Authors in August: “Rule Breaker Investing” with David Gardner & Chris Hill

26:44And so, multi-generational family business, also Major League Baseball's sponsor, that's another great example of a Rule Breaker. And each of them is just a completely different industry that they hail from, but they're each the innovators. They're each the winners. And Chris Hill, what do winners do? They keep winning. They keep winning. Not every single time and not every game, but that's the safest bet. So you and I have grown up in a world, all of us have, where the most frequent financial disclaimer is past performance is no guarantee of future results, which is some of the worst advice you can ever encounter.

27:18Past performance is often the very single best indicator we have of future results. And so, yeah, the rule breaker in me can't not call that out. But I appreciate the question. And I tend not to go for industries as much as I like to bottoms up pick individual companies and just look for like who the winners are, Tesla. You just reminded me of one of my favorite sayings, which is that the battle goes not always to the strong nor the race to the swift, but that's the way to bet. I love it. And since I think you've actually taken the time to read some of my book, and I really appreciate that, you know that horse racing analogies come very naturally to me.

27:56And I really love to think about horse racing, even though I can't really ride horses myself, I was always allergic. But some of the analogies that we can draw, you made me think of it when you talked about the race to the swift and that's where the bet is. What I love about the stock market, and we feature this in the six principles of the Rule Breaker portfolio later in the book, what I love about the stock market is you actually can bet during the horse race. You can go, you know what? Secretariat, baby, we are out front 10 lengths already, Chris Hill. I'm going down to the betting window right now, and I'm going to put it on secretariat, because what do winners do?

28:33But so much of the world thinks secretariat has already won or is about to trip and fall, or I don't know, there are other fears that people introduce, like the whole race is going to change in the middle and secretary won't do very well. We have been so well rewarded with rule breakers, not every type of company, not cyclicals, not faker breakers, but with rule breakers, you get to invest the whole race. And you get to, just like in horse racing, I suppose, you get to bet on multiple horses. When I was looking at the home improvement industry and was thinking, ah, should I buy Home Depot or Lowe's?

29:08Finally, it just occurred to me like, oh, I can buy both. I don't have to choose which one is the leader I think is going to overtake the other. I can buy shares of both. That's absolutely true. This is not a story I tell in the book. I've told it once or twice in the podcast. I'll just go back there briefly again. But I made the mistake of betting on just one of the two horses in an important industry to me back in the day, the 1990s, as a lifelong video gamer that continues in my late 50s. But I recognized the benefits of graphical cards that we could insert in our PCs and have better graphics for our video games.

29:45And so I decided a company called 3DFX was going to be my horse. And they had a rival that I was actively cheering against because it was like North Carolina and Duke or, I don't know, Notre Dame and Southern Cal. Who is Notre Dame's rival? But anyway, you know, I was there going, I got my guys. We're going to take down these other guys. And the other guys happened in 3DFX's industry to be NVIDIA. And so I was actively not investing and cheering against NVIDIA as not only did it win the race, it literally bought out my company for a song at a later point showing that I'd clearly bet on the wrong horse.

30:22Had I bet on both horses, I would be even happier than I am today. But I am also awfully happy that I got over my rivalship and my envy. and I decided in 2005 on tax day to recommend NVIDIA stock to Motley Fool Stock Advisor members. So yeah, you get to invest the whole race. You should invest in more than one horse. I actually like buying, if you're talking about a good field like the Kentucky Derby, I like buying all 22 of them. 22 is not a bad number to start a portfolio, 20 stocks or so, I think is a great way to start a portfolio these days. And yeah, don't get too hung up on just just Home Depot.

31:02They're going to crush Lowe's or just vice versa, because you're right. They're both winners. And that's one other very capital F foolish point to underline, which is that too many people think life is zero sum and it's all about trade-offs. If I win, that means you must lose. And we see that in sports. You and I are huge sports fans, so we know one team wins, the other team loses. That's not true in business. And that's definitely not true in life. Life is much more a co-op game. We're all trying to win together and help each other win. I want to go back to AI for a second because you provide some helpful tips in the book about how investors can use AI to track their stocks, review their portfolio.

31:39What role do you think AI will play in actual stock picking? Because there are plenty of people who look at the universe of investing and think, I'm just going to have a robot do this for me. Yeah. And I would be the first to say, go for it. If you see ways that artificial intelligence can improve your life, make better decisions, possibly lower your costs or both, or a third thing that floats your boat, I would say, go for it. I personally don't think that AI is going to pick stocks in any magical new way that beats the market better than you or I might. And I think there are two key reasons for that, for me anyway.

32:20The first is that AI has already been trying to beat the market for the longest time. It's not like AI just showed up in the financial markets. As soon as we developed the computer, somebody started trying to make their computer trade on the internet without them being around and make money for free. And believe me, at scale that has occurred over the last 30 years, at massive scale, most of the trading volume on the New York Stock Exchange or the NASDAQ today is algorithmic, computer-driven. And it's not dumb computers. They've been trying to make those computers as smart as they can, not just last year with ChatGPT.

32:56Nope, for the last 30 years. So if you have been investing well and beating the market over the last 30 years, I think there are very good reasons that will continue. And in part, Chris, it's because AI is on both sides of the trade. If AI, by the way, were only on one side of the trade, I'd start saying, let's go with the AI because the other side is not going to be as smart. So if AI is all the buyers that I'm like, we're with the buyers, the sellers are going to be wrong. It's going to be a buying frenzy. Let's go with the AI. But the AIs are on both sides of so many trades today. And so you can see AI trading against itself, and usually in an incredibly short-term way.

33:33There isn't enough long-term data to really feed into AI to know for certain what's going to beat the market over 25 years. But if you talk about the next 25 minutes, people have all kinds of cockamamie schemes as to how they're going to make a lot of money in the next 25 minutes. And most of CNBC's coverage, most of the market media's coverage, Chris, as you well know, is all about today. Chris Hill, you still like cloud computing stocks after yesterday? After yesterday? We've had experiences like that. I write about that in the book. We don't need to go there right now if you don't want to. But the unbelievably short-term view of the vast majority of market coverage and the computers that are driving the volume mean I feel very comfortable in my little rule-breakery space sitting, I'm not going to say above the fray, I'll just say aside from the fray, playing the same game, but by completely different standards with a totally different approach.

34:27In the same way that Moneyball came along and started saying, you know, we actually think the way people are reading baseball, they're kind of misunderstanding the real value being created out there. They just count batting average. They don't look at the walks hitters are drawing and they don't recognize the value of that or the quality of the hit with slugging percentage, et cetera. Baseball has advanced so much in the last 30 years because people started asking smarter questions that were real. I think a lot of the questions around AI and market trading are just so short term, they're irrelevant to you and me.

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36:31AquaTrue.com. I want to ask you a couple of questions about the book, and sort of the process of writing it, because I know that one of the areas of your life where you are disciplined is note-taking. And that was helpful to you in writing this book. But was there any part of the book that surprised you as it came together? Thank you. First of all, I so loved writing it. I think the most surprising thing to me was truly, I didn't need deadlines. My brother Tom and I have written a number of books in the past. I'd never written a full book myself. I wrote halves of lots of books that I love doing.

37:07But the truth was always that I needed deadlines. I was like, I'm the guy who pulls the double all-nighter to get it in there on time. And that's sad. And I expected fully, having not written a book ever purely by myself, and having not written any book for 15 years, I started thinking, you know, it's going to be that all over again, but I'm just going to go through with it because I really want to finish this final stock market book for me. And I loved writing it. I had so much, I had way more material than I could ever use. I did take a lot of notes. I had 15 years of notes. I organized them in an Excel spreadsheet, row by row with the talking point that I wanted to include in the book.

37:47And then I started rating and ranking each of them based on how good I thought the point was. That was one way to score it. And the other way I scored my spreadsheet talking points was, if I don't say it, will anyone else ever say it? And of course I gave tens, zero to 10. I gave tens to the points where if I don't say it, I don't think anybody ever will. and if everybody else is saying it, I tend to give that a one, two, or three and not include it in the book. So yeah, I think the biggest surprise for me was I had so much fun writing it. I didn't need any deadlines. There were other surprises that came.

38:21I guess one of the, I'll refer to very quickly is I decided after finishing part one of the book, as a nonfiction book, I think we all feel some pressure to sort of summarize the points that you've made in part one of the book. So you're gonna have a section that summarizes with bullets what we've just gone over. And there are three parts to the book. And I decide, you know what? I'm going to break the rules a little bit here. I'm just going to write a story. I'm going to make the points, if you've read them, implicit, if you look carefully within a little story that I'll tell. And I had so much fun as somebody who majored in creative writing at the University of North Carolina, Chapel Hill.

38:56I had so much fun just constructing a simple story of people that we can relate to who are kind of rule breakery or kind of not at all. And then as I finished part two and three of the book, I realized I'm going to continue that story. And that was not something I was ever planning. And I actually loved doing that. That's a unique part of the book. I don't think many investing books have a fable that is serially continued through the book. It's not a huge deal. It's not the tail that wags the dog, but that was a surprise. This strikes me as one of those books. And I will just say for context, for anyone who's hearing my voice for the first time or the first time in a long time, I've encountered hundreds and hundreds of books about investing and money and business.

39:40Because in all my years of hosting Motley Fool Money and Market Foolery, my name got on the distribution list of major publishers. So I would say somewhere between 15 to 20 books per month would come to my desk and I would glance through them and maybe one out of 20, I would think, oh, this seems worth talking about. No shade against the authors of the other 19 books. I'm sure they were perfectly fine, but it's a little bit like the point you were just saying of, hey, if everyone else is going to say this, I don't know that I necessarily need to say this as well. All of that is context to this question.

40:17I think this is one of those books that people are going to give as a gift. They're going to buy it for themselves, but they're also going to give it to a gift because you know, there are plenty of people who are interested in investing and then there's a level below them. Like everyone who's an investor, a stock market investor has at least three friends who are, they pay lip service to being interested. They're not as interested, but they're, they kind of feel like maybe they should be. So they'll, you know, talk at a barbecue or a cocktail party, just like, Hey, so what, how's the investing thing going?

40:51You know, that sort of thing. So I think yours is one of those books that investors are going to read, and then they're going to give it as a gift to their friend who needs to learn a little bit more. What should they say to their friend? How should they promote this book when they hand it to them? First of all, that's really kind. And thank you, Chris. And second, I hope that they would recognize that we are all investors. And so at that barbecue, they're surrounded by 20 others. All 20 of those people are investors. But if you actually ask that group of people, raise your hand at the barbecue, if you are an investor, maybe only those three people that that person was connected to or was thinking of would say, yeah, okay, yeah, I'm kind of an investor.

41:38But truly, and you know, because you've been around The Motley Fool just about as long as I have, you know that democratizing this subject, making it accessible to people, reminding us that it's not just an investment of money you're making. We're all investors of time. We all have the same number of hours in the day. You're constantly investing in your own learning or not. You might be misusing the allocation of funds and time that you have. I suspect and hope most listeners wouldn't say they are, but I think all of us, me included, would say, I probably could do that better. I probably could make slightly better use of my money or slightly better use of my time, at least.

42:16And so I hope that feeling of handing the book over to a friend and saying, hey, I think you'll get something out of this. I think the fun thing about this book is, well, I say it's my final stock market book, which it is. It's really a book about life and investing and leadership and entrepreneurship. It's ultimately there to connect with whoever's reading it at a human one-to-one level, not talking down at all and not holding myself up as some great exemplar, a statue that you should imitate. You should try to take on the form or pose that I have with the statue of this book. I hope that person would know they're giving it to somebody saying, I think you'll see something in this that will make you a little bit smarter, happier, and richer.

42:59And you know, that's been The Motley Fool's purpose for now 32 years and counting. I'm just happy that it'll be a book that can be shared. It's kept those notes that I referred to over 15 years. I've wanted to do this somewhere 2016, 17. I was like, I'm going to write it. I'm going to write it this year. And then it didn't happen. It didn't happen. And then COVID. So I had an excuse. I can't do anything during COVID. But at a certain point, I said, if I get struck by lightning, my biggest regret as I lie there frying, I'll look up at the skies and say, why didn't I write this? I was getting notes for more than a decade.

43:33fortunately I was not hit by lightning and fortunately a labor of love from last February to last August so takes about six months to write a book takes about a year as you well know working within the industry as you have takes about a year for that book actually to show up to the public and I'm just so glad that I did it and I would love it if anybody shares it with a friend also forget about that image of me frying being hit by lightning that was that was not necessary and you I know it's an audio medium, Chris, but it's also kind of a visual medium in a way. And I just I don't feel good about that.

44:04Can you can you quickly replace that in listeners minds with something else? I mean, the standard go to is getting hit by a bus, which doesn't involve frying, but it's not necessarily better. Let's move on. Before we get to buy, sell or hold, two things I want to hit. The first is the glossary, which was this delightful surprise at the end of the book. You have a glossary of terms, and I'll just read a couple because they're just fun. For sports betting, you define it as one great big huge waste of money unless you're the house. For the word trading, you define trading as spending lots of time trying to make money maybe half the time.

44:49What is the origin story of the glossary? Well, somewhere near the end of writing the book, I started realizing, you know, there are a lot of terms that I've kind of invented or repurposed. And so there's sort of, we have our own rule breaker vocabulary. We don't need to talk about spiffy pops this week, authors in August, because I think most of our regular listeners know what I mean when I say spiffy pop. But if you say that to a crowd assembled anywhere, you'll get only a couple of hands that go up. I do point out in Rule Breaker Investing that in the Urban Dictionary, yes, Spiffy Pop exists in the Urban Dictionary, but not yet in the Oxford.

45:24But we're headed there. But I'm inventing words as we go. Even Rule Breaker, what is that exactly? I realize Rule Breakers take two forms. They are the companies that we invest in, and they are you and me if we're investing like a Rule Breaker. And so I realize it's kind of important to put definitions to some of these terms. And so most of it is a summary of what you've already encountered in the book, but it's a handy, I don't know, six, seven, eight page alphabetical listing of rule breakery terms that serve as a good summary and kind of reminder for people. And yes, I'm trying to make you laugh at different points.

45:57And I really do think that trading is spending a lot of time trying to make money, maybe half the time. And so you obviously see what I think of trading. Sports betting has shown up in recent years, Chris Hill. I know you know that as a fellow sports fan. I've placed a sports better to myself, not just in the last few years, but in the last few decades when I guess, I don't know, it was illegal. I've never used a bookie. I just bet with friends. But sports betting is not a good idea. It's not a good way to spend money. And the amount of money that is being bet these days, and I love ESPN, a Disney property as of today still.

46:32But ESPN reimagining its own coverage of sports to constantly include the numbers of the bets, this is a very, very bad financial allocation. Chris Hill, you and I bet, you're betting Boston College, I bet my Bill Belichick-led North Carolina Tar Heels, one of us is going to win, one of us is going to lose, and the house is going to make 5 % to 10%, which means if you run the numbers, you and I will tend to lose money over time when we bet on sports. And that is such a bad allocation and bad message. So yeah, a$64 billion industry or so last year, we're calling it out in the Rule Breaker Investing Glossary.

47:12So my last thing is inspired partly by the glossary, but also other parts of the book. And this is an idea I'm gonna share with you. And if you wanna run with this, if you wanna get together with your publisher and run with this, and it's merch. It's specifically rule breaker magnets, because early in the book, you talk about the four most dangerous words are buy low, sell high. And really, instead, people should buy high and try not to sell. And I'm more than semi-serious in this regard, because the thing is, David, these outdated maxims, buy low, sell high. You never go broke taking a profit.

47:53They are still ingrained in the everyday lexicon of investing. And I think rule breaker magnets would provide daily reminders for investors to fight against the things that they're hearing from co-workers or family members who aren't investing as much as they are. And all they know to do is just repeat those tired old maxims that don't really work anymore. I really appreciate that point. They don't exist yet. There might be a whole industry Chris, you and I are a little bit free agents. We're not as fully employed as we were maybe 10 years ago. Maybe we go in together on this whole magnet business thing.

48:30But I really appreciate you calling that. I do. Part of my style as a writer is, I don't know, every three or four pages in this rather short book, you're going to see a bolded line because I try to punch home lines from time to time. And it's generally those kinds of merch, magnet driven possibility lines that I greatly favor. And just before the glossary near the end, there's a things to remember, a couple of pages that just take some of those maybe magnet lines and tries to capture them all in one place for fellow rule breakers. Let's go to buy, sell, or hold. I would love to play. This is something any investor can create for themselves.

49:12Buy, sell, or hold stock watch lists. I am a big fan of stock watch lists, so I say buy. I think that these days you can track them, whether it's on our site or on another site. You know, you can kind of I mean, back in our day, Chris, and I don't want to date us here, but we used to have to write that stuff down on paper and then look up in the newspaper the next day where the stock price was trading to keep up with our watch list. Not only that, but there are more fascinating companies today and more new innovations and discoveries worth watching. We can't own them all or we can't own them all at once.

49:44So stock watch lists are a great tool. And I'm a listy person anyway, so I just like lists. Just two years removed from making the playoffs, your favorite baseball team, the Minnesota Twins, are currently in fourth place in their own division. And let's face it, they'll need a small miracle to make the playoffs this season. So buy, sell, or hold, the Twins getting to the World Series in the next five years. I'm going to say sell. And I am a lifelong Minnesota Twins fan. I watch almost every game. So last week when the Minnesota Twins lost once again, two out of three to the Yankees in Yankee Stadium, reflecting on the last 37 games played in Yankee Stadium, I believe the Twins are literally six and 31 out of the last 37 games in Yankee Stadium.

50:36The Twins have won six. And last week, I think the nadir of the Twins season was when they were one hit, losing to the Yankees 9-1, and the Twins pitchers, Little League Baseball, if you will, the Twins pitchers literally walked 11 Yankees as we were one hit. And I watched that whole game, and I started asking myself, am I misallocating my own time? Right. Why? Why am I watching? It's painful to experience that, to lose so many games to the Bronx Bombers that clearly, I don't know, Minnesota Nice might have an inferiority complex around. But I can't say, I mean, if we're really playing the odds, the odds of any team making the World Series the next five years would be lower than 50%.

51:20I would even include the Yankees or Dodgers there. So, yeah, Twins chances, much lower than that. Sal. I'm so old. I remember being told these vehicles will be ubiquitous in 2025. Buy, sell, or hold self-driving cars. You and I did a podcast once that will re-air in about 20 more years or so. We did it from the future. I think the year was 2052. And part of what we did with that podcast from the future, co-hosted by Chris Hill and David Gardner for Rule Breaker Investing, is we looked backwards from 2052 and just looked back at what had happened. And you and I found, to our surprise, I think somewhat humorous surprise, that self-driving cars still weren't really a thing.

52:05It's kind of like the new iPhone in 2052, better camera. Better camera. Yeah. But yeah, I would say that even though we said that from 2052, three years ago, I think I'm starting to become more of a buyer. So I'm going to call a hold on this because I have owned Teslas for 13 years, several different ones, And up until about two years ago, I was like, this thing, I would never allow to drive. I mean, it couldn't recognize stop signs or red lights in urban settings. Within the last two years, it's actually gotten pretty effective. Most of the time, I still drive myself. I enjoy driving. But Chris, I do think we might be wrong on one prediction we made from the year 2052.

52:49I'm going to say hold on the whole self-driving thing. You've mentioned your alma mater a couple of times. buy, sell, or hold a successful season for University of North Carolina football coach Bill Belichick? I mean, it became not just a sports story, it became really a national story. Then it was exacerbated by romantic relationships and all kinds of other off-field developments. I think, though, what did we say earlier, Chris, about winners? I actually think that Bill Belichick is a winner. And so I would be taking the over if we were doing sports betting and talking about how many wins the nation now expects North Carolina football, not a topic of previous interest to anybody to have in the year ahead.

53:34So I'm not even sure what that is. But if people think that the Tar Heels would be about 500, I'm going to say maybe a game or two above that, because I actually really think Bill Belichick is very, very smart and a very, very good football coach. You've written this publicly, and you've also mentioned it during this conversation, referring to Rule Breaker Investing as, quote unquote, my final stock market book. So, buy, sell, or hold, David Gardner writing another non-stock market book in the next 10 years. I'm going to say buy on that with a belief that that will happen sooner rather than later.

54:10And I'm not going to be somebody who comes out with a new book every year or two or wants to be a lifetime author. There are a few songs that I want to sing. And I feel like if I don't sing them, nobody might. And I hope that they'll add value to the world. This is my most important book. I don't think any book I'll write in future, if I do, will be more important than Rule Breaker Investing. But there is something just about breaking the rules, period. About that approach that we've taken to investing, that actually works in other contexts as well. And the context I think all the time about on this podcast are investing in business and life.

54:48And so I think if this book is well-received and people would like it, and if they won't, I won't do it, but I could imagine writing a book about breaking the rules just in a more general way. It won't be a stock market book. This is my stock market book, but I guess I'm a buy on that. The book is Rule Breaker Investing, How to Pick the Best Stocks of the Future and Build Lasting Wealth. It is available on September 16th, but you can order it now in all formats, including audiobook. And you should because it's a terrific read. And if you allow it to, this book will make you a better investor. David Gardner, thank you so much for surrendering the host chair this week and enabling me to join you on the Rule Breaker Investing Podcast.

55:31Chris, there's nobody I'd rather take that seat from me. For the first time in the history of this podcast, congratulations on your work with Money Unplugged. You have a lot of fools and a lot of non-Fool fans, they may not even know about the Motley Fool who enjoy following you and your work. And I'm one of them. So I'm honored to have you this week on Rule Breaker Investing. And so in conclusion, I am honored by your presence. And Chris, I feel as if we didn't screw it up this week. Like that line that you called out recently that I may or may not have said on this podcast. I think we're okay.

56:06We're good. I think this was a good conversation, But, you know, people will email you. Listeners will weigh in. Chris Hill, thank you so much. And Fool on. Fool on. As always, people on this program may have interest in the stocks they talk about. And The Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. Learn more about Rule Breaker Investing at rbi.fool.com.