David Gardner on Training Your Mind to Think Better

Rule Breaker Investing is back with "Mental Tips and Tricks," and host David Gardner shares six secrets and shortcuts for some of the mental gymnastics he performs that help him think better, both about investing in stocks and in life generally. He also shares a few that he's received from viewers.

In this clip, you'll discover what the Rule of 72 can teach you, how going to bed can save you money, why you might want to choose Door No. 1, how to rethink really big numbers, why you should write stuff down, what a big rally in baseball means, how to use a backgammon doubling cube for fun and profit, and how recording small details can have a big payoff later.

So listen in to hear David's perspective on his routines to keep his mind sharp.

A transcript follows the video.

This podcast was recorded on June 15, 2016.

David Gardner: And welcome back to Rule Breaker Investing. This week it is "Mental Tips and Tricks." I brought mostly my own, this time, but I did get two good submissions that I'm going to feature, so thank you to all the Fools out there who wanted to add some value to this podcast. You do every week. Thank you very much.

Before I start our list this week, I want to go over a little bit of housekeeping. First up, I saw some great news earlier this week. Now, a little bit of background. Some months ago on this podcast, I put out some book recommendations. At least a few of you read the book Ready Player One, which is a great book, so if you're just hearing this for the first time, I suggest you read that very entertaining and forward-thinking novel.

The great news is in addition to the book being made into a movie -- if you've been following it -- you already know that Steven Spielberg will be directing Ready Player One. By the way, I'd love for this to become the podcast where people discovered ahead of time that Ready Player One was going to be an awesome movie.

And here's the good news this week that will make it slightly more awesome. Who is scoring the movie Ready Player One? The soundtrack? Who's the composer? John Williams. So you know -- you know -- this is going to be a great movie, and I was really happy to see that.

Speaking of things that I was happy to see, I was pretty happy to see LinkedIn get bought out by Microsoft this week. Now, we had great hopes for LinkedIn, and if you are a longtime Rule Breakers member, then you're in the green. If you're a shorter-term Rule Breakers member, you might be in the red. The stock, after all, was bought out this week at a price about 20% down from its 52-week high. If you are a much more recent member of Rule Breakers, you're quite happy, because maybe you bought it just a couple of months ago and you're up some 60%-80%, some of you.

So it all depends when you got in, but I thought it was kind of a fun announcement. I didn't expect it at all. I was really impressed that Microsoft and LinkedIn kept that under wraps. These are two very big, visible companies. I didn't hear many rumors, at all, that something like this would happen. And, in general, while we're sad to see LinkedIn go away as a stock that we recommend at Rule Breakers, generally I'll take a 50% premium on almost anything that I'm holding as a one-day gain.

Although as I talked about a few weeks ago -- and this is what I'm going to plug here -- on my "Buyouts" podcast of a few weeks ago, which you can see on the iTunes or Spotify roster, I presented four categories of the types of companies that get bought out. LinkedIn conforms to Category No. 1, so go back and listen to that podcast and listen to what I was saying about innovators and category leaders. I certainly didn't think that LinkedIn would be bought out. I don't think many people did. A huge $26 billion price tag. But I thought it was fun news and generally rewarding for a lot of Fools.

Finally, I want to mention next week's podcast, which I'm pretty excited about. If you've been following me for a while, you know I'm a gamer, and so next week (I'm going to plug ahead of time), five favorite board games that make you a better investor. And in conjunction with next week's podcast, I have a special guest that I'm going to be interviewing. He is, in my mind, one of the foremost game designers of today. I'm really excited to be presenting him next week. So enough with the plugs. Let's get down to it.

"Mental Tips and Tricks." These are secrets, shortcuts, things that go through my mind (or, for a few of you, yours) that when shared might improve many people's thinking. I'm going to lead off. I have a full list of eight this week, so I'm just going to present them in a rather haphazard order. There's no magic to this.

I do want to lead off with No. 1, the Rule of 72, because this is an investment one. Some of these are investment-oriented. Many are not. This one is, though, and I bet a lot of you already know this. You can take any expected rate of return as a percentage, and you can divide it -- make it the denominator and make 72 the numerator -- and come up with how long it takes to double your money.

So the stock market's average rate of return is about 10% a year. Seventy-two divided by 10 is 7.2, and so it takes about seven years in the stock market for dollars that you put in to double. Just a really handy frame of reference.

For some of us, that sounds like a long time. You mean I have to wait seven years to see my money double? Others of us might be thinking, "Wow. That's pretty sweet. I'm not even doing any work, and my money doubles every seven years." Now that first double takes a while, but when that second double happens, all of a sudden you're up four times on your initial investment and, of course, compounding goes from there.

So there's the Rule of 72, and it works for other numbers. For example, that 1% you might be getting as interest in your checking account or that 1% cash back ... yup, it's going to take about 72 years to double that money at that rate of return. Bonds (5%-7%) take longer, of course, than stocks, take about 14 years, or so, to double. It's just a quick, handy, mental reference.

No. 2 this week. No. 2 is one of our user submissions. This one is from Dan Schmitty. He is @SmallCapDanny on Twitter, and here it goes. Dan said, "My mental tip: Whenever I feel I'm too excited about an impending stock purchase, I go to bed." Dan goes on. "My mental tip -- if I wake up and feel differently, I probably just saved some money. If not, it's purchase time." Dan finishes by saying he'd rather avoid the risk of a bad purchase he was overexcited about than lose a few dollars on his price point.

So whenever you get too excited about an impending stock purchase, go to bed. I like that one a lot. Very capital-F Foolish, because, after all, for most of us the emotion that sometimes surrounds transactions can make us make poor decisions in the short term. These are long-term-oriented decisions that we're making, so if you find that it's too important to you to buy that stock before the market closes today, you're probably needing to dial things out a little bit more and restore a sense of Foolish balance. So Dan, thank you very much. I like that. That is a good mental tip. Go to bed.

No. 3. Well, this is a pretty quick way to get your way anytime you're presenting an option to somebody else. Like several of these, you might well have heard this one before, but I really like this. It works almost infallibly.

If you're offering an option to a friend -- option No. 1 or option No. 2 -- always make the one that you do not want him to pick, the one that's really attractive that you don't want to give him, option No. 1. For example, do you want the larger piece of cake or the smaller piece of cake? And when you say one or two, make sure you make the larger piece of cake one, because when you present somebody with the choices of one or two, I think studies show something like 80% of the time, people will say the No. 2.

Now why does that happen? Why does it work that way? Well, it's pretty simple. You and I are pretty smart people, and we think if someone's presenting us one or two, one is too obvious. It's the one that's the first one. One is the blatantly obvious choice.

So you and I think we'll be subtle. We'll say two because that's smarter. It's a little bit more conniving. A little bit more clever. But the truth is, the clever person is the person who stows that large piece of cake behind Door No. 1, because only about 20% of the time your friend, or maybe enemy, will pick No. 1. So one or two, they're going to say two.

[Commercial]

Mental tip or trick No. 4. This is another numerical one, and this is one that shows how the human mind doesn't deal very well with large numbers. So you're going to present, by holding your hands out front, zero on the one hand -- this is like a spectrum from left to right. Zero on, let's say, the left. And then over on the right, from your observer's viewpoint, you're holding out your other hand and you're saying "a billion." Zero here and over there a billion.

So you're holding your hands out in front of you, and you ask the person, "From zero to a billion, where is 1 million?" You just ask them, "On the spectrum I'm holding in front of you, could just put your hand where you think 1 million is?"

Now, in my experience when you do this (and I've definitely done it before -- sometimes I do it in speeches), the average person will come up and say, "Uh, right about there," and they'll be putting their hand about one-third of the way from zero toward a billion. About one-third of the way.

And the truth is that you couldn't put a knife in between how closely they should be holding their hand to your zero. Because after all, how many millions are in a billion? And the answer is 1,000. So when you hold out your hands and say zero to a billion, one one-thousandth of the way is where they should be holding their hand.

I think the reason that this works, and it's a quick way to win a bar bet or impress your friends, is that our minds don't do very well with large numbers. It's one of the things that sometimes troubles me when we hear huge numbers being thrown around, like what the national deficit is, or how much healthcare is going to cost, or this kind of thinking. Huge numbers.

Most of us, as human beings, do pretty well counting up to about a hundred, and some of us can do pretty well thinking in terms of, I don't know, maybe 10 to the third or fourth power. But when you start to get out to really big numbers, we have a hard time framing that up. So there's the zero-to-a-billion hand trick. Try it yourself.

No. 5. No. 5 is also a user submission. I like this one a lot. Benedict Bleimschein -- @BBleimschein on Twitter. You put it pretty simply, Benedict. You said, "One of my best life hacks -- keeping a journal. It's amazing. It's like keeping score of your emotions."

You know, among the Motley Fool employees who do that, I think in particular of Jim Mueller, who's one of my Stock Advisor analysts. Jim has really coached a lot of members to do this with their stock picking or their investing -- keep an investing journal. It's a wonderful way to check back on later when you start thinking, "What was I thinking when I bought that stock?"

Well, it turns out if you actually record what you were thinking at the time, you'll have a good answer to that question. It might be a good or a bad answer, but it's a wonderful way to reflect. And one way that I've done that is through Motley Fool CAPS, which is part of our website -- caps.fool.com, where you can pick stocks and be scored for it, and get your own rating.

I've done that for 10-plus years now, and you can find my CAPS page. I sometimes mention it. I'm TMFSpiffyPop. If you go to caps.fool.com, you'll see my page. But for every single pick that I've made -- every green thumb saying that stock will beat the market or red thumb saying that stock will lose to the market -- I've typed in at least a sentence or two, sometimes a few paragraphs, as to why. Why I'm thinking of that at the time.

And it's just been an incredible learning tool for me, now, over 10-plus years -- we launched CAPS in 2006; over 10-plus years, and we're in our 11th year -- to look back and see what I was thinking, reference back any number of ticker symbols and companies that I've taken the time to rate over the course of time. So that's one way that I've kept a journal.

On a side note, one of my own personal New Year's resolutions -- I do do these every year and I actually record them -- this year was to start a journal. So I'm happy to say I have kind of a running count of what I did or thought, in short form, almost every single day so far. Occasionally I miss days and I go back and fill them in, starting at the calendar year this year.

So Benedict, you and I agree. I think it's a really wonderful way to keep track of what you were thinking over the course of time, because otherwise we forget, and it's too easy, too often, for us to use hindsight and think, "Oh, the past was all so obvious." Whether it worked out or not, we think, "Yeah, it was pretty obvious." In retrospect, it's so easy to see. But getting back in touch with our thinking, when we were thinking it at the time and acting, is so very valuable. So thank you, Benedict.

No. 6 is a baseball one. I think I probably mentioned this about eight months ago on Rule Breaker Investing, and this is another bar-bet opportunity. This is a good way, when you go to a ball game this summer, if you're in the United States of America and a baseball fan, with a friend, and you want to make a dollar. This is the non-intuitive statistic, and it is this: Two-thirds of the time, the team that's going to win the baseball game that you are watching will score more runs in one inning than the other team will score for the entire game.

Again, this seems somewhat preposterous. After all, baseball is a nine-inning game, and the final scores are often something like 5 to 3. You would think that those runs are accumulated here and there. One in the first inning, two in the third, that sort of a thing.

But the truth is often the runs all come at once or in bunches, because hits and walks multiply into run-scoring opportunities. And in many games, the team that loses sometimes will not score any runs or will just score one or two runs. The history of baseball shows that two-thirds of the time, the winning team will score more runs in a single inning than the other team does for the entire game. A mental tip and trick for baseball fans.

No. 7. No. 7 was going to be one of my favorites. If you're a Netflix subscriber, and especially back in the day when we were all subscribed for the DVDs, you could type in present-day movies just hitting the screen "this week," and it would show you what you would think of that movie based on your Netflix viewing and recommendations history.

So the same algorithms that recommend this show, not that one, for you today in Netflix streaming were being used back in the day for DVDs. You could type in a brand-new movie like Finding Dory, which is coming out this week, and Netflix would tell you uniquely what you would think of the movies that are in the theaters this weekend, which was pretty cool.

But when I went back in and just play tested it before this podcast, I found that Netflix does, if you are still a DVD subscriber -- dvd.netflix.com is your home URL -- show you user ratings of movies. For example, there's already hundreds of ratings out for a movie like Finding Dory that's not even out yet this week for most of us, but it doesn't uniquely differentiate what you will think of it versus the average, so it's not really that much different from the Internet Movie Database, IMDb.com, which is another great resource for seeing what fans and users -- common people -- think about every movie.

I like the Internet Movie Database and its rating system, and I used to especially like that Netflix would show me, in particular, what I would think of the movie, but, alas, with maybe less investment going on in the DVD side, that trick no longer works, so I'm swapping in a different one for No. 7, and that is the backgammon doubling cube.

This is just a great conceit or concept for anybody who doesn't know backgammon, a game I won't bother explaining right now. I'll assume many of us know of backgammon, but you can look it up and you can even play it online for free these days, if you're interested in backgammon.

But you're playing along. If you're playing with a doubling cube, at a certain point in the game, if one of the two players decides, "I think I've got this. I think I'm going to win this game," that person reaches over and takes the doubling cube and flips it from one to two. And what that person is saying is, "We can stop playing right now, because I think I've won, unless you want to accept that we're now playing for twice the stake." It starts at one, but when you flip it over to two, you're saying we're doubling the stake.

Now, I'm not condoning playing backgammon for money. That's not what this is about. In fact, my whole point of mental tip and trick No. 7 is that I love this outside of backgammon, which is where I'm headed for a sec.

But it's pretty cool. If you and I are playing backgammon, and let's say we are betting a Twinkie, all of a sudden we're playing for two Twinkies. If you accept me turning the cube over to two, we're playing for two Twinkies and maybe you end up winning, in which case I pay you two Twinkies, or, if I win, you owe me two Twinkies.

Unless the person who accepted the double, who allowed me to turn it over to two, decides himself or herself that they are actually now in a better position to win, at which point they can flip the backgammon doubling cube from two to four. And now if you've just done that to me, now you've put me back in a position where I have to decide whether I want to be playing for four Twinkies or just accept that you're going to win and pay you the two Twinkies right now.

And since dice are six-sided -- most of them -- you'll recognize that the cube can go from one, to two, to four, to eight, to 16, to up to 32 Twinkies, playing all-in stakes at the end of a rare backgammon game that will ever make it there. But this conceit, this concept of the backgammon doubling cube, I love.

Anytime you find yourself playing any game, you could have a backgammon doubling cube in your pocket. I did check the Apple App Store to see if there's a backgammon doubling cube app. I did not see one. There are backgammon apps. This may be a small opportunity for some entrepreneur to create the next great free app -- the backgammon doubling cube -- but anytime you're in a conversation, whether you think you're winning or not, or anytime there's anything being staked, you can shorten things up a little.

After all, the real magic of the backgammon doubling cube is not that we're raising the stakes two to four to eight Twinkies. It's actually that we're cutting things off, and we're saying, "You know what? Let's not keep playing this game, because I think it's evident one of us is going to win, and we agree." So it's a wonderful time-saver in conversations and games and contests of all kinds -- the backgammon doubling cube, maybe a future app.

And finally, No. 8 this week. This is one of my own, and this is one of the best things I figured out as a parent. So as a father, early on, I decided -- and I know you know the same thing, too, whether you're a parent or not -- we all know kids say the darndest things.

So from an early age, for each of my three children, whenever he or she said something that I thought was incredibly, whimsically funny or crazy, I whipped out my smartphone at the time, back then it was, like, a Palm III -- or was it the IV? The flip-up antennas? Whatever it was, I had my Palm back in the day. I'd whip it out and I would immediately record, verbatim, what that child had said and date-stamp it. Sometimes I'd provide a little context, like "saying goodnight at bed," or "happened at the beach."

And as a father, now, with all the kids at or near college age, I am so well set up for any toasts at graduations. For eventual wedding toasts one day. I have an amazing storehouse simply manufactured by the kids themselves, but I took the extra time just to note it down verbatim with a little bit of context and a date stamp.

I had a friend of mine -- Andy Cross, our chief investment officer at the Fool -- come up to me the other day and say, "David, I heard you say that two years ago, and I've been doing it. My daughter's 4 now, and it is awesome." And even if your kids have grown up, now, you can do it with grandkids, or nieces and nephews. Whether you're a parent or not, I highly recommend recording what young children are saying. I think generally my notes give out somewhere around the age of 10, 11, or 12.

And why don't I close it out with a couple of those lines -- ones that I treasure. These aren't even necessarily the best of. I'm just flipping quickly through my iPhone at the close of this week's podcast.

A day after my youngest son turned 4, he said, "Dad, when I get to be bigger, you're going to be smaller. Each time one guy gets bigger, the other guy gets smaller. It's the truth!" And at the time I thought that was really pretty funny, and it's not really true. But now that he's more like 17, I do find that I'm a little bit smaller and he is quite a bit bigger, and so I think he had something there.

And then one of my favorite lines ever, delivered by another of my sons at age 5. As he woke up in the morning he said, "Dad, I love you as infinity ice creams." And that's just a fun phrase that we've kicked around as a family ever since. Infinity Ice Creams.

That's it for Rule Breaker Investing this week. Next week again, five favorite board games that make you a better investor, with a special guest. And then after next week's show it will be the final Wednesday of the month, and that's Mailbag. So definitely get us -- whether it's [email protected], an email -- or right out there on Twitter, @RBIPodcast -- get us your question or comment, and I'll try to feature you in our June 2016 Mailbag.

In the meantime, Fool on!

As always, people on this program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Learn more about Rule Breaker Investing at RBI.Fool.com.