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Tom Gardner: A Message to All Investors
00:26:17
Motley Fool co-founder and CEO Tom Gardner shares some investing insights on the current market, investments to avoid, and a motley array of investing topics.
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- [00:01]
Tom Gardner
The most significant mistake that an investor makes is selling a winner too soon. We don't think that because when we look at our portfolio and see a Stock that's down 37%, we think that's the worst mistake I've made. I put $4,000 in it and I lost a thousand. I put 40,000 in it and I lost 10,000. I put 400,000 in it and I lost 100,000. No matter where you are on the size of your portfolio, when you see something down 25%, 30, 35%, 40%, you think, that's my biggest loser. The biggest loser though, is the winner you sold too soon.
- [00:36]
Matt Greer
That was Motley fool co founder and CEO Tom Gardner. I'm Motley fool producer Matt Grier now. We recently caught up with Tom and got his thoughts on a number of topics, including investments to avoid market valuations, AI paying for investment advice, and Tom's biggest questions going forward. Tom kicked things off by talking about what he would say to someone who is intimidated by the stock market.
- [01:10]
Tom Gardner
For somebody who is intimidated by the stock market and investing in stocks, first thing I say is I validate you. I validate that fear and that anxiety. Because we don't have to go too far back in any year or any decade to find people who lost everything and people who borrow money to buy stocks and hope for a great short term outcome like the graveyard of broken dreams is filled. But if you're anxious and you have time on your side and you are making early investments and you are willing to have some losers, if you're willing to buy 25 investments in the stock market and you're willing to accept that five of them are going to disappoint you badly, possibly right? If you have that time horizon, then you should be forever adding money to that portfolio. The stock market is a bank that pays a higher interest rate than your bank ever will. It's just that in any given year you could be down 20%. So those years can shock people and make them think you can lose everything in stocks and you can lose everything in stocks if you're short term leveraged with high expectations and a temperament that says you're going to jump at the first sign of a crisis. So we've got to get that those factors lined up. But if you can just go in with many small investments perpetually throughout your life out of companies that we help you research at the Motley Fool, I think you can reduce that fear quite significantly and end up building more wealth in your lifetime than you thought possible. Remember, there are people over the last century who had a salary that never went above $40,000 a year, that had $9 million when they died. Those were the people that just took little amounts of savings continually and just said, I'm putting it in the bank of the stock market. I'm trusting that I'm going to find enough good companies. And all you have to do is find, you know, a Pepsi. All you have to do is, is find a Pfizer. All you do is find a Starbucks. All you do is find a Google. You have to find a few of these and all of a sudden before you know it, that compounding the growth in your portfolio has turned a few thousand dollars into tens of thousands of dollars. And then you wake up four years later and you realize your $47,000 portfolio is now 73,000. And then the next multiple of that, all of a sudden you're sitting up there in a couple hundred thousand. And when you're at a couple hundred thousand, lo and behold, you're at a couple million. It takes time, but that practice and discipline of being there every day, it should actually make you fearless as a, as a long term investor. But I validate somebody at the beginning standing on the edge of the pool and saying, I don't know, you know, I don't know if this is right for me. I don't know if I should be on this diving board, but you can swim successfully with the pool. I'm going to say that I have five investments to avoid for anyone in the first year or first couple of years of their investments. And I'm not going to rank them in any particular order. I'm just going to say I've got five. Okay? The first is no one should make a purchase in the public markets of a stock priced below $10 a share as their first investment or first collection of investments. Like there are companies that can perform very well with a low share price, but in general they, that is an indicator of a failing business. Right? And that is simultaneously attractive to new investors because they think I can get so many shares. Do you want 5,000 shares of Wallpaper or do you want one share of Berkshire Hathaway? You know, priced in the hundreds and hundreds of thousands of dollars. Right? The total number of shares don't matter. So if I could say to the entire world, when you enter the public markets, you are not allowed to buy any stocks in the first three years that are priced below $10 a share. We're going to save like literally hundreds and hundreds of millions. Of dollars across the investment landscape for newer investors. The second one would be you're not allowed to use options. I understand that you think you can take a little bit of money and multiply it quickly by utilizing options. But options first and foremost are most effectively used by those as a hedge, as an income generating hedge, not as a go for the gold. They are marketed as go for the gold. And I can't tell you how many people have made their next call, their investment life into the Molly fool site to say, I just blew a lot of money on options and I now want to learn, you know, what the hell I'm doing. So if we could get everyone can't. You can't buy a stock below $10 a share. You cannot use options. That's the first two. Number three, you are not allowed to buy any digital assets or cryptocurrency other than Bitcoin, Ethereum, maybe one or two others. We're going to keep it to a very small list. We're just saying for the first three years after that, go, go wild out there if you want to, right? But out of the 20,000, some odd, you know, cryptocurrencies, out of all the digital assets that have been created, there is far more fraud, far more self interest and greed. I have, I have, I have met people that are launching digital assets who, when I asked them what would happen if instead of being able to sell any of those for profit for yourself, that digital creation you have to hold for five years, what would happen? And the one story I'm thinking of, a person looked me right in the eye and said, no way in hell I'm selling these things. They're getting their money out with your money coming in. They're not looking to create an expanded environment value for everyone. So again, you don't get any cryptocurrencies other than Bitcoin or Ethereum. I'm just limited to those two for the first three years. Okay, so you can't buy stocks under $10. You're not allowed to use any options. You can't have any cryptocurrencies other than bitcoin or Ethereum. Those are the first three. Number four, you will not day trade. You will not actively trade anything. Anything you buy, you must hold for at least 12 months. I have to get you in for 12 months. Now really, if you want to make money, you don't have to read that many books or articles or ask that many questions, or watch enough good YouTube videos with proven investors that have succeeded over long periods of Time to know, actually, the way I'm going to become a millionaire is by owning things that I want to hold for five years. Warren Buffett, you know, turned $10,000, you know, as a teenager into $100 billion, you know, in his lifetime by essentially saying the best time to sell a stock is never like, that's how you're going to make the most money. If you can find Costco early on and just hold it, you're going to become a millionaire. Like it's day trading. Costco. There's just a tragedy of epic proportions. People day trading in and out, the costs, the taxes and the fact that unless you have an incredible amount of money to build the most high powered frequency trading system in your home, you're going to be behind others in institutions that are trading faster than you. You are always going to be a loser. So in the first three years, can't buy stocks under $10. You can't use options, can only buy cryptocurrency, Bitcoin or Ethereum. You can't day trade at all. And the fifth one is you have to ask questions. That's it. You have to ask questions. You have to ask a lot of questions and ask a lot of people questions. You have to be curious. You've got to be more curious than you are greedy. And I don't say that condemning anyone. And I'm not calling out the desire to win with your money as greed. No, no, I'm calling greed the desire to win right now without learning anything. And that, that is the lottery. Instinct like that is a tragedy in the US that state governments present the lottery. That is a really bad system that exists. And the lottery is representative of everything you don't want to do. If you want to become wealthy, you don't want to win by learning nothing and achieving nothing. You want to win by studying, enjoying, exploring the world and finding in your circle of competence. If you're a doctor, and doctors get taken advantage of a lot in financial services throughout history. But if you're a doctor, you have the front row seat to new technologies coming in to your category. So what we want you to do is we want you to be smarter, happier and richer as an investor. We want you to do that with the Motley Fool. Of course, that's our mission. But please, if you're not going to do it with Motley fool, please commit to getting smarter, happier and richer outside of the Motley Fool. Right. And the way to do that, in my opinion, is to not have any opportunity in the first three years to do any of those five things. Can't buy penny stocks, can't, can't day trade, can't have options, can't have a bunch of cryptocurrencies. I could also say you can't go on margin, you can't borrow money, and you can't move forward hoping you're going to win without learning, without asking questions. Put those five things together. Literally, I think that little clip and these are learnings in the Motley Fool. I'm not saying like I am, I am expounding this wisdom to everyone. This is, this is hard won lessons across the Motley fool community. Millions and tens of millions of people in the Motley fool over our 31 years. Those few handful of things, they save billions and billions of dollars of entering the market and also they keep people from abandoning investing because they thought, wow, this is such a crapshoot. I'm never doing this again. What a tragic loss that is for people. So take those handful, put them on your list of I'll never do those, at least for the first three years. And I think you're setting yourself up. You've got the foundation to win for the rest of your life.
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C
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- [11:18]
D
Foreign.
- [11:22]
Tom Gardner
System on one hand is timeless, classic and espoused by many others. It's a system of long term business focused investment with a good diversification to the portfolio. Being tax efficient, not trading a lot, finding great companies and just adding to them over time. That's a, that's a system that is familiar and it's actually the way that the most Money has been made in the commercial world and the public markets in the commercial world for quarter centuries. What is unique about the Motley fool system distinct is that we truly are long term. Remember, as time horizons shorten, you start getting worried about these investments. When people start saying, I doubled my money in six weeks and I'm looking for another one just like that. Right? And you're seeing deregulation, which will have many good, there will be many good features of deregulation. Let's say on a scale of 1 to 100, we want to move about to about a 30 or 40 from if we're in the low single digits now. We want more deregulation for small businesses, for housing permits. There are a number of categories where we need, come on, we need to simplify this for people, right? But we probably don't need a lot of deregulation in crypto because, because out of the 20,000 cryptocurrencies, there are probably only about 50 that really have merit. So if you deregulate too much in that area, you're going to invite a lot of fraud and there will be a lot of pain. There will be a lot of pain for people in that. So I would say the Motley fool system is interested in all these investment opportunities. I'm a very big proponent of Bitcoin. I'm a, I'm a long term believer in Bitcoin. But I, but I think that at the same time everyone needs to realize that our system is saying we're looking five years out. We're not the system that's trying to make the call in the next six months. That can happen in financial media elsewhere. That can happen in trading systems and trading sites, tradings.com like you can go to those sites for that. Up to the second stuff, it's not really us. We can't help you in that area. But, but we do think history shows that systems like ours are where the real money is made over the long term. The most significant mistake that an investor makes is selling a winner too soon. We don't think that because when we look at our portfolio and see a Stock that's down 37%, we think that's the worst mistake I've made. I put $4,000 in it and I lost a thousand. I put 40,000 in it and I lost 10,000. I put 400,000 in it and I lost 100,000. No matter where you are on the size of your portfolio, when you see something down 25%, 30, 35%, 40%, you think that's my biggest loser. The biggest loser though is the winner you sold too soon as the ability to take money $10,000 and put it into Starbucks and end up with $500,000. That is actually everywhere in front of us in the public markets. I think the markets are richly valued now. So I'm not saying that. Just be aggressive every single day of your life. As an investor, it takes some discipline to think about how you're going to build that portfolio, what time you'll buy, what type of stock. But over the very long term, the biggest mistakes you're going to make by far are selling your winners far too soon. And so the Motley fool has helped our members again. We all can still make those mistakes and we'll still make them ahead. No matter how experienced you are, you can make that mistake. But we're there to remind us we track all of our returns in full view at the Molly fool. We have for 30 years all of our wins and losses, all of our 50 baggers and 80% declines that we've had, they're all a matter of public record of the mly fool going back decades. And what I can say is when you look at it over the full stretch of your life as an investor, the regrets you're going to have are the ones that you sold too soon. So we're here at the M Fool saying, hey, try to put yourself in position where you never have to sell. So at least you take that out of the game. You have that long term time horizon and you're willing to say, you know what, Nvidia hasn't gone up for five years, but I'm going to hold it. So that was true. Nvidia went through a five year period. Apple and Microsoft, two of the largest companies in the world, two of the greatest investments in history had 10 year periods in the early 2000, 10 years where they did not gain a dollar for their shareholders over a 10 year period. So, but understand if you're, if you're going to get to a place where your portfolio is turning 5,000 into 25,000 for $250,000 into 1.5 million, turning 3 million into 11 million, if you're going to be in that game, you're going to have to have these long holding periods. You're not going to get the big winners unless you're willing to sit and take the pain for a while. And you know, part of that is just we're together as a, as a community at the Fool. We're all fools figuring this out together. We're going to be there with you every step of the way. And I think the number one thing we can say to anyone who's getting started investing or still feeling their way forward in the public markets is you got to get yourself in a position where you don't sell your winners too soon. The S&P 500 is trading near 25 times earnings. The 200 week moving average price of the S&P 500. So the average price over the last four years, the price today, the S&P 500 is 25% ahead of that average. That is elevated. That is elevated. US equities as a percentage of the value of all stocks in the world, US Stocks as a percentage of all stocks in the world is about 70%, 65%. These are historically high. When you hit historically high valuations at the market level, we have to first remind ourselves there's so many markets inside the US So many different industries there. There are hundreds of good stocks to buy right now and own for the next five years, but they're probably not the most well known, actively followed, most richly valued. It's probably where people aren't looking. It's probably small caps, it's probably underfollowed names. It's probably getting stocks outside the US in your portfolio. So I would say current market for me, looking forward. We don't look forward to the Motley fool a month or we're not talking about the next six months. I'm saying if you're looking for good returns over the next three to five years that beat the market, I think you need to look where others aren't looking right now. And you need to look for dividend payers, more value oriented investing. At least where we are in valuation now. I would just say this four months from now, we could be in a completely different place from valuation. We saw the S&P 500 fall 20% and then V shaped recovery. So the answer could be very different when we're sitting down and talking in August. But for right now, I think this is the time to be a little bit more defensive and look for investments in areas that others aren't looking.
- [17:40]
D
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- [18:52]
Tom Gardner
If somebody's skeptical about paying for investment advice, I would tell them you're smart. You should be skeptical. Throughout history, you know, the average family has paid far too much money for investment advice, right? So I start by saying I applaud you. Say keep that mindset all the way through. Do an evaluation of what, of what you're paying, you know, for what you're getting. Second thing I would say is, if you're going to pay, let's make sure the payment you're making is working with somebody who has aligned interests with you. You don't want somebody who gets paid extra to sell you particular funds, right? You don't want somebody who's pushing low grade promotional equities on you because they have it in inventory at their firm, right? You want to understand, when I pay this dollar, is this person really on my team? Right? So if I'm going to start paying, I want a partner, I want a teammate, right? And then the third, now we move into the Molly fool realm, which is, you know, we start our subscriptions at the Molly fool, you know, in the ballpark of a hundred dollars, right? So I think that's a great sample price to get started and take a look and ask myself, you know, is this the type of research that would be helpful to me? Is this the philosophy that's useful to me? Is this a system that I want to utilize, you know, in my own situation? And what I will say is, I mean, this is a little bit of a bold statement, but what I'll say is, I think eventually you will find we're a very helpful partner to have. You can talk to any of our members on our site, right? You can ask questions. You can be feeding questions into interviews we have with CEOs of companies that you're invested in. We're an open community working together to help you live a smarter, happier and richer life and get better investment results with the Motley Fool. And we know the only way you're going to pay us again at renewal point is if it was worth it for you. Our fees are completely transparent. But I'll go back to the beginning if that's not persuasive to you. If you're like, I don't want to. I don't want to hang with fools. I don't want to pay for a subscription. I don't want to do this. Like, just index. Get index ETFs, add money to them every single month. I really believe this. If somebody right now says, thank you for saying that, I'm not going to pay anything to Motley fool for the next three years. I'm just going to index. I'm going to buy index ETFs, I'm going to do it myself. It's going to be almost costless for me to do. It's going to be very tax efficient. I'm going to say, that's great. You know what? I hope you do check back with us in three years, because we're the ones that say that's what you should do. We said that since 1995 in our first book. We were the ones out there in front of the whole industry saying, just index. There's a lot of things being pitched to you, but I think once you get index going effectively in your portfolio, it's fun to add companies, it's fun to learn about the world, it's fun to be able to ask questions, to get answers about your financial life in all aspects. And that's really what the Motley fool membership is about. So hopefully you'll choose to join us today and be a fool for life with us. But if you want to just go off Index and have free investment advice throughout your life, there are many ways to do that successfully and I'd encourage you to go for it. My biggest question, my two biggest questions. My first question is, what do you want from the Motley Fool? What do you need from us? What service or solution can we provide to you that would be most helpful to you? That's continually what we're trying to figure out. For members that have been with us for a very long period of time. To newcomers the Motley fool, what is it that you're missing to help you with your first investment, to help you allocate your portfolio more effectively, to help you find the next great winner? What is it that we can do that can help you the most? And the more feedback you can give to us through all the feedback channels we have at the Motley Fool? Please send it in because your Ideas are going to just continue to help us understand what it is that is winning for you. The second biggest question I have is what is going to happen three years from now with unchecked, unregulated AI? We may actually be at a point where it is now impossible to regulate AI it may always have been, by the way, but I think if you think of AI as its own creature, as a creature, it doesn't want to be regulated. It wants to. It wants to spread it, whether it be. It doesn't have consciousness, but it's not interested. The attempts to say to AI we're going to shut you down, we're going to shut this tool down, don't elicit great reactions from AI it does not want to be limited and we have not placed any limits on it. And so what will happen three years from now, five years from seven years from now, when you're talking to someone and you don't know whether they're human or not? What will happen when the best surgery you can get by far is by a machine, by far, it's 90% less expensive? What will happen? I mean, Bill Gates has predicted that there will not be a need for doctors 10 years from now. So, I mean, certainly my biggest question is all of the unknowns about the pace of change in technology. And there are more now than ever before. And I would just say this one thing to anyone who thinks it might be overrated. Organizations will continually move towards the most effective use of capital. They have to. If they don't, I'm not saying they do too extreme, say they'd be heartless and sinister to win. No, I'm saying that over time they have to allocate toward what's going to serve more people at a lower price. Like that's what the world wants. I want excellence and quality at a low price. And so that's just what technology can do. So I'm not quite sure what happens across employment. I'm not sure what happens in different creative fields. I'm not sure what happens in our schooling systems. It's already showing what happens when you have an AI tutor. It's very high impact and positive for young students to have an AI tutor partner that they can check in with. That will be the same in investing. That'll be the same in every category. So I do think that there are many, many wonderful miracles that are right here coming. But there's also a reckoning, there are also very concerning things that we're not facing from a regulatory standpoint. And so I Look at it and I say, what is the governing body? Who is the person who. How does this get checked in any way? And right now that question is fully unanswered for me. I think we have a profit seeking system that's just going to cause companies to want to move faster and get more powerful tools. And I think customers will want it. I think they will get lower cost solutions. And there are many implications of that that we haven't thought through. And it's not just easy to say. Once I've thought it through, I know how to regulate it. I don't think it's. I think it's the most difficult problem faced by humanity. I think right now. I think that the equivalent of looking back on times where big decisions were being made that could move civilization one direction or the other, I think now is probably the most significant other than whether humans would survive on earth in the very beginning. I think we're at a point in time where it's not clear how to regulate it, how to check it. It's not clear what happens if it moves forward unregulated and unchecked. It's moving that way and it's going faster than the human mind can prepare for. Exponential growth. We can't process exponential growth. And it's happening every day with AI right now. So that's my biggest unanswered question.
- [25:52]
Matt Greer
To see Tom's message to all investors, go to fool.com message message or check it out on YouTube. As always, people on the program may have interest in the stocks they talk about. And the Motley fool may have formal recommendations for against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes the Motley fool money Team. I'm Matt Greer. Thanks for listening and we will see you tomorrow.