Motley Fool Money: David Gardner on What Rule Breakers Value
Release Date: May 24, 2025
Hosts: Dylan Lewis, Ricky Mulvey, Mary Long
Guest: David Gardner, Co-founder and Chief Rule Breaker at The Motley Fool

Introduction: Understanding Rule Breakers

Timestamp: 00:32

In this episode of Motley Fool Money, Ricky Mulvey welcomes David Gardner, Motley Fool's co-founder and chief rule breaker, to discuss his distinctive approach to investing, particularly focusing on "rule breakers"—companies that challenge and redefine industry norms.

Defining Rule Breaker Stocks

Timestamp: 02:43

David Gardner introduces the concept of rule breaker stocks, emphasizing the importance of investing in top innovators and first movers within emerging industries. He cites Amazon, Nvidia, and Netflix as prime examples of companies that broke traditional rules to become industry giants. Gardner elaborates:

“The rule breakers that become rule makers and yet continue to break the rules as they lead their industry and the world forward are the greatest stocks of our lifetimes.”
— David Gardner (00:32)

Valuation Perspective on Rule Breakers

Timestamp: 04:25

Ricky brings up Palantir as a case study, highlighting its high valuation—95 times enterprise value to revenue—and questions Gardner on how rule breakers can justify such optimistic valuations. Gardner responds by explaining that traditional valuation metrics often fail to capture the intangible assets that rule breakers possess, such as innovative culture, strong leadership, and valuable brands.

“Price to EV or different multiples, just price to sales, price to earnings, price to book value. None of these is accounting for those four intangibles that are so very tangible to any company's success or failure.”
— David Gardner (04:25)

The Intangibles Behind High Valuations

Timestamp: 07:07

Gardner delves deeper into the intangibles that justify premium valuations. He points out that elements like CEO leadership, company culture, innovation capability, and brand strength are crucial for the long-term success of rule breakers but aren't reflected in financial statements.

“What are the things that lead businesses to glory or shame? Who's running it? What the culture is? Can they innovate...”
— David Gardner (07:07)

Long-Term Investment Strategy

Timestamp: 08:40

Discussing investment strategies, Gardner emphasizes holding rule breaker stocks for the long term—preferably three decades. He argues that short-term volatility and high valuations are less significant when considering the sustained growth and impact of these companies over time.

“Your holding period matters far more, and you can only see this once you play yourself forward a few decades as an investor...”
— David Gardner (08:40)

Case Study: Palantir and Its Valuation

Timestamp: 11:34

Ricky revisits Palantir, addressing its dual role as a defense contractor and its expanding footprint in automating complex operations for companies like Walgreens. Despite its high valuation, Gardner defends Palantir's potential, acknowledging volatility but reaffirming his belief in its long-term prospects.

“There are volatility to rule breaker stocks and for a lot of people that's not something they're willing to accept...”
— David Gardner (14:06)

Navigating Market Efficiency and Valuation

Timestamp: 14:42

Gardner discusses the efficient market hypothesis, asserting that while markets are highly efficient in the short term (around six months), they often overlook the long-term growth potential of rule breakers. He advocates for focusing on companies with strong future prospects rather than getting bogged down by current valuations.

“If you highly disagree with it, go right in and buy or sell... but there's a huge amount of money just sitting there on the valuations you're seeing every day on the markets.”
— David Gardner (16:47)

Balancing Valuation and Growth Expectations

Timestamp: 19:05

Ricky shares a story about Shopify, illustrating the risks of ignoring valuations. Despite Shopify's high valuations leading to significant losses for some investors, Gardner counters by highlighting the importance of diversification and dollar-cost averaging to mitigate such risks.

“Start with 20 stocks. And these days, good news, commissions are low to zero and you can buy fractional shares...”
— David Gardner (20:57)

The Role of Brand in Investment Decisions

Timestamp: 23:04

The conversation shifts to the impact of branding on a company's valuation and investor perception. Using Tesla as an example, Ricky points out the recent challenges due to Elon Musk's controversial actions and their effect on the brand. Gardner responds by separating the company's innovative achievements from Musk's personal branding, emphasizing Tesla's continued growth and potential.

“Where was Tesla stock a year ago this very day... Today it's just short of 350.”
— David Gardner (26:51)

Rule Breakers Becoming Rule Makers

Timestamp: 28:21

Gardner explains that when rule breakers transition to rule makers, they often continue to innovate and grow. He cites Amazon, Nvidia, and MercadoLibre as examples of companies that not only became industry leaders but also maintained their innovative edge, defying expectations that growth would plateau.

“The rule breakers that become rule makers and yet continue to break the rules as they lead their industry and the world forward are the greatest stocks of our lifetimes.”
— David Gardner (28:21)

Conclusion: Embracing Long-Term Growth

Timestamp: 32:21

In closing, Gardner reinforces the importance of long-term investment in rule breakers. He shares success stories of investors who achieved significant returns by holding stocks like Nvidia through volatile periods, underscoring the benefits of patience and conviction in high-growth companies.

“I get emails from them saying, guys, thanks. I just took early retirement because I've bought and held Nvidia because you guys did through some thick and some thin.”
— David Gardner (32:21)

Key Takeaways

• Rule breakers are companies that challenge industry norms and lead innovation, often commanding premium valuations.
• Traditional valuation metrics may not fully capture the intangible assets that drive long-term success in these companies.
• A long-term investment strategy focused on holding rule breakers can yield significant returns despite short-term volatility.
• Brand strength, leadership, and company culture are critical factors influencing the success and valuation of rule breakers.
• Transitioning from rule breaker to rule maker does not necessarily impede continued growth and innovation.
• Diversification and dollar-cost averaging are essential strategies to manage risks associated with high-valuation stocks.

Notable Quotes

• “The rule breakers that become rule makers and yet continue to break the rules as they lead their industry and the world forward are the greatest stocks of our lifetimes.”
  — David Gardner (00:32)

• “Price to EV or different multiples, just price to sales, price to earnings, price to book value. None of these is accounting for those four intangibles that are so very tangible to any company's success or failure.”
  — David Gardner (04:25)

• “They keep winning.”
  — David Gardner (10:39)

• “We are giving our greatest advantage away to Wall Street.”
  — David Gardner (28:21)

Note: This summary is crafted based on the provided transcript and is intended to capture the essence of the podcast episode without including advertisements, intros, outros, or non-content sections.