60 Thoughts As I Turn 60

0:0060 thoughts as I turn 60. 20 on investing, 20 on business, 20 on life. Not the 60 best thoughts ever thought. Certainly not the last 60 that I'll ever think and maybe not even the same 60 I'd choose a year from now. but these are things I've come to believe. Earned through investing, entrepreneurship, friendship, reading, losing, winning, and trying to stay foolish, capital F, all along the way. It's a milestone birthday. It's a landmark episode, 60 Thoughts, as I turn 60, only on this week's Rule Breaker Investing. It's the Rule Breaker Investing Podcast with Motley Fool co-founder, David Gardner.

0:49Welcome back to Rule Breaker Investing. This week is a little different. I just turned 60, and to mark that milestone, I've gathered 60 thoughts. 20 about investing, 20 about business, and 20 about life. Some are mine. Some are borrowed from writers, founders, investors, philosophers, and fools who've helped shape me. Some are one-liners. Some need a little room. All of them in one way or another have helped me see more clearly. My hope is not that you agree with every one. My hope is that a few stick, maybe at least one or two, enough that you carry them forward yourself. So let's get started.

1:34And pretty much my goal is to give you these 60, now that I'm 60, in 60-ish. I never know how long the ad breaks go. These are things I have come to believe. They've helped me win the game of investing. I hope they do the same for you.

1:58Number one, everyone is an investor. When addressing a room, I've said, raise your hand if you're an investor. It's a trick question. It catches only those who think investing is what other people do, a specialized class, not me or you, right? Wrong. Put your hand up. Everyone is an investor of both money and time. Your choice to do this, not that, to spend here, not there, are all investments. Everyone is an investor. The stock market always goes down faster than it goes up, but it always goes up more than it goes down. Number three, and I quote, forming macro opinions or listening to the macro or market predictions of others is a waste of time.

2:58End quote. Warren Buffett. You know who waits for dips? Dips. Dips wait for dips. Number five, this one comes from behavioral economics, where it's pretty much lab tested at this point. And this is also true of humans outside of the laboratory of behavioral economics. The pain of loss is three times the joy of gain. Think about that. It's hardwired into your biology and mine. The pain of loss is three times the joy of gain. Yet think about it. The joy of investment gains is potentially infinite times the pain of loss. It's simple math. The worst you can ever do is lose a 100 % of your investment.

3:47And that's pretty bad. And most of us have never quite done that. But what's the best you can do? Well, you know, it's way, way better than plus 100%. The joy of investment gains is potentially infinite times the pain of loss. So if you can get past your own biology and more into the psychology of being a successful investor, this simple math is your best friend. I picked Tesla on November 23rd, 2011. It was just a few weeks after Elon Musk came to Fool HQ and gave a speech to our employees. The stock split adjusted when I picked it in November 2011, right around Thanksgiving Day, was$2.10 a share.

4:36It was the third most highly shorted stock on the Nasdaq. Tesla has since gone from$2 to$445. It's up more than 200 times in value. the gains of that one stock pick alone exceed all of the losses of every significant loser stock in Rule Breaker history. And I know because I picked most of those losers too. This thought isn't about Tesla. Hey, the Rule Breaker scorecard actually has several dozen 10 plus baggers on it besides Tesla. And by the way, more than one 100 bagger. And yet most people, fear bound, don't know how to invest, don't see how they should do this over time. And so they never discover this profound rule breaker investing truth.

5:29Thought number six, that the value of winning completely wipes out the cost of losing. There are no numbers for the things that matter most. As rule breakers, we intentionally seek stocks with six traits, The sixth of which is, even despite the presence of the other five, number six, people call the stock overvalued. Well, to them, it probably is. They're using their calculators and spreadsheets. It's all about ratios of simple measurables like revenues or earnings or cash flow. Yet, they are not even measuring the value of the CEO. They are not even measuring the brand name. They are not even measuring the company culture.

6:15They are not even measuring the innovative capability or lack thereof of the company. So by traditional metrics, all the best companies with the best CEOs, brands, cultures, and innovation look overvalued. All the companies with the worst CEOs, brands, cultures, and innovation look undervalued. These kinds of investors, they are all of them misled, which is how you pick Tesla at$2.10 a share when it's the third most shorted stock on the NASDAQ. Why? How? Because there are no numbers for the things that matter most. Spiffy pop, a holy grail moment of investing success when a stock rises more in a single day than you originally paid for it.

7:15That is a spiffy pop. You never forget your first. Investing thought number nine, the rowboat syndrome. If you know the phrase, then you already know the thought. If you don't, tip open your Rule Breaker Investing book and read, reread, or share with a friend pages 31 to 33. Toss away your rowboat and toss away your canoe. If you want to win the game of investing, which will help you so much with the game of life, join me instead on the sailboat, where we use the market's prevailing winds, no oars or paddles needed. The sailboat, the ship of fools. Dark clouds I can see through was one of my earliest essays for members where I talked about my love affair with finding situations where the whole world sees something doubtful, dubious, that dark cloud positioned just over the head of the company or stock you're looking at.

8:19Everybody's saying it will never work. And in those situations, when you can see through that dark cloud, you don't believe things are going to play out in the negative way everybody seems to think when you find a dark cloud that you can see through and you're right and you hold. These are the investments that lead to early retirement and multi-generational wealth. Dark clouds you can see through. We're halfway through. Number 11. You know, when I came up with the six traits for Rule Breaker stocks and wrote about them in a book almost 30 years ago, I was starting to think, are there other things, a simple tool or two I can help additionally people find Rule Breaker stocks?

9:08One of them I wrote about back in the day, and that's the snap test. The snap test is if you snapped your fingers and the company that you were researching or thinking about buying stock in disappeared overnight, the next day, the question is, would anyone notice? Would anyone care? Companies pass my snap test when everyone would notice and a lot of people would care. That's because the best stocks of every generation are the companies that are doing such impactful and purposeful work that it would really ruin a lot of people's day, the next day in the newspaper, online these days, digitally to read that that thing had disappeared.

9:50It would really matter. So that's the snap test. And then to that, I've added the COLA test in my Rule Breaker Investing book. If you've read it, you already know where we're headed. But I always ask myself if the stock I'm looking at, the company I'm researching is, let's say, Coca-Cola. They're that dominant in their industry. They're big, they have lots of shelf life, and a brand name everyone knows. And if they're Coca-Cola, whatever the industry we're talking about, that stock that you're looking at, is there a Pepsi Cola? Can you find a Pepsi Cola equivalent competitor in that industry? And a stock passes my cola test.

10:28If you cannot find a Pepsi Cola to your potential rule breaker stocks, Coca-Cola, you can't find a Pepsi, which tells us that there is no direct competitor and that their product or service is clearly deeply needed often with blue ocean strategy out front. So if you take the snap test, snap company disappeared and you combine it with the cola test, wait, There's no Pepsi. The companies that pass what I call my Snap Cola test, those are my favorite stocks of all. Those are the most likely to be the great rule breakers within their given industries. And by the way, so many different industries are out there with lots of different innovators and possibilities.

11:12Snap Cola exists in more places than we often look. Snap Cola. On to number 12, establish your sleep number. It's the highest percentage you'd allow any holding in your portfolio to reach while still sleeping soundly at night. It's the simplest, most helpful number to manage your portfolio. The simplest, most helpful number that most people aren't using because they haven't thought of it yet. But as you manage your portfolio and your personal and your family's wealth, establish your sleep number and know it. And sure enough, if a big winner for you starts to exceed that sleep number, you'll know it because you'll stop sleeping soundly at night and you should respect that.

11:59And that's a time, one of the few times I sell is usually when winners overrunneth my sleep number. Everybody's sleep number is different, by the way, and over the course of your life, it'll probably vacillate, probably higher when you're younger. a little bit lower as you age. Establish your sleep number. A lot of people have a really hard time initially buying into a stock, especially if it's been making new highs. Now, if you've been following trait number three of the Rule Breaker stock, you know that we like stellar past price appreciation. That's actually a positive indicator, although often we have a hard time convincing ourselves of that.

12:38Therefore, I'm a huge fan. Really, since I started this as a young investor myself, you don't have to buy your full position all at once. That can sometimes just be too much psychologically to handle. So just divide up the amount you'd like to put in that stock and buy in thirds. For example, if you have$3 ,000 set aside, take$1 ,000 right now and buy that stock and then wait a month. And a month from now, wherever the stock is, very same day, buy your next thousand and guess what do that one month after that or you can do it quarter by quarter but whatever it is this has been such a helpful tool for so many motley fool members and fans over the years you don't have to buy all at once and there's even a big psychological payoff here because as i've often pointed out here's what happens if the stock runs away and goes up forever you start saying i'm so glad i started buying when i did because i was buying in thirds and those first couple of times I got such a better price, the stock just never looked back.

13:39And again, a lot of people would never have bought at all. They would have been staring goggle-eyed and a little bit intimidated by a stock that kept hitting new highs. But you did because you bought in thirds. Or maybe things go the other direction. The stock starts dropping. That often happens, feels like for me, whenever I buy a stock, it drops the next day or week. It's down right away. Don't worry about it because you've only bought your first third. So when you buy your next third a month from now, you're getting a better price. And if it keeps going down, another third a month after that.

14:09So in my mind, psychologically, either way, I win when I buy in thirds. Thought number 14, talked about it many times before. I would be remiss if I didn't include it on my 60 Thoughts as I Turn 60 episode. The etymology of the word invest comes from the Latin investiri. it means to put on the clothes to wear the clothes and so many of us as sports fans always my mental picture so many of us go to the home stadium with that home jersey on and whether our team wins or loses that night that week whether it has a good or bad month or a winning or losing season we keep that jersey on a lot of us have made lifetime commitments to our sports teams i sure have are Are you a sports fan?

14:54I bet you have too. We don't change our teams very frequently. Why don't we do that more for our stocks and our investing? So many Americans would be so much more successful with their investing if they kept that jersey on, treating their money, which, by the way, matters a lot more ultimately, I think, than how your sports team does. Your money matters a lot more to you and your family than your sports team. And if you just treated your money like your sports team a little bit more and kept that jersey on, I'm pretty sure you're going to do even better. A lot of people are talking about the Magnificent Seven these days, but my question, anytime the so-called Mag-7 comes up, those seven big performers, those seven big cap companies that we all know so well, I don't have to repeat them for you, but my question has been, is, and will remain, what's your Magnificent Seven score?

15:47And your score is simply each of those seven holdings, how many years have you had any or all of those seven stocks in your portfolio? So if you've held one for four years and another for eight, that would be a magnificent seven score of 12. My magnificent seven score, I only brag a few times each week on this podcast, is now 109. That's my way of saying that on average, I've held these stocks for about 10 years or more, although I've never had Microsoft, much to my chagrin. But in a financial media environment where people invent catchy phrases and talk in the shorter term, and understandably so to make the market fun and memorable for people and use phrases like Magnificent Seven, I'd like you and I to think one step past that and ask a deeper question.

16:36How long have you actually held those stocks? Investing thought number 16, back your thoroughbreds and retire your also-rans. And thought number 17 came straight from this podcast from a write-in mailbag by German friend, Henrik, who challenged himself once in a most capital F foolish and rule-breakery way. He said, you know, if I'm going to make my portfolio reflect my best vision for our future, I should be able to proudly wear the t-shirt of every company that I'm invested in. And so with about 30 stocks, Henrik took a month out, and he tried to acquire t-shirts for all of his companies. Not sure he succeeded with that.

17:21But for each day of that month, he put on the t-shirt, if you will, he wore the jersey of one of his stocks and saw how people reacted to him throughout the day. It's Henrik's t-shirt test. Thought number 17. Would you proudly wear the t-shirt of every company you're invested in? make your portfolio reflect your best vision for our future. One of the more common questions we've gotten on this podcast now in its 11th year, it pops up on mailbags here and there, is, David, how many stocks should I have in my portfolio? And as I've often said, I understand why people ask that question, but it is the wrong question because there's no right answer to that question.

18:10I, of course, think you should start with at least 20 stocks in your portfolio with no more than 5 % allocated to any of them. So you have a nice broad base to start from. But as soon as the horse race tips off right away, some of those are going to race forward and they're going to become larger parts of your portfolio. And the ones that stumble will become smaller parts of your portfolio. And you might have some new money, I sure hope you do coming in. And you might think, well, okay, should I add it to one of my winners, one of my losers or add another stock? And so David Kretzmann and I on this very podcast somewhere around eight years ago came up with this.

18:45It's the Gardner-Kretzmann continuum. You should have roughly the same number of stocks as the number of years you've lived on this earth. It's time to close out my investing section. Number 20. I try to find excellence, buy excellence, and add to excellence over time. I sell mediocrity. That's how I invest.

19:19All right, 20 business thoughts. These are things I've come to believe. They've helped me win the game of business, of my professional life. I hope they do the same for you.

19:38Number one, Stuart Brand, a Stanford grad, is the entrepreneur who co-founded the Whole Earth Catalog and then, back in the day, one of the first internet communities, The Well, as well as today's Long Now Foundation. Here's my first thought for you about business from Brand, who's also a writer. And I quote, Once a new technology rolls over you, if you're not part of the steamroller, you're part of the road. Warren Bennis' book, On Becoming a Leader, is one of my favorite books, and I don't just mean on leadership. In Warren's book, at one point he quotes Larry Wilson. Now Larry was the founder of Citadel Broadcasting, which became the third largest owner of radio stations back in the golden age of broadcasting.

20:28Anyway, here's what Wilson said, and I quote, For most entrepreneurs, certainly for me, the primary pull is the vision. You are simply passionately compelled to make it come about. I think that a compelling vision combined with a unique ability to manage risk is the magic behind successful entrepreneurs. It's as if you already handled the risk ahead of time in your mind so you can go where angels fear to tread because you've already skipped ahead to the game. End quote. Now, for entrepreneurs, well, I bet you can relate. I remember the first time I saw The Motley Fool printed as a phrase in the Wall Street Journal.

21:17That moment for me was so small in a sense, but also so rewarding because it rewarded that vision pull for Tom and for me, passionately compelled to make The Motley Fool come about. That was what I'll call a the jerk moment. You remember the scene in The Jerk where Steve Martin's character runs to the front door to collect the morning mail, grabs the newly delivered phone book so he can look his own name up, find himself, and sure enough, declare with glee, look, I'm somebody. Well, that's the feeling of the founder entrepreneur. When you first get quoted or called out in a good way in public, you were compelled by your vision.

22:02You couldn't not make this happen. For investors, principle number one of the Rule Breaker portfolio is make your portfolio reflect your best vision for our future. You know, the words vision, I counted, I counted this, the words vision or visionary appear 51 times in my book, Rule Breaker Investing. It's an investment book, but it celebrates locating the visionaries and buying shares in their companies. It also asks you as the reader what your vision is as a key portfolio principle to investing your own money. The more you are pulled with Larry Wilson and Warren Bennis and me, the more you are pulled by a vision.

22:49And passionately so, the more likely you are to succeed in business. Number three. John D. Rockefeller once said,

23:11End quote. He's even more famous today, but Malcolm Gladwell was already pretty famous, and rightly so, when he first penned an essay in The New Yorker, the date was May 4th, 2009, entitled How David Beats Goliath. In that wonderful essay you can still find online, you're going to see Gladwell tell stories over and over of how people who were huge underdogs, you know, like any startup, like any entrepreneur, maybe you or me, huge underdogs in undertaking what they were undertaking. And if they played the game as it was being played in their existing industries, if they did the same thing everybody else did, if they kowtowed or adhered to Goliath's rules, guess what happens?

24:03They lose. Goliath wins almost every time. Gladwell advocates how David beats Goliath is by playing the same game in a completely different way. And I would say to you, dear listener, and in this case, dear fellow entrepreneur or business professional, With Steve Jobs, think different. Except don't just think different, act different. You know, Netflix took on the vastly larger blockbuster, not by building more stores, but by eliminating late fees, by mailing DVDs directly to homes, and then boldly pivoting into streaming before incumbents believed consumers would abandon physical media. Southwest Airlines challenged the giant legacy airlines by flying only one aircraft type and emphasizing quick gate turnarounds, of course, low fares too, and turning operational simplicity into a durable, competitive weapon.

25:06And Airbnb entered the travel industry with no hotels, no real estate, no legacy infrastructure at all, and then used the simple idea of letting ordinary people rent out their homes to build a global lodging platform that eventually rivaled the world's biggest hotel chains. That's how David beats Goliath, and you can too. Business thought number five, win the crowd and you will win your freedom. This great quote from the movie Gladiator reminds me always that the more you can make your company brand, your personal brand, Your investing portfolio too, deeply steeped in helping others and doing so with fun and imagination in a way that wins for them and wins for the world at large too.

26:04It's this positive winning pursuit that for your startup or your professional life will win not just the crowd, but win you your financial freedom too. So thank you, Proximo. Win the crowd and you will win your freedom. Theodore Leavitt, the German-born American economist, professor at Harvard Business School, ran the Harvard Business Review for a while. Here's an absolutely great one-liner that all of us in business do well to remember at all times. and I quote, people don't want to buy a quarter inch drill. They want a quarter inch hole. A brag to begin thought number seven. I co-founded a company that has been an answer on the game show Jeopardy.

27:00How did this happen that a print newsletter started for family and friends in 1993 would one day be answered correctly on the nation's most popular TV game show. And we haven't been a one-night wonder either. The Motley Fool has actually been a Jeopardy answer four times now over three different decades. What can we learn? Well, more importantly, how can I help you create something that will one day maybe be an answer on Jeopardy? Well, my first easy thought is build something big enough to be noticed. Yet many bigger and more impressive enterprises than my little company have likely never been mentioned on Jeopardy.

27:45I'd say the key insight is in our name. If you're a stressed out professional writer of game show questions and answers, that's your full time job. You know, coming up with what is the Motley Fool has to be a lot more fun and colorful than 99 % of other potential corporate answers. Not only that, but the word fool for those who enjoy wordplay and puns like, you know, people who write Jeopardy questions. The word fool fits into a lot of different potential topic categories. And so we arrived now at my takeaway for all my fellow entrepreneurs hoping to have their companies one day be an answer on Jeopardy.

28:26Pick a name that stands for something. So probably not Truist, probably not Verizon or I like the stock, but or Accenture, you know, real words and make it fun. Arouse curiosity with your company name and have it tell or maybe connect to a story. And yeah, then do something big enough to be noticed. This next one is a short essay. I'm going to call it The Hardest Thing in Life. I've had five jobs in my life. Cutting grass at Georgetown Convent for two months here in Washington, D.C. as a teenager. interning at the Rochester, New York Police Department for two months, interning at Solomon Brothers on Wall Street for two months, writing for Louis Rukeyser's newsletter for six months, and The Motley Fool for 33 years.

29:26Apart from any humorous reflections on where I've worked and or how long, one thing is clear. I have no past experience in sales. Now, there's a line of thinking that goes, we're all in sales. And I agree with this. It's in the sense that you should, you know, always be marketing the things to which you are committed. ABS, always be selling. But apart from this mindset, I have no actual experience whatsoever in sales. I have no database with leads, never any targets or incentives. I don't really have deadlines, which is why I learned a lot from this brief exchange on my podcast, with my friend and fellow fool, Brian Feroldi.

30:11I asked him, Brian, how about your own experience selling medical equipment? What was the hardest thing for you to do when you were the sales guy going into a doctor's office or a hospital? And Brian responded, by far the hardest thing was if the device you have requires the doctor to change something about the practice, change something about the way they currently operate, you have an enormous task. In so many cases, they've invested a huge amount of their time. They've trained their staff on the way to do one thing. And if you have a solution that slightly alters that, there are enormous barriers.