TIP499: Investing Through A Bear Market w/ David Gardner
TIP499: INVESTING THROUGH A BEAR MARKET
W/ DAVID GARDNER
1 December 2022
Trey brings back a very special guest, David Gardner. David is the co-founder of The Motley Fool, an investing resource platform that he’s been operating for over 30 years. David has an incredible investing track record having bought companies like AOL, Amazon, Netflix, Nvidia, and others early on but more importantly, tenaciously holding on to those stocks while they ripped up by hundreds of percent, fell back by a similar amount, and skyrocketed into the stratosphere. They picked up where they left off from their discussion from a year ago on Episode 385.
IN THIS EPISODE, YOU’LL LEARN:
David’s take on the current bear market and how to keep calm.
The new era of Amazon.
Assessments of Netflix, Meta, Apple, Hershey and others.
How David and his brother Tom navigated their own business through previous recessions that resulted in laying off over 80% of their employees at one point.
How David approaches learning and teaching his family about investments and life.
The new Motley Fool Ventures and Foundation endeavors.
And much, much more!
Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.
[00:00:43] Trey Lockerbie: On today’s episode, we bring back a very special guest and that is Mr. David Gardner. David is the co-founder of the Motley Fool and Investing resource platform that he’s been operating for over 30 years. David has an incredible investing track record, having bought companies like AOL, Amazon, Netflix, Nvidia, and others early, but more importantly, has tenaciously held onto those stocks while they ripped up by hundreds of percent, fell back down by a similar amount, and then skyrocketed into the stratosphere.
[00:01:13] Trey Lockerbie: We pick up from where we left off from our discussion at year ago on episode 385, which I highly encourage you to check out. In this episode, we discussed David’s take on the current bear market and how to keep calm, the new era of Amazon, Assessments of Netflix, META, Apple, Hershey, and others, how David and his brother Tom navigated their own business through previous recessions that resulted in laying off over 80% of their employees at one point.
[00:01:39] Trey Lockerbie: How David approaches learning and teaching his family about investments and life, the new Motley Fool ventures and foundation endeavors, and much, much more. I feel like I could probably talk to David for an entire day. He’s so easy to speak to, incredibly smart and highly entertaining. David can be somewhat of a breath of fresh air after so much doom and gloom from the uncertainties of our [00:02:00] current bear market, I know you’ll enjoy this as much as I did.
[00:02:02] Trey Lockerbie: So, here’s my conversation with David Gardner.
[00:02:09] Intro: You are listening to The Investor’s Podcast where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.
[00:02:30] Trey Lockerbie: Welcome to The Investor’s Podcast. I’m your host Trey Lockerbie, and today we are super excited to welcome back our friend David Gardner. Welcome back, David.
[00:02:38] David Gardner: Hey Trey! Good to see you again. Thank you. What would a market it’s been since we last talked.
[00:02:42] Trey Lockerbie: It’s been a year. It’s been a whole year since we last talked and a lot has happened.
[00:02:46] Trey Lockerbie: For one, we experienced the worst six months start in the stock market since 1970. There’s a new high interest rate environment and a lot of debate around inflation or deflation. So, I had to bring you back on because I’ve been speaking with so many people about this major macro-environment, we’re in and all the concerns around that.
[00:03:05] Trey Lockerbie: I’m hoping you can bring us back down to earth a little bit and provide potentially some reality setting or even just some hope that this market will turn around just like all previous markets.
[00:03:17] David Gardner: Well, thank you Trey. And I don’t feel any specific compulsion to need to be an optimist or to need to be the long-term guy, but the fact is I am a long-term guy, so I don’t have to affect it, and I am by nature optimistic, and It was true for my earliest youth. So, I’m glad to know that studies show that it’s a healthier approach to life and wonderful books like The Rational Optimist by Matt Ridley, which I totally recommend for anybody who’s not read that book, remind us that consistently throughout history, human history, we tend to think everything’s going down in our generation.
[00:03:49] David Gardner: We have apocalyptic thoughts that recur over and over again. We say things like, yeah, our kids won’t have it as good as we’ve had it, and we have been consistently wrong as a race. And I’m not just talking about the last five years or [00:04:00] 30 years. I’m talking about the last 2000 years recorded history and so it’s just worth remembering that.
[00:04:05] David Gardner: And I feel as if you and I, because I hope you generally agree with me, I sense a fellow entrepreneur and an optimist. It’s hard to be an entrepreneur and not be an optimist, I’ve found. But I do think that it still feels unusual for most people. We all come from different places in different angles.
[00:04:21] David Gardner: So, I’m not here to assert anything other than what I do and what I believe. And if anybody listens to this podcast, and a lot of people listen to your podcast, Trey, so I hope some people do. Maybe we’ll open some eyes or maybe we’ll start to remind some of the older hands of how things have been and will be, and that is good.
[00:04:39] David Gardner: That’s a good thing. The market goes lower left, upper right over any meaningful period of time.
[00:04:44] Trey Lockerbie: The rational optimist, I’m going to have to read that and I’m going to put it in the show notes for everybody to check out. So, the stocks that I typically hear you discuss owning are usually tech stocks or tech related stocks, which have been suffering tremendously throughout this market.
[00:05:00] Trey Lockerbie: Stocks like Netflix, Amazon, Nvidia, et cetera. I know you’re a proponent for averaging up on winners even at higher prices, but what is your opinion on averaging down on companies when stock prices get cut in half like
[00:05:14] David Gardner: we’ve been seeing? So, I think that. First of all, my tendency is to add to winners because I do believe that winners win.
[00:05:22] David Gardner: What do winners do, Trey? The correct answer is they win and over time they do. In any short-term period, winners don’t win. And some great franchises as a big sports fan I know sometimes have bad seasons, and that’s just going to be true if you’re making a lifetime commitment to the stock market, which is what we’ve encouraged everybody to do.
[00:05:40] David Gardner: At the Motley Fool for now 30 years in counting. It really does work. So, if you’ve made that lifetime commitment, then I think that you should probably be finding the best companies that you can that are going to be around for a long time so that you can compound your returns and not have to jump in and jump out of the market.
[00:05:56] David Gardner: So, from my standpoint, yeah, I was just checking the numbers. You and I talked on [00:06:00] September 14th, 2021, the S&P 500, as of this recording is down exactly 15%. The NASDAQ is down exactly 30%. I am down 21%, somewhere in between, and that makes me feel pretty good Overall, since my largest holding Netflix is down more like 55%.
[00:06:15] David Gardner: So, some of the others are forming some good. Ballast. But I think it’s just a reminder for a lot of us that, to me, I don’t actually use the phrase tech stocks. That’s in fact one of my pet peeves and I do on my podcast pet peeve episodes where I talk about, I used to go on CNBC in the 1990s and I was like, what isn’t a tech stock?
[00:06:33] David Gardner: I mean, Walmart’s a tech stock. The logistics driven by technology, even the 1990s for Walmart, made it a huge tech play, if you will. I think technology runs through everything, so I tend not to think in those terms. However, you’re right. Depending on what we mean when we say tech stock, I have always generally favored companies that use technology.
[00:06:53] David Gardner: Sometimes they manufacture it, but often they just make really good use of it in order to create world class wins for not just investors, but yes. But really the great companies, the conscious capitalism companies create wins for every. Usually, the customers love shopping at those places like Amazon.
[00:07:11] David Gardner: Usually the employees really like to work there. Think about Chick-fil-A. It’s a private company, but if I could buy that stock, I certainly would’ve owned it for a long period of time because everybody’s happy. It goes to work for Chick-fil-A. Not everybody, but I think you get the point. So, customers win, employees win.
[00:07:28] David Gardner: Partners and suppliers, and I know you’re an entrepreneur and you supply, you want to be well treated as a supplier. And if you’re respected and really. If you’re playing the long game and you’re not being nickel and dimed or short termed by those that you’re supplying, that’s a powerful force for loyalty.
[00:07:44] David Gardner: And so usually partners and suppliers like working with these companies, and of course in the end, shareholders will really enjoy being invested in these companies because if you get all the other things right, the share price will take care of itself over the only term that counts the long term. So yeah, I mean, my biggest holdings have been [00:08:00] stocks like Netflix and Amazon, and I have very low-cost bases in them.
[00:08:03] David Gardner: I’ve held them for very long periods of time through thick and thin, and yet I’m still, I think, a young guy. I’m 56. I’m planning on holding these stocks for 30 or 40 more years now. The world will change and whether Netflix changes with it and Amazon changes with it, we can’t say. But I will say in conclusion for the shaggy dog answer, that rules will continue to be broken.
[00:08:22] David Gardner: New upstarts will pop up all the time, and that’s where I’m going to have my gaze trained. I’m looking for the rule breakers, the companies that come along and break the status quo, how things are done. They’re usually serving customers better. They get the love earlier. And if they have scale possibilities and brilliant management and an understanding of how to do brand, and if they’re good companies, not every company is, but there are enough of them, you can, well more than fill a portfolio, then those are the ones that we’re going to be trying to be invested in every age.
[00:08:52] David Gardner: And if I can persist in investment my entire life, I will. And Amazon may well be a stock like that for me, but even if not, if I can hold it for 20 or 30 years, that’s really the way to get rich on the stock market, not be too much in fear of macro environments that shift every two or three years and generally are positive, but occasionally are quite negative, like the one we’re living in right now.
[00:09:14] Trey Lockerbie: Speaking of Netflix, you’ve owned that for almost, I think 18 years now. I mean, you work very early on it.
[00:09:20] David Gardner: Yes. Before, yeap.
[00:09:21] Trey Lockerbie: And the commentary as of late is that the thesis is busted, right? There are too many competitors, not enough content, cracking down on subscribers and raising prices, et cetera. Do you believe the thesis is busted?
[00:09:34] Trey Lockerbie: I imagine you would’ve sold it if that were the case, but is this just another quickster moment for Netflix, or what are you seeing and keeps you believing?
[00:09:42] David Gardner: Well, first of all, Netflix is down from a high of 700, closer to 300 today. So, this stock has been, well, more than halved in just a year. So, a lot of the bearishness and some of the broken thesis that you’re speaking to has in fact play.
[00:09:56] David Gardner: So, people like me who believe in Netflix and have owned Netflix for a long time [00:10:00] have a lot less allocation toward Netflix, assuming it’s underperforming. The rest of its our portfolio, which for me it has been. But of course, I remain a staunch believer in Netflix. It continues to have the largest market share.
[00:10:12] David Gardner: It’s really head and shoulders above any other streaming service. There are now so many streaming services that people are like, could I please get a cable, some new form of cable subscription that would bundle everything, so I don’t have to be subscribed to 17 different through my Roku services or whatever.
[00:10:27] David Gardner: So, in a world of ever proliferating streaming services where I think we arguably have more content than we’ll ever need in one lifetime, and we’re not even including YouTube and all that’s there right now, it’s amazing the battle for eyeballs. I mean, how many players are in there? But Netflix is head and shoulders.
[00:10:43] David Gardner: Above all, it’s the only pure play at scale globally. I don’t see anybody else there. I mean, you certainly see Disney with global possibilities, but they’re doing so many other things. And you see Amazon not as global, but they’re doing so many other things. I really like, first of all, I like all of them.
[00:11:01] David Gardner: Those are all great companies and great stocks, and I own all of them. So, I don’t think it’s a zero-sum game. It’s not a winner take all industry at all. And so, I, I would say that Netflix is certainly in a different place than it has been before. This is not an emergent company that people are doubting, which is how it was when I first bought it.
[00:11:20] David Gardner: And Blockbuster was on top of the world and the CEO, blockbuster was saying, well, Netflix looks interesting to us, but that’s a very small niche market. And from that point in time, the late 1990s, Netflix would come public year or two later, and all of a sudden, of course, the world changed. That was back in the DVD, subscription rental days, streaming later came along.
[00:11:40] David Gardner: Of course, Netflix was first there. Netflix is now, as moving to an ad supported model as well for those who want to pay a cheaper fair. And I think that’s smart. I also think it’s smart to, yeah, disentangle adult kids who may be surfing on moms and dads Netflix and have them pay to, I think it’s a great company and again, at a [00:12:00] market cap.
[00:12:00] David Gardner: Let’s see. I love Googling while we talk. It makes me sound so smart at a market cap of 122 billion today, Netflix, it’s about a hundred times where I first had it when it was more like a billion-dollar company. So, it’s not about to go up a hundred times in value ever again. Is this a stock that I believe will continue to be brilliantly managed, the leader in the space, and it’s a valuable space and probably in time if it starts to mature, they could start playing paying dividends, which is what some companies do in time.
[00:12:28] David Gardner: I’m happy to be invested and I will point out in closing on this one, Trey, that the stock is already well down. It’s not like often when stocks are way down, I find the sentiment starts saying That’s nothing. Watch what’s about to happen. And that thing doesn’t happen. Actually, the stocks flip back, and I was seeing Netflix being counted dead about a month ago, and then they came out with earnings.
[00:12:49] David Gardner: The stock went up from basically two 30 to 300. It’s on a roll, it’s up about 30% in the last month. So, it’s actually kind of like the market overall. You and I talked about, you mentioned it’s the worst start to a market since 1970. But and this is a little silly because it’s one month return, but did you see that the Dow Jones Industrial average for October had its best single month since 1976?
[00:13:12] David Gardner: It was up 14%. I don’t think I was up 14% in October. It was kind of a flattish month for my kinds of Rulebreaker companies. But often when things look so dark, all of sudden things start flipping and people don’t really notice or feel it yet. They need the market to persist for a while, but we might have already hit a bottom.
[00:13:32] David Gardner: I can’t remember a time that people have been more bearish than they are right now, which always gives me pause because I’m like, well if everyone is this bearish, then what do we not know? Because I think there’s a surprise potentially to the upside coming. Even though that interest rates keep going up, it just seems like everyone knows the playbook too well at this point to be too accurate.
[00:13:50] David Gardner: And really, I don’t want to pretend to be a macro economist. I don’t even play one on tv. I don’t focus a lot there. Obviously, interest rates compete [00:14:00] against market returns. The higher the interest rate you can get for just lending money, the less likely you are to risk it and be an owner of a stock where you could lose money more easily.
[00:14:09] David Gardner: So, the higher the interest rate, typically the lower market multiples and the lower our returns are. We’ve seen interest rates really jump from basically 0% fed funds rate to around 4% in percentage terms. I mean, you can’t divide by zero, but that’s a dramatic rise. I don’t think we’re going to continue to see that level.
[00:14:28] David Gardner: I don’t think we’re going to see rates quadruple again from here. And so, I think that the pacing will slow. Unfortunately, it doesn’t seem like inflation has really reacted or shown lower yet, and that’s certainly troubling. And there are lots of reasons that we’re in this pickle. But I guess to just dial out and zoom out.
[00:14:46] David Gardner: This is going to be, this already has been a bad market for a couple of years. If it continues a couple years more, that’ll be unfortunate. The market will start rising in advance of good economic news. The market’s always looking ahead, but this will end up being, for me, a brief period in my lifetime where the market was really bad and the younger you are, the more opportunity you have to get good companies at lower prices.
[00:15:06] David Gardner: So, bully to everybody who’s younger than I am.
[00:15:09] Trey Lockerbie: Now on that point right there. I mean, you’ve lived through a few different bear markets at this point. So has this one compared in any way to the previous ones, have those just sort of conditioned you a little bit better to withstand the volatility we’ve been seeing? Or is there anything different about this bear market in particular that you’ve noticed from previous ones?
[00:15:27] David Gardner: This feels very similar to me, just in the sense that the market is very far. And typically, my kinds of companies are farther down than that. And I had the pleasure of, we had our first Motley Fool member gathering face to face in a few years, for obvious reasons.
[00:15:43] David Gardner: That was about a month ago, and I had the pleasure or mispleasure, if you will, of standing in front of the whole room and saying, Whoever’s down, however much you’re down, I’m down more and it’s, I hope that’s refreshing for everybody to hear because it’s generally true. Percentage wise, I’m, I mean [00:16:00] I gave that I’m down 20% from a year ago, but really 2021 was a year of underperformance.
[00:16:05] David Gardner: A lot of the, especially some of the superstar stocks of the Covid rage gave away a lot of value in 2021. So, I am very well down. I’ve been about cut in half from where I was a couple of years ago, which sounds really bad since I’ve done this for a living and I’m a professional I guess, but it doesn’t sound that bad to me because it’s happened a few times before.
[00:16:24] David Gardner: And I think if I keep persisting as long as I hope to on planet Earth, it’s going to happen a few more times. And so, I don’t want to ever make it sound like it’s easy because it’s not. And our business gets hurt. Certainly, people don’t want to, they don’t want to open up their brokerage statements. They probably don’t want to open up a new subscription to a Motley Fool service.
[00:16:42] David Gardner: But again, once every 10 years or so, we’ve been around for 30 years now, and we’ve had three really bad markets and each one was for a different reason. You asked earlier, does this feel the same or different? It’s always going to be a different reason and a different environment. But ultimately when you’re seeing companies that you really like getting cut in half or more, that feels like the other times that’s happened and that’s happened before and it’s going to happen again.
[00:17:05] David Gardner: So, I think the reason I can say that with a smile my face is because I know what happens after that. I know that two years out of every three, the market rises, and the nine to 10% annualized returns include every horrific having of my portfolio and implosion of our markets and recessions are all baked into that number.
[00:17:25] David Gardner: And especially if you stay focused, not just on the. The market. I rarely invest in the market. I don’t really invest in funds or especially index funds, even though I, we promote them at the Motley Fool, and we greatly admire Vanguard and what Jack Vogel has done for this world. But we really think that you should just buy the great companies and not buy all rans and the mediocre and the bad companies.
[00:17:45] David Gardner: When you buy an index fund, you’re often buying everything. And I think we’ve made a career about pacing the market returns. It hasn’t felt that hard to do really. It’s just you are looking for. And I think part of it is we’re just playing the game differently because most people think of it as stocks that [00:18:00] they should trade.
[00:18:01] David Gardner: And we think of it as businesses that we want to own. And if you just ask yourself, what are the world shapers and world beaters, I don’t think it took any huge genius on the part of any of us to recognize Amazon, whether it was 30 years ago, 25 years ago, 20 years ago, 15 years ago, whenever you hopped on the Amazon train 10 years ago, five years ago.
[00:18:20] David Gardner: It has just been a wonderful stock. It’s not been great for the last year or so. But again, that’s one example among many. They’re in every industry. I’m always looking for the innovators and these companies outpace the averages and I try to let them flock in my portfolios or the scorecards that I picked at the fool over the years.
[00:18:37] David Gardner: So again, never wanting to sound blasé about this because I’m down more than most people are listening to me right now. But I also can tell you that I’ve seen this before and I’m not making it sound easy, but I’m telling you that things end well. They don’t end like this.
[00:18:52] Trey Lockerbie: Speaking on that point you just mentioned there about trading, Ian Castle, just put out this quote that I love, it’s going to stick with me, but he basically said, trading is looking to sell things.
[00:19:02] Trey Lockerbie: If you’re trying to be a long-term holder, you’re looking to buy things. And I, it’s just as simple as that really. And speaking on your record a little bit more, one of the most impressive accomplishments from your investing career that in my opinion, is you buying Amazon and what is now 16 cents a share, adjusted for the stock splits going up tremendously, coming down 90 something percent going back up now to $90 where it is today.
[00:19:24] Trey Lockerbie: So, it’s roughly 586 times, I think from where you bought it. A major part of your thesis though, is of owning Amazon early on was its optionality. And with Bezos departing and the company now under Andy Jassy. I’m curious if you’ve seen a shift because in Bezos’ first Amazon investor letter in 1997, he wrote, we will continue to make investment decisions in light of long-term market leadership considerations rather than short term profitability considerations or short-term wall street reactions.
[00:19:54] Trey Lockerbie: And in recent months, Amazon has initiated cost cutting initiatives, including [00:20:00] shutting down its telehealth service acting, its roving delivery, robot closing warehouse locations and retail outlets, and possibly even reducing it skunkworks lab efforts. So, with all that said, is this a new era for Amazon?
[00:20:15] David Gardner: Well, I think every era is a new era for Amazon. Truly, Amazon has been through because it’s at such an accelerated pace in terms of its growth. It’s gone through 15 different eras in this space that many companies have been through 1, 2, 3, or four eras. So, I think that it’s ever evolving and whether in this new larval stage, it pops into a new butterfly of a different size and color that rewards shareholders from here or not.
[00:20:40] David Gardner: I’ll never know for sure. Right now, I’m certainly invested in the company. One of the reasons is my SNAP test. This is something I first wrote about in our book, rule Breakers. Rule Makers in 1998. I still use it today. I talk about it some on my podcast. If you snap and a company disappears overnight, kind of like Thanos, who made it more famous, once the Marvel Avengers showed up, if a company or invested in, disappeared at the snap of finger overnight the next day, would anyone notice?
[00:21:08] David Gardner: Would anyone care? Somebody’s going to notice, the employees would notice, for example. But I’m really talking about the general public and you personally, at a personal level, would you notice? Would you care? So, I think we’re really well positioned if we fill our portfolio with companies that pass the SNAP test.
[00:21:24] David Gardner: So, for me, Amazon, if it disappeared, it would be a huge noticeable loss. I can’t even imagine it. I have a friend in Washington, DC where I live who runs a polling firm, and he showed me results of a poll that they conducted this fall. And it was just asking Americans, what institutions do we trust? And the number one, yes or no, do you trust blank.
[00:21:46] David Gardner: So, the number one trusted institution by Americans this fall is the US military. And it’s consistently ranks very high. We generally, deeply respect for great reasons. The people who are safeguarding our country they’re often such admirable [00:22:00] people. They make sacrifices. We generally love our five-armed forces, and that’s been true of our country for my whole lifetime.
[00:22:05] David Gardner: Number three on this poll was maybe will be surprising to some, again, not to me, but maybe to some, was US law enforcement. The police. Now, we’re obviously lived through an era where people are saying things like defund the police, and there have been some horrific acts committed by the people who are professional law enforcement people that we rely on to keep us safe.
[00:22:28] David Gardner: In my experience, knowing a lot of police myself, they’re pretty admirable people who are making real sacrifices. They have a higher divorce rate than the rest of us. They have a higher alcoholism rate because they undergo a lot of stress, and there’s a lot of ambiguity these days. I love tasers. I love non-lethal weaponry.
[00:22:43] David Gardner: I love the transparency that police body cameras bring today. I’m going to get back to Amazon in a quick sec, but I’m just saying that I never think we should defund the police. I think that’s a huge mistake, and it turns out I’m in the majority, this is the number three most trusted institution by Americans today, even though you wouldn’t think so from the headlines.
[00:22:59] David Gardner: What’s number two? Amazon, the US military, Amazon, and the. The three most trusted institutions by America today. So, am I invested in Amazon? You bet. Have I been invested for 30 years? 25 years. It wasn’t public 30 years ago. Am I going to remain invested probably for the rest of my life? Yes. It’s not going to be another thousand baggers.
[00:23:20] David Gardner: It is. It’s taking on a different form. I just think it’s such an important company, but I’m also not here to sell anyone listening to us on Amazon stock, nor any of the other stocks we talk about. I’m the first to say, make your portfolio reflect your best vision for our future. So, it’s really what. What you think, dear listener, dear viewer, listening to us right now what do you think about Amazon?
[00:23:41] David Gardner: And if you agree with some of the things I said, you probably should own it. If you think Amazon is going down or if you think Jeff Bezos is evil, then I would be the first to say don’t own Amazon. There’s so many other great cum. Meto Libre is a smaller, younger version of Amazon that might well have outperformed performed Amazon over the 10 or 12 years, last decade or so [00:24:00] that we’ve held it, it’s been a monster stock and it’s still a small cap compared to Amazon.
[00:24:03] David Gardner: It’s not a small cap. It’s about a 40 billion market cap today, but there’s an example. Americans won’t recognize that name, but that’s a stock that we’ve held in rule breakers for a long period of time. It’s one I like very much today. If you like e-commerce but you hate Amazon, you got options.
[00:24:18] Trey Lockerbie: Well, I have to agree with you. I mean, if Amazon went away, I mean, I’m so reliant on it at this point. I would definitely feel big gap there. And I guess my question is, does your thesis change along as you do kind of reassess or kind of rewrite things as they go into these different eras? For example, like the thesis being optionality highly in, in the Amazon or early Amazon days now shifting to maybe optimizing for profitability and maybe dividends and other things down the road.
[00:24:42] Trey Lockerbie: Do you kind of shift your thesis and say, okay, this, I’m not in it for optionality anymore, but I am in it for wealth creation or stability or other things that come along with the growth.
[00:24:52] David Gardner: I would say that you were in it for a different reason today. I mean, truly in 1997, 1 of my favorite pages on the internet is it’s out there for free.
[00:24:59] David Gardner: I think our initial buy report of Amazon, which I wrote personally, and it’s such a different company today, like we were speculating that the company might go away from books at that point. Seemed like they were starting to talk about music. Or movies and just think about all of the growth. And yet it’s just in the last 25 years, just unbelievable what Amazon’s done.
[00:25:19] David Gardner: So, it’s a very different company today. It’s a mega cap and so are some other companies like Apple and some others that I’ve favored. There’s so much bigger today than when we first bought them that I don’t look to them for exciting growth anymore. I still look to them for growth, and I love being invested in these companies and they occupy large parts of my portfolio.
[00:25:36] David Gardner: because the way I invest is I let companies blow up into big allocations in my portfolio. I don’t sell into strength; I typically just buy and hold. And if something goes up 500 times in value, it’s going to be one of my big holdings. It might dominate the rest of my portfolio if it goes up enough. So, I think for me, I like to recognize there are different life stages for c.
[00:25:56] David Gardner: And for your portfolio, you should probably have a nice [00:26:00] mix depending on who you are and what you’re trying to do. Often people diversify according to things like industry, but I like to think about it. I don’t know. Sometimes it’s the football time of year, there are 11 players on the field on offense.
[00:26:11] David Gardner: And sometimes the way I’ve talked about a portfolio is along those lines. You want to have a quarterback stock. It should be probably highly regarded and a lot of attention on it. And something like these companies that we just talked about for the last 10 minutes, they could be your quarterback. You also want to have a couple of dependable running backs.
[00:26:30] David Gardner: You might want to have a full back which is going to be, a little bit of a heavier market cap and a little bit more dependable. And then you want to try to have a superstar there. Then you want to have some wide receivers who go deep and those are more like flyers. And I would. Put down money, just hoping things will work out.
[00:26:45] David Gardner: I would want to have confidence when I throw a pass, that person’s going to catch it, but they should be fast and moving fast. And then you should have an offensive line. And those are the big bruisers, the dividend payers, et cetera. So again, this analogy will work for some people who enjoy American football.
[00:26:59] David Gardner: Many other people will be like could you use another analogy? And we can move on. But these are all ways that I’ve tried to use tropes or things that I recognize outside of investing, and then bring them into investing and kind of democratize the subject and make it accessible to all. And really, if you modeled your portfolio on the 11 positions, I skipped tight end.
[00:27:18] David Gardner: But anyway, the 11 positions that are out there on the offensive side of the football field, it’s not a bad guide to building a portfolio.
[00:27:26] Trey Lockerbie: So, you know, I love Buffet and he has this quote, everyone’s heard saying, be fearful when others are greedy and greedy when others are fearful. Well, I can’t think of a stock.
[00:27:36] Trey Lockerbie: People are more fearful of today than meta. And on the flip side of Amazon’s cost cutting, you have Zuckerberg betting the farm on VR and other things. He’s, well, mainly VR, right? He’s projected to spend 250 billion between now and 2030, which is an investment only out shown by the Apollo Space program.
[00:27:58] Trey Lockerbie: What are your [00:28:00] thoughts on Meta’s investment, and could this be categorized as a high optionality company?
[00:28:04] David Gardner: Its current format. Well, I mean, it’s a company that I never, first of all, I never have had a Facebook account, so I, in part because I had teenagers at the time who really didn’t want mom and dad on Facebook.
[00:28:15] David Gardner: And for some reason we listened to them and respected their wishes. And they’re not even on Facebook anymore, I don’t think. But I’ve always admired Facebook. I’ve always thought it’s a great thing. I know there are a lot of questions, rightly so about social media, but I mean, wow, another incredible story of starting from, a college dorm room and now 2 billion people on of the seven on Planet Earth have or have used Facebook probably within the last 60 days.
[00:28:37] David Gardner: So, I mean that’s, and that includes Instagram, WhatsApp, et cetera. So, it’s truly an amazing story and the kind of generational stock that I’ve wanted to be invested in. It’s definitely been a pick of mine for Motley Fool Rule breakers. I don’t have a big position in myself, just because I feel a little bit removed from it as somebody who’s not been using it.
[00:28:54] David Gardner: Now, when we start talking, The Metaverse and VR, AR, et cetera. It’s, the thesis is completely changed. Mark Zuckerberg is using the financial resources that he has amassed by building a really a titan of American business. And he’s trying to morph it. I admire the Hutzpah of doing that. I personally don’t have as bullish of you, of the Metaverse always maintaining an open mind, and this is very important.
[00:29:21] David Gardner: I’m never going to be, I’m 56 when I’m 66. 76, 86. I hope you’ll have me back, first of all, Trey, and then second. I hope, I’ll never say kids these days, I would never buy those stocks. I hope I’ll always be the opposite because I so admire this young generation. They’re the smartest generation ever born.
[00:29:38] David Gardner: They’ve actually been through incredible trials. If you think about what Covid has meant to them, I never faced anything like that when I was a. So, I am always going to be a bull for emergent technologies, and I’m going to be curious and interested, and I will not talk them down. But once they’ve been around for a while, I start asking things like SNAP test questions.
[00:29:57] David Gardner: Or plausibility questions of my own. And I’m a [00:30:00] sample size of one. I’m not a great sample size representative of all America, but I still, since I know me best, I kind of look at, I’m an early adopter, I kind of look at my own habits and that’s often guided me with my stock picking because I think it should for all of us.
[00:30:11] David Gardner: And I never bought crypto. I’m just not that interested in crypto. I realize some people are fascinated, a lot of people hearing me say that will be disappointed with me, that I’ve said that, but it doesn’t really pass my snap test. It doesn’t rock my world yet in a way that really matters to me. It seems like many people and fts, et cetera, are looking to unload it to somebody else who would pay them more for it.
[00:30:31] David Gardner: They’re invested that way. But I don’t see these real-world effects. And I feel the same right now about the metaverse, the, a human vision for us all. Closing off our vision and, I don’t know, settling ourselves. Even if you can be in full motion, by the way. So, it’s unfair to suggest it’s an inert or like wall-e I’m not sure it’s a wall-e world, but I don’t really, I’m not that excited about.
[00:30:54] David Gardner: Imagined beauty when there’s so much physical beauty to experience, to preserve and to touch real beauty. So, if my fellow earthlings start to go metaverse, it’s going to be even more valuable to me to be not metaverse. So, the nonconformist contrarian in me who often takes the side of favoring technology in the face of people who doubt it, I’m actually gone.
[00:31:16] David Gardner: I’m a little bit the other way on, on the Metaverse and cryptocurrency. So, I’m not hugely interested in meta right now. I will say this again, Hutzpah, huge financial resources. There are some amazing things that will come out of the metaverse, just like some amazing things have come out of the internet and out of the technologies connected, but I don’t think you and I have to be invested in it.
[00:31:34] David Gardner: We can watch it to close on this one. If the Metaverse is for real and I mean real. And if meta is the big dog, we will watch that happen over years and we will have an opportunity to jump in at any point. Again, people have made money buying Amazon 20 years after a first positive. That it could be an e-commerce leader and that would be valuable.
[00:31:55] David Gardner: And so, I feel the same thing. If the metaverse is a huge deal, we don’t have to [00:32:00] be right there at the start for those who are early on bleeding edge investors, rule breakers, some of you, God bless you. I think that’s really cool, and I’ve done that myself too. Not doing that in this case, but if it’s all for real, we will all make a lot of money together on it.
[00:32:15] Trey Lockerbie: I’m right there with you on the meta thing. The quandary here a little bit though, right? Is that, as you mentioned, it’s a tighten of industry. It’s a legendary company at this point, and it’s getting so cheap. So even though the, unfortunately, the whole thesis of the company seems to be changing and you got to take that in consideration.
[00:32:31] Trey Lockerbie: But I’ve just never seen something quite like this that I can remember anyway. So, it’s just, it’s like you want to get in because of this value, but then you’re like I don’t believe in the vision, I guess. Very interesting. Now here’s another interesting fact. As of yesterday, apple was worth more than meta.
[00:32:48] Trey Lockerbie: Amazon and Alphabet combined, it’s now somewhere around 7% of the S&P 500. Is there ever a time where you might be bullish on a company’s fundamentals and its prospects, but their valuation is just too insanely high to justify holding?
[00:33:06] David Gardner: Generally? That’s not how I frame things up. So, the answer is a no.
[00:33:10] David Gardner: With an asterisk, it’s no, because often the things that looked wildly overvalue. And this is part of my experience as an investor. Those things end up going on over the following 10 or 20 years to become the best stocks on the market. Let’s shift. I’m talking too much Amazon, although it’s a great example, but you know, Starbucks, I mean companies that, that appear to just like overprice their product and they’re over it.
[00:33:35] David Gardner: They’re a fad. These things, why would you ever pay up that much for a coffee company and. Over the course of 30 years, Starbucks goes from, some stores in Seattle to a huge presence in China and becomes incredibly rewarding, one of the better-known brands in the world. So I think the losses that you would incur by overpaying sometimes for stocks that end up bottom dropping out of it and you’re like, I blew that, [00:34:00] those losses pale in comparison to the gains that I’ve experienced anyway, by being willing mechanically to save and invest and keep adding to the best companies of your time, the ones that seem to be shaping the future of the planet for good across every industry.
[00:34:16] David Gardner: No, with an asterisk. The asterisk is that, of course, I have sometimes looked at things and said, this seems crazy. Often, I won’t have invested in the first place, and I felt that way about NFTs, for example. I wasn’t invested and I thought, this is, it’s rolled up huge value and some people have made a lot of money and I hope still will.
[00:34:33] David Gardner: I’m, there’s aspects of it that are real, but I don’t need to make money that way, and so I won’t participate. Or maybe I’ll sell a stock if I just decide it’s future prospects. Don’t look great. For the most part, I think we, we do well to stay focused on the businesses themselves. Valuation has always been secondary, if not tertiary for me in some cases.
[00:34:54] David Gardner: I think there’s a long line of great investors who’ve actually recognized that and acted that way. It’s still a minority viewpoint still when Investing’s taught a lot, so much focus is put on valuation and again, I respect that, but I don’t think you get your edge by valuing something much better than the next guy.
[00:35:11] David Gardner: I think the real asymmetric returns come when you recognize that something is much bigger than other people think. And you take a venture capital position in that if you’re fortunate enough before it even reaches the public markets. But at least for me, it’s been generally all public market companies.
[00:35:26] David Gardner: Our hundred baggers, and I have several of them over the course of time, were all public market companies. And the reason that they had those incredible returns is because they were doubted all the way up. They ran the wall of worry where. Everybody disbelieved and thought it was so overvalued at the start.
[00:35:41] David Gardner: Facebook was one such example. Facebook had a failed IPO when it came out and it looked like, this whole thing is just a fad. Social media. Are we really going to share everything about ourselves on social media? The question was asked. And so that drove a lot of thinking. And so, I’ve often described that as a dark cloud.
[00:35:57] David Gardner: And if everybody’s seeing, Netflix, that’s never [00:36:00] going to work. Why would Netflix with a queue where you have to mail back and forth, work over Blockbuster when you can just drop it off two blocks away, that’s never going to work. So, when you can see dark clouds, everybody else sees over a stock, but you can see through them those end up being the most rewarding stocks of all.
[00:36:16] David Gardner: And I guess I also just want to add that I lose more than most people. I lose more, more frequently. I’m used to losing, I airball it more than other people. Heisting it up from the free throw line or the three-point line. I airball it more and my air balls are uglier. Wow. You didn’t even get the free throw to the, I don’t know, to the, that little circle underneath where you can’t stand and take a charge.
[00:36:39] David Gardner: You couldn’t even get it there. No, I couldn’t. Sorry. So being willing to lose is actually, I think, a key trait that I have That sounds very counterintuitive and it does kind of suck, but I think it shows a willingness to take risk outside evaluation. Thinking about the future.
[00:36:56] Trey Lockerbie: That point right there. And I appreciate you being as humble as you are and expressing that, right?
[00:37:01] Trey Lockerbie: Because you don’t need many of these huge, a hundred bagger plus to kind of drown out the losers, if you will. And what you were saying, it’s kind of like that Michael Jordan quote about losing 300 games, right? And 26 times he’s the game winning shot. And it’s because he fails and continues to succeed. And that’s important. I think.
[00:37:20] David Gardner: It’s a great line and thank you for that. You’re a sports fan. I’m sports fan too. And so, we, analogies really work well, I think with the markets and sports. And another one just from baseball would be that very frequently, whoever’s leading the league in home runs is also leading league in strikeouts.
[00:37:34] David Gardner: Especially these days, and you’d think that could never go together. But that’s actually exactly what I’ve done as an investor over the course of time. I’ve often led league in home runs, and I have more strike house than anybody else. That’s very counterintuitive for most people. And sometimes I’ve sat, actually, sometimes I’ve been asked in other people’s podcasts or face to face by Motley Fool members.
[00:37:54] David Gardner: What if everybody starts agreeing with you, Dave? Like, what if everybody believes in the rule breakers? Wouldn’t that cause them [00:38:00] all to be overvalued and this whole approach wouldn’t work? And I think that, I’ve always said, I don’t think everybody ever will agree on rule breakers and especially Trey, when we have a market like the last 18 months has presented where everything that I’ve done and believed in an asserted has gotten crushed.
[00:38:16] David Gardner: The tide goes out and there’s just so many people who are not willing to stick with it in the way. At least I will, which is just stay invested. So, I have egg on my face. I look like the athlete who can’t hit a free throw, and I’m willing to do that and be that. And so, I don’t think everyone’s willing to be a rule breaker, which is why I think in part, the rule breaker mentality will always work in every age unless human beings seriously re hardwired themselves and maybe AI and cyborgs will.
[00:38:43] David Gardner: But as of now, I think the same thing would’ve been true 500 years ago if there was an American stock market then 300 years ago. And this year too. I just don’t think enough people are willing to lose as much as they need to have the best returns.
[00:38:56] Trey Lockerbie: I will try to dance around the tech company vernacular here.
[00:39:00] Trey Lockerbie: But what I’ll say is that I’m going to highlight another stock and I would compare this, I would say this is a physical stock, right? Compared to maybe say a digital product. So, this is Hershey great, right? They’re selling chocolate bars and other things. I haven’t done enough diligence on the stock to know if it’s a good bet or not, but I noticed that this week it hit its all-time high and, so not everything is down, I guess is what I’m getting at here.
[00:39:25] Trey Lockerbie: So I tried to also, like you shy away from growth or value vernacular as well, but I’m curious if your portfolio consists of any companies that are something like a Hershey’s, which is creating a physical product and probably ignored for a very long time in the, being out shown by all of these other digital companies that are, at much higher, multiples.
[00:39:45] David Gardner: Starbucks is not far off of Hershey’s. I mean, at different points. Howard Schultz has tried to make Starbucks into a tech company, if you will. There have been some interesting efforts to create a music hub on the internet and some other flights of fancy that didn’t work out so well. I mean, it’s very app [00:40:00] driven these days.
[00:40:00] David Gardner: A lot of people pay with the app or they’re, they’ve got the stars on the app, so it feels almost like a tech coffee company. But really, it’s a coffee company. They’re baristas mixing coffee. Actually, it’s not a coffee company. I think the majority of what Starbucks sells isn’t actually coffee in its coffee stores, at least in the stores.
[00:40:15] David Gardner: It’s actually Milk.
[00:40:16] Trey Lockerbie: Milk. Yeah. There we go.
[00:40:17] David Gardner: Yeah, and milk runs through chocolate the last I tasted. And so, I think Hershey’s is a. He’s a fun company. When I think of Hershey’s, the two things I think of right away, one of them is just Milton Hershey and his wife who created an unusual structure. I didn’t, I know this over time, some of our listeners will know this much better than I, but they basically decided without kids of their own to give their shares to a trust that would reward the children of, I’m going to say starting with Hershey, pa, Pennsylvania, maybe it’s orphans.
[00:40:48] David Gardner: Basically, it’s needy people and they’re substantial share owners of Hershey today. So that’s just, I just think that’s a great American story and I love brands. And I love the product. So that’s the first thing that comes to mind. The second thing that comes to mind, this is very personal, but in fourth grade we did one of those stock market units where you had to pick stocks and you tracked it when I was in fourth grade.
[00:41:09] David Gardner: I am basically age nine-ish, so that 10, so that puts this as 1976. So, we’re opening the newspaper and we’re copying down the share prices from the day before news and we track it. And I won my fourth-grade stock market contest. Why? Because my dad, like everybody else’s dads or moms, picked all their stocks for them.
[00:41:29] David Gardner: And my dad was a great investor and we got lucky because any three-month contest, it’s going to be luck driven. Anyway. My reward I’ll always remember was a gigantic, oversized Hershey bar. And from an early age that just made me happy. And that’s how I’ve always felt about the stock market. It should be rewarding after all.
[00:41:47] David Gardner: The tailwind for all of us as investors is that it goes up about double digits percentages. Year after year. It’s a miracle. And so, it feels very chocolatey to me. Hershey has been a great comedy. [00:42:00] I didn’t know it was a new high. I’m glad you’re looking at the comedy tray. Have you looked into it? Some And do you have a thesis?
[00:42:04] David Gardner: Do you want to present something for listeners here?
[00:42:07] Trey Lockerbie: I’m going to defer to another episode maybe to do that because I haven’t spent enough time with it. Great. But I would like to, if I may, I know that your dad was more of a Buffethologist, let’s say, than you are, so I’m going to guess the stock was Berkshire.
[00:42:21] Trey Lockerbie: But I’m curious to know what actually won the competition for you. Oh sure. And I won’t go into depth here, but I didn’t do it justice. It wasn’t a single stock, it was actually, I think it was a 10 or 15 stock portfolio, probably there was Berkshire Hathaway there, especially my father’s older brother, my uncle who started a firm called Gardner Investments that became Gardner Russo and Gardner and now has a new name my uncle’s no longer living, but was an outstanding Buffet protege.
[00:42:47] Trey Lockerbie: Bill Wayne, very much a traditional investor. I’m not even going to say value investor because I don’t like that phrase and that you won’t hear me using that unless I’m just calling it out. And I also never say growth investor. That’s not, I don’t think those are the right labels. But anyway, my, my uncle was a big Buffet protege and as is my cousin Eugene, who continues to help run that firm.
[00:43:06] Trey Lockerbie: And I have great admiration for the Buffets of the world. Anyway, I remember it had Getty Oil, it had hardcore brace, Jovanovich, the publishing company. It was. It was one quarter of 1976. I don’t know, I don’t remember what was hot that quarter. I think it was probably the fall, or maybe it was the spring of 77.
[00:43:24] Trey Lockerbie: But I’ll always remember that I learned that it’s fun, investing should be fun. And it really was about the companies. I thought about. What does the company do? And we do live in a world today where many people just look at patterns on charts or they’re trading minute to minute. What the company does or stands for, what its history is irrelevant probably to the majority of money sloshing around the markets as we’re speaking.
[00:43:45] Trey Lockerbie: It’s algorithmic trading, high frequency trading, the vast majority of trades of volume. Don’t notice or really care what the company does. And the vast majority are very short term. So again, as fellow fools here, I [00:44:00] think we do well to go against the conventional wisdom and as fools do the opposite, let’s care deeply what the companies do and let’s buy them to hold them well past the next minute or quarter or year or decade.
[00:44:13] Trey Lockerbie: And that’s why maybe I sound like so happy go lucky in bear markets. Maybe I’m not taking it seriously enough. And I, again, I’ve got hit right between the eyes here over the last 18 months with my net worth. But I know that I’m invested in great companies and while I’ll be wrong on some of them, the ones we’re right about are going to make us a lot of money over the next 10 years, especially from today’s prices.
[00:44:35] Trey Lockerbie: You must have gone to a much better school than I did because we certainly did not talk stocks or anything remotely close to that. In fact, I’m embarrassed to say I didn’t even know what the S&P 500 was till my mid-twenties, which might surprise some people, but I was just so removed from it.
[00:44:49] David Gardner: You’ve made a lot of progress then Trey, good for you.
[00:44:52] Trey Lockerbie: Who knows?
[00:44:52] David Gardner: We all come from different places. The second book that my brother Tom and I wrote is entitled, you Have More Than You Think though. And I think that’s really important. We’ve always made that clear. A lot of people are like, are your investor? No, I’m not an investor. Really? So, you don’t invest anything?
[00:45:05] David Gardner: Well, you just, you spent a dollar there, you just invested that. You invested an hour of time, right? You’re an investor. We’re all investors. Switch on, wake up, we’re all investors. And if you start to think about what you’re investing in, if you choose companies that you admire, all of a sudden you often will outperform the professionals who are having to diversify or I don’t know, speculating crazy ways when you and I can just, buy a great company like Alphabet and hold it over a long period of time and compound our returns and surprise people with their indices.
[00:45:34] David Gardner: So even though I kind of do the opposite of Buffet, I appreciate Buffet just about as much as anybody I know, because I recognize his character. He’s an incredible entrepreneur. And conversely, his approach has enabled mine. Do you ever
[00:45:47] David Gardner: look outside of the stock market to invest? And if so, what and when? I mean as times like these in a bear mark, are you looking elsewhere?
[00:45:56] David Gardner: Well, I mean, I own my houses and I own two houses, and [00:46:00] so I guess that represents a meaningful asset for me. The majority of my money is always going to be in the stock market. I have some positions in venture capital funds. The Motley Fool, for example, has couple of venture capital funds, which has been really fun.
[00:46:11] David Gardner: A wonderful development the last five years or so, venture Cap is outperforming my stocks, my own stock picks. I’m glad to be invested that way. I generally am extremely vanilla relative to most sophisticated types. For example, I’ve never bought or sold an option. To this day, I have no crypto wallet.
[00:46:28] Trey Lockerbie: Not even selling covered calls on your positions or anything?
[00:46:31] David Gardner: Nope.
[00:46:31] Trey Lockerbie: Wow.
[00:46:31] David Gardner: Not, and maybe I should have. And actually, as somebody who’s never taken a mortgage, Doing the math backwards, I would’ve a lot more today if had I taken mortgages because I was selling early shares of some of the great companies, we’ve mentioned in order to purchase my house back in the day as a young married couple.
[00:46:47] David Gardner: And its way underperformed my stocks. So, I’m going to keep the vast majority of what I have invested in the market, and I don’t sit outside the market with a cash lump. Some that I’m waiting to inject when the market drops. I’m always fully invested all the way up the rollercoaster and all the way down.
[00:47:06] David Gardner: You mentioned the new Venture and I’m really curious about that one in particular. Is it a private, fund? Have you thought about there’s this new arc closed in Fund for Venture that I think is, it’s just interesting because it might be paving the path for other products like that for people more on Main Street to get into something like venture capital.
[00:47:23] David Gardner: Is anything like that ever been a consideration for. That’s a great question and I’m not familiar with that work, but I certainly am a fan of enabling more people to invest in more different things. Certainly, venture capital has traditionally been sort of, you have to be a qualified investor and depending on our definition, which means you need to have $5 million of assets or sometimes a hundred thousand dollars is a minimum of assets to invest in certain things.
[00:47:50] David Gardner: And the reason for those regulations typically have been the simple logic that people who have more can afford to lose more and or probably are more sophisticated, [00:48:00] that they have more. And so, for more sophisticated instruments so that people who know less couldn’t be. Abused in some way, shape or form.
[00:48:08] David Gardner: Let’s keep it for the people who have more. It kind of goes against a lot of what we’re wanting out of American culture today, which is inclusivity and that everybody has a chance. Everybody has a shot. So, I think a mature mind can see both sides of that argument. And we try to integrate with Aristotle, we try to integrate toward the golden mean and try to figure out, what’s the right approach or answer.
[00:48:28] David Gardner: Anyway, I think it’s great that they’re thinking about trying that. I would also say, obviously that’s with more volatility and many people who step into higher volatile, higher volatility, investment vehicles sometimes get burned or feel really bad about or they don’t have the same mentality in a down market that I’ve tried to cultivate over the years.
[00:48:46] David Gardner: And what I do is probably sort of a minority viewpoint. I hope it ends well. I don’t know that much about it at the Motley Fool Ventures fund and that sister company of ours. It’s a traditional kind of 10-year fund. The one thing that we did really a traditionally, and I credit our head, Olin Douglas, with this decision, venture capital, typically you’re trying to have as few investors as you can, stroke the biggest possible checks you can.
[00:49:08] David Gardner: So, if you’re trying to raise 150 million, you’d love to have five people write you 30 million checks. And then you don’t have to manage them too much. You just five phone calls each quarter, that sort of thing. Olin went with the total opposite, which is of course so foolish. With a capital app, it goes against the conventional wisdom.
[00:49:24] David Gardner: And because we’ve always tried to democratize our subject, we have 800 different LPs, limited partner. At 150 million funds. The first one that we raised; we now have a larger second one. But it was so counterintuitive what he did and what we’ve done. But he was saying, while it’s I guess convenient to just have five people write really big checks, we’re trying to reach as many people as possible.
[00:49:44] David Gardner: So, the minimum check to write us was for a hundred thousand dollars. And we have a huge network of people who can help us source new ideas, provide their own expertise, like share their knowledge of that industry because they’re retired from it and they’re working with the young CEOs, one of our portfolios [00:50:00] companies.
[00:50:00] David Gardner: So, I really love what Olin did. Again, we’re maybe the only venture fund that’s ever done that. It’s kind of crazy what we’ve done within a traditional regulated vehicle. But anyway, that’s a little bit about it. This is not where I’m spending a lot of my time. I’m an investor. In fact, I’m the first investor, I’m the first LP in that fund, I’m proud to say.
[00:50:16] David Gardner: But this is that team. And part of what I’ve done, Trey, is I’ve transitioned away some of my own stock picking and investment selection in order to focus on. New adventures or new things that interest me. So, I’m always delighted to be succeeded well by people who know what they’re doing. And that’s very much how I feel here in year 31 as we enter 2023 of the Motley Fool.
[00:50:39] David Gardner: I think that’s fantastic. And you’ve mentioned that your podcast is 33% investing, 33% business, and a third life. And we’ve covered a lot of investing so far. So, I want to focus on a couple of other topics here. In 2001, your own business had to let go of 80% of the employees at the time after being right.
[00:50:59] David Gardner: Recently on the cover of Fortune Magazine a few years earlier, what was it like to endure a boom bust cycle like that in your own business? Because a lot of people are going to go through that, or they already have in the last couple
[00:51:10] David Gardner: years. It was brutal and it was not something that we ever expected would happen without going.
[00:51:17] David Gardner: I mean, this is the kind of thing that I should write up with my brother Tom in a book one day and tell the story long form. I really appreciate, by the way, about your podcast that you do encourage long form, but that would be long form not appropriate for the podcast. So, I’m definitely going to short circuit my answer.
[00:51:31] David Gardner: I’m happy to go deeper along any angle here. But basically, we started as a couple of brothers with our pal, Eric, so it was three co-founders. Me and my brother Tom and his pal Eric, who both went to Brown University. I went to UNC Chapel Hill. We started the Motley Fool as a print newsletter for basically our parents’ friends.
[00:51:48] David Gardner: They were the only ones who pay us $48 a year for our writings. They were helping support our fledgling print newsletter business. The internet came along, and we recognized this was going to be amazing. We shipped to the internet, except it wasn’t the internet. It was [00:52:00] so early. The internet wasn’t out there existing for popular consumption yet.
[00:52:04] David Gardner: So, it was AOL private online services, and that’s how the fool started. So basically, three people, and we started getting venture capital in 19 97, 4 years after we started, and in 1999, 2000, the markets are cresting and we’re at 435 employees and 2001 begins and the markets are already losing gas and some really bad things start happening.
[00:52:26] David Gardner: This is of course, a year that featured nine 11, but just thinking about. Great companies like, like Amazon we talked about earlier. Amazon went from 95 where it was at the time, down to seven that year. That’s how the Motley Fool behaved as well at a much smaller scale. We did a layoff in March of 2001. We laid off a hundred people.
[00:52:44] David Gardner: That really hurt. We had no experience doing that. These were people who’d moved their families across the country to be with us. We had to say, we’re so sorry and we laid off a hundred people and we were like, well, we’ll never have to do that again. And then June came and all of a sudden, a couple more, we were running a free ad supported business at the time.
[00:53:03] David Gardner: A couple more of our advertisers said, we’re not going to advertise on the site this quarter. We’re like, what do you mean? We’re, we have so many visitors streaming through AOL and also our website. You’re not going to like, listen guys, we don’t have money to advertise with this group. We’re battening down the hatches things you get.
[00:53:16] David Gardner: And so there goes another layoff for us, a hundred more people at that point, we’re laying off a couple family members. It was brutal. And we said after that, we’re never going to have to do that again. And then nine 11 came. And the stock market closed for a week, and it was the worst year of my life, and especially as a Washington DC resident, I remember that people were sending anthrax to the US capital, there was scares about poisoning.
[00:53:41] David Gardner: And then there was a sniper with two guys in a car DC people will remember this 20 years ago, but that same fall, people were just getting shot at like soccer games. And so, it was a dystopian hellscape at that point, and we laid off 100 more people and there were some really great people that we [00:54:00] then let go.
[00:54:00] David Gardner: So, we went from 4 35 to 85 in nine months, and in retrospect, we may have even cut back more than we needed to, but we had to. We were a venture fueled, overspending our means on purpose with a wonderful board, three rounds from Silicon Valley, some great venture capitalists, and we had to all of a sudden find cash flow positive, which meant that we shifted from a free ad model.
[00:54:22] David Gardner: To a paid subscription model, keeping our fingers crossed that people would continue to trust us even though all of our stock picks like mine in the last 18 months. Back then in 2001, 21 years ago, they were all down in the same way that year. But we built up, I think we’d punched above our weight class in terms of building up a brand and a great community of people.
[00:54:42] David Gardner: They supported us, and we were able to turn the company around. There’s more, I could talk about the comeback story, but we just wanted to, I just wanted to focus there with your question about the pain of that and my conclusion, bringing it back to today and investing. Well, of course, Warren Buffet has another great line.
[00:54:56] David Gardner: I’m a better investor because I’m a businessman and a better businessman. Buffet has said because I’m an investor and I’ve always felt the same thing. You understand that too, Trey. So you know, if everybody who was trying to make money on the stock market also had the great fortune of starting a business or creating something that sustained itself long enough to not fail, the lessons that we learn as entrepreneurs and business people are formative and so powerful, and we should use those for our stock selection. We should say stuff like, well, we tried that at my company and that really worked, or that didn’t work so well and so now this new thing that I’m watching, this stock, I’m checking out. I don’t, and also you can see their balance sheet in, in a different light when you’re an entrepreneur.
[00:55:36] David Gardner: And by the way, of course, the other half of that line, the other side of Buffet’s coin there, is that you’re a. Investor, because you’re a businessman, you’re a better businessman because you’re an investor and that other side. How many things have I learned to improve our company and my brother Tom?
[00:55:52] David Gardner: How many things have we borrowed or learned by studying another company whose stock we might pick or getting to meet the CEO or asking why is their [00:56:00] culture ranking so high? What’s special thing is happening there? And then we pull our own investment research into the culture of our company, and it improves our business.
[00:56:08] David Gardner: And so, it’s. Relationship between being an investor and a businessman, and it’s not a 2D plane for those watching us on the video portion. I know this is also a podcast, but right now I’m just circling kind of a flat 2D plane, and you’d think, investor businessman, you go back and forth on the same 2D plane, but that’s not actually the case.
[00:56:25] David Gardner: You actually level it up and go higher and higher. I think it’s ever rising Gyre or Geier, depending on how you want to, whether you want to be British or not. But I think that’s a really important realization that the better you get at one, makes you the better at the other, and it keeps going from there if you let it.
[00:56:42] Trey Lockerbie: I love that Buffet quote, and it speaks so much to what you said earlier about everyone’s an investor. And that quote really resonated with me and it’s something I’ve kind of internalized through my own business. And it makes so much sense because when you start thinking that way, you realize everything is an investment, and your time your $1, your co, whatever it might be.
[00:56:59] Trey Lockerbie: So, I know you learned a lot of invaluable lessons through that experience, and I know you’ve also said that continuous learning is often a big secret to success. I’m curious what your practice is for continuous learning today.
[00:57:15] David Gardner: Well, I’m a slow but active reader and I’m often not reading investment books.
[00:57:20] David Gardner: People say, well, what’s your investment bookshelf? I want to copy the 10 books you’ve read. And I’m like, I think I’ve only read. Investment books, like I put down the, I put down the Benjamin Graham book midway through it when I was 18 or 19. But certainly I’ve appreciated not a page journey, not, definitely not Common Stocks and Uncommon Profits by Phil Fisher.
[00:57:40] David Gardner: I think it was written in the 1950s, maybe sixties or seventies. But basically, that’s a great book. I, of course, love Peter Lynch’s books back in the day, but I really don’t read many investment books. I do read some business books and of course, the one helps me with the other, but often I’m trying to read things.
[00:57:56] David Gardner: Innovation or culture or history [00:58:00] sometimes. And I love to pull lessons or anecdotes from outside of investing and then reinterpret them within the context of investing. And it gives me some new insights. So, I’ll give a quick example of that, which isn’t actually from my reading, and I don’t want to make myself sound like I’ve always heard that Buffet is an incredible reader.
[00:58:17] David Gardner: I know Gates, bill Gates is an incredible reader. I know at least for Bill Gates, maybe Buffet too. He reads at a speed that is like insanely fast. And I read, I still sound outwards as I read them, which is what you’re never supposed to do from like age seven on. So, I’m a slow. So, I don’t want to start pretending like I’m a great reader, but what I am is I am somebody who listens a lot.
[00:58:40] David Gardner: And I’ll give a quick example of a learning that leads to. How I try to be a continuous learner. This is a story I’ve told some on my podcast here and there, so forgive me any fool fans out there if you’ve heard this one before. But we had somebody who interviewed for a job in the late 1990s as my brother Tom and I were starting a radio show.
[00:58:58] David Gardner: We did not do college radio per se. We had very little radio experience and we were about to open up a three-hour coast to Coast AM radio talk show on Saturday afternoons, which ran for several years successfully before we then shifted over to NPR and did that for several years before we eventually just shifted to podcasts.
[00:59:14] David Gardner: But back in the day, we were looking for somebody who could teach us more about radio. So, we were looking to hire a producer. And the reason I particularly love this quick anecdote is because the person who I was interviewing didn’t get the job, and I don’t remember who this was. I remember it was a guy, he was younger than I was, but what he said, I’ve always remembered.
[00:59:35] David Gardner: And I use it, of course, pulling it from its context to apply it to investing. And here’s what he said. He said, I think a lot of people think to do better radio, you have to do what I just did, which is create white space with a herky jerky cadence. You need to jump back and out, and you need to use the power of negative space.
[00:59:53] David Gardner: And that’s a tactic he said. Or maybe you need to start modulating your voice like radio guy and be a radio guy. And if you do those two [01:00:00] things, maybe that’s better radio. He said, but that’s, in my experience, that’s not better. Radio, what’s better? Radio? He said, lead a more interesting life.
[01:00:06] David Gardner: Go out there, try stuff, talk to interesting people than just come back to the microphone and talk about what you did and what you learned. That’s the secret to better radio. So, in so many words, that is what that person said to me in the job interview that we eventually gave the. To not that person, somebody else who’s still with us 25 years later.
[01:00:26] David Gardner: So, it was a great hire for us, but again, what a great moment. So, I think I do recognize cool stuff. I’m sort of a cool hunter. So that was a cool moment and I pulled that out and I said, the secret to better radio leads a more interesting life, that’s actually the secret to better investing because there’s no substitute when you hear about a new technology or a new restaurant or a new.
[01:00:48] David Gardner: To go out and try it. A new idea, go out and try it or talk to the people who are trying it. And not only will you become a more interesting person, but your intellectual curiosity also driving you forward to ask questions and meet cool new people and learn stuff. But that’ll actually then provide you context for the investment decisions you’re making.
[01:01:07] David Gardner: It’ll awaken new ideas for companies that you wouldn’t have thought of before. This especially appeals to generalists. Like me, I’m a humanities person. I’m an English major, I’m a generalist. David Epstein has written a great book called Range where he supports the generalists out there. We’ve.
[01:01:23] David Gardner: Kind of been getting dumped on for a long time. because the world is often to the specialists and Malcolm Gladwell with his 10,000 hours. To become a true expert, you need to specialize. And we all know contexts often where that is true, but there’s something to be said for the generalists. So, I’m a mile wide and an inch deep, but the strength of being a mile wide is that mile part.
[01:01:40] David Gardner: And so, my willingness to walk an extra mile to try something new or meet somebody who’s totally different from me and we become friends has so enriched my life. And so, you said earlier for my podcast, a third investing, a third business, a third life. This is some combination of the three right out of my business.
[01:01:56] David Gardner: I interviewed this random dude I’ll never meet again, and I [01:02:00] pulled that to make an investing lesson out of it. But ultimately, the investing lesson itself inspires each of us to lead a more interesting life, which is the most important of these topics. Life, not business or investing, but it’s all.
[01:02:14] Trey Lockerbie: I know you have three kids that have now, graduated from college. I’m a dad of two young boys, a five-year-old and one year old. How did you approach teaching your kids about investing in life?
[01:02:26] David Gardner: Well, first and foremost, I did for them what my dad had done for me with a slight modification. I began investing for them at birth, at their birth. And so, age zero, they wouldn’t have understood it.
[01:02:37] David Gardner: But I started a portfolio, I opened it up and Gift trust Act minors one of those investment vehicles. And my dad had set it for 18. So, when I and my siblings came of age, we each got something that dad had divested for us over 18 years ago before. And it was a substantial sum not enough that we would retire on and never have a job, but enough that we didn’t have to run right out and get a job.
[01:03:00] David Gardner: And I’m so grateful for that because in my own life, 18, kind of young, it was a distraction to me during college. In some ways it killed a little bit of my ambition, which was a downside of it. But as I sort of navigated and thought about it, I was able to travel after college. Read, write, get rejected a lot as a freelance writer, ultimately that capital enabled me to put a down payment on our first house.
[01:03:22] David Gardner: Well, actually, we just bought the house outright. And also, it enabled us to start the Motley Fool without having to have venture capitalists dominate from day one. And so that has been such a powerful gift that I hope we’ve dad. I hope we’ve turned it into something well, more than you would’ve ever thought.
[01:03:39] David Gardner: So, I try to do the same for my kids. I tweaked it. I made it 21 when they got what I’d invested for them. I just felt like that would be after college or kind of toward the end would be better. And I did that for each of them, and each of them has made it their own. Everyone’s different. I have never been the dad; I would say even to a fault.
[01:03:57] David Gardner: I’ve never been the dad saying, this is who I [01:04:00] am and this is our company, and you shall dream one day of working for this company and perhaps one day you shall run this company. I’ve done the opposite. I was always choosing your own adventure. What makes sense for you? Hey, you want to talk about stocks? Great, I’ll talk, but I’m not going to force it on you.
[01:04:12] David Gardner: But by the way, you are going to have your own portfolio at the age of 21, so you might want to get literate on the subject. And none of them was a finance major, but each of them is a bright kid and they’ve each channeled it differently. Some have been more active with it; some have been more passive with it.
[01:04:27] David Gardner: It’s there for them to do at the right moment for them in their lives, what they hope it will. For me, it sure did. I trust it’ll work well. That’s what I’ve done for my kids.
[01:04:38] Trey Lockerbie: Amazing. And last question here, earlier this year you announced the launch of the Motley Fool Foundation. What is the mission behind the foundation and is this a, a new, stage in life where you’re more focused on philanthropy and how can others support the mission?
[01:04:54] David Gardner: Thank you. Yeah, I would say it is, it’s not a new stage per se. I didn’t, for example, step away from stock picking, which I did in May of 2021 in order to dedicate myself to the Motley Fool Foundation or to charity. I’ve tried to live a life of giving from the earliest days. I, with less time, I should say now, with more time to do not stock picking.
[01:05:17] David Gardner: I certainly have plunged in more as a consequence to the Motley Fool Foundation. I’m the chair of the foundation. I’m also the co-chair of our company. So those are two hats I wear. And I, as you and I have talked about, I, I continue doing my podcast every week into its eighth years. So those are like my three full callings.
[01:05:32] David Gardner: So, if those are three legs of the stool, thanks for asking me about one of them. The Motley Fool Foundation. The Motley Fool Foundation is a scrappy startup, first of all. And our theory is that financial literacy isn’t just about, I don’t know, teaching little kids the stock market. We love doing that. The fool’s done that some and some other organizations do that at a scale that dominates our scrappy startup.
[01:05:53] David Gardner: There’s a lot of good work being done in financial literacy, but we decided, that’s not necessarily what’s going to lead to financial freedom. [01:06:00] Because if you know how the stock market works, but you don’t have your health or you don’t have a roof over your head or you just lost your job, those are three key drivers of financial freedom.
[01:06:08] David Gardner: So, in our first couple years, Trey, we basically did research in order to determine, we think there are five drivers of financial freedom. You need to have all of them. It’s like the integrity of a ship’s hull. If you don’t have full integrity, if there’s a leak you can sink. And so, the drivers will have just summed up a few of them, your health, a roof over your head, your housing, you’re certainly going to need a job.
[01:06:29] David Gardner: And then beyond that education, which a lot of people call financial literacy, and then of course the last fifth one is obviously money itself, but if you just have any one of those five or even two, but without the third, fourth, or fifth, you’re not going to be financially free. So, we’re taking a holistic, systemic approach, and we’re doing what I’ve done with stocks over the years.
[01:06:47] David Gardner: We’re looking for the rule break. Who’s breaking the rules out there in affordable housing? Who’s breaking the rules out there in new, better ways to think about health and who’s doing the same across those other three dynamics as well? And so, we’ve begun the process. We’ve partnered with Ashoka, which is a long-time social entrepreneurship, a wonderful organization.
[01:07:05] David Gardner: A lot of listeners will know Ashoka, they’re a partner of ours. And we have some of our own independent undertakings as well. And our dream. To yolk together those five drivers of financial freedom and ultimately do something that won’t happen in my lifetime, create financial freedom for all by starting kind of one zip code at a time, focused on areas of the US which are not thriving, but they’re not destitute either.
[01:07:32] David Gardner: If you think about the US, it’s in about three buckets. There are the financially healthy, and that’s so many of our Motley members. They are financially healthy. The reason they subscribe to our services or listen to the investors’ podcast is because they have capital and they’re fascinated by it, and they want to do well with it.
[01:07:47] David Gardner: Right? That’s a third of America today. A third. Coping, living paycheck to paycheck, striving, hoping to be thriving. Lots of immigrant families, hardworking, but just can’t quite save that first dollar. There’s a third of Americans are [01:08:00] there, and then a third of Americans are in a poorer state than that.
[01:08:03] David Gardner: And while you’d love to solve everything all at once, what we’ve chosen to focus on is that middle third, because the strivers becoming thrivers if you just tip them over, if you just inject a little bit more into their area. So, we’re starting to identify pockets in the country that are like that. And we’re going to bring our rule breaker team in with our methodologies and our thoughts.
[01:08:26] David Gardner: We’re going to partner with localities and we’re going to bring our full volunteers, what we call our full fuel. We have a membership that numbers about a million paying customers these days, and they’re in every zip code they’re in every neighborhood across the country and sometimes the world too. So that’s the excitement and the dream of the Motley Fool Foundation and some of our playbook.
[01:08:46] David Gardner: Again, it might change. I’m familiar with small acorns that eventually become oaks, but as Epic Titus one of my favorite lines as Epic Titus once said, and this was of course, a few thousand years ago, but it’s still true today. No great thing is created suddenly. So, we’re just building it one brick at a time, and we’re in early days, and thanks for letting me talk about a little bit full foundation.org for anybody who’d like to get involved or find out more.
[01:09:12] Trey Lockerbie: Fantastic. Well, David, we are so honored to have you on the show again, and we always value your time greatly and your insights and knowledge and experience. Thank you for sharing so much of it today. Before I let you go, you have an amazing podcast, of course, and so many other resources.
[01:09:25] Trey Lockerbie: But for those who may have not stumbled across it yet, can you just provide where you’d like to steer people to find more about you?
[01:09:32] David Gardner: Sure. Well, I mean, you have an even more amazing and bigger podcast than mine, Trey, but my little podcast is called Rule Breaker Investing, and certainly you can subscribe to it.
[01:09:42] David Gardner: It’s on Spotify, Apple, Google Play, all the places that people find The Investors Podcast. You can find Rule Breaker investing to, I’ve done it personally every single week since July of 2015. In my own context I’m a big baseball fan, so I’m trying to cow rip in it and never take a week off. So, I’ve never done any [01:10:00] repeats.
[01:10:00] David Gardner: I keep trying to come up with new tricks every week, and as you. We spent about a third of our time on investing, a third on business and a third on life. And I think those things are interconnected and I couldn’t just do a podcast that was only doing one of them, I’d start getting bored. So eight years in, I’m having a great time and it’s probably my passion project, but I’m passionate about a lot of things and I really am so appreciative, Trey, of people like you who are spreading the awareness and love of investing in the true sense of the word, which is to find good things, risk capital in them, and be rewarded as well.
[01:10:33] David Gardner: You should be if you make good selections toward things that really thrive in the world at large. They come in every industry. We talked about maybe more technology today. I love that you, throughout the Hershey Bar, there are many great I often talk about Old Dominion Freight Line, which is just a great trucking company and it’s a real rule breaker in its industry, ticker symbols, O D F L, and that’s a multi-generational family company and an industry in which people unionize because often truckers aren’t treated very well.
[01:10:58] David Gardner: They don’t do that at Old Dominion because they’re treated so well. And those are the kinds of companies that I admire, again, in every industry, whether it’s a streaming subscription, a Hershey bar, or a better way to get you your stuff through trucking and logistics. So, I’m always looking for the rule breakers, and you’re one too, Trey, and thank you very much for suffering a fool gladly this week.
[01:11:19] Trey Lockerbie: It’s an honor. Appreciate it, David. Thank you so much.
[01:11:22] David Gardner: Fool on.
[01:11:23] Trey Lockerbie: All right everybody, that’s all we had for you this week. If you’re loving the show, don’t forget to follow us on your favorite podcast app and if you’d be so kind, please leave us a review. It really helps the show. If you want to reach out directly, you can find me on Twitter @TreyLockerbie.
[01:11:35] Trey Lockerbie: And don’t forget to check out all of the amazing resources we’ve built for you at theinvestorspodcast.com. You can also simply Google TIP finance and it should pop right up. And with that, we’ll see you again next time.
[01:11:46] Outro: Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by The Investor’s Podcast Network and learn how to achieve financial independence.
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