32 Years of Winning Grandly in the Stock Market with David Gardner

26:27I'd be like, what's that? Right. So the book is built in three parts. It's the six habits of the rule breaker investor, the six traits of the rule breaker stock, and the six principles of the rule breaker portfolio. so I like sets of things and I like the number six because it's enough to be rich without being so much you can't remember it all and all 18 of those habits traits and principles I basically learned over the course of time some of them I learned from others like Peter Lynch or Warren Buffett and others I came up with on my own and I mean in the end since I already just quoted Epictetus, Iremonid.

27:12Everything goes back to the Greeks anyway. It's not like any of this is brand new. A lot of wisdom is centuries and thousands of years old. We're just rediscovering it in every era and trying to apply it to the circumstances we find ourselves in, let's say in the year 2025. But I've learned so much, Andrew, and I will say this. I think I've already said it. I'm repeating myself, but I had so much fun writing this book because it was an opportunity for me to just set down in order what I've learned. And it's the last book I'm writing about the stock market. I'm not going to be a new book every year about the stock market for me.

27:48This is me after 30 years of winning and losing to win, basically leaving it all out there on the field and saying, here's what I think you should do and here's what's worked for me. So yeah, I've learned a lot. That's really cool. I mean, obviously, go get the book if you're out there listening and you're curious about some of these things, but say somebody wants to find the next NVIDIA, the next Amazon, is there a place that you would recommend they start? Yeah, I mean, I think I'd start with the six traits of the rule breaker stock. I mean, that's what I look for. And a fun note about that is that my brother Tom and I, in 1999, published a book called Rule Breakers, Rule Makers.

28:33And I wrote the first half about companies that break the rules. And Tom wrote the second half about the Goliaths that end up after breaking the rules, they start making the rules. And so that was the purpose of that book. And as I wrote that rule breaker section, which was the first time I'd used the phrase rule breakers in a book, I laid out six traits that I was using to find stocks back then. And guess what? They're the same six I just wrote about in this final book about the stock market. They haven't changed. What has changed is 30 years of data now, 25 plus years of seeing what worked and what didn't.

29:09When we wrote that book, I was, yeah, I was 32. So I was saying, here's what I'm doing and here's what I think will work. Well, now I'm 59 and I've seen what worked and it's Amazon, NVIDIA, Netflix, Tesla, Mercado Libre, Intuitive Surgical. These are all completely different companies in different industries, but they all follow the same pattern, the same pattern I recognized when I said, look for these six traits. And you're not going to be able to check every one of them for every stock. But the more you see of those six traits in a company, if you're looking for the next Amazon, the next NVIDIA, I would say start right there.

29:48And I'm happy to run through them real quick, or if you want to pull one or two of them or go deeper, whatever you'd like, Andrew. But that's what's worked for me. And the good news is I was saying it 30 years ago and I practiced it and it worked incredibly well. And I think it's going to work incredibly well over the next 30 years. Super cool. Maybe let's do one, if we could pick one trait. Let's lead off. I'll lead off of the first one because that's the most important anyway. The first trait of a rule breaker stock is top dog and first mover in an important emerging industry. If you just look across every industry and look for the important emerging ones, and then you ask yourself, who's out front?

30:35These days, for example, you could say, well, for AI, you could say, well, OpenAI with ChatGPT looks like they're out front. And I would agree with that. The bad news is it's a private company. Not every time is the company that is the top dog and first mover there and public and ready to be invested in. And yet so many are. I'll just give a quick example, a new company that we haven't talked about yet, Axon Enterprise. Is this a company you know, Andrew, when I say that name? I am not intimately familiar with them, no. And that's good because you spend a lot more time looking at this than most people.

31:10And for you not to know that, I recognize that that makes me happy and it should make all of happy because it means it's not yet fully discovered. It's not like everybody already knows about ChatGPT. And so, you know, where's the juice in that stock? So Axon Enterprise started as Taser. And so when you hear people getting tasered, which the media for a while didn't like at all, you'd hear about how somebody got tasered and they had a heart attack and died. And while that was incredibly rare, so often, of course, if it bleeds, it leads. And so financial media headlines were driving sort of a negative campaign against the idea of tasering.

31:46I think it's an incredibly great technology. Rather than shoot people with ammunition, which can kill them, non-lethal, in most cases, tasering is such a preferable choice. And it's a great technology. And that same company then went on to buy police body cameras. These days, most law enforcement in the US and increasingly in the world, they're recording what they're doing. They're usually wearing body armor as well. And by the way, Axon Enterprise bought the company that was making that technology, which was Axon, and then merged Taser and Axon and then added a third business on top of it, which is basically the video vault up in the cloud that has all of those videos from all of those police departments and law enforcement subscribes to that clouded high margin video business as well.

32:35So Axon Enterprise is a classic rule breaker. You can buy it today. We've held it for years. It's been volatile at points. It has been a monster winner. And yet here you and I are talking about it. Probably most people listening didn't really know what we just shared in the last two minutes. So that's a great example of a top dog and first mover in an important emerging industry, even if not everybody knows every industry. And nobody has to be a genius. I'm an English major, but one thing I do have is intellectual curiosity. So I figure I can teach myself almost anything. The internet helps, so does AI these days.

33:11We can teach ourselves almost anything. So you can really look across so many different industries and ask who's the rule breaker in that industry, the first trait that we're looking for. And to use a fishing analogy, if you just stocked a pond with the top dog, we'll say top fish here, and first mover in every important emerging industry and you just confined your investing to that stocked pond, you have found a pond stocked with probably some of the super stocks of the next generation and of every generation. That's exactly what Netflix, Tesla, Amazon, the list goes on, Axon Enterprise, even lesser known companies like Trex, the outdoor composite decking company, has been a monster rule breaker winner.

33:58And it's not sexy. It's not technology sounding, but it's a great rule breaker. Another great rule breaker is Old Dominion Freight Lines, which is the company that does lighter than truckload trucking and logistics, gets you stuff there using the genius of their corporate culture and their technology. They're a rule breaker as well. Rule breakers take many different forms. And yet, to close my, I hope not too long answer. And yet, most companies are not rule breakers. They're rule followers. And so we're looking for the rare one, the one that's the top dog and first mover in an important emerging industry.

34:40And I'll add, tack one thing on, which is, you know, what are the important emerging industries? And that's part of what we talk about in the book. But to me, looking at things like genomics, that's not just an important emerging industry. There are a number of different industries all under the subsets, all under the set of genomics, a hugely important technology. How about the commercialization of space? That is beginning. Hugely important. AI obvious. So these technologies keep popping and they will, and they're great. And while the internet was what popped when The Motley Fool started, which really launched us, and we were believers in the internet when everybody else, there were so many doubters.

35:21Anyway, I'm going to start just going off the handle. So pull me back in here, Andrew. But I want to say something about how people thought that you wouldn't give your credit card over the internet when the internet started. And we were bulls saying you will give your credit card over the internet. But truly, that was like a minority viewpoint. People like e-commerce is not going to work. Also, when you buy something on eBay, they're not going to send it to you. Why would they send it to you? They just got your money. eBay is not going to work. right there's just so much so that happens with every new technology ai right people are now down a lot of people are down on ai i think ai is going to be amazing and yet you and i both know that any powerful technology the internet ai etc can be used for good or ill and will be used for both but the good news is they're net net really good because there are more good guys than bad guys in the world at large and therefore that's why the stock market goes lower left to upper right over any meaningful period of time, including the next generation.

36:15And especially if people are pessimistic or doubting, that's really helpful for rule breaker thinkers like me, maybe you too. I won't say, you don't have to pull my rule breaker hat on unless you want to, but I love the companies that take us forward. And that's basically what we're buying in our portfolio. Yeah, it's fascinating. I didn't realize the power of it until recently out. I don't know what I was doing, but I happened to look at the charts, Uber versus Lyft, and you see Uber's stock just do so well and Lyft kind of got left in the dust. Why do you think the first mover or top dog works so well?

36:49What are the forces at play? Yeah. Thank you. Because that's another great example. I love that you brought that one in. And yes, Uber has been one of our stock picks and I never picked Lyft. I think that's a deep question. And I would almost just say that's a beautiful question. And I'm not going to leave it rhetorical, but anybody could, because that's the right question to be asking. That has you learning and thinking. And by the way, the answer isn't the same in every case or in every industry. But if I were to just pull back one layer of the onion right there, I would say part of what's happening is that the top dog generally is led by the person who figured out the world first, the person who figured out the future first, the visionary.

37:34And Warren Buffett has a great line, the three I's in every cycle. Do you know this one, Andrew? No. All right, let's throw it down right now. So there are three I's in every cycle, Buffett. Buffett says the first is the innovator. That's the visionary who got out front and said, yeah, electric cars, you know, or whatever. And the second I, Buffett says, is the imitator. They're the ones going, yeah, well, okay, Uber, well, we're Lyft. And, you know, We got some of the same stuff going on. You're Coke, we're Pepsi. The third I, Buffett says, is the idiot. And that's when you get to a stage in the cycle where everybody's now gonna be trying to do an AI site or a.com,.bomb site, or maybe even an electric car that isn't as awesome as a Tesla or its many imitators.

38:22So that's the fun three I's in every cycle from Buffett, innovator, imitator, idiot. And so just going back to that innovator, I think top dogs and first movers are being owned and managed by those people. I think they just put distance between themselves and everybody else following them. Not every time, but generally so. And so I think that's in part why following the top dog and first mover works. One of the beautiful things about it, though, is usually they're young. Most great entrepreneurs are entrepreneurs in their 20s or teens at the start. They don't just show up at my age, 59, and come up with a great idea.

38:59I hope I can come up with a great idea and all my fellow 59 year olds let's go but it's also pattern recognition it's also generally universally true that great entrepreneurs are born young and you can see it early and that's exactly the kind of person people want to doubt in the financial media like when you come out you're Jeff Bezos you're like well you know where do you come from like what's your background or I felt that very much of the Molly Fool who are these silly guys with caps, English majors. They don't even like, what are they starting? And I felt the force of that for good and for ill.

39:33And so I think Buffett has another great line that I'm going to rock right now, which is I'm a better investor because I'm a businessman and a better businessman because I'm an investor. So Andrew, that you and your partner, Dave, that you guys are doing this podcast, that you are in the game, that's making you a better investor. And presumably some of the things that you're learning from your stocks or you're investing are helping make you a better business person, a better person kind of managing the business of a podcast, etc. So I think it's an incredibly profound and important insight that those things are connected.

40:07Anyway, I would say that because I've been a businessman and I've watched what started as a paper newsletter become a billion-dollar enterprise, I know what it took to get there. Therefore, when somebody shows up at the age of 26 and the financial media is doubting them. And I'm like, do you know how hard it is to have an idea in the first place and then to scale it and reach actual consumers with a product or service that people love enough that there's buzz? And then you take that company public and you've done all that as a young person. I'm always going to be betting. Tie goes to that person, not the media doubting them.

40:41So I think part of the beauty of top dog and first mover is they're often underdogs, right? They're rule breakers in the first place. Walmart was going to crush Amazon, supposedly. Walmart was such a much bigger company than Amazon. It didn't crush Amazon. Actually, they've both done okay, but Amazon's done way better. Yeah, Walmart was also going to crush, Blockbuster was going to crush Netflix. Both of them were, etc. The list goes on of the rule breakers that start from an underdog position, NVIDIA, and we bought them early and we keep holding them way past everybody on Wall Street who churns out of their own positions on such a regular basis.

41:18So I think that's why top dog and first mover in an important emerging industry works so well and always, I believe, always will. Love that. That is super cool and inspiring again. So it makes me want to go out and go find some more stocks. Thank you. I'm not going to lie. Running a small business has been stressful lately. Swamped in paperwork, different state agencies. and got all these expenses to track and everything. And it's hard to have visibility on these things. But I've stumbled on a better solution, kind of like a one-stop shop for my bookkeeping, my expenses, my P &L, my banking, my contractor payments, all of the messy pieces.

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43:26Less time spent on operations, more time connecting brands with the moments and fandoms that matter most. Learn more at Accenture.com slash Spotify. You mentioned individual investors. Is there anything you see that kind of holds them back, keeps them from beating the market? Anything that pops to mind in a major way? Yeah. I mean, the most obvious to me is that we're just not holding our positions enough. I understand because, first of all, most of the coverage of the markets by the media is so, what have you done for me lately? What's happening today? And so it's not really, even Wall Street itself, and there's a key moment in the book, Rule Breaker Investing, where I basically show a poll of institutional money managers.

44:14And the average holding period, the average period that they're looking at, investing everyone's money, this is institutions, this is like the big dogs, is six months. They're looking not just at this quarter, whether a company will beat earnings, but next quarter as well. And that's about where it stops. And they would say that in some ways they're being forced to do that because people have short tempers or pull back their money, or if the stock market starts doing poorly, people start wanting to sell or start worrying about, will it crash in the fall, these kinds of concerns. So the institutions themselves are that way.

44:49The media covering them therefore covers the topic that way. And there's very little coverage of actual investors doing actual investing where we're buying companies, not zigs and zags or charts. We're actually buying flesh and blood companies run by human beings doing important things in this world, and we're holding them. And so I would say most beginners, investing for beginners, and most experts, investing for experts, their biggest single error is they're not holding their positions. And the funny thing about that, Andrew, is that it's such a lazy, easy thing to do to hold positions. Like, it's exhausting for me to think about jumping in, jumping out, trying to time the market.

45:33And so often people are like, David, then how do you do that? How do you hold your stocks as they go? And I'm like, I'm doing nothing. All I'm doing is saving money on a regular basis and adding more into the market in every cycle. I don't try to say the market's high, the market's low. I won't invest now. I'm constantly dollar cost averaging. We all should be doing this every two weeks with a portion of your paycheck. Pay yourself first. You should be putting that toward the market. You should not care about where the market is right now or what people are saying. you should know the lower left to upper right incline of any meaningful chart looking at the market over time that will continue happening for very logical reasons and yet most people doubt that they think their kids will not have it as well as they've had it etc and they're wrong and in fact there's a wonderful book called the rational optimist by matt ridley where he looks at humanity over time and basically shows that every generation thinks the apocalypse is coming, it's all going down.

46:35And if you look at the gains we've made just in my lifetime in technology, it's astonishingly great what we're taking for granted today. And more good stuff is coming. And so the rational position is to be an optimist, but it's a minority of humanity that is optimistic. and I would say that may be particularly true right now, which means it makes me even more bullish about being a rule breaker. So I would say we're holding ourselves back because we're not actually investing. We're trading, we're guessing, we're hoping, we're fearing and all that we should be doing is learning, loving the companies that we buy.

47:16As business people, we should be trying to do something awesome ourselves. We should be trying to serve others for profit through our business. And those things are connected. Your professional life and your investing should be connected. And the better you get at one, the better you should be getting at the other. And you're robbing yourself if you're not doing one of those two things. If you are just sitting there in front of your trading station and you don't really have much business savvy or experience, I think you're really not going to be as good an investor as you would. And if you're an entrepreneur but you don't care or think about the stock market or investing, I think you're really missing.

47:53You're paying a huge opportunity cost for the growth you would have had. So this is, again, tending toward a rant. And I apologize. We're probably getting near the end of our time, so I'll try to shut up soon. But I do want to point out that most people these days don't think buying stocks is a good idea, which is crazy talk. But it has become the conventional wisdom. So people are dollar-cost averaging into index funds and funds. And I'm even okay with that in the sense that at The Motley Fool, we've talked about how good index funds are since we started 32 years ago. And it is crazy talk to think it would just be luck to beat the stock market or you should just index and not pay attention or care.

48:33You are really robbing yourself of the learning that you get. If you don't care about your investing, you're just putting in index funds. You're not learning about Axon Enterprise. You're not learning as much as you would about AI or genomics. I love learning more because I'm invested in the world. Kleiner Perkins, the great venture capital firm, said we invest in order to predict the future. They don't say you have to predict the future first and then invest. They say we invest in order to predict the future. So I would say the large majority of Americans today who are just kind of mailing it in because they've been told, you know, just index it in your 401k.

49:14And I, we've given that advice too. Like, I understand it. It is good advice. But I think the real winners, and I count myself one of them, I have won so much more grandly that I bought stocks directly and didn't really bother with funds. because I cared, because I wanted to learn, and I've done so much better. And obviously, The Motley Fool kind of extends my love and my brother's love and our performance to as many people as want to follow us. And for me, my book, Rule Breaker Investing, is basically the culmination of all this for me. I don't pick stocks anymore for The Motley Fool. I stopped a few years ago just because I'm like, I don't want to spend my whole life with that amount of pressure on me to constantly be delivering to a worldwide.

49:57I loved doing it, but like a ball player, at a certain point we're going to be like, you know what? I think I'm going to move on and do something new. So I continue to be co-founder at The Motley Fool and I'm a fool for life, but I'm not every day coming up with my next investment idea. But the Rule Breaker Investing book is giving my entire playbook to anybody who wants to take the time to read it. And it's not very long. Yeah. And people should definitely check it out. I think the message of optimism is much needed at this time. It's just crazy how much we need it and how inspiring it can be.

50:31What does success look like for you with this book? Truly, success for me, I hope this book reaches as many people as possible. I hope they will read it from page one to page 200-something, not 300 or 400-something. And I hope that it will improve their investing, their business and their life. For my own podcast, which is called Rule Breaker Investing, I always say I spend a third of my time on investing, a third of my time on business and your professional life, and a third of my time on life life, because that's what we're all living together. And for The Motley Fool, we're trying to make people smarter, happier, and richer, not just one of those, and never two without the third.

51:16So from my standpoint, Andrew, I would say I already feel like I've won in this sense. I wanted to write this book. I've been keeping notes for it for 15 years. And if you'd talked to me five years ago on Investing for Beginners podcast, I would be like, yeah, I'm gonna write a book this year. I'm gonna finally do it. And I didn't, and I didn't, and I didn't. And then finally, last year, I wrote it. And I had so much, I didn't need deadlines for my publisher, I just did it. And then this year it comes out. My aim is to try to reach as many people as possible. I truly think it makes the world better.

51:48I think it is a life improvement tool. And so I hope people will find it, love it, and share it out. But as an artist or creator, I already feel like I've had the baby, and I love it. And if not everybody loves my baby, I'm okay with that, because I love it. Awesome. Yeah. Well, it's been an honor to have you on the show and have you talk about the book. It is going live September 16th, 2025. It's a special date for me. so people should check it out I'm going to just assume it's going to be on Amazon it's going to be in all the great places you mentioned you can pre-order it now it's already out there but why is it a special day for you Andrew?

52:30it's my daughter's birthday that is totally awesome I love it that's a good mnemonic when Rule Breaker Wednesday comes out Andrew's daughter's birthday is happening too those things especially for listeners of this podcast they are synchronicity man this is connected. Did you pick the 16th on purpose? It was totally the pick of Harriman House, my publisher. They know what they're doing. And fall is a good time for books to come out. More people are back to school, back to work, than if this had come out on August 16th, for example. So I think that's their thinking. But congratulations on having a family.

53:10And I will say, dad, that getting her going, starting a portfolio for her. I'm sure you already have. Everybody listening, though, started, I mean, I'm so grateful that my dad started a portfolio for me when I was born, and it had 18 years of compounding, not 80 years of compounding. I'm going to let it get there one day when I turn 80, but it was compounding before I understood what compounding was. It is an incredible gift to give to people, but especially putting stocks in portfolios for kids that they understand. They may not even be the best stock picks, but they're right for that kid. That will accelerate their learning in a really powerful way.

53:48So yeah, investing for beginners includes all of those kids born and yet unborn that we should be thinking about because that's why we're investing in the first place in a lot of cases. Anyway, I always love talking to family people and congratulations to her. Happy birthday. Thanks. So people, go check it out. Rule Breaker Investing. Thanks so much for joining us, David. It's been a pleasure. That's going to do it for us today. Remember to go out and invest with a margin of safety, emphasis on the safety, and we will talk to you next time. We hope you enjoyed this content. Seven Steps to Understanding the Stock Market shows you precisely how to break down the numbers in an engaging and readable way with real-life examples.

54:31Get access today at stockmarketpdf.com. Until next time, have a prosperous day. The information contained is for general information and educational purposes only. It is not intended for a substitute for legal, commercial, and or financial advice from a licensed professional. Review our full disclaimer at einvestingforbeginners.com. I'm Gwen Washington from Snap Judgment, the storytelling podcast from KQED. Imagine an iconic piece of paradise overrun by one of the most horrific fires in recent memory. Everyone flees. Everyone except one person who decides to fight the flames alone. The moment when nature, institutions and technology fail at the exact same time.

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55:56and conditions.