one day, you're making a huge mistake if you go there. So back to your question. That's a non negotiable for me. I don't like businesses that just fundamentally lead people who don't know math to give their money away regularly. I don't feel great about that if I'm a shareholder.

Barry Ritholtz (35:28)

So. So let me roll you back a little bit. How does a company typically find its way onto your radar? Is it something you're using or something you hear about? Like where do most of these ideas come from?

David Gardner (35:40)

So the ideas come from. First of all, I'm an early adopter. So I've got a closet full of things where I bought the thing early first gen. And it's not really working or wasn't relevant anymore. And so, but, but it also meant I bought Tesla very early on. I. And I tried online services with my scratchy phone. That sound we can all hear if you're over 40 years old today of logging on to AOL. So I love the new. I'm excited by AI and that's not an industry by the way. That is a plate tectonic shift for our society that's going to create many industries. Many of us don't even exist yet. Just as we were excited about the Internet with Amazon, where my cost basis today is 16 cents, still holding. Uber hadn't even shown up yet. Google hadn't shown up yet. I mean it will be years before AI companies that are amazing, that are great stocks show up. So no one should feel anxious that they don't have an AI portfolio yet. But anyway, so I'm an early adopter and then I'm connected to a community, the Motley fool community. Our forums, discussion boards, meeting people at book signings. The list goes. This conversation right now. You mentioned Stryker. I probably need to look back at that one. I'm curious how it's done. So I'm just always listening. Of course, social media is full of these kinds of opportunities. So intellectual curiosity is the flame that will burn my whole life long and in many of my fellow fools and I think my host today as well. So I think that if you're curious and you're asking questions about where society's headed and you're specifically looking for products and services that will improve our lives and our kids lives, you're going to be looking, you're going to be fishing in the right pond.

Barry Ritholtz (37:11)

So once something falls on your radar, you have six rule breaker criteria. Walk us through those six.

David Gardner (37:17)

Yeah.

Barry Ritholtz (37:18)

Really? That's the heart of the analysis that you do, right?

David Gardner (37:20)

It is. It's six traits that I'm looking for and that's the middle of my book and I didn't start the book that way. And we could talk about that later if you like. But let me just rattle right now through my six traits of rule breaker investing. And by the way, I've used these now into my fourth decade. I didn't just come up with these yesterday. This is exactly what caused me to pick. Aol, Amazon, Tesla, Nvidia, the list goes on. And some of them are so contrary, which is why I think it works. Number one top dog and first mover in an important emerging industry. We already spoke to that one. We could go deeper.

Barry Ritholtz (37:51)

So for today, that might be Nvidia, it might be Broadcom, it might be a ASM lithography, it might be amd, it could be any of the semiconductors or some of the software companies, Google, Microsoft, whoever.

David Gardner (38:04)

Yeah, and, and, and also, by the way, restaurant companies, retail, I mean in every industry I'm asking who's the innovator? I want to know who the innovator. And if you honestly just Only focus your stock market attention on the biggest innovator in each industry. Some of them are small, emergent, some of them are big. You're going to do so much better.

Barry Ritholtz (38:24)

So Starbucks, the third place that was the big driver of them, Chipotle, they came up with a way to assembly line fresh food.

David Gardner (38:32)

Yeah. Better quality.

Barry Ritholtz (38:34)

The fact that it happens to be Mexican based is almost irrelevant. You see Cava today doing the same thing with Mediterranean. And I'm sure there are dozens of others coming up. There are.

David Gardner (38:44)

And by the way, not all of these work out as stocks. I certainly have a closet full of bad stock picks as well. We could talk about that later, but that's very important. If you have sort of a venture capital mentality as you look at the public markets, which is how I describe myself, you need, just like a vc, you need to be comfortable with losing.

Barry Ritholtz (39:02)

In other words, you're looking for here 100 investments. 50 of them aren't going to work out. 30 will do okay, but it's the top two or three that make it worthwhile.

David Gardner (39:12)

Yeah. And I truly go into all hundreds saying, I like this company, I believe in it, I hope it works out, but I'm never loading up on one, et cetera. So top dog on first mover in an important merging industry. Of my six traits, that's the most important. So number two, we're looking for a sustainable competitive advantage, a moat, as Buffett likes to say. You bet. And because we're holding stocks for a dead minimum of 2, 3 years, preferably 3 decades, sustainable competitive advantage really, really matters. And that takes many forms. We could talk about that. Number three. So the first two are about the company, the third is about the stock. And this is I'm looking for strong, stellar past price appreciation in the stock.

Barry Ritholtz (39:57)

In other words, you're not looking for the cigar stub, to use Ben Graham's phrase. You're looking for something with a little momentum and where more and more investors are stepping in.

David Gardner (40:10)

There's a chapter in my book, and it was an eye opener as I wrote it and realized it, where I listed out seven of my best stock picks, from Intuitive Surgical to Netflix to Apple to Amazon to Nvidia and a couple of others. And I noticed, and I only realized this in retrospect, that in the three to nine months leading up to my first pick of them, on average, they had risen 30 to 90%. And a lot of people, I think most people, when they are researching a stock, it goes up 50%.

Barry Ritholtz (40:41)

They're like, oh, that's already Right, done.

David Gardner (40:44)

Yeah. And so part of the reason Rule Breaker Investing works is because I'm willing at that point not just to buy it, but to actually be more excited about it. Because clearly the market is noticing what's happening now. And when companies rise, reflexivity starts to show up, Barry. They start having more resources, they're getting mentioned on Bloomberg Radio. All of a sudden a lot of good stuff starts coming to them that strengthens them. That's not a reason to look for another cigar bot and ignore Nvidia. So that is trait number three, stellar past price appreciation. In a world where most people are like, buy low, sell high, I'm looking at the 52 week low list friends, not the 52 week high. And when I say friends, I mean that's the average person speaking. I'm looking for the 52 week high.

Barry Ritholtz (41:27)

Give us four, five and six.

David Gardner (41:28)

Sure. So number four, it's all about the people. We're looking for smart backing and excellent management. So it's the human capital. And this is again in some ways obvious. Yeah, we'd love to have Steve Jobs be our CEO. Yeah, we're glad that Jeff Bezos is our CEO or Warren Buffett. But keep in mind, and this is a really hidden in plain sight, I think profound insight that most people don't see, even though it's hidden in plain sight. There is no number to express the value of the CEO running companies. So we have a whole Wall street world that's built on valuation ratios, generally off of earnings or cash flow, sometimes off of assets. And they're not including that. Elon Musk is the CEO of the company. And by the way, there are a lot of CEOs who are subtracting value from their companies and there's nothing to express that. And so we have a whole world driven off algorithms. That increasingly is computer trading. It's not even humans anymore. And they're not noticing or caring. I think about trait number four, who the heck's running this thing and who's backing it. That matters deeply to me, especially if I'm holding as I do for three decades. Number five, we're looking for strong consumer brands. I love companies that have raving fans and it doesn't mean every time that they are a consumer brand. Striker Drilling, Intuitive Surgical. These are not consumer brands per se. Although Intuitive Surgical with its Da Vinci surgical robot, you will hear your local on your local radio if you still listen to it. You'll hear an ad for the hospital bragging in some cases that they have a Da Vinci, so there is some brand recognition there. But Starbucks, Netflix, Amazon, these are all my best stock picks and I bought them years ago and still hold them today. And they all exhibit that strong consumer appeal. And the final, probably my favorite secret sauce if you're following us. The first two were about the company. The third was the stock. Then the next two, four and five, the people and the brand are about the company. Number six is about the stock. And it's specifically that the stock is generally considered capital O overvalued by the world at large, by Wall street commentators, by people in Barron's, CNBC never blew

Barry Ritholtz (43:41)

my so a little contrarian perspective.

David Gardner (43:45)

We are specifically wanting people to call out Tesla as ridiculously overpriced. Amazon will never make money. Intuitive, surgical. When I first recommended it over a hundred bagger ago, it was at 73 times earnings. There are people, if they even do pay attention to stocks anymore, that say I would never buy a stock with a price to earnings ratio of 73. The list goes on.

Barry Ritholtz (44:04)

So. So a lot of times when we see stuff, especially with a company that's relatively young, you start to see the company grow into their valuation. Nvidia is a great example. It was a semi maker, then it was a floating point chip maker for gaming before it did the pivot to full AI because FPUs are turns out to be better than CPUs for large language models. And I don't pretend to be a wizard.

David Gardner (44:34)

GPUs then traffic process.

Barry Ritholtz (44:36)

That's right.

David Gardner (44:37)

Yeah.

Barry Ritholtz (44:38)

I don't know what F is floating point unit but GPUs. That's exactly right. But you know, two years ago Nvidia was like a 75p. Now it's like a 40p and falling. Can't some of these overpriced companies just grow? Apple is another example. For the longest time people looked at Apple in the 2000s when that newfangled ipod came out and said oh, they don't have any profits whatsoever. Why would I want to own Apple in 04 or 05?

David Gardner (45:12)

I think that first of all, let's be clear. There are things that are overvalued that you and I would not want to buy. But if you're following our conversation, if you're buying a top dog and first mover in an important emerging industry with a sustainable competitive advantage, stellar past price appreciation, excellent management, smart backing, strong consumer appeal, it has all five of those things in place. Then some guy on CNBC is telling you it's blatantly overvalued. It's crazy. No one should ever buy that stock. Amazon dot bomb cover of Barron's. That is the special sauce that causes me to say, bam. Now we're buying.

Barry Ritholtz (45:49)

Well, the Amazon, the Amazon bomb was, I want to say January 2000 and we did see a giant collapse. What was the QS fell about 82% peak to trough.

David Gardner (46:02)

That's a pretty big collapse. I experienced it all the way. In fact, our cost basis, 16 cents, it had gone up. It was a 30 bagger. And again, when I'm picking stocks, this is not for my own portfolio. This is lots of people following the Motley Fool. These are people subscribing to us. So when I pick a good stock, it feels really good. It's not about me. When I pick a bad stock, it doesn't feel very good. It's not about me.

Barry Ritholtz (46:25)

Or a good stock. That hits a buzz saw when a market gets shellacked.

David Gardner (46:30)

Exactly.

Barry Ritholtz (46:31)

You could own anything. During the financial crisis, everything still got cut in half, more or less. It was quite a crash.

David Gardner (46:37)

You're right, Barry. And the truth is that if you follow any of these companies, I've littered our conversation with 15 to 20 company names that are really 15 to 20 generationally great stocks. Every single one of these stocks has lost 50% or more of its value more than once. Which means that if you'd followed Motley fool advice, depending on your timing, you might love me or not like me. You might be like, yeah, I got in there but got cut in half and I got out. We're holding all the way through. We're buying and we're holding. So I have watched Amazon go. This is kind of pre split. It was at 3 when we first recommended. It went to 95, down to 7 during that 2001 era.

Barry Ritholtz (47:20)

More splits soon after.

David Gardner (47:21)

Yeah, yeah. It's now split down to 16 cents, which by the way, is also my cost basis on Nvidia thanks to the magic of stock splits. They both got me at my 16 cent cost basis, still holding. But to do that, Nvidia just three years ago lost half its value in one year. This is one of the largest.

Barry Ritholtz (47:38)

It was like four months, it got cut in half.

David Gardner (47:40)

So this is just going to happen.

Barry Ritholtz (47:41)

2022, it really got shellacked.

David Gardner (47:43)

This is not going to happen. For companies that are not dynamic, this is not going to happen. So much for cyclicals. I mean, there will be some cyclicality. These are rule breakers. These are stocks that by most popular view were blatantly overvalued. You should never have bought Amazon all the way through, et cetera. And so they're going to be more volatile. Netflix was going to get put out of Walmart. I don't know if you remember this, but back in the day of the red envelopes, all of a sudden Walmart said, hey, you can just drop it off at your Walmart, your dvd. You don't have to mail it back to Netflix. That was going to. Netflix was supposedly toast then. So AOL was going to be toast. It eventually was kind of toast, although it sold out.

Barry Ritholtz (48:19)

The merger was the problem.

David Gardner (48:21)

But I've watched it's such a key indicator trait number six, when people say it's toast, that not for every stock stock, but for the rule breakers, that is magic. It has been for me.

Barry Ritholtz (48:34)

So I, I want to ask you about the first stock you purchased where you said, oh, this checks all six boxes. This is my rule breaker.

David Gardner (48:45)

It was AOL.

Barry Ritholtz (48:46)

Yeah, definitely 1990, when four or five.

David Gardner (48:49)

We literally picked it the day we launched on AOL. 1994. August 4th, 1994. And from that point I watched AOL. And again, we were, I mean, we were always fully transparent. People are like, wait, you guys are on aol? Is there a conflict of interest? You're recommending AOL stock?

Barry Ritholtz (49:04)

No, we know what it is because we're on it. We see what this can do for investors and what the future of the company is.

David Gardner (49:11)

It's pretty self evident, you know, you're right. And yet not everybody would have felt that way back then. But it was. I mean, we had no inside view of aol. We were separately domiciled, but. But we watched AOL grow. And it was such an object business lesson as an entrepreneur for me, but as a stock picker, I was watching it get called out as the most overvalued stock repeatedly by August. Bodies like the World Economic. It's not the World Economic foreman today, but basically all the economists in the world would get together every summer and two summers in a row, it was like 96 and 97. They voted the most overvalued stock. And it was the stock that we had backed. And our members were like, guys, they're calling it the most overvalued again. We're like, this is an amazing company. It went up 150 times in value. And I learned so much from that experience. And as we mentioned, it didn't end there. It started to drop back and fell back and eventually just kind of got taken over and emerged with Time Warner.

Barry Ritholtz (50:09)

When people stop calling stuff over valued and every analyst on the street has a strong buy on it. That's usually when you want to be on the other side of that.

David Gardner (50:19)

That that can be true. I will also.

Barry Ritholtz (50:21)

Not always, but.

David Gardner (50:22)

No, no, no. I definitely appreciate the sentiment and I smile at that askance with you as well. I will say that we typically just hold well longer than whatever analysts are thinking or saying. We don't really pay attention.

Barry Ritholtz (50:33)

So you're not quarter to quarter, is that what you said?

David Gardner (50:35)

Yeah. No, I mean we love following business. By the way, one thing you asked me to think a little bit about is is there anything that people should be talking more about, especially if something that troubles me. And a quick example would be I really think we should have companies reporting every three months their financial results. And you may know there's a movement afoot to allow some companies just to report twice a year. I think that's a really bad, bad decision and I hope we don't do that. I hope companies will self report and choose to be transparent on a regular basis with their results.

Barry Ritholtz (51:04)

I'm going to take it a step further than you and say, and I wrote this before AI was ubiquitous. If you want to get rid of quarterly reporting, instead of going once or twice a year, make it real time and 247 really cool because you could update that. You could set up technology to update. Here's where we are, here's how close we are, here's our range. You can Monte Carlo what we would likely to do each quarter. And so the problem is the focus on quarterly. If it was all the time, like you can look at your portfolio or your checking account 24 7, you shouldn't, but you can and it's made. I remember in the 90s or in the 2000s, we would be printing stuff out, folding them up, sticking them in envelopes, sending them out. And the quarterly report was when I was a junior, having to do that

David Gardner (51:59)

crap in the mailroom.

Barry Ritholtz (52:01)

It was a big deal, the quarterly report. Now nobody really thinks about your portfolio quarterly because you can access it whenever you want. It's kind of, I think it's absolutely heading in the wrong direction.

David Gardner (52:13)

Yeah, well, so more transparency is the theme here. But so for me, I think a lot about, you know, what is going to be in the best interests of armchair investors like me. Because, Barry, we're individual investors. And so I'm there representing anybody who is in an investment club or was given a portfolio of stocks. And they're trying to figure out how to make better decisions. And I think it's so rewarding. To pick stocks in a world where it's increasingly called out as crazy talk to actually buy an individual stock.

Barry Ritholtz (52:47)

So we talked earlier about stocks like Apple and Nvidia, Netflix and Amazon that have all gotten cut in half repeatedly. How do you tell the difference between a stock that's just going through sort of regular volatility versus GE got sliced in half. We look at, I'm not even talking about the Lehman Brothers or the WorldComs of the world. I mean just stocks that their best days are behind them. How do you know the difference between just a regular stumble and beginning of the end?

David Gardner (53:20)

Well, first of all, I'd say you can't know. I mean, it would be too headstrong of me to say here's what you do, here's how you know. So for me, I just like to keep my stocks in place and recognize some of them are going to trip. I love horse racing metaphors. And not every horse is going to win the race. Not everyone's going to make it to the race. Some get out to a great start and don't finish well. And I can't always know, but by holding, I allow the ones that clearly will win to win so grandly. When you make more than a thousand times your money on Amazon or Nvidia, it doesn't actually matter that you had some dogs in your portfolio. You can be wrong. And that's okay because being right is so much more valuable. I will also add though, to answer your question a little bit more directly, usually the companies that fall and don't come back are being disrupted. Earlier I mentioned Clayton Christensen innovators dilemma. You can usually kind of see it that the world is changing. The company might still be best in class and it may have a famous CEO that everybody loves, but all of a sudden there's this upstart, might be a whole industry of new players. When I see that in a company going down, I may not want to hold onto that stock. But if Netflix, which has been ascendant now for 20 plus years every time, if it's down 2/3 of its value, which has happened more than once, including Qwikster, I keep holding that one. Right? So the question is, does this company remain a rule breaker? Is it a top dog and still first mover in an emergent industry, and when it is, I'm going to keep holding that stock.

Barry Ritholtz (54:51)

Coming up, we continue our conversation with David Gardner, co founder of the Motley fool, discussing his book Rule Breaker how to pick the Best Stocks of the Future and Build Lasting wealth I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

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Barry Ritholtz (57:29)

I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest is Dave Gardner. He's the co founder of the Motley fool and the author of the book Rule Breaker Investing how to Pick the Best Stocks of the Future and Build Lasting Wealth. When when did you realize that Blockbuster was being disrupted by Netflix? And P.S. at one point in the 2000s, Netflix tried to sell themselves to Blockbuster for $50 million and they turned them down.

David Gardner (58:01)

Yeah, it's like Yahoo could have bought Google. You love those stories. But. But I would say that I never really thought too much about Blockbuster as a stock. I remember we had the CEO on our Motley fool radio show. And at that time blockbuster maybe had 25 million customers and Netflix had 1 million. And he was like, we're watching what they're doing. It's neat what they're doing. I don't think. It's not a big scaling thing. It's a niche thing. Do you want to mail your DVD back and forth? I think it was John Antiocho, but I mean, good man, probably, but wrong. He was wrong. And so it wasn't so much that I ever cared or loved Blockbuster. I just was watching this rule breaker emerge and it was doing crazy stuff like you can't just drop it off two blocks away at your Blockbuster. You have to mail it and keep a cue and send it back and forth, but the cue is half the value of it.

Barry Ritholtz (58:52)

Here's all the movies I want to see. Which by the way, every time I roll into Blockbuster, it's rented. And I'm not even talking about a Saturday night, like on a Wednesday. What do you mean you don't have this?

David Gardner (59:02)

Remember those days?

Barry Ritholtz (59:04)

So instead, just working through the queue, Netflix was like, so the initial question is, wait, you want me to mail DVDs back and forth to, oh, I see how this works. But this will never replace Blockbuster. To no late fees. Oh my God, why do I want to be give anything to Blockbuster? It was super disruptive before online streaming

David Gardner (59:28)

and as a, as a Master of Business Administration. Actually I don't have an mba, but I know I'm a master of business. Beautiful. But as students of the game, as people who love business, what actually was happening was Netflix was changing the business model of the consumer proposition in the whole industry. Right. Because as you just pointed out, Blockbuster was a transactional late fee driven. And all of a sudden you're subscribing to Netflix, you're now in a subscription relationship, very disruptive. There was really no precedent for that in that industry. So it looked like this crazy thing and it was easy to mock. Why wouldn't you just drop it off a block away, mail it to these people? And yet it fundamentally changed the business model forever. And then we're not even talking about streaming, which we don't have to, but they keep innovating.

Barry Ritholtz (60:16)

The interesting thing is we were mentioning late fees. You know, if you get a late fee from your bank or a bounce check fee or something, it's part of your Statement. It's not the same thing as showing up and having someone say, give me another seven bucks. What do you mean give you another seven bucks? It was just like so annoying and alienating. Like, I think it's a good rule of thumb, try not to really piss off all of your clients, all of your customers. Not a good long term strategy.

David Gardner (60:47)

I have a small confession to make. That Wall street summer I referenced when I went to Salomon Brothers, we did. We had a video out from Blockbuster and we kept it the whole summer. We just kept not returning. We were irresponsible college sophomores and at the end of the summer, I'm not even sure, like we had racked up a triple digit late fee.

Barry Ritholtz (61:05)

Right. And the video is 20 bucks to buy.

David Gardner (61:07)

Exactly.

Barry Ritholtz (61:07)

Let's go buy another one.

David Gardner (61:08)

So we had a friend of ours who was British go in with a British accent and explain to Blockbuster that we were renting his place. He doesn't really know about it, but here's this video that he found. And so we kind of got out of that one. It wasn't totally above board. So I'm happy now to admit that this is helpful for me. But yeah, that was kind of the state of things. The anxiety, the angst around returning a video late and not feeling great, you know, from a consumer branding standpoint. So, yeah, Netflix, love them.

Barry Ritholtz (61:37)

So. So let's talk about rule breakers. Today. They're going to be in different spaces. Biotech, defense tech, obviously AI. And a lot of these areas don't have a whole lot of earnings or. And they do have a massive cash burn. So how do you think about valuation in the space? Does it not matter if the growth is there? Define the modern era of rule breakers.

David Gardner (62:01)

So I would always be first of all looking at industries. And you just did that some. And even something like biotech, which you said, as you know, Barry, that's multiple industries. So the Internet was never an industry. AI is not in this industry. So we're talking about again, huge technologies. I was saying earlier, plate tectonic shifts for our society. And you're looking for the beneficiaries and you're looking for the visionaries who are starting something that might sound a little crazy, like mailing DVDs back and forth or an electric car. And you want to get invested in those. Assuming that you agree with the vision, you think the person is great. You and I were referencing Investment Research, circa 1980s, 90s, an annual report being mailed to you through the mail. That was about all you had There weren't online forums or anything. These days you can watch long form YouTube videos, watching any CEO be interviewed and learn a lot about their character, which matters deeply to me. I'm a big character person. I want to feel really good about the people I'm invested in across my portfolio. We're looking at important emerging industries and we're not trying to force things that don't exist yet. There's no ultra AI stock. I mean, Nvidia has been an amazing hold for us now, 21 years and counting. It was not an AI company when I first recommended it, but we're still holding. But these things are going to emerge. I already mentioned earlier, things like Uber, Airbnb didn't show up till more than 10 years after the Internet had really started to penetrate American life. And so for me, it's just keeping our eyes out. Whether it's genomics or some duolingo, a video game on your phone where you're learning languages. Again, all of these are from different industries, but they are the innovator. And so, yeah, we're staying focused in the modern day. Go forward on what are the companies that are going to add value to our world in a way that is consumer noticeable. And when they're called overvalued, that's even better for us as rule breaker investors.

Barry Ritholtz (64:05)

So let me share some criticism that you share with Warren Buffett of all people. When I'm doing my research for this conversation, one of the things that came up was you have this really good long term track record. But if you've been involved in more recently in the past 10, 15 years, well, all those Amazon's Netflix apples From the early 2000s positions are driving most of your gains. From what I'm hearing from you, you're implying that doesn't really hold true. If you look at the Teslas and the Ubers and the more modern positions respond to that criticism, hey, if you aren't in it, no. 3, you really didn't get any benefit.

David Gardner (64:47)

Well, first of all, I would say that invest every day of your life, every two weeks if you can. Young people, the first thing you should do is open an account if you haven't already saved and with every paycheck try to put up to 10% away and put it in if you want, you can index. But I think you should be buying stocks as well alongside that and learning as you go. And anybody who's playing the long game in the markets as they start to hit their 30th or 40th year, which is where I am. It's always going to look like all your big winners were the first 10 years. Because of course, literally Amazon is Now more than 1,000 times the value for me. I'm not trying to be Amazon guy. You don't walk me. You don't see me walking around going, I'm the guy who had Amazon $0.16. I also have that for Nvidia. Just by the nature of compounding, Barry, which I think you understand as well as anyone, it's always going to look like all your big winners were early. But whether it's Tesla picked in 2011 or Shopify in 2016, these are all rule breakers. They're not going to hit right away. Shopify has been up and down, but mostly up. It's a great example of a rule breaker circa the last 10 years, not the first 20 years. But I never want people to forget we were right there at the beginning with AOL and we were picking AOL and Amazon and Starbucks by the way, and the list goes on. So I would just say compounding numbers are always going to make it look like all of your big winners are early in your career.

Barry Ritholtz (66:13)

So before I get to my favorite questions is just one question I'm excited to ask you. When you're looking ahead, what trends, what businesses, what ideas generally? Get your curiosity going.

David Gardner (66:27)

Well, this is, this is in the same way that 7Up was the UN Cola back in the day. This is an unanswer because by the

Barry Ritholtz (66:35)

way, you're talking to a generation I know that has no idea what that means.

David Gardner (66:38)

But you and I do though, and we got some of our peeps listening. Right? Yeah. All right. So yeah, I should have just answered the question. So I look for companies that are conscious capitalism kinds of companies. I want companies that first of all are doing good in this world. By my perception, a lot of people think it's a trade off in life. They think capitalism is greedy and evil and you're abusing workers and it's all about maximizing shareholder value. I completely disagree. In many cases, sure, that exists in the world, but that's not the story of Amazon. Amazon is a big, beautiful, amazing enterprise that helps save lives during COVID Yes, they'll get criticized for some of the things that they've done. And Jeff Bezos is considered an egomaniac by some. But net Net, please. Amazon is a huge value contributor. That's an example of a company Reed Hastings and what he created at Netflix. There's a whole 80 page slide. A lot of entrepreneurs have seen about How Netflix does culture that they just kind of shared out. And you could see why they're so successful because how they treat their employees and the standards that they hold where doing good actually leads to doing well. Again, many people think that's a trade off or they don't actually think that's real. I specifically want you and I to make our portfolios reflect our best vision for our future. Every company that I already invade against an entire industry, the gaming industry earlier, sorry, gamers, but by the way, I'm a gamer, but I play video games and board games. Not 50, 50 and the house takes 10% game. But I would say that you're looking for the people who are doing good or within their industry. They're admired for how they treat their employees, how they win for their customers, and how their partners and suppliers are proud to be associated with them. Guess what? Usually the stocks end up outperforming in a world where many people think it's too risky to even buy individual stocks. The more there's big dumb money sloshing around out there, Barry, the easier it is for stock pickers like me, like you, if you like, like anybody listening to us, to actually pick and discern the good companies, hold them longer than Wall street, longer than the headlines, than CNBC will be talking about, and do really well.

Barry Ritholtz (68:52)

So let's jump to our speed round. Our favorite questions in the last five minutes. We have starting with who are your early mentors who helped shape your career?

David Gardner (69:00)

So my father, who at the age of 18 said, Here you go, David, I've been investing in this for you from birth. This is all you're ever getting from me. And I've taught you how to value line that big black tome, the Numbers of investing. And I know you love sports statistics. Another of my mentors, Bill James, the awesome baseball statistician. Actually he was a journalist, but James, who influenced Moneyball, of course. Of course, who I've met before. But these are early people who convinced me of the fun of life and that it could be counted with numbers. I'm an English major, but there's a big left brain going on with me with loving numbers and baseball stats and college basketball stats. Ken Palm, by the way. Ken Palm. That is a $25 subscription any sports fan would enjoy. Peter Lynch, I'm thinking about Clayton Christensen I mentioned. These are all people who really have helped me think about what wins.

Barry Ritholtz (70:00)

Look, you mentioned Moneyball. Let's talk about books. What are some of your favorites? What are you reading right now?

David Gardner (70:05)

Yeah. So first of all I'm reading right now, the Score by Thi Nguyen and the score is an amazing but I think the subtitle is something like how to Stop Playing Somebody Else's Game. And Nguyen is a games philosopher so people are philosophers about ideas or art. He specifically looks at games and his book talks about how social media, for example, is sort of a game. Like as soon as you start imposing likes and follows, you're playing somebody else's game. You're playing Twitter X's game or Facebook's game. When you have to accept GPA as a measure of how well you've done in college and it becomes big and bureaucratic and everybody's using that. You are unfortunately playing somebody else's game. Sometimes you have to do it, but being self aware of what is motivating you. It is an amazing book and I highly recommend this score. I've had Thi Nguyen on my podcast a couple of times. Love the guy. I mean we just can geek out about board games, but that's what I'm reading right now. But you know, when I think about books, I mean it's a motley array of books. No pun intended, Barry. Indeed. I mean the Inevitable by Kevin Kelly is a great book about the future. I'm a big Kevin Kelly fan. He founded Wired magazine. He's a genius. I enjoy Arthur Brooks columns in the Atlantic. He writes about happiness. I really loved his book Love youe Enemies talking about the divisiveness in our country and how to solve that. And I would love to see more of that. Steven Pinker and all of his data accumulation around technology's trends in our culture. It seems always to be smart, to be a pessimist. You always sound smarter when you talk something down and yet pinch yourself that you're living today. I know we have a lot of problems. We have many, many better problems. There were many worse problems in over human history. Steven Pinker reminds us of that, right?

Barry Ritholtz (71:57)

Our world in data. Hans Rosling saying there you go, Barry. I was rudely using my phone to get the exact name of a book that I'm going to recommend to you because it's sitting on my desk and the author is Danny. Everybody loses and it's all about

David Gardner (72:16)

the

Barry Ritholtz (72:16)

tumultuous rise of American sports gambling and

David Gardner (72:20)

why it's such a big I'm glad he wrote that.

Barry Ritholtz (72:23)

So it's literally waiting for me to it's next up this giant thing. But it's writing your mo. Yep. I mentioned earlier some streaming and we've been talking About Netflix and Amazon. So tell us what are your favorite Netflix or Amazon prime videos or what podcasts are you listening listening to?

David Gardner (72:47)

Thank you. I really enjoyed Apple's Pluribus if you saw that.

Barry Ritholtz (72:50)

It's also in my queue. Next up.

David Gardner (72:53)

Totally recommend that. That's just season one. I mean we have a lot of British comedy fans in my family so shows like Mitchell and Webb the comedy duo their clips are all over YouTube but it crowd hilarious show streaming. Totally recommend that. Not as funny but very British. All creatures great and small. Just an delight.

Barry Ritholtz (73:15)

Early 20th century.

David Gardner (73:16)

Exactly. Just such to slow horses. Great, great show. Apple and or sure. I love sci fi. I love all the Marvel stuff. By the way, Marvel's been an amazing stock for me. It got bought out by Disney. So these days we have a very low cost basis you couldn't have gotten because when Disney bought Marvel at a huge premium, we Marvel shareholders, we happy few buying a rule breaker that looked overvalued. We've ended up doing really well. So but you know, and are obviously Star wars and I love brands and I love family entertainment. So those are some that come to mind.

Barry Ritholtz (73:46)

I just flew back from San Francisco and on the FL rewatched Deadpool and Wolverine and it's like I forgot how much fun that movie was. Really, really a blast. Our final two questions. What sort of advice would you give to a recent college graduate interested in a career in investing?

David Gardner (74:05)

Well, I would first of all say that you should pick individual stocks and you should pay attention to the game and you should love it. You should have a lot of fun. I mean I love sports. We've talked. I know you do too. We've talked about that a lot. People follow their sports teams day to day. I follow the markets day to day. And the difference is you actually can make serious money by learning and following the market in a way you never will. As a sports fan, I love sports. Sports can be a little bit more fun day to day, but the markets are open every day. Your NFL team only plays on Sundays. And starting to figure out what wins in the marketplace. Why is that app on your phone, not somebody else's app? What's in your fridge? What are you wearing? Noticing the things that go on around you. You this is going to lead to riches, but it's also going to open your mind to awareness of what's happening in our society. And I do think that people who are taught to index and not really care are kind of walking blind in society when they could be poking their feelers up seeing what's happening in genomics or robotic surgery or whatever. And I'm an English major and I care about these things and profiting as a consequence. I would also say to any young person, start investing yesterday.

Barry Ritholtz (75:12)

And our final question, what do you know about the world of investing today? Might have been useful back in 1993 when you were first getting started.

David Gardner (75:19)

I would just say that when I first got started in 1993, investing was more of a math exercise for me. I was taught by a dad. I mentioned value line, lots of ratios that we know. I never learned financial statements until I bought how to read a Financial Statement the year after I graduated college thinking I kind of missed that. I never really did that. So I was very numerically driven. I think what I've realized is that using your right brain in a world where many people are just using their left brain is where the real value is added. My favorite chapter in my Rule Breaker investing book points out that most of the things that win in business are not actually on the financial statements. We've already talked about a few of them. Who's running the company? That is incredibly important. How about the brand value of a company? Most, most of those are never expressed anywhere in the financial statements. The culture of the company, can it innovate? Those four things are the bedrocks. As an entrepreneur I know I see it at my own company when we fail and when we succeed. None of those is being captured in the financial statements. And we're living in a left brain driven algorithmic world. I think here now I see and I only think longer term than I ever did before when I was 30 years ago. I think longer term today at the age of 59 than 29 and I use my right brain.

Barry Ritholtz (76:38)

David, thank you so much for being so generous with your time. This has been absolutely fascinating. We have been speaking with David Gardner. He is one of the co founders of the Motley fool and author of the book let's See if I Can Spit this Out. Rule Breaker Investing how to Pick the Best Stocks of the Future and Build Lasting Wealth. If you enjoyed this conversation, well check out any of the 627 we've done over the past dozen years. You can find those at YouTube, Spotify, Apple, Bloomberg, wherever you get your favorite podcasts. I would be remiss if I didn't thank the crack team that helps these conversations come together each week. Alexis Noriega is my video producer. Sean Russo is my researcher. Anna Luke is my podcast producer. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

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David Gardner (78:12)

Okay, tech leaders.

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David Gardner (78:17)

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David Gardner (78:26)

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Barry Ritholtz (78:28)

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David Gardner (78:31)

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