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- [00:00]
David Gardner
Do you know about the true crimes that inspired a Bruce Springsteen album? Or the murders AC DC was blamed for? How about Taylor Swift's violent stalkers? Or the suspicious deaths of Brittany Murphy and River Phoenix? These stories and more are told in the Disgraceland podcast hosted by me, Jake Brennan, every Tuesday, where I dive deep into subjects from the dark side of music, history and entertainment. So follow and listen to Disgraceland on the free Odyssey app or wherever you get your podcasts.
- [00:30]
Joel Pal
Sure. Welcome to the Investor, a podcast where I Joel Pal, your host, dives deep into the minds of the world's most influential institutional investors. In each episode, we sit down with an investor to hear about their journeys and how global markets are driving capital allocation. So join us on this journey as we explore these insights. All right, so really excited for my guest David Gardner. He is the co founder and chief rule breaker at Motley Fool. He is often and him and Motley fool are often ahead of the curve with his savvy pers, you know, perspective, perceptive picks, for example Nvidia. You know, for 30 years he's guided millions to surpass the market averages through unconventional choices. Now he shares his unique rule breaking framework and provides readers with the guidance and gumption to at investing by finding the best companies of the future. So we're going to talk about Rule Breaker Investing, how to Pick the Best stocks and he's got a book coming out but we really want to think about how to pick the best stocks of the future that build long lasting wealth. So this book provides tools, insights and the confidence to make smarter, happier and richer investment decisions. It's coming out soon. So really excited. We're going to talk about that. We're going to talk about how you can possibly pre order the book and everything else. But Dave, let's kick this off. Let's talk about your background, your origin story. You know, tell me about your early childhood, tell me about what you studied, what you thought you were going to do and all the different pivots and turns in your career. And then eventually it's going to land to how we got to Motley fool, which is a very celebrated and well known, you know, professional publication on all things finance and asset management.
- [02:23]
David Gardner
Well, thank you first of all Joel for the invite. I really appreciate it and I'm looking forward to the conversation. And I started I was born in Washington, D.C. and that's where I'm coming to you today from. So I continue to be a D.C. resident and you know, outside of Wall street but an arm's length away From New York, near enough to have had a dad who was an investor. He was also a lawyer here in Washington, dc. His true love was always investing and macroeconomics. But he was a very good dad and taught his three kids about the stock market from early days. So we would go into the Safeway grocery store here in Georgetown in Washington, and he'd say, hey kids, look, chocolate pudding. We own some of the shares of the company that makes that chocolate pudding. Let's go get more chocolate pudding.
- [03:09]
Joel Pal
Yeah.
- [03:09]
David Gardner
And so that made him a very popular dad with his kids. But from early days, he was connecting for us that we could be part owners of the products and services that we appreciate, that we love. And you know, that is the ownership culture that all Americans have grown up in. And it's such a powerful and important thing that we need to always not just be preserving, but growing and extending. So that ownership culture was something definitely coming from a place of privilege. As a little kid, I didn't understand how well I had it. But starting at the age of zero for me, dad was investing. And at the age of 18, as I turned 18, he said, here you go, this is what I've invested for you. This is now yours to manage. Don't screw up. This is all you're ever getting from me. And and so that was, that was the introduction to investing that we got now. It wasn't just a surprise. At the age of 18, he was teaching us about the stock market while other kids were playing Wiffle Ball. We were sitting in front of Value Line, which some people will remember as a big black tome with a lot of numbers in it. Pre Internet. Value Online was an incredible resource for just being able to look up 10 years of financials on most of the big companies on the stock market and updated data, all pre Internet. But I went to the University of North Carolina, Chapel Hill on a full scholarship called a Morehead Kane Scholarship. One of the best decisions I've ever made. Met my wife there in a creative writing class sophomore year. We were both English majors. I have no formal training, I guess in business or investing, but I got a lot of great coaching and teaching and I've definitely learned, starting with managing my portfolio from the age of 18. But then as online, I'm not going to say the Internet, because before the Internet there was America Online, there were private online dial up services. And I had a fascination with that new medium as it was starting to manifest itself in the early 1990s. And we started a newsletter called the Motley Fool. The name is pulled from Shakespeare. It's Act 2, Scene 7 of as yous like it. And it's celebrating jesters and court jesters and people who challenge conventional wisdom. So that seemed like a fun name for a newsletter. It was just for our parents, friends. They're the only ones who'd pay US$48 a year back then. Our friends weren't going to pay us for that for our stock picks. But that's the way the Motley fool started. But we began giving away free issues online on AOL and began to build a subscriber base. And then AOL started noticing we, as paying customers were getting written up in the Wall Street Journal. And they're like, these guys, these clowns are just. They're just AOL paying customers. We should have lunch with them, which we did. And then a lot has happened since then, in the 32 years since we started the company. But so, you know, one part of me loves to talk about the stock market. Another part of me loves to talk about entrepreneurship and the business that we started. And, you know, my favorite line is Warren Buffett's line, I'm a better investor because I'm a businessman and a better businessman because I'm an investor. And I really do believe those things are so interconnected. And so I think I've really benefited from doing both for a few decades now. And I'm really excited, obviously, about this book. This is my final stock market book. My brother Tom and I have written some Motley fool books over the years. This is the only one I've ever written just by myself. I kept notes for it for the last 15 years. When we first were writing books in the 1990s, we were in our 20s and we were saying, here's what we think. This is what we're going to do. This is what we think you should do. But we were in our twenties. Now I'm in my late fifties and I've seen what happened. I know my wins, I know my losses. I've had a lot of both the lessons, and I think most of all challenging conventional wisdom. Breaking the rules as an investor, just as we try to do as entrepreneurs, is what I'm trying to convey through rule breaker investing.
- [06:59]
Joel Pal
So magically, I saw something in my feed a couple days ago and it was a pretty interesting. I mean, not really that surprising. But, you know, this is, this is what the feed said. It's like, look, you know, the most successful people are actually the class clown. It's not the, you know, the straight A student. It's not the person that, you know, was, you know, the perfect, you know, Princeton grad that, that went to, you know, Goldman Sachs's investment program and then later joined Blackstone. Obviously those people are probably successful too, but like the people in general that had the most success were the class clowns because they didn't really care what other people thought. The people that, you know, wanted you to follow the rules, they didn't really care and they were comfortable being laughed at, they were comfortable thinking differently and they just kind of went in their own way as a leader. So it's just very, very crazy that, you know, this is kind of the ethos of your brand. And also your book is called Rule Breaker. So I, and I, and it's funny because coincidentally I brought up that quote we, I just came from a podcast earlier and this person was giving guidance on his career, you know, getting into investment banking and private equity. And, and I, and I ask his response to that and you know, it's just so, so magical that, that, that, that, that came into my feed and it just kind of relates to kind of what, what you're thinking about. So I just wanted to say that and just number one, hear your reaction, which I think is going to be very receptive, but just want to hear your reaction to that.
- [08:39]
David Gardner
Yeah, well, I, I think that, I think that challeng the received truths, the mores that we've grown up with is valuable when we're challenging the right ones that deserve to be challenged. And obviously you can be a troublemaker or you can be really off base if you're breaking rules in the wrong kinds of rules. So I think that there's an area of discernment where you gotta kind of start going, okay, which rule do I want to break? And I heard a fun line the other day, speaking of lines the other day, this one was, what's something you believe that most people don't believe? Such as a fun rhetorical question, cocktail party, water cooler question. But if you tag on to that question, whatever your answer is, if you can turn that into a business, those are often the most powerful ideas of all. When you believe something and most people don't believe it and you actually build a for profit business around that and then scale it and make it real that those are most of the great companies of every era. And so I would say for me as an entrepreneur, something that I believe that most people don't believe is that you can beat the stock market averages. It's rational, it's logical, it's not even that difficult. But it is definitely not the case in academia or, I would say, broadly today, the stock market is perceived to be. It would just be lucky if you and I could somehow beat it. Blind monkeys throwing darts have a better shot at beating the market than you and I do. Joel, obviously, I completely disagree with that. And so the Motley fool was really started out of that idea, that thing that we believe that most people don't know.
- [10:25]
Joel Pal
I totally agree. And, you know, hi, I'm PJ Vogt.
- [10:29]
David Gardner
And I want to tell you about my podcast search engine. We try to make sense of the world one question at a time. No question too big, no question too small. We will even answer your questions if you send them in. Stuff like what happens when a cemetery goes out of business? What should we do about teens using AI to do their homework? Who buys luggage at the airport luggage store? Follow and listen to Search engine in partnership with Odyssey. Wherever you get your podcasts.
- [10:57]
Joel Pal
This kind of reminds me of one of my past guests. We had a guest on the podcast where this person. Pretty successful. He had a pretty successful exit. But, you know, he has memories of him being seven years old and his father owned. Both of his parents were entrepreneurs. So his father owned an Arby's chain. So his memories of being seven years old were like sitting at the Arby's eating roast. Those roast beef, cheese, you know, sandwich sandwiches, which I love.
- [11:25]
David Gardner
Yeah, I'm into that.
- [11:26]
Joel Pal
Yeah. And that was his memory of, like, just kind of thinking about P. L. Thinking about how to expand the business. And then his mother was in the fashion business. She was a fabric. You know, she was kind of in the manufacturing logistics space for the fashion space. So just kind of growing up under that background and just kind of that influence is really helpful. And even for me, you know, my son had. You know, we talked about our kids earlier. Right. So my son celebrated his communion celebration. He got a little bit of money, and I was like, look, I'm probably going to do better just putting it in the stock market. So I took some of his money, invested it. But I also tried to tell him what we were, you know, investing in, like, what. What it was. And he understands what Tesla is because he's seen, like, some of these videos with the Tesla bots invested in Nvidia as well. So I kind of started allocating. But I also tried to teach him why we were investing in some of these companies and we talked about the news and stuff. So, you know, with that in mind, I want to. I want to hear about some of your memorable moments with your father and kind of some of the just fundamental lessons that kind of shaped you as a child. You know, kind of going through that. What did you guys think about? And then, you know, I also think there's a little bit of a micro portfolio construction as well. Right. Because some of that capital goes into stocks. Maybe some of it goes, you know, some people, some parents teach their kids to save a little bit for giving.
- [12:44]
David Gardner
Right.
- [12:45]
Joel Pal
If you're giving a tithe or if you're just, you know, giving money for charity. And then obviously some is just for fun too. Right. And saving. So how did you guys think about that portfolio construction as children? And what are some of the things that still stick with you today?
- [12:58]
David Gardner
Yeah, well, first of all, I would say that we weren't necessarily awesome or exemplars with allowances. I don't really remember that much of a regular allowance. I do remember hearing it described my dad's own experience where his dad sat. He sat him and his older brother down and carefully accounted for everything that they'd done with their allowance. And I think dad probably had a negative reaction to that because he didn't really impose that on us. Sure. And so. And while both my grandfathers were successful entrepreneurs and I guess it sort of skipped a generation, but my dad was a white collar professional, very successful as a banking lawyer here in Washington D.C. but really it wasn't that we were as kids, we weren't trying to sell Pokemon cards to other kids. Well, actually Pokemon didn't exist yet. But we were not the enterprising youths that I think your RB's friend, your. Your own son may be. But I will say that what dad did do so well was he really connected for us that we could be part owners of companies we would travel to. We were Minnesota Twins baseball fans, we would go to the Twin Cities, and we would go for a baseball game in the summer, the time you want to go to Minnesota in the summer. But we would divert that morning before the afternoon game and visit a public company that we had shares in. And I remember Craig, Craig Computer. Seymour Cray was like an early supercomputer genius. And Craig Computer is one of our companies. So dad was basically socializing with us what the companies are we were invested in. We literally visited their headquarters. And that was just, you know, it's not like we did that constantly, but those were the impressionable moments. I also remember one other moment, Joel, which is that dad once took me on a business trip. This is something every dad could do for their sons and daughters. I've tried to do it for mine as well. Take your child on a business trip at some point. It may seem like such a small thing, but I will always remember, like this big New York City, London. I'm Dana Carvey. I'm David Spade. Fly on the Walls Back for another season now on audio and video every Monday and Thursday. So many incredible guests will be joining us. Follow and listen to Fly on the Wall everywhere. You get your podcasts Too good to be True where there was this really funny guy speaking at the lunch and I was there with all grownups and my dad next to my dad and the speaker that day happened to be GE Will, who obviously has gone on to become an extremely successful speaker, writer, etc. And so I would just say a really great contribution that dad made in addition to the portfolio he literally constructed for us as we grew up and as I came of age at the age of 18, was making it clear that the stock market is just business and business is part of everyone's lives. And even though I grew up in Washington D.C. where people think federal government, I think about business in the private sector. Our kids are 4th generation Washington D.C. we've been all private sector all the way through. I love cities, I love great businesses and technology and I think a lot of that goes back to how our parents raised us.
- [16:03]
Joel Pal
Well, and that's great. I love that. And that's something that's inspiring to me. So we do a lot of networking events. You know, we have a, we have an accelerator for fund managers. And you know, you're making me think now I make me feel a little guilty because I did a networking event and my son actually wanted to comment. I was like, no, no, it's going to be grown ups and there's going to be alcohol. But you're right, I think, you know, at that age you remember that stuff and that stuff sticks with you. So I'll keep that in mind. Maybe the next one that I do.
- [16:26]
David Gardner
Yeah, he's got a lot of years. I don't think my dad took me until I was like 12 or 13. So you don't need to accelerate everything.
- [16:33]
Joel Pal
Yeah, that's true. Yeah, it's a good point. So, you know, when you went to these locations, especially when you're kind of essentially doing diligence on these companies, although they're public, what were some of the things that you were observing? Were you observing kind of like the foot traffic? You know, what were some of the maybe qualitative things and Then obviously quantitative things that you were looking for that were kind of timeless lessons as you're, as you're kind of doing diligence, essentially. Right.
- [17:00]
David Gardner
I think most of the due diligence we were doing was not company visits. I mean, company visits were fun and you know, probably we did like six, seven or eight of them. It's not like this is a constant thing, but, you know, just one makes enough of an impression. When you're sitting down head of investor relations with your dad and your younger brother and you're just talking through the company some, that, that, that's a great experience. But I would say most of our due diligence was dad was consistently investing in companies whose products and services we knew. Classic kind of Peter lynch stuff. Our big stock growing up was the Washington Post Company, which these days isn't as important a company anymore because newspapers aren't as important. But Buffett was on the board. I met Warren Buffett at Washington Post annual meeting when I was 15. You know, the product was on our doorstep every single morning as I woke up. I mean, it was those kinds of experiences that really I think shaped me as an investor. Not so much, you know, that I was getting to meet with bigwigs or making observations about corporate headquarters.
- [18:00]
Joel Pal
Yeah.
- [18:01]
David Gardner
So I think for us it was truly an experience of, you know, buy what you know, and it doesn't need to be much more complicated than that.
- [18:11]
Joel Pal
Yeah. And we, you know, our, our community mainly focuses on private markets. Right. So that, I think that's why I'm really excited to have you on here as you're kind of building this lens and this kind of thesis and building a public markets portfolio, let's say, you know, picking Nvidia. Right. Like what are some of the just basic frameworks that you want to think about? Right, Yeah. I mean, obviously the new, you know, so I, I had an experience, I do have some experience, so I worked at a financial analytics company and a lot of our clients were buy side, large buy side clients. So couple takeaways for me was obviously, you know, when we built this software, you know, you always want to know how your holdings are doing at the top line level. And then you know, those holdings underlying, you know, they have, there's news headlines that could be related to that. Right. And then, and then a big workflow that I notice especially from like larger buy side investors at large institutional firms is they're, they're doing, hey friends, I'm Sharon McMahon, host of here's Where It Gets Interesting, where you'll Learn about American history, current events, and so much more. Follow and listen to me on. Here's where it gets interesting on the free Odyssey app or wherever you get your podcasts.
- [19:27]
David Gardner
Hours.
- [19:28]
Joel Pal
They're performing hours and hours of research, and it's crazy. Like, the workflow is they take a, you know, they're taking a ride home and they're. They're reading, you know, tons and tons of research, and then they're also listening to those earnings calls. Again, that's just my limited knowledge from kind of that role, but would love your professional nuggets of wisdom in terms of, like, how you can kind of, you know, come up with some type of framework to say, look, you know what? This is the kind of the screening that I'm doing. Like, maybe I'm focusing on energy, right? Or maybe I'm focusing on tech stock. Then how do you drill down and kind of build some type of, you know, thoughtful framework?
- [20:04]
David Gardner
So there's a lot of great questions packed in there. Let me just pull out like two threads and speak to each briefly. The first is, you know, how you do research and the sec. The second is what are my frameworks? So speaking to how we do research, I think that especially in the early days of the Internet and the Motley fool, we. We were renowned for having a lot of our members, readers, listeners, fans, going down and seeing if there were cars in the parking lot there on the weekend. Iomega, which was a. Basically a. A hard drive storage company at the time, a monster stock. It was the number two. Sorry, the number one performer on the NASDAQ in, in consecutive years. It was like 1996 and 1997, just crazy. And our community really embraced Iomega. Iomega ended up not really being a great company. Kind of like AOL technology changed for aol, broadband for Iomega, just much deeper hard drives. So they had basically portable zip disk drives, which were so much better than little floppy disks, but would soon be overcome by just much deeper storage that existed. Anyway, so I think a big story for the Motley fool early days was we're out there doing boots on the ground, fundamental research. And we got it written up. We're on the COVID of Fortune magazine in 1996. And that was a lot of the story is like, it wasn't me or my brother. It was our community. And, you know, that community continues to be such an important asset for the Motley Fool. So I think for a lot of us, it is like, for me, the earliest fascination with the Internet was that I Could post on a forum and get a reply from a doctor who was using the surgical technology that I was researching. That connection with people who are actually practicing or consuming or whatever it is the stuff. I mean, as a kid growing up I had to call the investor relations department and have the annual report sent to me. That itself was a research, like what's the phone number? That was a research challenge on its own. But so to go from very removed kind of math problems on paper view of the stock market to oh my gosh, these are living breathing businesses and we can learn so much by studying what's happening in technology or getting to know the people, etc. And then scaling that with a community of fools who are out there helping. So that's my kind of quick, not so quick answer to, to how we do research. I'm going to pause there because what I was going to throw down was an answer to your second part, which is the framework that I use. And I think that's an important like body of work answer I want to give. But I don't want to go too long with, with a really long answer. So do you want to kick anything around or do you want to go to my 6, 6 traits of a rule breaker stock which I love talking about.
- [23:02]
Joel Pal
So I want to share a quick reaction to Community. I think that's one of the most important things these days and I think that's something that you can't really automate or replace with AI and you know, talking about Nvidia, I would love to kind of, you know, go deeper on that as well. But like, you know, there's a story with Nvidia, there was actually a woman that was of Indian descent. She was an immigrant, she was a single. She was. Sorry, she was a stay at home mom and she kind of started doing some research. I forgot her name. I'll try to post it in here later. But. But she made it on the news because she made a ton of money on Nvidia because she found a community of other Indian stay at home wives and they kind of got an interest of, you know, researching the markets.
- [23:51]
David Gardner
Love it.
- [23:52]
Joel Pal
I think she bought Nvidia for like a really cheap price and she made like $4 million off it. But like she was interviewed on the news. I'll try to, as you're talking, I'll try to pull it up and if she comes to mind again but, but I just love that and you can't do that alone, you know, like you got, you want to, you want to have your Investment thesis. You want to have conviction, but it's also great to just get other insights and data points. You don't want those data points to influence your investment decisions, but you want to have as much information as possible so you can make an informed decision and still be a really good rule breaker. But have the information, I would say. And I thought that was really great. And then even for me, like when I look at investments, I just kind of like, you know, I'm not influenced by people. I try not to be. But it's just great to get other people's opinions to kind of, to kind of think about the pros and cons a little deeper.
- [24:41]
David Gardner
Yeah.
- [24:41]
Joel Pal
So I just wanted to add that reaction because I thought that was a really important point and it seems like that's kind of the catalyst for, for building, you know, your brand and your platform and, and where you are now.
- [24:52]
David Gardner
Well, that was a great example and thank you for sharing that. And you know, there's an African proverb I'm sure people have heard before. It's if you want to go fast, go alone. If you want to go far, go together.
- [25:03]
Joel Pal
Sure.
- [25:03]
David Gardner
And I think in a lot of ways the world is playing a fast money game with the stock market that isn't that rewarding. Whereas if you, if you go far instead of fast and you do it together with other people and compound over time. Yeah, it's incredibly rewarding. And in every way. We are living during a time where surgeon General said we have a loneliness epidemic. It's the equivalent of two packs a day for people who are lonely. So I think it makes even more sense to join an investment club or whether it's an online club or in person. I'm a huge fan of community and investing clubs. Just speaking to your great example there, Joel. Let me hit you with the six traits of rule breaker stock. And I'm going to go through them fast because we don't want to have a 16 minute response. But this is really at the heart of how I pick stocks and how I've done so for 30 years. And I think what, what has led me to some generationally great picks that I buy and, and just keep holding and holding and holding. But we're not talking about holding right now. We're talking about what are the traits that we look for as rule breakers. Finding companies, breaking the rules. And this really is not an industry based approach. This is not sector oriented. This is stylistic. So here are the six traits of rule breaker stocks. And by the way, not every stock is going to have all of them. But they do work in concert together. So the more the merrier, the stronger I feel about a company. If I can check these boxes. So the first one is top dog and first mover in an important emerging industry, full stop. In fact, if you just got all the fish. Let's not go with fish, let's go with dogs. As I said, top dogs. If you got the. From every industry, you just looked at the top dog and first mover in that important emerging industry and only filled your portfolio with those kinds of companies, I think you're highly likely to beat the market. You're also highly likely to have some total dogs. Dogs the other way. And you have to be comfortable as a rule breaker, losing and losing grandly. But so of the six traits, that's the most important, Joel, you know, in an ever innovating, ever increasing growth environment that we've been living in our whole lives, that will continue well past my own life, there's so much technology, there's so many interesting things coming. Finding the top dogs and first movers that are driving those is so powerful and important. Amazon, Nvidia, Netflix, Intuitive, Surgical. All of my great companies are that. Number two, you're looking for companies with a sustainable competitive advantage. That's because when we buy stocks, we buy them for a minimum of three years, usually three decades. Therefore, sustainable competitive advantage is huge. We could talk more about that. Number three of the six. Two of the six are about the stock, not the company. The first two, I just gave you Top dog and first mover and sustainable advantage, Those are all about the companies. You're business focused. But number three is where we start to go against people's expectations, which is why it works, I think. So number three is stellar past price appreciation. I love to see the stock has already doubled just before I buy it. And this is, of course, in an environment where most people are trying to buy low and sell high. They're waiting for dips, and quite the opposite. There's an important chapter in rule breaker investing. It is. It basically shows in chapter nine, it shows my seven great stock picks, all of which have gone up a hundred times or more, and in every single case, they rose between 30 and 90% in the three to nine months before I finally picked it. So I can show the graphs, which are hilarious because I'm like, look at this great stock pick I made. And it goes from lower left to upper right. And the question is, where did I buy it? And the answer is, I bought it at the upper right. I'M not the guy who was in there at the lower left. And those companies went on to go up 100 or more times in value. So that's a really important one. I just hit you with three. I'm going to pause it there. You want to kick some of this around or keep moving?
- [29:07]
Joel Pal
So the only thing I would ask is, you know, do any of the people in your community balance the direct investing with blending it with, you know, Q. Q. Q. Or like the indexes and stuff like that? Because some of those kind of get the best winners and they're rebalancing them. There's some of those tax loss harvesting benefits as well. So I'm assuming. And then even just when you think about institutional allocators, Right. Some of them, most of them just do funds, but then some of them allocate and earmark some strategic direct investing too. So at the, at the public markets level, I'm just curious if, if that's also the case as well. Yeah, like, and what is the weighting of that on average too? Is it like 20%, you know, indexes and funds and stuff? And then, you know, the 80% of just kind of balance. It probably varies too in terms of your expertise and your bandwidth as well, so.
- [29:58]
David Gardner
Exactly. And the answer is that we're motley. And that's, you know, motley was the garment worn by court jesters. So that ragtag quilt looking thing that describes our community, because there's no single generalization I can make about those who, who follow us. We have over 600, 000 members who are basically subscription oriented for our business. So there's a huge variety of people there, Joel. But there are no doubt people who are largely just in funds and toe dip with a stock pick of mine or my brother's here and there. There's also people like me who basically don't own funds. I am investing in the stock market. I believe in buying shares directly. My criticism of funds is typically why buy all the companies in the restaurant industry when you can just buy the best companies in the restaurant industry? Obviously, indexing can take many forms, but a lot of it is that they just flood in and buy everything in the sector and actually rebalancing, which in some ways can help and provide a little bit more stability and steadiness, but it's also constantly selling off the winners and reallocating to the losers, which means you're selling Netflix to buy into Blockbuster in some ways. And so while I'm not an active critic of this aspect of the Industry. I just want to point the math out there. So I think that we're highly rewarded if we can find a great company like Intuitive Surgical, which is at the forefront of, yeah, robotic surgery, which is, I think, what all surgery is going to be some years from now. Already so much great work is done by the da Vinci surgical robot. Why would we want to keep selling that off? In order to invest in Johnson and Johnson, which has ineffectively attempted to compete with Intuitive Surgery Surgical for the last 25 plus years. So I do want to convey then that I'm a believer in absolutely buying stocks directly and holding them for long periods of time. But I also represent a large community and a customer base that does everything under the sun, including a lot of private capital, a lot of stuff that's not. But the person you happen to be interviewing today is just simply looking at public companies all the time. It's all about ticker symbols.
- [32:12]
Joel Pal
Absolutely.
- [32:12]
David Gardner
It's actually the company names and it's not the company names. It's the businesses behind them.
- [32:16]
Joel Pal
And.
- [32:16]
David Gardner
And looking for these traits in the stocks that I want to hold.
- [32:19]
Joel Pal
I also think about, you know, at the end of the day, there's multiple vehicles to get a 5X, right? And sometimes you can do it more efficiently if you kind of are an expert in a certain sector, right. You can get. You can get a 5x with, you know, I was in Robinhood, right? And Robinhood is, you know, done pretty well, you know, and then. And then there's people that could do that with real estate. You know, I mean, anybody that bought. Anybody that bought real estate in 2016, right? If you're in Florida and you bought anything in like, 20, 2013, you know, you're a genius, right? Because you probably 5x and I personally did, too, right? So I think, you know, it's really just kind of thinking about, in my opinion, like, holistically, how do you balance all of that? Like, if you've got like 2 million to deploy in 2025, how do you thoughtfully allocate that? You know, and like, you know, you're buying Intuitive. How much should you buy? Right? So do you have any kind of just general, you know, just thoughts or frameworks in terms of, like, weightings, Right, because. Because they've got, you know, we talked about your first three, you know, pillars, and one of them is obviously, you know, investing in, like, the big gorilla, right? The market leader. So, like, you know, do I put like, like 10% into, you know, in video or 15%? So how do you guys kind of like, and maybe your community has a lot of wisdom around this too, but what is kind of the general consensus on just waitings?
- [33:47]
David Gardner
Yeah. Thank you, Joel. So as I sat down to write this book, I, I have for years answered people's number one question. What's your favorite stock? What's the stock pick? Give me the pick. Just give me the ticker.
- [34:01]
Joel Pal
Right.
- [34:02]
David Gardner
So I, I, I'm totally familiar with that general interest that people have and we've tried to deliver that for 30 plus years of the Motley Fool. But I actually organized the book in three parts and the very first part is not the stock picks, it's actually the six habits of the rule breaker investor. Because I can say you and I can say Nvidia or you or you could say I didn't own this, but you could say Florida real estate. You could be totally right. But if I'm your customer and I like sell off a week later or like it has a bad quarter so I'm out, then I don't actually benefit from Nvidia or from Florida real estate. So it's all about, for me, it's all about those six habits that you lay down first because most people, and they're sometimes counterintuitive. So that's the first part of the book. The second part of the book is the six traits of the rule breaker and stocks. So that's what we just talked about, sharing a few of those. The third and final part is the six principles of the rule breaker portfolio. And this is what you're asking about, this is what you're speaking to. I'm not going to throw down a list of six right now. I'm just going to say that for me, a couple of them I think are worth worth pointing to. The first is I think that you should have a maximum of 5% allocated to any position initially.
- [35:19]
Joel Pal
Okay, that's good to know.
- [35:20]
David Gardner
So for me, to me that that means you start with 20 stocks or 20 investments and they're 5% each, or if you have more than that, 25, 4% each, I think you should have a fair starting line. I don't load up on one because I think I'm smarter, I'm right about that one than not load up on others. I obviously some people probably allocate more intelligently than I know what their winners are ahead of time. But for me, I'm always using horse racing analogies, especially in that part of the book. And it's all about the Kentucky Derby. There's basically 22 horses. There and they're all fair starting line, they're all equally balanced. Although the truth is the odds show that if you're near the, the inside, you, you have a slight advantage for betters. But so to me, Joel, that's the way to go. And then as soon as the horse race starts and all your little 4 and 5% allocations start running, they start to imbalance. Some start winning, some start losing. And again, without trying to do my whole book in this interview, but just speak to the particulars, I tend to allocate toward the winners and ignore my losers. So habit number two of the rule breaker investor is add up, don't double down. And one thing my dad taught me, I was raised on my daddy's knee, is he said, son, don't throw good money after bad. And while obviously you can totally do that and have an investment approach be very successful, we're all different styles and different approaches. My approaches, I never add to a loser. I've seen people keep adding all the way down, incensed that the market's getting it wrong. And it turns out, I guess that's.
- [36:58]
Joel Pal
The, that's a downside with dollar cost averaging. Right. Because you're continuing to, you know, if you're doing an index, you're. And you got a bunch of losers in that index. Right? Because I mean, it's already pre, pre packaged for you that, that 500 that you're doing programmatically every month is actually going to some of the losers. Losers versus if you're actively managing it, you can. And it's interesting that, you know, in private equity we always say double down on the winners. Right. But I think in your case, it's like almost like a staircase model where you, you think about the percentage allocation thoughtfully and probably also proportionately to those, to those investments that are winning, I'm assuming, right?
- [37:34]
David Gardner
Yeah. And let me flash out one more of the portfolio principles because now we're talking about portfolio management. So I co opted a phrase from the mattress industry that I kind of love. And so it's right there in the book and it's your sleep number. So I don't have one of the sleep number mattresses, but I'm sure you're familiar with the idea that you can dial in your side of the bed at 79 and then their side of the bed at 24 and you're in the same bed and you have a different firmness of your mattress. So that's your sleep number, 0 to 100. So I have co opted that phrase to bring it into the investment world where your sleep number is this. And my portfolio principle number four is establish your sleep number. So here's what we're talking about. What is the single largest percentage allocation that you would give to your largest holding and still sleep at night? What is that number? And again, the Motley fool has a motley customer base. We have people with surprisingly high sleep numbers. And most of the world is operating off a sleep number closer to 1, 2 or 3 because they're in funds that don't allow positions to get more than 1, 2 or 3%. Although as I know you know, Joel, we're living in an era right now where the s and P500 is a little more imbalanced than it's been in the past because of companies like Nvidia and Apple that are such massive market caps. But for the most part, speaking of history, normal times a lot of people have very low sleep numbers. They would not want anything in their fund to become overbalanced relative to other things in the fund. I think many people operate off of a sleep number around 10. They might be like, you know what, I was in an investment club when I was a younger guy and they were all older gentlemen here in Washington D.C. and we had one guy who always raises his hand, he's like, that stock is now over 10% allocation. So we're going to sell that stock down to 10% allocation. And I think a lot of people have a number like that in their heads. I think aggressive investors might be 30. And then depending on your situation it could be even higher than that. And I could explain why mine is higher than that. But I'm not actually trying to sell anybody on my sleep number or yours. I'm encouraging each of us to establish and know your sleep number because then you're able to understand whether you should keep allocating to something that's a winner or are you starting to lose sleep at night because you're over allocated into one, two or three stocks in your portfolio. So I'm trying to give hooks here things that things that anyone can use to help them. Most people don't have any coaching around portfolio management. They don't actually have frameworks or principles in mind for how to dollar cost average or what to add to and what not to. So that's such an important part of the book, that's part three. But I hope that was somewhat helpful. And I know you're nodding your head because you got a lot in your head about this. This is actually more your world than mine. I'm basically just a mom and pop investor with my own portfolio. We do have ETFs and mutual funds at the pool. We do have a venture capital fund at the pool, but that's all Chinese wall. I'm on the publishing side.
- [40:36]
Joel Pal
Absolutely.
- [40:37]
David Gardner
I'm the author. And so it's been very helpful for me to just set up some signposts and some basic principles that can guide anybody listening to us right now and go, you know, maybe I shouldn't allow a position to get beyond that, because if it's not me, it might be my wife who is starting to object to how tilted the portfolio could be.
- [40:58]
Joel Pal
Yeah. And, you know, this is a good intermission that we had. Now I think let's get into, I guess, the remaining traits. Right. So we got four through six. So let's cover those and then.
- [41:05]
David Gardner
Sure.
- [41:06]
Joel Pal
And then hopefully it's cool if I just jump in with. With some commentary on that.
- [41:10]
David Gardner
I would love that. So. And again, I'll try to keep moving here faster. So. So number four, four and five are about the company. Six is about the stock. Okay. So four and five are good management and smart backing. That's number four. It's all about the people who's running the stock that you and I are investing. Minimum three years, preferably three decades. The answer is the founders, the CEO, the team, who's backing them. Especially for early stage companies, who's got money in that company. Like, reputations matter a lot. And so number four is all about the people. And, you know, these days, a lot of people are just looking at technicals. They're looking at charts, zigs and zags. They don't actually care what the company does. They don't even really care about the culture of the company. I care deeply about what the company does and deeply about who's making the calls. One of the. Well, I'm about to start talking about how. Okay, I'm gonna park that to number six, and we're gonna come back in a sec. But number five is strong consumer appeal.
- [42:13]
Joel Pal
Sure.
- [42:13]
David Gardner
So I think a lot about brand and the power of brand. I think brand is under appreciated and missed. And so numbers four and five are basically, you want to have Elon Musk and Jeff Bezos managing your company. Not, not, not Elon Musk and not Jeff Bezos. Like, the value of visionary geniuses guiding innovative rule breakers is incalculable. And again, many people don't even think or care about who's running the company. And then number five, just to underline that Again, brand names, Starbucks, I mean such, I mean when you think coffee, you think Starbucks. Think about how global coffee is and how amazing it is that Starbucks can, can stamp itself in that way and how valuable that is to shareholders of 30 plus years now. So those two and then Joel, number six is going back to the stock and in some ways I think is like the. This is my crown jewel. This is probably my favorite chapter in the book. But it's specifically that we want people to call the stock over valued. You want a general wide perception that the company is not going to make money. It's crazy overvalued. No one would ever pay 80 times sales, etc, that's exactly what you want to have in place as a buy signal. Because Amazon was that and Nvidia was that and Netflix was going to get buried by Walmart or like Blockbuster back in the day. They've always been crazy overvalued. Starbucks crazy overvalued. Intuitive surgical trading at 70 times earnings when I bought it 100 bagger ago. And so the reason that overvalued matters and works, I've thought about this for a long time and I write about in the book, but it's because if you could find the top dog and first mover in an important emerging industry with sustainable competitive advantage, strong past price appreciation, excellent management, smart backing, strong consumer appeal, and then somebody in the Wall Street Journal or CNBC is bad mouthing it because it's crazy overvalued. That is a beautiful situation. And so I couldn't have known that when we were first writing books 30 years ago for the Motley fool because I didn't have 30 years of data.
- [44:24]
Joel Pal
Sure.
- [44:24]
David Gardner
But now I've seen my 16 cent cost basis in Amazon and my 16 cent cost basis coincidentally 16 cents again in Nvidia, I've seen these rise hundreds of times in value from a standing start that they were crazy overvalued and you should never buy that company. And there are additional reasons why I think this works that we can talk about. I know we're probably going to run out of time at some point, but that overvalued is the sixth and final attribute that I'm looking for. It kind of fits with those other five. But if I were just to nudge forward one thing then open it back up. Joel, I'd want to say that part of the reason I believe it works is because many of the most important things in business, and I know this is an entrepreneur, are not on the financial statements. Brand is not on the financial statements. CEO Elon Musk. There is no line item on the income statement, statement of cash flows, the balance sheet that represents the CEO of the company.
- [45:23]
Joel Pal
Sure.
- [45:23]
David Gardner
Think about how crazy that is. We don't have numbers for which companies innovate. What about corporate cultures? Who's running them and brands. And so a lot of people are running ratios off of things that are just earnings, and they're actually missing all of the important things that enable those. Earnings are an outcome, not an input. They're an output. And so I think at the heart of breaking the rules here is me shouting out people who are too tightly tied into valuation metrics that are missing most of the things that win over time that cause investors to get 100 baggers.
- [45:59]
Joel Pal
So I got two. I got a comment, and then I got a question to double click on. So my comment is, I don't know if you ever saw the. The WeWork theatrical.
- [46:08]
David Gardner
I did not. The Apple. The Apple series. No, I. I'm aware.
- [46:12]
Joel Pal
Yeah. So that was amazing. And it was really good. It was the theatrical ahead. I forgot the singer's name, but it was really good. And one thing that I take away from that, that I got reminded of was, you know, when WeWork was kind of planning to IPO, they were kind of going through their financials, right? And they're like, what is this network adjusted ebitda. And they just kind of came up with this EBITDA that was like, oh, yeah, because we have a great network. You know, we're like now. We're now like EBITDA positive. But. But you know, what. What are they investing in? Right. They're investing in Adam. Right? Adam. How did Adam meet the found. How did Adam meet SoftBank? He knew that SoftBank was going to be at this event in India, and he just flew to India and, like, was there. So how do you underwrite that as an additional metric to your point along with the stock price? Right, because that's the essential alpha, which is kind of that serendipitous thing that you can't really just quantify. But my question is, double clicking on, you know, overvalue. What are kind of like, if, you know, you're teaching a beginner, what are some of the specific statistical, like, metrics that they should look at? Like, when they're opening up the Robinhood app or E trade, what are those, you know, stats or whatever you call it? Like, the ratios that they should be looking at?
- [47:34]
David Gardner
Yeah. So I would say part of it is those ratios don't exist. You're not going to find them on an app because let's just stick with CEO for a sec. Jeff Bezos. How do you express the value that Jeff Bezos represented to Amazon in 1995 or 2005 or 2015? Did it change 2025? He's not CEO anymore. But is there value? I think it's a beautiful question. We have to leave it rhetorical. People could create proxies and somebody at some point should, which I mentioned in my book. Like I'm 59, so I'm more toward the end of my investing career. I'm not going to be the one who's dreaming up this, but I see a huge need for expressing the value of the CEO that should be baked into earnings or cash flow and you should be doing your multiples off of that. And by the way, not every CEO has a plus number. There are CEOs who are actively destroying value. Some of them are obvious, some are subtle and you and I wouldn't even notice it. But to just assume that every CEO is just a capital CEO and you know, and that's not, that's just something a company would have, but it's not something you would factor into your, into your evaluation is crazy. If you're going to be valuation obsessed or valuation focused, you're completely missing Jeff Bezos. And so as a rule breaker, I don't feel a need to have a solution or answer for everything. I just want to poke at the things that I think are broken and take advantage of them with alpha. And this is probably like if I have a few secret sauces and I don't have that many, but this is one of them. An understanding that we're looking at the wrong numbers or there are no numbers for the things that matter most. And I've especially seen that as an entrepreneur growing into a billion dollar enterprise, something that started as a paper newsletter for our parents friends that has been incredibly eye opening for me to understand how important it is the day to day workplace culture that we're creating for our employees or that exist at Facebook or, or that exist at Figma, those things really matter, like who can actually innovate and who can't. Those things matter so much. And most people, at least on the investing side who are just looking at zigs and zags on charts and I don't mean to hammer traders too much, but they don't, they don't have experience of that. They don't know, they don't care, they're not looking at it and they're playing a Game very fundamentally different from mine and maybe yours too, Joel. They're playing a very short term game. There are people trying to make money inside of seconds with algorithmic trading. I actually literally am just continuing to hold my 16 cent Amazon cost basis and my 16 cent Nvidia cost basis. And it's been a couple of decades and I'm just, I'm do. I'm playing a completely different game on the same ball field and nobody has to play it quite like you do or like I do. I think a lot of it for us at the Motley fool is helping people find their music. Is it jazz, is it classical, is it rock? These are very different forms of music, but they're all music and they can all win. But so for me, but you know, I think I gave too long an answer. Didn't even speak to your particulars in some ways. But you know, there are numbers that matter a lot to me. For example, sales growth, net profit margin, the balance sheet matters deeply to me. I love companies with tons of cash and very little debt. Especially in a world where you're having to turn on a dime because AI pops up out of nowhere for a lot of people. Those who have money in the bank can, can morph, can evolve their businesses. Those that are debt ridden cannot so much. So, you know, I'm looking for basically what are the companies that are going to be the best companies of our time and what are the attributes that make them up? And then we try to just buy them and just hold them throughout the whole era, which is what I do, what I've done and what we'll do through the next era, because this is working.
- [51:21]
Joel Pal
So I got another question and it stems, it is actually a perfect layup from, you know, your comments right now. But I met a very successful billionaire investor a few years ago and you know, he was on a panel and someone was like, look, what's your secret to success? And he's just like, look, just living longer. So how does that play to you now as you're kind of talking about, you know, this being your potential last book and you're kind of in the lower endings of your career? How do you think about that with the of community that has grown with you? Right? And not only about just investing, Right? How do you think about maintaining your health? How do you think about longevity? Because part of these, you know, these investments, you know, you're thinking about that, but then you're also thinking about how do you care, you know, how do you pass on the torch to the next generation. Right. So I might have to push you to do another book on, you know, wealth management. Wealth management and building a family office. Because it's important, right? In the stuff that we don't want to talk about. Many of us have, including me, have gone through family members that are, you know, obviously now, you know, needing assistance. There's a lot of us that, like, you know, we're. We're worried about our parents and we're also worried about our kids. Right. So we're the sandwich generation. And then, you know, I want, I want to hear your reactions and comments and thoughts around that because obviously you probably are thinking about that. And again, you know, this is not a financial planning, you know, podcasts, but. And none of this is financial advice. This is just education. But like, you know, how do you think about that? And then also, like the next generation of Gen Z's, how are they thinking about investing? Are there different nuances that you're thinking about, you know, with that generation of investing, obviously, you know, a lot of them are using Robinhood and apps, and, you know, that may, that, that form factor may change in the future. You know, now that we got ChatGPT, now it's chatting. And ChatGPT could easily be, you know, replaced with pretty much a voice. Right. You're wearing an earpiece, and maybe that's the future form factor, like an eyeglass or something, you know, so I'm gonna stop there. I want to hear all your reactions and comments.
- [53:27]
David Gardner
Well, I appreciate that. And we're right near the end anyway, so I shouldn't go on long. I mean, you basically asked about eight different awesome questions, so maybe we'll have an opportunity at some future point to go deeper on them. But I, I would just say, first of all, yes, if we're going to be playing the long game, then we want to live the long game and so obviously taking care of ourselves. I don't hold myself up as an exemplar. I, like, run two and a half miles, like once or twice a week. I don't really do much more than that. I'm 59 years old. I have high cholesterol, pretty high blood pressure. I do take medication. I'm okay. I mean, my genes seem decent. My parents, grandparents have lived a while, but I'm, you know, but I think our health obviously matters deeply. But in addition, all of our health will give out at some point. So then the question is, what are you leaving behind? And obviously not enough people do wills. So before you talk family office, just make sure that you've taken the time to do a will because that's such an act of respect for those who have to pick up the pieces after you in your life. And it can be done so beautifully and it can be done heart rendingly badly and it really. So if you love your kids and love your grandkids, I think you do it. Will and then family office, those additional kinds of thoughts about why do we invest in the first place? What are we really trying to do out there? For me, I'm trying to make the world smarter, happier and richer. And that's our mission at the Motley Fool. And I always say, never two without the third, never one without the other two. If I'm doing my job right, this book is going to make you smarter, happier and richer. Those things are all tied together. We have an abundance mentality and you know, in the end, I think we're all different. So getting to know yourself, know thyself. As was written on the Greek oracle at Delphi, know thyself is sort of a lifelong quest for all of us to keep peeling back the, the layers of the onion and understand, you know, what am I at my essence and what is the greatest value I can provide. I remember from my undergrad econ course, comparative advantage. We should all be understanding, like, where can we add the most value that's not duplicative with what other people are doing? Those are some of the ways that I think about how to live forward. And I think I should probably cut myself off right there.
- [55:42]
Joel Pal
Yeah, no, that was really helpful. So, look, I appreciate all of the wisdom. I feel like I could probably go on for two more hours over cocktails. We'll have to do this really fun.
- [55:51]
David Gardner
Joel, you're such a thoughtful person. I really appreciate your voice and you have a lot of experience that I don't have because again, we do have institutional at my company, we have asset management. But those are not things that I do. I'm more a stock picker and somebody who's there to inspire people and give them frameworks so that they can become true investors in a way that would enrich their own lives. But I appreciate private capital and other things that you know a lot about that I know less about.
- [56:21]
Joel Pal
Well, I appreciate all of your perspectives too because, I mean, you have really been, you know, a market leader in, in this space and it's, it's almost like, you know, an academic lesson for me and really excited about the book. So, you know, really appreciate your time and learn so much. So thank you again. And I guess are you allowed to share anything else about the book or we want to leave that. Okay. Yeah. Why don't you leave a quick.
- [56:46]
David Gardner
I'll just mention it's called rule breaker investing and it is. It's orderable right there on Amazon or wherever you find find books, barnesandnoble.com etc. I kept it short, so it's under 250 pages. It is a fast, fun read, but I hope it's a read that people will go back to because there are. I make a point of bolding lines throughout the book and then I kind of collect them at the end so people have takeaways and they can return to. Some of my early readers have already read it twice, which I take as a high compliment. And I hope it's fun. I mean, for me, if we're going to be the Motley fool, we should be having fun. And so as one fool to another, I'll just say I hope it's a fast, fun read, but one that would make quite an impression on anybody and I hope it'd be worth sharing with an 8 year old one day.
- [57:35]
Joel Pal
And that's an important perspective too. I mean, everything is going to give out at some point. So you know, this limited time that you have in this life, as long as you're having fun and being in good company and having the luxury to be selective in who you're with, I think that's really important.
- [57:48]
David Gardner
That is so well said. Yeah, I totally agree with that.
- [57:51]
Joel Pal
Yeah, absolutely. Well, Dave, thank you so much and hope to be in touch soon and hopefully meet in person at some point.
- [57:57]
David Gardner
Thank you, Joel. I appreciate that. Full on, my friend.
- [57:59]
Joel Pal
Yeah, absolutely. Take care.
- [58:16]
David Gardner
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