David Gardner - An Investing Fool

 

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Bill: This episode features the one and only David Gardner. If you followed me for any length of time, you know that I was introduced to David Gardner and my mind immediately shattered because I was faced to confront the idea that there could be a strategy that I perceived to be diametrically opposed to everything that I held dear that had a ton of merit in it, and David's long-term results are very, very hard to argue against. I think he's an incredible guy. The world of finance is better because he's in it. I admire what he's done at The Motley Fool, I admire his passion for education, I'm really grateful that David said yes to coming on this program, and this was a really fun one for me, I hope that you all enjoy it as well. As always, none of this is financial advice. All of the information contained in this program is for entertainment purposes only. Please consult your financial advisor before making investment decisions and do your own due diligence. For those that know me, they will know that I am very excited to be joined by my next guest, Mr. David Gardner. David, how you doing today?

David: I'm doing great, Bill. I'm really delighted that we're having this time together. I'm excited about this conversation. Thank you.

Bill: Well, I appreciate it, man. I was talking to somebody that worked for you. You may know him, Mike Trigg and he said that, he thought that you belonged on the Mount Rushmore of personal investing advocates, and he put you among Buffett and Bogle. I can't say that I disagree at all. It's an honor to be joined.

David: I wish Mike had not left our company-

Bill: [laughs]

David: -and that's really, that breaks my heart to think that he thinks that and left.

Bill: Well--

David: Now, please say, hello. Please say, hello.

Bill: You know, you've had a number of giants that have come through The Fool. It's impressive. One of your recent graduates or not recent graduates, but graduates recently sold his millionth copy of books, Morgan Housel.

David: Each of these is very, very talented people and some of them have left to go on to whatever the world had for them, and many have stayed. We have just a remarkable-- I was going to say bench because it's too easy for me to use sports analogies, but probably the more appropriate word these days that hits the right amount of buzz is 'ecosystem.' I feel like we have a great ecosystem with Fool and we truly have so much talent that-- Part of it, Bill, is that we've been in business for, we're now in our 29th year. So, we grew up with the internet as it grew up. So, we just found amazing people in our forums and said, "Hey, would you like to start answering questions in our AOL chat room back in the day or more recently, would you like to write articles for us, whether it was Morgan than 10 years ago or people that we just hired yesterday?" We actually have more contractors than we have employees at The Fool. That's one of our secret sauces that I probably shouldn't talk about. But I'm happy too. [laughs]

Bill: Man, how does it feel to look back at the career that you started almost 30 years ago and the graduates, the current contributors, the students, it's got to be so rewarding for you to have built what you built.

David: I think it is very rewarding. It's very fulfilling, I could get hit by a bus shortly after our conversation today.

Bill: I hope not.

David: [crosstalk] Please know-- Thank you, Bill. Please know that I lived a joyful life and I feel deeply rewarded for what I'm doing. And yet, I also want to make sure that I talk about the future because that's what I think about more than the past. So, that's what matters to us as investors. "You just bought a stock." Great. "Oh, it has an amazing chart," congratulations or "wow, what a great three-year run." But all that really matters is the next three years and by the way, you already know this for me three years at a minimum. I don't really care if something's going to be amazing next year or is going to exceed their numbers this quarter. We're all about three years at a real minimum.

But yeah, let's be looking forward as much as we can, even though, I do love to tell stories and share things about the past because we really did grow up at the start of the internet. Keyword Fool on AOL back when AOL was ruling the roost, proceeded the World Wide Web. So, there we were dial-up, I know, I'm a little older than you but you're old enough that you recognize. You are going to hear that sound in your head if your computer using a modem to connect to somebody else's computer via the phone lines. So, it's just been an incredible 30 years of growth and progress, but truly the next 30 years or what's most exciting to me as a Fool.

Bill: Well, I think, you were able to be early on the internet because when I was still in chapel listening to my teachers talk about, "Is the internet going to be a big thing or not? You were busy building a very important community online already." So, that's a good example of where forward thinking led you to good equity return, I suspect.

David: Well, I think that's true, Bill and I do want to say that, that didn't come without a lot of steps backward, and also just getting nickeled, and dimed, and drilled at different points. So, it's natural and maybe for our conversation today, we'll spend much of our time talking about investing in the stock market. But the entrepreneurial story of The Motley Fool, and my brother Tom, my younger brother, our CEO, what Tom and I have done together and suffered together is something I wouldn't trade the world for, but it's easy to look backward and make it feel like it's been amazing, which it has. But man, did we have just incredible hard times through some market sell offs, etc. So, any anybody who's an entrepreneur of any real vintage that is you did it for more than a year, you did it for more than one startup, I think you know what I'm saying when we talk about what it takes to build something.

Bill: I have often wondered when I think about your framework and how-- So, first of all, one of the things that I admire the most about how you teach is the focus on truly long-term investing. I come from the Buffett camp, and he would also argue for truly long-term investing, but I think that a lot of the people that are in the camp that I grew up with or maybe I just made the mistakes alone, I'm not really sure, but think that they're long term, but are actually just playing a rerating game because they think an asset is too cheap, and they're not really thinking about like, "What can the business do over the really long term?" I think that you have, like my introduction to you completely shifted the way that my brain works. First of all, thank you very much for that.

David: I hope it works better.

Bill: [laughs]

David: Otherwise, I did something really bad. But if you're complimenting me, I'll accept it and thank you, Bill, I'm flattered.

Bill: No, you did, man. I've often wondered what running The Fool during the dotcom crash, how that framed, what you look for in businesses and resiliency and whatnot? Because you've managed through really tough times.

David: Warren Buffett has a great line and you know a lot more about Buffett than I do. If you've listened to me some off and on, you may know that sometimes, I've said I'm sort of the anti-Buffett even though in a lot of ways I so deeply admire him and everything that he is. I think, he's the greatest investor of all time and one of the great entrepreneurs of all time. So, it's funny that I don't "Buffett" very often because I've never read a single book about Buffett.

I once did meet him when I was 15 years old at a Washington Post annual meeting because he was on the board of the Washington Post company-

Bill: Wow.

David: -back when Katharine Graham was running it, and that was the golden days of that stock, and that was my dad who's just an individual investor like me. That was our biggest holding. We grew up in Washington, DC, Washington Post, Buffett on the board, went to the annual meeting, shook the man's hand.

Bill: That's cool.

David: But I've never seen him since. We've had a lot of Fools who've gotten to meet with him, we've had people have written books about him, but for me to be quoting him is kind of funny because I really don't-- I've never been to Omaha and I don't have any particular aspiration to hang out with the Buffett crowd not to say they're not really great people-- [crosstalk]

Bill: You should come hang once.

David: I appreciate that.

Bill: It's a fun networking event.

David: If I did, Bill, I'd hang with you.

Bill: All right. Well, I would like that very much.

David: [laughs] But one of my favorite Buffett lines in there are bunch. But one of them is, "I'm a better investor because I'm a businessman and a better businessman because I'm an investor." That for me is formative. If you ever do visit Fool HQ, Chris, we have to open up the offices again for anybody to visit, but if you ever do come to Fool HQ, you'll see that that is blown up in a large font on one of our conference room walls. To me, that's such an important insight and has been inspirational and helped me and Tom, because truly, I'm a better investor because I'm a businessman. So, I think I'm a better stock picker because we've been running The Motley Fool. There's just no question in my mind that I've been so rewarded for developing internet pattern recognition because we had to do it for our own business, and then I started thinking, "Hey, we tried that. That new company is trying that. They say that and I think that's going to work for them or I don't think that's going to work for them, and I'm not trying to say that whatever works for us is also going to work for others." There's not a one to one there.

But there's no question that when you see it through the entrepreneurial eye, you just see stocks better and it's the other way around as well. The act of scanning the skies and looking for the best companies of our time, when you find them or you think you found them, maybe learn from them, and incorporate what they do into your own entrepreneurial enterprise. So, a lot of people have disconnected those two things. They think I'm a professional, I'm a career person, my money, I just give it to my money guy, I don't really know what's going on with that. And then other people are just totally obsessed with the stock market or their trading station, but they don't actually have any real experience in business. In some cases, for good reason or maybe they retired and so they're dedicating themselves to their trading platform in retirement.

I'm not here to say either one is not a wonderful American making good contributions to you and me every day, many are. But boy to integrate those two things and to realize it's not just a 2D plan, that you're not just circling back from business to investing to business to investing, it's actually a gyre. It's a 3D, it goes upward. You're going to get better at one, better at the other, better at one, better at the other. It doesn't end. So, I really think especially, Tom, my brother, our CEO, Tom has-- because he's had to learn more business lessons than I have by what he does, so he has integrated those things in a way that I think few people living today have. And that Buffett line to circle back is really helpful for me and I hope everybody is persuaded that it's good to be in both and to try to do both because it'll make you better the one from the other.

Bill: Yeah. No, I agree with that. I'm learning some from the podcast, I've learned some from previous careers or whatever, and just trying to get a little less dumb every day. But you know, that's tough.

David: You are learning a lot from doing your podcast, Bill. I really admire your podcast. I think it's just great that you're doing it. The act of putting yourself out there once a week, and being accountable, being transparent, and just learning from people. I hope I have something to offer this week, but I don't pretend I'm any better than whoever I just heard. I just heard-- most recently, I realized you record and then this actually comes out a couple of weeks later. But I enjoyed your conversation with Alex Blumenfeld, which-

Bill: Oh, yeah.

David: [crosstalk] -you put out in early November, in part because my son just graduated from Vanderbilt, so I'm a Vanderbilt fan, but how wonderful was that to have a conversation with somebody much younger than we are who's so entrepreneurially minded and helps us open our eyes and see more things than we would have seen before. There's a great line that is sometimes misattributed to William Temple, who at one point was the Archbishop of Canterbury, but I'll just give the line because I think it so well describes the act of being a podcast host, especially, one who's as intellectually curious as you are, Bill. And it's, "The greater the island of knowledge, the longer the coastline of mystery."

Bill: Hmm, I like that.

David: And it really is true.

Bill: You know, it's funny, man. For so long, I was convinced that I knew the answers, and then I realized that I didn't know anything, and then I started to get less stupid, I think. One of the reasons that I am so thankful that I found your teaching is, you say that you're the anti-Buffett. And what listening to you has done for me, and what I have been able to see is that, and it sounds so silly to say out loud, but honestly, it's the truth.

I never got it through my head that a big multiple means nothing in the long term that there are a lot of studies out there that show the lowest price stocks will outperform. But when you really start thinking about on a 20 to 30-year time horizon, well, is that actually true or is that study just assuming that you rotate out of value stocks always every year? Once you get into these, I want to own a business for the really long term. I think your rule breaker strategy is a lot more sound hunting ground than where I used to fish. So, I thank you for walking me to waters that I think are smarter to fish in.

David: Well, I appreciate that. You know what I've always said about that stocked pond and I really love Dr. Seuss and one of his books in particular, McElligot's Pool. I've quoted sometimes on my podcast, but "young man laughed the farmer, you must be a fool. You'll never catch fish in McElligot's Pool." So, there's a little kid with his fishing rod, and it's a little out of the way pond, and he's being laughed at as a fool. So, you can imagine why I appreciate this particular opening to this particular Dr. Seuss' book. But you know, there aren't that many people casting their rods in this particular pool, because most of the people who think about investing in companies that are dynamic, and you're going to notice-- I'm going to try never to say, not just in this podcast, but ever, you're not going to hear me say phrases like growth stocks, growth investor, value stocks, value investor. I find that those labels, which is what they are, are misleading and not very helpful. And I don't like to be categorized as anything. But if I am, which I'm happy to be that at least let's define our terms and let's not do it right now because I'm not that interested in defining terms of value investor, what exactly--

But I would encourage anybody who is self-describing themselves along those lines to really understand what they mean by that. But what I find true is that people who are looking at dynamic companies often aren't thinking long term. The association is that if you're going to be fishing in a pond of high multiple companies, you're probably not going to be in it for much more than a year or two, if even that. I find that the Venn diagram of people who are looking for real dynamism, and will sit there patiently for years and years is very, very small. So, it's a stocked pond, though, Bill, because when you look at the great companies and the great stocks of this era and of last 25 years, they are these kinds of companies, and very few people bought them early, and very few people kept holding them for any meaningful period of time, and I'm one who did, though.

Maybe you're saying that you've pulled your fishing rod up to this pond as well, but I can tell you it's pretty lonely here and it's ironic, isn't it, that would be the case. But that's one of my great discoveries is that the farmer was wrong, and that I as a little fool showed up, and I can do this all day long, and I've loved doing it for years and years. Most of all, I've loved sharing it with others, especially, our members who've bought our services over the years, and then report back their results that they've gotten by taking a very different approach to the world of the stock market.

Bill: So, when you say that a lot of the fissures in the high multiple stocks are sort of there to rent for lack of a better term, one or two years, do you think that's because sometimes the short-term trading dynamics are momentum driven and whatnot or because it seems to me that a high multiple would imply that most people have long time horizons? But I know that that is not actually what happens in reality if that makes any sense.

David: Yeah, I think that most people are not framing up money in the first place in a way that will cause them to succeed. And so that's part of what The Motley Fool's tried to do and The Motley Fool Foundation, which is our recently launched not for profit is going to try to do to reach as many people and get them thinking better about money because people just have all kinds of crazy notions around it. A lot of people think that the stock market is a gambling machine. That's a fairly widely held view and meme stocks probably only contribute to that idea. The over coverage of meme stocks, I think rightly so they're one of the top 10 stories here as we get near the end of 2021, it has to be one of the top 10 stories for stock market watchers was meme stocks and yet they're over covered. There aren't that many of them. It's kind of silly in my opinion. It's not sustainable. That only further increases the public view that the stock market is just this gambling thing and open up your Robinhood account and start trading.

Even the word trading itself and the images that I grew up with anyway watching the Nightly News, which I don't anymore, but back in the day, 6:30 PM, I used to watch on television, Tom Brokaw and let's hear what happened today. The images of Wall Street where people tearing up paper, and running around, and frenetic, and it's all about trading. Trading for me is the antithesis of investing, which is what I do, what I hope you do, what I hope everybody hearing us does, and that just means that you're without going too finely into this but you're wearing the clothes like a sports fan does with your stocks. Like people go to their NFL stadium here this fall, and they got the jersey on, and they're going to keep the jersey on whether their team wins or loses and next season, even if they have a bad year or a bad three years, they're going to keep the jersey on. That is very natural for us as sports fans and there's so much overlap between sports and investing. But a lot of people don't get that. They think that the stock market, they need to act crazy jump in, jump out as soon as they bought a stock, they start thinking, "Well, when do I sell? It's up 50%. Do I sell half and play with the house's money" or these kinds of silly rules that we make?

I just think money has been-- that's just a stock market example. Of course, money means lots of different things to lots of different people around the world, and a lot of it is that they don't have enough of it or any of it and that's a real problem on its own. I just think that money needs to be reframed and rethought, so that we recognize that it's stored up opportunity. It's like potential energy that I learned in my fifth-grade physics class. That's, by the way, I think the last physics I ever took, I somehow-

Bill: [laughs]

David: -managed to dodge it in high school and definitely never took it.

Bill: I don't need to take it on testing out of this, I learned this.

David: [laughs] The number one thing I took away from Mr. Haslam's class, fifth-grade was potential energy converting to kinetic energy. So, money is really potential energy, it's stored up, and then we should unleash it as kinetic energy in the form of new startups, new solutions that we create as entrepreneurs for the people in our communities or our nations. And we should love our entrepreneurs. The people who can actually turn potential energy into kinetic energy, that's magic, especially at scale. Now, we're really going off on a tangent, but you do that, Bill, right? This is allowed?

Bill: Yeah. That's actually the reason this podcast exists is to go on interesting tangents.

David: [laughs] Excellent. Well, I have a friend named Magatte Wade and she is an entrepreneur and she is African. I think she's Senegalese. She's definitely West African off the top my head, but she sent me proofs of her book, and it's not a published book yet. But she is an incredibly articulate voice, talking about why entrepreneurism has failed in Africa. Ultimately, that's why a lot of us especially those of us in the Western world, when we think of Africa, the first thing she would point out is we picture somebody who looks like they haven't eaten enough or they have a fly on their face. A lot of us grew up with these images that were almost programmed into us as kids to think that way about Africa. In a lot of ways, that's accurate, unfortunately, and she would say, it's because Africa has made it so difficult for you to start a business.

My view of entrepreneurism is that you and I as potential entrepreneurs can create a product or a service to improve the lives of those around us. And it's a competitive world. So, if you can price yours better or make something more awesome, then you're going to win and I'm going to lose and that equals betterment. We see that happening for centuries now when capitalism is practiced well. In Africa, the hurdle that you have just to start your business or to run your business is incredibly high. It involves having a source. I'm kind of making these numbers up but just as an example, especially, because I'm a kind of a noob, just looking at that continent from afar, but through her eyes, she's pointing out that, "Often you have to source 40% or more of your raw materials from your nation. You can't actually go buy from China or the US. You're forced to buy from your nation."

So, that kind of socialism has held back that continent for hundred years. And it's not going to improve anytime soon. It's not about better financial literacy or I don't know better government, although that probably matters. It's actually about enabling entrepreneurship. So, to return, I think to where we started, we should love our entrepreneurs, we should be grooming them, I enjoy that Alex Blumenfeld interview, that's an entrepreneur. They come in all shapes and sizes, all ages and genders, and the world is more open to female entrepreneurs today than it ever has been. And yet, it'll open up even more over the next 50 years.

I get goosebumps a little bit just thinking about the future of capitalism and how we're going to get more and more awesome. So, you and I want to be investors in that, right? We want to own small pieces, whether we're VCs at early stages or like me, public market investors at public stages. We want to own the best companies of our time. The only term that makes any sense to me there, Bill is to own it for the term that counts the long term.

Bill: Yeah, I agree with that. I'm happy that you listened to Alex's episode. She's really, really impressive and I thought if I don't help somebody like this, then like, "What am I doing with this podcast, or platform, or whatever, right?" This is what it's all about and she deserves it. So, hopefully, it works. Hopefully, it's good marketing for her and I think whoever uses her service is going to be very happy with it. So, we'll see how that turns out. Do you want to go through a little bit about just to give people that may not know your approach, like this six bullet points of Rule Breakers and whatnot, so we can frame the conversation?

David: Yeah, and you know, I have three of them. I don't think we're going to do 18 points here.

Bill: Okay.

David: But I'll just mention that the framework that I've built up over time, which has been done right upfront of our members. So, if you're a Motley Fool member, you've seen me. If you followed us, you've seen me just literally develop these. Building the plane as we fly it over time and then I'm not just the academic coming up with the framework. I'm the practitioner, then using the framework in real time, you can see my results. That's what members have been able to do for really 29 years. We opened up on August 4th of 1994 in AOL. We picked stocks that first day, I bought AOL stock that first day, and it ended up being a monster for the most part, although, it didn't end great, but overall it was a remarkable learning. So, any of my lists have basically been built out of my own, roll up my sleeves and try to figure it out in front of our members. So, I think the most obvious one to start with the one I think that you were talking about was the six traits of the Rule Breakers stock.

Bill: Yeah, that's right.

David: That's the one, that's the longest standing, and that's the one that I'm really delighted to share, and we'll do it in short form in if you want to go longer on any of these, I'm more than happy to. There are six traits that I look for in stocks. The first one is I'm looking for top dogs and first movers in important emerging industries. We talked about that stock pond earlier. If you just focused all of your investing attention on just that group of companies, you'd beat the market, you'd spend less time, you'd have more time therefore for other things in life, and you would amaze yourself, especially, if you were to make sure you hold on to those and not just make them a trait. So, the top dogs and first movers in important emerging industries is Amazon, is Netflix, is NVIDIA, is The Trade Desk, is Shopify, the list goes on. If you look at the best performing companies of the last five years, last 25 years, it's top dogs and first movers in important emerging industries.

Now, not in every single case, and maybe you'd say, "Well, were they really the first mover or not?" We could debate that if we'd like but just as a filter, this first trait of the rule breaker stock, I lead off with it, because it's the most important. So, if we just focus all of our time there, we're going to find consistently the best stocks of every era, I believe. I'm only living during one but I do have a record of having found invested and still holding the best stocks of this generation. That's number one. So, I said we're going to go short form here. I can go through two through six faster than that, but do you want to spend any time talking about that-- [crosstalk]

Bill: Oh, yeah, man. I got a ton of questions. Let's say I wanted to be a skeptic here and I said, well, those companies have benefited from a rate environment that has gone down and multiples have only gone up, is that the reason that these companies have outperformed the market?

David: I would say, maybe, over the last 10 years that has been a significant tailwind and factor for them. I think I'd agree with that if you're asserting that.

Bill: I don't know that I am, to be clear, I would-

David: Yeah, that's fine.

Bill: -argue the business results are very, very impressive in most of those companies and that's why they've outperformed.

David: The way that I would articulate it is that a low interest rate environment, which made capital very accessible to entrepreneurs created golden age, golden era, an amazing time to create your business where capital is cheap. Then, for the first time early in human history, new brands and new companies could have a global reach faster than ever before. So, when you touch that touchstone, when you rub those things together of cheap capital and global opportunity really for the first time at real scale, it helps explain who's won and why over the last x years, and 10 years, we would say maybe for that cheap capital coming out of the Great Recession of 2008, 2009. But The Motley Fool started 15 years before that, and I was using the same approach then. So, it's not about-- to me anyway, it's not about an interest rate environment for any given period here over the last 30 years because AOL was a top dog and first mover in an important emerging industry well before anybody reduced interest rates to zero.

Bill: Yeah.

David: And AOL was one example, there many from 1998, 2004, 2008, 2013, 2018. I'll be looking for the same things in 2023. I think it certainly accelerated returns, and part of 2021, which for me personally has been an underperforming year. Part of 2021 is a lot of these companies actually had such monster runs in 2020 that it borrowed forward from their near-term returns. By the way, if the whole thing sells off in 2022 and we're all like, "Hey, David, Bill talked about this in late November, but man, the stock market got crushed in the year after that." I'll be like, "Well, first of all, I'm never going to be the one to predict that. Second, maybe, we got ahead of ourselves," and that happens, and it's going to happen over and over again. That's the nature of markets, but it's not going to change my approach, and I'll just keep buying every two weeks with the salary that I'm saving whatever the top dog and first mover is in an important emerging industry that I'm not already well allocated into. I hope that-- rule breaker investing which is what I call my approach, I hope it helps to remove us from the really near term day-to-day, or even the look backs of five years or 10 years, because we're investing forward for 50 years. So, a lot of things like interest rate environments drop away when you have that viewpoint. And you're simply looking at the world beaters and the world changers, and trying to become a part owner, and increase your percentage ownership of those over time. So, yeah, there's some more thinking than about the top dogs and first movers in important emerging industries.

Bill: I think something that's interesting that you said and for some reason, my mind just connected it. But when capital is cheap that means it's easier for the competition to come in. A lot of these companies have been able to fend off theoretically easy competition, which actually, probably you could make the argument that their moats are even better than maybe some people might appreciate or I'll just internalize it may be better than I appreciate. I have learned to appreciate that they're pretty darn good as it is.

David: I think that's true. I want to acknowledge that having that capital and making good use of it, and maybe having it ahead of those that came along after you and tried to catch you, maybe that was a real moat. And I'm also going to say that there are some other things playing into that moat that have nothing to do with capital that are true in every era. So, let's go back to quoting Buffett, again. "The three eyes of every cycle," do you know this one, Bill?

Bill: I don't know that I do. I feel embarrassed to say that I don't.

David: It's definitely not a quiz. You could even later fact check me, "Dave, by the way, you said that was Buffett. It was somebody else." I think, it's Buffett, but and I've heard it this way, but regardless of who said it, by the way, you know who never said the--

Bill: Oh, the innovator, the imitator, and the idiot?

David: You got it.

Bill: All right, there we go. All right.

David: I was about to talk about misquoting because everybody quotes, Gandhi with "Be the change you want to see in the world." Gandhi never actually said that. It's in TED Talks, it's on bumper stickers. Check it, Gandhi never said it but it sounds like it came from Gandhi. [crosstalk]

Bill: It does. It should have come from him.

David: It is a great sentiment. So, this one, I think is Buffett, but even if not, it could or should have come from Buffett and you already got it. Yeah, "the three eyes in every cycle." The first is the innovator, that's the first eye, the second eye is the imitator, who comes along imitating the innovation, and the third eye is the idiot. And that's the person who's got the same business model seemingly and they're asking for capital, and we're late in the cycle, and we're giving it to them. The classic example, I always use, which dates me as Drkoop.com, which is going to be health site back in the day. The things that show up that seemed plausible and get funding, but in the meantime, I hope you and I have been focused on the innovator all the way through. And the innovator is an innovator for lots of reasons that have nothing to do with capital. The person who actually has a vision, and then the person who can translate that vision, that potential energy into kinetic energy, that is a really special gifted person. They don't come along every day.

The imitators can be really impressive, but one thing's for sure, they didn't come up with the idea. They're going to optimize it, or they're going to try to undercut it, or maybe they can take a new angle, which by the way would be an innovation and qualify them as an innovator if somebody takes a new angle. But the mere imitators, it's not just that they have cheap capital too, but why couldn't they catch the innovators and it's a capital story. I actually think it's more of a human capital story. I think that the people who are great entrepreneurs are just going to be that-- they're going to be that every time and they grow, too.

Especially, so many of them start young. So, we all think of, well, you had Alex on your podcast a few weeks ago, I don't want to overstate for her. I don't want to put any pressure on her but think about Bill Gates, Steve Jobs, people who dropped out of college. People like Mark Zuckerberg, who just got it early on, Tom and I were in our 20s when we started The Motley Fool not putting ourselves in those ranks, but just pointing out pattern recognition around youth and starting things. So, usually, the youths who can-- We're not a public company. What really blows me away are youths who can actually take their vision into becoming a public company. That is a really hard thing to do and that's rarefied air. So, there are lots of reasons that those people are hard to compete against. Their moat isn't just that they got capital first or got it cheaper. And if you can get cheap capital, don't expect unless you're the first eye, don't expect that you're going to be able to overcome them or be a big dog too. You might but for the most part, my money is always going to remain with the innovator.

Bill: It's funny as you were saying that I was thinking the lifecycle of The Fool must have given you unique insight into what different skill sets are needed at different types of growth curves within the company, and to be able to say like that, you know, it's a different skill set to take a company public. I have heard it said that the skills, this is more on a small business context, but to get a company from $0 to $5 million in revenue is different from $5 to $20 is different from $20 to $100, and then even, they're just different. So, to see somebody that can found a company, grow the company, take the company public, and then also deliver on the promises as a public company that is, as you say, very rarefied air.

David: It is and these are again not just some of the best companies of our time, but I think some of the best people like you think about Tobi Lütke at Shopify, that is a remarkable human being.

Bill: Yeah.

David: I kind of love him because he's a gamer and I'm also a gamer. He's geeky enough to talk about board games or computer games and I am, too. But even if somebody is not a gamer like, I don't think Jeff Bezos is a real video gamer.

Bill: He doesn't strike me as one.

David: Amazon is now doing Amazon games and has an emerging hit with a massively multiplayer online role-playing game. But I don't think Jeff spending as much time as I am playing his board games and his video games. But the people who are doing what these people have done, they're just very few of them and you're right. I think there are different stages of companies, it's worth paying attention too, Bill, I agree with that and sometimes, somebody can exist through all of them and be kind of chameleon like or just a learning machine and just keep growing. One of the watchwords of the conscious capitalism movement, which is something near and dear to my heart, I'm on the national board is a really important insight, I think. It goes something like this. "Organizations cannot outgrow the level of consciousness of their leaders."

Bill: Hmm.

David: Boy, do I think that's true? If you-- whoever you are listening to Bill and me right now, if you are either an existing CEO, or entrepreneur, or an aspiring one, just realize that you more than anybody in your company need to keep learning in order to allow your company to grow. If you're stuck in some way, if you think you know what, we're only going to hire this type of person, because this is who I can work with, you're not going to be able to hire all the other types of people then, and you're probably not going to grow past that. So, much is made of glass ceilings in this world, a lot of times it's been sexism in the workplace, women not having as much opportunity, that's a real glass ceiling that we've all kind of grown up with and seen. There's another one out there and it's your own level of consciousness. So, I think when we talk about these, managing a company from $0 to $5 million, $5 to $20, $20 to $100, the people who do that are learning machines. They're growing as they go, and by the way it doesn't mean you're a bad person. If you don't want to do that or if at certain point, you want to hop off and go, "You know what, this thing's gotten big enough. I think it's time we brought somebody in who can operate at this scale, who's done that before," and a lot of great companies have done that, have brought in those kinds of CEOs at the appropriate moment.

Bill: What was it like going through that with your own brother? Did you get into like, I watch, I've got three little kids, yesterday they spent most of the afternoon on the trampoline just beating each other up and crying.

[laughter]

Bill: Do we have any of those like childhood tendencies come out at any point or what's it like to manage a family relationship while growing through a company?

David: Yeah, I think it's hard and great. It's both, it's both. That you fall into a lot of rhythms like I'm the oldest in my family, and I don't know where you are Bill.

Bill: I'm an only.

David: Do you have [crosstalk] story of your own? You don’t know?

Bill: I just had dogs.

David: There you go. Well, now you got three. So, you got an oldest, a middle, and a youngest, and that's what we have in our family. I'm glad and that's the family I grew up in. My wife, ironically, also had a family of three and we have a family of three. We're definitely done because our youngest has just graduated Vanderbilt. So, yeah, three. There are patterns, there are whole books written on birth order and how we behave depending on what we are, and of course they're full of generalizations. We can all point out immediate examples of things where that was not the case. We can all see exceptions, and yet often exceptions make the rules. So, I think, it's fair to say as a fellow eldest, and I'm not speaking to you, Bill, because you're an only-- so you're an everyman, but for anybody-- [crosstalk]

Bill: I don't know what I am. I'm somebody that wishes I had a sibling is what I am.

David: [laughs] Well, I'm so glad you're a dad because what a wonderful experience that is. Now, you got three. So, you're doing that for kids and that's awesome. From my standpoint, as an oldest, I feel like I always had to win, you have to beat your younger siblings, you have to win at the games. Otherwise, you start to question yourself, "Am I not worthy?" So, I'm assuming that some of that beat up that was happening on the trampoline was your oldest feeling like he or she needed to be ahead, needed to be winning. That's how we're pre-programmed and that's not great when you get to be adults if you still think that. So, I'm really happy to say that somewhere around 14 or 15 years ago when Tom midway through our company because we had 50 years before that. When Tom became our CEO, I was like, "You go, Tom."

Bill: Yeah, that's cool.

David: I've never wanted to be a CEO. That's not something that I feel called to do. That's not a way I want to spend my time. A lot of people though, that's the most meaningful thing they do in their life. CEOs are creating so much value in the world, although sometimes they're a little overrated because in the same way, everyone's talking about the quarterback versus the quarterback for the upcoming game this week.

Bill: Yeah.

David: It's going to be Mahomes against Brady. Well, actually Mahomes and Brady never are on the field together against each other. They're just the media's portrayal of how the story we should tell ourselves about that football game coming up. Well, similarly I think we over glorify the roles of CEOs, and I'm guilty of doing myself by saying, Tobi Lütke or Steve Jobs, when I as well as anybody know it takes a culture, not a person, and it takes a great team, and if you want to get really good as an investment researcher, and I'm not trying to be one, this is just throwing it out there for anybody who's interested, I would say, start getting really interested in who the Chief Marketing Officer of that company is or the Chief Content Officer, Chief Financial Officer.

I think, there's a lot of quarterback coverage of the CEOs of companies today when I very full well as an entrepreneur known, Tom does too, that it's the team that we have and it's this remarkable group of people who've been with us for a couple of decades and we're still just growing up, we're still a young company and so we know the importance of the team. I think I've now gotten lost somewhere in birth order and oldest child-

Bill: That's what happens on this, man.

David: -your kids, and I want the best for your kids, Bill. They're getting a great experience because they're growing up presumably with a dad and a mom who have their head screwed on, right? They kind of know what works out there in the world. You're humble enough to realize. As a parent, you're going to get things wrong and you're going to discover that, by the way about 24 years later when your kid says, "You know, you once said this to me dad or mom."

Bill: Yeah.

David: You're like, "Wait, I did?" "Yeah, and I'm still crying about that [laughs] 24 years later. I'm sorry."

Bill: That's right, and now I'd like you to pay for my therapy. [laughs]

David: You're like, "I'm sorry, I didn't know." We're all Fool's capital left, we're all muddling through trying to make the best of what we can to try to bring us back to the conversation we were having. It does remind me that investing is just one part of our lives, and at least for my podcast, I've always said it's 1/3rd investing, 1/3rd business, 1/3rd life. It doesn't make sense for me not to talk about the other two thirds, if you're focusing on any one of those thirds. So, it's all a piece, everything's connected, it's all of a life, and so when I think about these great companies, they are so connected into our world today. That's one of the things I've talked about in our book, Rule Makers Rule Breakers, which was published in 1998, I wrote a little bit of a section something I call the snap test and the snap test is simple as this. If you snap your fingers and overnight the company that you were invested in disappeared. The next day would anybody notice, would anybody care?

As a young investor, the companies I was buying, if I snap my fingers, the answer unfortunately was snap test fail. No, not many people would notice, not many people would care. It's because at the time as a young investor, I thought it was all about finding the Wall Street's not following these guys, third or fourth player in a niche industry, and we're going to discover those in my head. I was telling myself before Wall Street, and then they're going to get the Wall Street coverage, and at that point, the stocks are going to start going, and then I'm probably going to sell. Eighteen months or so later, I'm going to try to have doubled my money by finding what's off Wall Street as then it gets discovered by Wall Street. What I discovered is that I was investing in companies that had no real traction with society or culture. So, I've gone 100% I should say, I guess, 180 degrees the other direction and said, "You know what, it's all about the companies that if you snap your fingers, everybody would notice and everybody who care." maybe not globally, but maybe within that industry, or that fad, or trend, or site, or app that people would deeply care. That for me is a reminder that the entrepreneurial enterprises that we're creating-- we're trying to create things that really matter. I'm not that excited about NFTs right now myself because I don't feel like they matter that much.

Now, I realize some people, crypto bros, notwithstanding, I realized some people really love crypto and they see the possibilities. I think I see some of them. I'm a for person not an against person. So, I want cryptocurrency to solve real world problems and some aspects of it do. I want NFTs to solve and be part of the real world, and then there's the whole Metaverse conversation. We're probably not going to have today, Bill about what is the real world but regardless of where anybody comes out on that, finding things of real consequence that really solve real problems that's where we should have our money and those as entrepreneurs, those are the enterprises we should be starting.

Bill: I found your sentence interesting. So, you said I want to find companies before Wall Street covers them so that I can sell them in 18 months.

David: [laughs] Yeah, that was me at 18-- That was me at 18.

Bill: Yeah, I wonder do you think that the problem was that you were coming at it from a when can I sell it perspective, where now your philosophy is, I want to be the first public investor to own it, and the very last to sell it. It's just different, right? It's a flipping mentality from an ownership mentality.

David: It is. I would say and I'm looking with fun this back at my 18-year-old self. He was trying his best and he was learning as he went, but I would say I had multiple fails that were going on. Let me first, by the way, mention that, I had the great blessing of having a dad who loved the stock market. I mentioned earlier Washington Post company, we allowed that stock to blow up in our portfolios. Dad was a Buffett fan, dad was well diversified, and his older brother, speaking of older brother started a very excellent money management firm in Lancaster, Pennsylvania today called Gardner Russo & Gardner. So, we were from a family that got the stock market and knew how to invest for the long term, but at the age of 18, he gave to me the account he'd started for me at birth. He said, "Here you go. This is all you're ever getting from me. Anything else that I have left when I die? Unfortunately, he hasn't. Yet, will go to your kids. So, this is what you have, don't screw it up."

He didn't quite say it that way. He's a kinder person than that, but he had really taught me a fair amount of what he knew about the stock market. He was not an entrepreneur, he was a lawyer, and his one requirement of his kids, and he told us this in no uncertain terms is, "The one thing we couldn't do is be lawyers."

Bill: Oh, yeah. [laughs]

David: So, none of us was. At the age of 18, I think the two clear fails that I had where I had been taught out of Value Line, which is a big old black tome that some people will recognize, and I see you nodding your head. Since we're seeing each other over camera Bill, you recognize it. But you know the kids--

Bill: Yeah, they don't know what Value Line is.

David: -they're kids. They may not really know and maybe they shouldn't need to. It's going to become a part of history. But back in the day, it was an incredible research resource of numbers. It was one page for each company arranged by industries generally, and in a world pre-internet where it would take a long time as a mom-and-pop investor to assemble data like that. You could subscribe to Value Line at an affordable price-- little bit of a higher end affordable price, and you could have all the data, all the numbers on all the companies of consequence and that was an incredible resource. I was taught and Tom was too, out of that. So, we were all about ratios and numbers on paper.

Bill: Yeah.

David: The two fails that I was exhibiting as a young investor, one of them was, I didn't really know that much about the businesses. I didn't have a lot of experience and so I was investing based on the numbers on paper and the ratios of things that looked like they were "undervalued." That was number one. Number two, yeah, I had a shorter-term mentality, I truly was just thinking, and it's ironic. Because you should have the longest-term mentality of all when you're 18 as an adult versus 28, or 38, or 48, I'm nearing 58. At the age of 55, ironically, I think longer term than I was when I was 18, but at a certain point, we start counting how many years will we have left and then we start thinking probably, appropriately in a little bit shorter-term way in terms of how we're going to live on this and what we're going to do with it. But anyway, so those were the two fails that I started with. I don't blame dad at all. Dad was such an amazing dad. He funded the capital that he gave us, basically, was the seed money for our company.

Bill: Oh, wow.

David: The Motley Fool wouldn't exist at least in the way it does today if Paul Gardner had not saved money from his own professional career, invested, given some to his kids, taught them, and then lose them upon the world at the age of 18. There's a whole story we're not going to tell today, but it's The Motley Fool business story, which has rarely been covered in recent years. But it's basically about how we didn't have to go out and get VC funding at early stages so that as everything melted down in 2001, and as we laid off 80% of our employees, which was we went from 435 employees to 85 in nine months, and that hurt a whole bunch. But we had the capital to see it through and we didn't have anybody who was outside capital telling us, "You know what, you need to do this, you need to sell, you need to-- whatever it was. There was no capital tail wagging The Motley Fool dog." That goes back to a dad who got started with seed capital and taught us, I think the right ways to think about business.

Bill: That's really cool. I'm just curious to hear when you have lived through that, one of the knocks that people have on some of these high multiple stocks, and I have said it in the past, too. I'm morphing quite a bit on my knock, but the share-based compensation dilutes the minority owner. But what it does do is it shares the risk of capitalization among employees, minority owners, owners. So, now you don't have debt on the balance sheet, you risk maybe having employees get dejected and/or needing to reset their options base if there's a crash, but you don't get in a liquidation scenario if you don't have debt. It seems like your balance sheet was part of what helped you get through the tough times that and a whole bunch of emotional resolve, I would imagine.

David: Yeah. Well, of course, a huge thing that helped us get through the tough times was laying off 80% of our staff, which didn't feel good in three different tranches of about hundred people each and each time we did we're like, "Well, we won't have to do that again." And we did two more times after that first time. But it's not like we were brilliant allocators of capital and we had the money to weather ourselves through 2001. I will mention, by the way, we did weather ourselves through 2008, 2009 with no layoffs as Lehman Brothers failed.

Bill: Oh, wow.

David: All kinds of Wall Street layoffs and changes happened during that time. We've been basically very fiscally strong ever since in a way that just blows me away today. But back in 2001, there wasn't that much fiscal strength. We were still early stage and we were upside down in terms of our revenues and our expenses. That was the plan. That's what a lot of companies do as they scale is they spend cost ahead of revenues they expect. We've been successfully doing that for five years and growing something quite special, and then all of a sudden, people weren't opening up their brokerage statements, and our advertisers were canceling as the World Trade Center fell apart, and the Pentagon, which is near full HQ got hit, and all of a sudden, all of the assumptions that we'd had up to that point, we had to throw out and rethink things. There're additional stories that I'm not going to tell today but if we ever went deep on, what do we learn as young entrepreneurs? The experience of having started a newsletter for our parents' friends in July of 1993 and it was just that. That's all it was. Literally, inside of three years, we were on the cover of Fortune Magazine-

Bill: Wow.

David: -which is just astonishing and then four or five years after that, we're laying off 80% of our staff. I mean that kind of boom-bust experience was formative for us. We're not bipolar, I think, I hope not.

Bill: [laughs]

David: We don't want the booms if we're going to have to have busts. We'd much rather have Steady Eddy as we've had for the stock market for 10 amazing years here, but we also know that in the world at large things are unpredictable, they always will be, in the story of the human race is adapting and evolving when necessary. I've definitely seen us do that as a company, but the learnings that we got early days made it so much easier now, later days, Bill for me to feel like a loser and be okay with that. One of my big themes that I've sounded many a time to rule breaker investors is that, I have picked more bad stocks than anyone in Motley Fool history. You've talked about some of our storied investors who are with us today or have come through our halls over the years, and I've picked more bad stocks than any of them, and I've picked more bad stocks than any of them.

Bill: [laughs]

David: And that is really important to accept and a lot of people can't take that or do that, they don't want to lose. I'm happy to be the NBA player who literally airballs it from the free throwline 11 times in a row. If I know and I do know that the math is on my side with the approach that I take that we're actually going to win maybe more than anyone, but it's partly that willingness to lose and so I think as an entrepreneur experiencing that firsthand in your face, people like just torturing us, like the Wall Street Journal writing Awake For The Motley Fool's and it was like a funeral wake, and they were interviewing a member who'd lost 30% of his kid's retirement account because he'd followed The Motley Fool. That was like the leadoff story. So, often there's a media cycle, which I'm sure you're familiar with where they build you up-

Bill: Oh, yeah.

David: -then they're going to tear you down because that's interesting and then eventually you'll probably come back and they might cover you at that point sometime. But you know what, the buildup and the tear down is the real cycle that I think excites the public media. It happens in finance, it happens in sports, it happens in culture. But the way to live past that and through that is to not think about that boom-bust cycle, but just to be resilient, which to me, is the true story of entrepreneurship. Actually, one of America's core values I think is resilience, and the media doesn't really have a way to understand that or play with that. So, you really haven't seen a story about The Motley Fool business. I don't think anybody's asking us to be on the cover of Fortune Magazine these days.

Bill: They probably should. [laughs]

David: Well, we are far more worthy of that than at any point in our history today with one of the best CEOs in America I think. But you know what, it's not part of the new cycle. But forget about new cycles, let's go back to investing. This is the same thing we do as investors. In order to hold Amazon through to today, you had to go from, as I did from three to 95 back to seven, yeah, and then actually from seven to 70 to 700 and to 3,000. You have to just be there, and live it, and own it, and be willing to lose, the studies, you know, this stuff better than I do, Bill. But most of the great winning stocks had 50% or more declines multiple times over the course of time. So, I've always just simply ignored those and tried to increase my allocation and not sold the best companies of our time, which is what I'm hunting with, by the way, the first attribute of real record stocks and I don't even know that we need to go to the other two through six, we certainly can but any one of these is its own conversation, and I've had a lot of fun talking through this with you.

Bill: Well, I think we sort of have. For those that don't know, you've got some sustainable competitive advantage, strong price appreciation in the past, people in management, consumer appeal, and companies that people consistently say are overvalued. That's the summary take. But I think that what we have discussed frames a lot of how you came up with that list. So, emotionally, one of the things that I just admire about you so much is the ability to hang in there when presumably, Amazon runs to 70. Okay, it's a big part of your portfolio at this stage. Now, it's down at three. I think if you're reading-- Right, I read the Amazon store and it's like, "Management is leaving the firm and everything looks like it's in chaos." There's a reason the stock is down. There's like three kinds of questions here. Question one, how do you emotionally get through that pain, and question two, I guess is how do you follow the story and not get scared out of the position? I think, those are the two big ones.

David: Well, those are great questions and I have answers for them. But I'm conscious and I probably done this sometime in our hours so roughly we spend together where I sound like I know the answers. I'm going to sound like I know the answers, because I have answers for those. But I'm also always the first to say I'm a Fool, there are probably better answers than what I'm giving or alternative answers. So, there's just kind of my answers. But I don't ever want to come off as glib because almost anything that I've learned, I had to go through multiple iterations in order to get where I am today and I'm expecting to go through additional iterations going forward, and be persuaded that I'm wrong about this other thing, there's a better way to do it, and I'm going to keep trying to learn those as we go. Here are my pat answers, not pat in the sense that they're pre-programmed, because I didn't know what you're about to ask, but I have thought about a lot of things and done a lot of things. So, my answers, first of all, the emotion. You asked two things, basically. How do you deal with the emotion and then the second thing you asked is, how do you not get scared out of positions?

Bill: Yeah.

David: How do you deal with the emotion? I think, you probably have to ask yourself, "How well do I know myself?" We all feel emotions. That's what makes us human. That's a big part of who and what we are. But how we process emotions is very different. Some people have a high degree, higher than mine of self-awareness. They know that they're feeling that emotion or even better they know ahead of time that they're going to feel this or that emotion based on how things shake out at their corporate off-site next week or as they pop the question to their fiancé three months from now. They're thinking about that, they're self-aware. Then there are people who are just not so much or who just kind of-- maybe it's so much that they live in the moment but they don't have necessarily full control over their emotions. There's probably some Spock, Star Trek like tangent, we won't go on right now about, if you can master your emotions, how much more effective you can be? And yet we're human, we're not Vulcan.

Bill: Yeah.

David: Let's make sure that we lean into who and what we are. But I think that you need to become emotionally intelligent. I am not a person-- I don't think I have a high EQ, particularly, I'm not an exemplar, I'm not putting myself out there. But I admire people who are and I've tried to learn more. I love old fashioned words like character. To me, that explains a lot of our world today. But some people think it's, I don't know, tradition or too old school to talk about something like character. I went to schools that talked about, I went to summer camps that talked about character, and when we talk about kids today, I'm like, "You know what, is there a class on, how about this, character?" Some places do have those things and some people get those, let's say through church maybe, not so much through their school, although for most of us, I hope we get it from our parents. Not everybody has two parents, and not everybody even has parents. I think that these things really lead to integration, and balance, and I'm the first to say I'm not trying to be balanced. I actually tried to be awesome at booms and awesome at busts. I'm not trying to balance things out. So, there's never booms or busts because life will always have them. So, to me you want to get better with your character. Many of the best entrepreneurs and many of the best investors are people of extremely high character. I've seen that firsthand. I don't know a lot of billionaires, but I know a few billionaires, and while billionaire seems like it's vilified by many people today, it's like, "If you cross over a certain number, a certain numerical threshold, you're now evil. Clearly, you've exploited people to get there to be that person." While that may be true of some other countries where, "I'm not sure who really earned their wealth in some other countries. I believe in our country we have the best one to one of going out there and earning it." We have more real Horatio Alger stories in this country than maybe all others combined if you look at modern day business, and it was true hundred years ago, it'll be true hundred years from now. I think, if we remember what makes America truly great, not great again, truly great, I think about our values, and I think about character. So, I think that getting better at emotion is going to help you with your investing and your business in your life. That was a shaggy dog answer to your first one.

My second one is much easier to provide. It's how do you not get scared out you asked? My answer to that one is that, you realize that the snap test works. It works. So, for me people are getting scared out of their stocks and that's because that's what they own. They don't technically-- Well, they might-- they may own a pair of Lululemon man pants, they may have the pants, they may have the product, but it's the stock that they own. So, that's what they're looking at ticker symbol L-U-L-U. It's the stock that they own and so, they think, "Maybe I should sell this because it's down or man just took a 30% haircut on tough earnings, or is this company still relative, is Peloton for real past the pandemic open question." So, they start asking those questions and I think all they need to do is snap their fingers and look at the business, not the stock and say, "Will anyone notice, will anyone care, and will everyone notice, will many people care? I think, what's made it easier for me not to get scared out is at no point did Netflix, which I've now held for 17 years and counting, my cost bases is like two bucks.

Bill: Ooh, spiff it pops like every day for you now.

David: We finally got to my favorite word-

Bill: [laughs]

David: -somewhere in the second hour of our discussion and I often lead with that because I want everybody to know what that is and some people who heard you know exactly what you mean, and many people who probably heard that, it was just like, "What did Bill just say?"

Bill: [laughs]

Bill: We'll get there. Netflix, our cost bases for Motley Fool Stock Advisor members is $2.33 and it got knocked down a few months later. So, I recommended a buck 85. So, those are really low-cost bases. At no point has Netflix not passed the snap test. At its darkest, most Qwikstery moment, Netflix still was so relevant, so important, and even with all the negative press coverage, talk about media cycles, talk about building the app, and then knocking you down and by the way, it wasn't just the media. Reed Hastings would be the first to say that was kind of a self-inflicted gunshot wound decision he made temporarily to split the DVD from the streaming business. It was actually very farsighted I think. I think it was bad timing on his part. I think, he accelerated toward a future people weren't ready for yet with Qwikster. We're not going to talk about Qwikster too much right now. I don't think, but even then, even like Netflix's worst year, the stock sells off 75% I think and so, you know, my awesome, amazing spiffy pops and cost bases, I was getting spiffy dropped-

Bill: [laughs]

David: -left, right, and center, and there are a lot of people saying, Bill-- [crosstalk]

Bill: I don’t know that I have ever heard you talking about spiffy drops. [laughs]

David: Oh, I've got all the languages spiffy. Believe me spiffy drops are a thing. Even at that moment, go back and check it. But it's something like Netflix had its membership base, I'm making these numbers up, it's close. It was like their members were at 26.4 million and after nine months of the worst Netflix results you could imagine, they had lost membership down to, I'm making this up 23.5 million or maybe 20-- Did I say 26.8? I should say something that's more like 25.4. I think they lost about 1 million subscribers, which you'd hate to do that as a membership business and that would really hurt The Motley Fool business because that's about our membership base. So, if we lost a million, we wouldn't have a lot left at this point. So, that really hurts. But when you're actually-- when that's just 4% of your membership base with the worst decision you could make, and the worst media coverage, and your stock selling off 75%, I wasn't scared out. I don't think I ever once considered selling Netflix during its worst public moments. I've been greatly rewarded and we can also talk about all my bad decisions, too. But all of my best decisions NVIDIA cost basis buck 63, Disney cost basis buck 81, thank you Marvel, Amazon cost basis $3.21, Shopify, Trade Desk, which had an amazing move. You and I are talking in early November, just one day after a huge multi spiffy pop for The Trade Desk.

Again, this podcast will come out a couple of weeks later. So, I won't be as [unintelligible [01:05:46] maybe Trade Desk will have sold off the week that this comes out. But I mean, wow, that is so awesome to see Trade Desk come out. There are so many Motley Fool members who own that stock. It went up $20.20, talk about seeing 2020. This was on November 8th of this month. It went up $20.20 to 88.75. Our cost basis is $3.43. So, when it goes up $20.20 in one day and our cost basis is $3.43, by the way, that's only four and a half years old. That's an incredible stock. Anyway, we have a knack for finding these companies. But I also will say Bill, I have a knack for not selling them. It's because I don't get "scared out" because I'm not looking at the stock. I'm truly looking at the business and I'm snapping my fingers.

Bill: Okay. So, I got a couple of things. Trade Desk, a new and emerging important industry. I think that the answer is probably that you're just okay being wrong at times.

David: You bet.

Bill: How do you define the new and important emerging industry without being like too narrow on it? Trade Desk is connected, advertising or that's not the right way to frame it but online, okay.

David: [crosstalk] It is though, they say programmatic advertisement.

Bill: Yes, that's right. Okay.

David: I'm not an industry professional myself. This is where I know a little bit enough to be dangerous, but I don't know a lot of it. Because I think my own orientation is mile wide, inch deep. I think I can make connections many people don't because they don't try to be a mile wide. But don't start asking me too many hard questions about even Netflix, a company I know and love because people know so much more about that industry than I do, even though, I love the stock and I've owned it for 17 years. So, Trade Desk, Bill, for me top dog and first mover because The Trade Desk created an exchange that was like eBay, except rather than selling collectibles back and forth to each other, what they were doing is they were matching buyers and sellers for ad placements in a world gone ad mad, because it isn't just bus wraps in Cincinnati or Super Bowl ads, it's a little tile on Bill's podcast page. Oh, it could actually be eight tiles if Bill wanted to on Bill's podcast page. So, you end up with infinite space.

Bill: Yeah.

David: And we're not even talking metaverse right now, my friend.

Bill: Yeah.

David: Infinite space and The Trade Desk showed up Jeff Green, brilliant founder, one of those people who converts potential to kinetic energy. Seth Godin, one of my favorite people, when we talk about ad and branding, Seth Godin, with Seth's blog, Seth basically, has always said, "You know what, the world doesn't need, your great idea." The world doesn't need another great idea. We already have so many great ideas. People come to me up at an investment conference or they drop me emails that say, "Hey, I've got this great idea. You got to sign something first, though, before I share it with you because it's such a great idea." I'm smiling a little bit inside because I think I have some great ideas that haven't been enacted yet. And guess what that's the point. "What the world really needs is people who enact things," says Seth Godin, is people who build who actually make stuff happen. That's the rare talent that's missing in an ad, I should say ad mad in this context world.

So, Jeff Green actually went out and created an exchange, where buyers and sellers, one second to the next, even as we're speaking right now, are actually agreeing that this will be the price for bus wraps in Cincinnati and for tiles on Bill's Business Brew Podcast page. And wow, what a brilliant model. Buyers and sellers shaking hands in an eBay like platform for ads. So, that's what The Trade Desk has built. Are they the only one in the space, are they the first one the space depending on how we're talking about this? By the way, we're going to start getting to areas that I can't even speak to authoritatively. I would say, for me anyway, they're of relevance as a public company. They are clearly the out and out leader and I would say that was true when we first recommended the stock at $3.43 on February 22nd, 2017.

As the stock and this is an important point, maybe this gets us to another point in the conversation. I don't know if we want to go there but three months later, I had picked it at Rule Breakers, which is one of The Motley Fool services. Three months later, the stock was up 50%. 50% on the dot. It wasn't up 51 or 49%, it was up exactly 50%. It went from $3.43 to $5.15. By the way, if this sounds like penny stocks, I hope we all recognize that this is all because of splits. The stock was actually never a single digit dollar per share kind of a stock. But anyway, so, it had gone from $3.43 to $5.15 and I was like, "You know what, that's my new pic." This month, May 24th, 2017 three months later, it's up 50% and we're going to make this our new buy in Rule Breakers.

Again, that was at $5.15. So, when it tipped the scales yesterday at 88.75, I felt pretty good about that. But I even just to press this point home one more time. I made it one of my final recommendations as I transitioned away from picking stocks for The Motley Fool, which I did earlier this year for the Rule Breakers service on May 13th of this year, I said, "You know what my new idea is, here it is. It's The Trade Desk." Then it was trading at $49.35. So, hey at 88.75 in November, that's up 80% from May and so the lesson here which gets us into other Rule Breaker thinking, which isn't about the stock trades, which is what we covered, but more about how you behave as an ambassador, the six habits of the Rule Breaker investor, one of them is we add to our winners. That's very psychologically difficult for many people to do and I think that, that is one of the neat mental tricks that I've happened upon and I think I'm wired differently, but I've been doing that for a long time. I just took you through as an example, The Trade Desk, and that is a living example. But to get back to scared out that was the question that triggered this, Bill. You're saying, how do you not get scared out? Not only do I not get scared out, I actually, what's the opposite of scare, brave? I bravely buy in at higher and higher prices. I'm not actually trying to accord myself. Courage, I think, courage is something that happens on the battlefield or in the harder moments of life, not just saying, I'm going to add to my winner, but man, do a lot of people have a hard time thinking and acting on that instinct?

Bill: Yeah, I continue to-- even in this conversation, I'm just grateful. I can't believe that we're talking. I wouldn't have thought it a year ago when you said make it a year before we talk. But--

David: Did we talk about that, Bill? I don't know if you let off with that.

Bill: No, we didn't.

David: I want to give a shoutout here to Bill Brewster. If you're listening his podcast, I assume you're a Bill fan.

Bill: [laughs]

David: I know, he's got a lot of them and I enjoy Bill's podcast. I've listened to it and of course now I'm getting to be on it. But you invited me on a year ago, Bill, and at the time it was a newer podcast, and one of the things that I do is, I don't join with somebody's new podcast. And the answer, the reason is because everybody's got a new podcast.

Bill: Yeah.

David: And so, as a longer-term minded person myself, I want to see somebody actually earn it with kinetic energy out there for a while before I'm going to join your podcast. So, you got a kind of a disappointing message back from our media and communications team. They're really nice people but they said, "You know what, Bill, we hear you're a fan, thank you. Dave's not going to be on your podcast. You got to wait till November 2021."

Bill: This is true.

David: That's exactly why this is happening right now. So, the shoutout, since you're a Bill Brewster fan dear listener, you should know this is a guy playing the long game. A lot of people be like, "Ah, forget it. I'm never going to talk to them." But Bill's like, "Okay, fine." So, one year passes and here we are. We got a lot more years to talk together. I'm looking forward to hanging out with you in Omaha someday-- [crosstalk]

Bill: Wherever you want me to go, man. I'll come to meet you.

David: Wherever you want, Bill.

Bill: But I do think Omaha would be fun for you.

David: Appreciate that. But I really do want to say that, to me, that's a character thing. That's somebody who's not going to say, "Oh, forget it. I don't like The Fools anymore." You're like, "Okay, I'll keep doing it and what did you do?" You've been churning and not burning, except in a good way. For weeks and months, and you're building up a great following with your podcast, I enjoy being on it. But I want to make sure people know that backstory, because Bill would probably be too humbled to have let off with that in the opening to this week's podcast.

Bill: Well, I think some of my fans are aware, but I'm glad that we're doing it now. What I was going to say is, it's funny, too-- So, I'm not a hedge fund manager, right? I'm not trained in that field and I learned from Buffett who I think is like probably the alpha hedge fund manager of all time. My perception and it could be completely learning the incorrect lesson, that's very possible. But is wait for a stock that's come down in price or value, and then swing hard. I have morphed after listening to you and I'm very fortunate, I was given a portfolio of stocks for my grandma recently and I-- [crosstalk]

David: Love it.

Bill: I opened up the portfolio. Her cost basis in Microsoft is like a buck 38. Her cost basis is Striker is like under $1, I think it's 97 cents, Coca-Cola pays her as much in dividends as her cost basis. It's insane, and it got me thinking and as I've studied you more, it's like, "Okay, well, if I'm waiting for these businesses that the market tells me have major problems and then I'm swinging really hard and saying, "No, I know, I know, bigger than the market and I'm willing to bet a lot of chips on that."' Is that really the smartest game to play for an individual? Hedge fund people can do hedge fund things. But what I'm starting to really come around to is, it makes more sense.

I have no idea. I don't own Peloton, but I'm intrigued by Peloton here. I have no idea whether or not we're going to come out, and in five years, it's just going to be obvious that this was another at Home Fitness Equipment Company that went away. My bias is not. I'm a user, if you snap the fingers and said, "Peloton has gone away, I would care in a big way." I think a lot of other people would care in a big way. Wouldn't it make some sense to own, I don't know, 50 basis points or 100 basis points or whatever of that position, own a part of the company, and then add over time as it grows.?

That's just how my head is thought, but I have come to the feeling in my bones that that is a more anti-fragile strategy than the one that I have tried to practice. I know that a lot of people may be upset to hear me say that, but it's the truth for myself.

David: Well, you know what, I love the truth. Obviously, one of the things we've learned especially in the last year or so is, some people's truths I didn't necessarily know. There's not necessarily one truth. Each of us kind of has what we have to go on. I think it's one thing that you and I are united in is that, we're basically making ourselves accountable, we're putting ourselves behind a microphone on a weekly basis and doing our best to learn, to have interesting people, to welcome in as friends, to share those interesting people with our listeners as new friends for them, and to watch us grow over the course of time.

Some of the things I've decided as a rule breaker investor, I didn't know when I started my podcast seven years ago. I think I'll say the same thing seven years from today, about the seven years in between today and seven years from now. So, I think that what we're doing is, we are trying to figure out what the truth is, and then share that out. And also know that even though it may have worked for me, my truth might not be your truth. A quick example for me would be that not everybody has the same psychological, crazy makeup that I do. I am a risk taker. I am comfortable with that. I'm comfortable with highly over balanced positions. Many people aren't. Even if they were, in some cases, they should not be based on their living circumstance or their context.

One of the great goals of life, to know thyself as was once scrawled, I think, on the Oracle at Delphi back in the day was "know thyself," and it's something that everybody has to do. So, I don't think you can copy my Rule Breaker approach and it works just the same for you as it does for me. I don't think you can copy Bill's approach, and even if you did, Bill might have changed his approach because his grandma changed his viewpoint. I'm really glad you shared that story, Bill because I had a very similar experience and I wrote it up in one of my more read articles on the internet. I don't write articles on a regular basis or haven't specifically for free@fool.com. I haven't done what Morgan's done. It was so fantastically for The Motley Fool for many years and then for himself for years and for collaborative fun for years.

After that, I haven't actually written a ton of stuff out there. I put myself out all the time as a podcaster. And to our members, they've seen my essays and stuff for years and years. But one of my articles that I did write is called 'The Greatest Secret of All' and anybody can Google that phrase. I might even be above the fold for Google results. There's no SEO operating.

Bill: That's pretty awesome. That's pretty good.

David: I think it's my favorite, I think I might have just owned it. But even if and people may hear this podcast two years from now and may not be the case, but if you try greatest secret of all, I might be above the fault, which is a pretty awesome phrase [crosstalk] ranking on Google. But even if I'm not, if you type greatest secret all Gardner or greatest secret all Motley Fool you will find this article. But you can skip it, dear listener, because you're about to hear a very condensed version with spoilers. I had the same experience build it.

In my case, I was 25 years old. My grandfather who had died when I was six, that trust was managed brilliantly by my uncle, Jean Gardner of Gardner Russo & Gardner. It was my time, the day I turned 25 to fly to Lancaster, Pennsylvania with my dad and we met my Uncle Jean, and he said, "Here you go. This is your grandfather's money. It's skipping a generation to you tax advantage that way. I have managed this for you. This is now yours." As I looked up and down the brokerage statement, which had I'm going to say maybe 20, 25 positions, I saw the exact same thing that you just described your grandmother gave you as a gift, and not just a gift of money, but a gift of perspective and learning because I saw cost bases that were ridonkulous.

They were like, same thing. $2.67 Martin Marietta, where is it today? This is old school like 68. Where's Berkshire today? I actually sold most of the stocks in that portfolio by the way, which is funny to reflect on. I sold my Berkshire, etc. But what I saw was life changing and life improving more importantly, because I saw, that's how I want anyway to invest, and that's how most of us who are not going to try to be traders or hedge fund managers, and there are some good ones. But for most of us, we're not trying to be that. We're just trying to manage our own money. That's The Motley Fool's market and that's a huge market out there, by the way, and more and more people are joining that market through Robinhood and cross generationally every day. People are realizing that this stuff is for real. This is a great way to wealth. And the way to do it, Bill, at least as our grandparents literally taught both of us and we didn't even get to look them in the eye. This was on paper, we see, "Wow. Find great companies, tenaciously hold them over long periods of time to yield multiples upon multiples of the original investment."

I don't have that low-cost basis you have in Microsoft, but I have some things like that and I've tried to do that for all of our members, for my kids, for anybody who's come in touch with me, or Tom, or The Motley Fool. That is the legacy we're creating and I'm really happy to say 29 years in it feels pretty great. Because people are now coming to us saying, I have now far exceeded my own expectations and I can now pass down wealth multi-generationally, and this was a dream when I clicked your site 22 years ago and that is why we do what we do. For me, I already have all I want and need. I have enough as Jack Bogle reminds us. You can have enough, you can find, and want, and get to enough, and I'm there. But man, is it endlessly fulfilling for me to hear from people on Twitter, or emails, or at Motley Fool conferences say, "I can't believe where you guys have gotten me." All I did, I wasn't a hedge fund manager, I wasn't a trader, I didn't spend all my time watching CNBC, I just basically bought Amazon, and Netflix, and I bought NVIDIA, and I bought Marvel or maybe they just bought two of those stocks, or four others that I didn't mention, because actually you only need one of those truly, Bill to have that kind of spectacular experience as an investor. The only way you're going to get to it-- sorry for the rant here, the only way you're going to get to it is if you actually hold that stock for as long as your grandma or my grandpa did and as long as we can as exemplars ourselves hold those stocks, that's the only way you're going to get to the monster mega winner, that will be a life changer not just for you, but for your descendants.

Bill: Yeah, I couldn't agree more and you know it's interesting. I look at the deferred tax liability now in a little bit different way, but that's a good problem to have. I just think about what if she was trying to trade a quarter, right? What if she had heard that Microsoft is going to miss and sold and then forgot to get back in?

David: Chasing teenies, chasing teenies do you know what that is?

Bill: No, I don't know chasing teenies.

David: Well, when we first started The Motley Fool literally, stocks were still trading in fractions. We were buying Amazon at 27 and a quarter. It sounds really old school. But even decimalization, which took hold somewhere around 20-ish years ago, now, we all take it for granted. But I think older hands will remember. This stuff was all in fractions. So, a 16th, if you were down on the floor of Wall Street and you're using Wall Street language, you're talking about teenies, 1/16th is a teeny. So, that's why I say, "chasing teenies." [crosstalk]

Bill: Teenies. I like it.

David: If you had a target price that was 1/16th higher and if we would just hit that you'd sell, there were all kinds of ways that we've told ourselves stories in our heads to trade ourselves out of stocks. Then, I guess, once you've done that, you do need to buy something else.

Bill: Yeah, that's right. You got to pay taxes and--

David: You got to pay taxes as you're saying and so. It's so inefficient in terms of how to grow capital to trade. There are people who have popularized trading, and I think that they have done incredible harm to the investors of the world. I think the people-- unfortunately, I think it's true of most of the coverage that the markets get today, it is so short term that it has created a sense that that's how to play the game. That's why when I talked about that stocked pond and McElligot's Pool that we talked about earlier, Bill, there aren't many people at our pond. It's amazing.

It's really sad when you think about the forces that have persuaded so many people to think that the stock market is a great big gambling machine, and you do need to jump in and jump out. I'm not going to sit here in judgment of anybody and as a younger person, I thought that that was more how to invest. I was doing the 18-month thing, that's still a lot more than 18 days, but it's kind of comical for me to think back on now. Because you want to get on board the train of capital appreciation and compounding at the earliest stop that you can find that train, and you want to stay on that train your entire life. If you start to jump in, jump out, or decide the market's higher, it's going to crash in 2022, or this or that stock hit your target price, you still like the company, but it looks overvalued, you're going to do probably irreparable harm, you might still come out okay, but you're going to do irreparable harm to your own financial future, your future self will be so despondent probably with your younger self if you take that approach. But I'm all about making--

I'm constantly being rewarded by my younger self. I'm looking back at photos of me 20 years ago, I'm saying, "Thank you. Thank you for picking that stock. Thank you for saying that thing that went totally against what Wall Street was saying or what seemed like the right thing to say thank you." This is not an exercise in self-love. Although, some people do need to love themselves a little bit more, I'm not one of those people.

Bill: [laughs]

David: But I'm constantly trying to be the me who stores up treasures for future me. So, future me looks back goes, "Thank you. That was awesome that you did that thing, or took that risk, or bought that stock." You know what, you lost a lot too. And I feel like I'm coaching myself, I feel like I'm my grandfather talking to me right now, but you lost a lot too and yet that wasn't what it was about was it because the math of it, the winners can make infinite times our money, the losers can only ever lose 100%, and I still pretty much never done that for any of our members with any of my bad stock picks. But man, the math is so obvious and you want to let those things multiply.

Bill: Yeah, the idea of chasing teenies is great and you know what, I wish I could tell my younger self that I look at pictures of, I wish I could tell myself, "Don't be so afraid of losing teenies." Because I think what you want to chase is whales. I can hear the younger me saying, "Oh, that's such a bull market comment." But I look at the businesses that I missed because I was afraid of losing a little bit of money on multiple compression or that I was afraid that they cost too much, and I just never-- I never bought it because I looked at current profitability or I looked at the current multiple, and I don't need anymore. It's probably a good thing that I don't have a lot more at this point in my life. There's a reason the world works how it does, but I am going to morph from being afraid of losing teenies to chasing whales and that's my commitment to myself because I think it's important.

David: Yeah, and I'm glad that we talked about being a podcast host, you're kind of putting yourself out there, so you said it, not I.

Bill: [laughs]

David: I do that all the time though myself and what you're basically encouraging is your community of listeners to hold you accountable to that. I'm never that hardcore myself. I'm not trying to make it sound as if everybody needs to email Bill once a month to-

Bill: [laughs]

David: -see if he's still living up to that.

Bill: Yeah. Thank you. I appreciate this.

David: You're putting it out there though and I appreciate that about you and I think it's worth it. I think whales are so much more important than teenies. I love that we're almost inventing our own language for this particular podcast but it's a great way of thinking about it. Whales have lots of different contextual meanings. Some people in the world of video games, do you know how whales, what that means for video games?

Bill: I don't. I should.

David: Okay. So, sure. Well, you're about to and a lot of your listeners will. But in the mobile games market, there are games that make a huge amount of money.

Bill: Okay, yeah.

David: Some of them lead to companies that are worth billions of dollars today, but the dirty little secret of a fair number of mobile games is that, the ones that have monetization built in, it's a tiny fraction of people that are buying everything in the game. Any advantage, anyway to save time, anyway to bling out your character a little bit more, and those people are called whales within the video game context. They're the ones that you definitely want to land for your app because they're going to spend in an addicted probably sad way so much money on your game that they're going to make you a huge success. And then there's by the way blue whales, and killer whales, and actual whales, but in our context, we're talking about whales as, to me, I often use the word 'monster.'

By the way, monster beverage has been a monster stock for us in Motley Fool Rule Breakers. We can't talk about all the winners out there, but I love that sometimes just language really triggers me to remember this great company or this great stock that we've had and monster is one of them. But I often just use the word monster which has a highly positive connotation for me. We're talking about the Rule Breakers, the world shapers, the world beaters, the companies that you want to be able to tell your grandkids as you hand them over the portfolio. Even if you're not there to tell them, you want to be able to say, "Wow, gramps, he owned-- Wow. Yeah, he owned Roblox. Look at that. That's amazing. Look, look, look at what it's become. It's now ruling the metaverse." I'm making this up. It is the metaverse and gramps had it. And look, it's down there at 37 cents a share 43 years later, right?

I don't want to be the grandfather who turned some things over and people like, "Wait, what's in that portfolio? I don't even know any of those companies. What are those companies?" I want to be the grandfather that you knew all the companies you like, "Well, we had that one too and that one," because look, they all went on to shape, in this case the past, but from this point forth our future. So, like the license plate of my car in Washington DC, I paid up for the vanity plate, nobody else wanted this one, 'future.' I have future, the Washington DC, if you ever see a Tesla probably speeding, probably getting nailed by speed cameras--

Bill: [laughs]

David: --although Waze has been my friend. If you ever want to see me around the Washington DC area, that's my license plate, and that's where I try to keep my head. I try to live backwards from the future and be picking stocks today that will make a lot of sense once we get there. By the way, there was no better experience than me as another person who has owned Tesla for a long time with a very low-cost basis. When I was driving my Tesla in 2013, my first one, I was like, "You know what? I'm actually driving in the future. I'm surrounded by everybody who's in the present, but I'm actually feeling what it's going to be like, indeed the whole world has ended up, I think going electric." I think that's what we're in the process of doing right now.

But William Gibson, the Sci-Fi writer. I've used this one a lot on my podcast. The future is already here. It's just not evenly distributed and that is true right now because I don't know everything that's happening, but there are things happening in labs right now, or new practices, new corporate practices, cultural, maybe not just high tech that are being tried and that are real, that would blow our minds if we could see it. I did see last week maybe you saw the drag race of the two flying cars. Did you see that, Bill?

Bill: I did not see that. Now, I have to look it up.

David: I'm a sucker for these kinds of things. But yeah, these are real. They're flying cars and they were drag racing in the desert going about hundred miles an hour through the air.

Bill: Wow.

David: The future is already here. It's just not evenly distributed. One of the things I love about The Motley Fool's growth is that increasingly, we are focusing for higher net worth or higher engaged members attention, of course, accredited investors because that's the way things have to work. We're focusing them on the private markets. We have Motley Fool ventures in our venture fund, and so that's getting us to see some of these things in earlier stages then I can pick the stocks. But I've only ever picked public market companies. I'm really happy with my performance. I think that's going to be true of all public market investors going forward. It's not about racing to get earlier stage to angel level. Nope, lots of mistakes will be made at angel levels. But I want to say that I love venture capital. I really love what we're doing. The leadership we get from Ollen Douglass, our Motley Fool ventures.

But anyway, the futures already here, Bill, and everybody listening. It's just not evenly distributed. But what that means is, even if you and I can afford a flying car, we can study them. How many people couldn't buy a Tesla back in the day, although maybe they can now especially if they own Tesla stock, but they were fascinated by it, though. They were like, "This seems so cool and indeed." The first time I drove a Tesla, it sure was for about 18 different reasons we don't need to cover here.

Bill: They're incredible. It's unlike anything else driving for sure.

David: I'm constantly trying to immerse myself in consumer experiences like that. If I can afford it, I'll probably buy it. That also means I have a closet full of stuff that didn't work-

Bill: [laughs]

David: -but I need to toss at some point, right? Talk about losers, like you have to be willing to be the closet guy, the embarrassing closet guy, but truly as consumers, and I'm talking about mom and pop here. I'm not talking about hedge funds, I'm not talking about subscribing to Alex's Red Rover service. You can do that. But I'm just talking about going out there and leading a more interesting life yourself. And you can Google stuff, you can read things on the internet, you can go out and try things, and that to me is a lot of spice of life and a lot of the juice of alpha to go back to investing. The juice of alpha lives in leading a more interesting life.

Bill: I think, it's super smart that you all are getting into venture capital. Do you worry at all with the amount of money that is now in private equity and venture capital? Are they going to hold these companies much longer, so that once the public actually gets to invest, the less juice is on the bone or meat is on the bone for lack of a better term?

David: I've been frustrated by that for a long time. Maybe, I first started writing about this 15 or 12 years ago, Bill.

Bill: Oh, wow.

David: The idea that the venture capital industry seems to be holding on to their winners longer keeping them private and basically milking returns and God love him, right? We can't necessarily begrudge it of them, but it does seem to me as if the opportunity I had in 1997 to get Amazon as a public market investor sub a billion, it seems like that's not happening as much these days anymore and anybody who feels discouraged by what I just said, and I want you to know, and Shopify, and The Trade Desk, and Peloton, and how many really remarkable companies have come public in the last five years. Last two years, the number of IPOs is crazy and I think you're saying or thinking back, Bill, yeah, but those are high market valuations, where's my hundred bagger? And I think the answer is, they're still out there.

Bill: Yeah.

David: It's just not evenly distributed our awareness of them or where we're focusing. I do think that a lot of the snap test companies, real consequence, I do think they've stayed private longer. I do think we've lost some of the alpha we could have gotten as public market investors by not being able to get Uber at a much lower valuation. Even when it was really popular like Uber could have come public eight years ago and it would be a multi bagger that people loved as opposed to kind of a somewhat underperforming big cap company. So, that's how the story plays out poorly in some cases. When you have just big, bloated, [unintelligible [01:36:22] vision fund like huge entities that show up and you're like, "Well, why would I buy this now because where's my 10 bagger?"

Bill: Yeah.

David: I think that's the operative question that we should be asking as public market investors. So, I don't necessarily cotton to every new listing. I think it's cool that you can finally buy stock in some of these big brands, but am I excited, do I see my 5x in seven years? Nope. In some cases, I don't. In which case, I don't recommend them or buy them. Anyway, I think, I'm starting to go in the opposite [crosstalk] direction.

Bill: No, that's where I was going with it. So, I appreciate you go in there. So, what's next for you? What's the life of David Gardner after a stock picking at Rule Breakers?

David: There are a few things that are certainly known. One of them is that, I'm a fool for life. My biggest holding and what has, in some ways, Bill always allowed me to take more risk is The Motley Fool. Ticker symbol F-O-O-L, although, that doesn't exist, because we're private.

Bill: [laughs]

David: But our employees own our stock, and Tom and I own our stock, we have no outside capital in our company which is a remarkable story that we don't talk about very often. But I really love where we are and that's going to be true of my whole life. It's probably going to be true of my kids, maybe even their kids that they're going to be known and/or associated with The Motley Fool for a long time. Because we've been building something that we think will outlive us. That was our viewpoint way back in the day and even as we laid off 80% of our staff five years in, we probably laid off more than we needed to, because we wanted to make sure we could keep being resilient, keep playing the next day at the game that we love, and we've done that.

I think that we're building something remarkable and that is going to be a calling for me my whole life long. I think what I've been doing now since I stepped away from my formal announcement this May of this year that I am going to be handing off my stock picking duties to my fellow fools. Of course, those are people who are remarkable, they've studied with me, or worked under me, or beside me for years. Our members know them, they're doing a great job in my absence, I truly felt as if unique value that I have to add is no longer in stock picking. I think through conversations like this, I'm putting it out there in front of as many people as I possibly can making myself redundant in that context.

The Motley Fool is not redundant. The Motley Fool is every day getting more and more people who recognize the benefits of picking this stock, not that one in a world where we were raised to think it was well, just luck. It was a random walk down Wall Street. It wasn't worth picking one stock over another. Academia had us convinced I think completely inappropriately, because you might as well just mail it in with the index fund because you're not going to be any better than anybody else. Nobody else says that about any other profession in the world except stock picking.

Bill: Yeah.

David: [crosstalk] To be better than average would be luck. They don't say that for surgeons, they don't say that for pro-baseball players, there's no other profession I can think of where people believe that as the conventional wisdom, and yet that is what has happened or did happen to the stock market. Yet, I think that that's been an incredible benefit for us. Basically, fighting against that notion, and then trying to prove it to the world at large, and then spreading smarter, happier, richer, which is the purpose of The Motley Fool making people smarter, happier and richer, and helping them see that being a part owner of many of the companies that you and I have talked about in our hour plus together, this is the way to multi-generational wealth. There are other ways, but I'm a lazy bum and I recognize I don't have to work very hard.

Bill: [laughs] This is not true. There's no way you're a lazy bum. [laughs]

David: I don't have to work, well, none of us has to work very hard, Bill when we have our hand poised over a mouse or tapping our phone to say, bye, and then we don't do anything except me bye again, from time to time for years and years. It doesn't take much effort at all. It's so ironic because we as humans are programmed to think the more effort, the better the reward, and yet it's opposite for investing. There're some other contexts where it's also true. It's often true in medicine. By the way, my doctor friends let me know on my podcast mailbag. I was like, "Where else is it true that doing less is actually more rewarding?" They said, "Actually, do no harm," as emergency room or surgeons, you learn as a doctor, I'm not one that, in fact, not intervening is sometimes a much better move or plan, even though, it goes against your instinct than intervening.

Bill: I like that.

David: Yeah, and there are other examples of it, too. But what's ahead for me? Probably, more of the same in a lot of ways. I've shifted my stock picking energy, some of it. Well, I think I already mentioned you, just being on your podcast for example or being out there speaking in public. That's something I'm doing far more than I did a year or two ago. I'll probably be doing more of that. I enjoy sharing the best ideas. The truth is I see it with as many people who want to listen, nobody has to listen, nobody has to subscribe to a Motley Fool service, but turns out, it's getting pretty contagious these days in a good way. I think the world's better for it.

In fact, one of the things I think about The Motley Fool is I think the 100-year view, Bill is I think we are reallocating capital in a way that helps the world. I truly think if you were to look at the outcomes that we're not even intending by running our business for profit, by teaching people to behave the way that we behave, and by showing them the benefits of that we're causing junk companies not to get capital, imitators and idiots not to get capital, the innovators are getting the capital, and they're building better answers including things like, "Yeah, we came up. Well, we didn't. But Moderna came up with a vaccine at the most urgent time for profit for the world."

Not just Moderna, there are some other players, too. But the point is, we are allocating capital in ways that benefit all of us. The opposite would be chasing teenies on junk penny stocks sold by the wolves of Wall Street. If that were the world where people are jumping in and out, and they thought that's how to make money, and by the way, there are cultures around the world that have that trader mentality. That's how they think about their markets. But I truly think that a big beautiful gift that we never really talk about that's unacknowledged that The Motley Fool has given the world is better allocation of capital toward the people, visions, products and services that deserved it, that then scaled, and that truly have led to things like Zoom, which has been another amazing stock that Tom found. Then he found that one first, and then I found it too, and a lot of Motley Fool members have owned Zoom, and Zoom hasn't had a great 2021, but man, it was 2019 and 2020 good.

Bill: Yeah, that was pretty wild.

David: That's a great business for the long term. So, let's get outside of like whether it was good last quarter of this year or not, and let's just think bigger picture. What an incredible answer for the world that had to shackle, and lockdown, and we kept business going, thanks to Zoom. A company people didn't know about three years ago. We did, we are early investors in Zoom as public market investors and we have benefited and all of us had and by channeling capital toward the Zoom's and Moderna's etc. of the world. We've truly helped the world in ways that if we done the opposite, things would be kind of messed up.

I really love that legacy for The Motley Fool and The Motley Fool Foundation, which we haven't focused on at all and we're out of time. But The Motley Fool Foundation is our not-for-profit foundation. I'm the board chair, and our aim is to create financial freedom for all. I feel as if The Motley Fool has done an incredible job finding financial freedom for those who had capital, who did have maybe a grandma who gave him something, or had saved enough one of the most heroic things I think we can do as humans is actually to save. It's very hard for many people to do. But for people who save they could do it. But what about all the people who actually don't even have anything to save? What about solving the equation for everybody, instead of just Motley Fool members of real financial impact? And I love our membership. I'm the first to say, while most of our members are well to do people, and that's been our focus over the course of time. Those are the people who are funding charities, those are the people who are creating businesses, those are the impact players in this world, even if they're closer to my age 55, then let's say, Alex's age 25 right-ish. So, I acknowledge that our businesses--

Bill: She's 20.

David: 20.

Bill: Yeah.

David: Exactly. I acknowledge that our businesses naturally focused on who has capital and therefore who would subscribe to a Motley Fool service, but I really think everything's connected. We have to solve the equation for everybody. So, that's how I'm thinking about things for The Motley Fool Foundation. Maybe we can unleash some Rule Breaker insights that might help the world start to act differently outside of just the markets, which really is just one small part of this much bigger world that we live in.

Bill: Well, I am truly grateful that you do the podcast specifically when you started talking about how often you lose. Also, it opened my mind to-- Some of the consequence of marketing on the internet is I saw, we bought Amazon at $1 and it turned my brain off because of how skeptical I am on things. To be able to listen to you, and to be able to hear you articulate the losses also enabled me to open my mind to what I think the positives are that I was missing, because of a mental block that I had. So, thank you for doing it.

David: Well, that's very kind of you, Bill. I do want to just add one quick thing about that. It's funny, because one thing that I hate about our industry and by this, the financial industry, and specifically the financial accountability industry. I'm going to contrast this very briefly with sports. In sports, we know exactly what has happened on the field. I'm a baseball fan. We know on minor league fields in night games what left-handed hitters hit last year. It is ridiculous, the numerical accountability and transparency that sports has. Boy, do I wish that existed in the world of finance. Things like the Hulbert Financial Digest for some who may know that Mark Hulbert has made an effort over years to track financial newsletters to show how are they really doing.

Bill: Yeah.

David: One of the saddest things for me was learning that marketing on the internet, you actually can't really distinguish yourself by saying, we bought Amazon at $3.21. I really did. That really is what we've done and we've held that position ever since. The problem is, anybody else can say something like that, and there is no transparency, there is no league commissioner, there is no real media that's created a sense of who really did hit a hole in one yesterday, and who's just marketing holes in one. So, we end up with this world that's more important than baseball, that's bigger than sports, that has crazy lacking amounts of trust or transparency and it's unclear, who should you follow, and who is reputable, and what is their actual track record?

One thing I'm proud to say about our company, even though, it was the saddest moment, when my marketers came and told me, actually, we can't really market your cost bases on these companies. Because everybody else says the same thing. Nobody can-- that doesn't distinguish us in any way, shape, or form. So, we have to use a megaphone and get people's attention some other way that's going to be more effective on the internet. I'm happy to say, we've cracked that nut. It doesn't always look like the marketing that I'd want to see. But the fact is, in order to get attention out there, you need to do some crazy stuff usually, because very few people wake up saying, "I have a real problem. I need to figure out the stock market and compounding returns today."

Bill: [laughs]

David: That's not actually where people's minds are. They're just trying to figure out how to get to work or how to keep their pajamas on to go to work, which is what we're all doing these days. I'm happy to say, I'm fully clothed. Normally, as are you Bill-

Bill: I'm, too.

David: -but a lot are working in there.

Bill: I got pants on and everything. [laughs]

David: Exactly. You're a pants wearing man, my friend, and I am too. But anyway, that's always been so frustrating for me. As a big sports fan, I just wish there were that kind of coverage of the markets. So, you knew exactly who and what had picked what stock when and what are their track records? I will say mutual funds have that pretty good. We do know how mutual funds do. We don't know so much about hedge funds, and financial newsletters or financial sites, or what somebody is saying that they pick this or that stock, well, fine, you did, but did you hold it, and/or what other stocks did you pick or what is the full accounting of your record?

Well, at the Fool, we have done that from day one. Every bad and good stock that I've ever picked is right there for our members to see with cost bases, dates, timestamp, etc. It's all there. Even if there's not an infrastructure to support that we're like the athlete who's keeping score on ourselves because nobody else is going to the ballpark keeping score, and/or reporting on it, or having databases showing it. So, I am proud of that and what we do, but I'm sorry that it plays out as sometimes we're grabbing your attention and rubbing people the wrong way because it turns out you can't just give straight up numbers anymore. You can't say this friend of mine's LeBron, look at his numbers because nobody knows. It's like we're going to the ball game, we don't know LeBron's numbers. We're just looking at going. He looks like a good player, I can't tell it, he looks dominant. So, anyway, a little bit of bemoaning the lack of transparency and accountability in the industry worldwide.

Bill: Well, thank you for being an example and thank you for everything that you've done for the individual investor. I respected a ton, and I've learned from it, and this was a joy, man. You were great to talk to, I knew you would be and just thank you very much for making the time.

David: Thank you, Bill. I really appreciate your work and I had such a good time with you full on.

Bill: All right, you too, full on.

[music]

 
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