Investing Advice, and a Look Into the Future With David Gardner

On this episode of Motley Fool Answers, Alison Southwick and Robert Brokamp interview special guest David Gardner, co-founder of The Motley Fool, about technology, investing, and the future.

How can investors sort through the newest technology offerings to determine what will be game-changing and what's just being over-hyped? How can we tell when a once-innovative company's drive has come to a halt? Can the classic "buy and hold" strategy work in such a rapidly changing space? What technologies might totally change the world by 2066? And what do new investors need to know before getting started? Listen in to get the answers to these questions and more.

A full transcript follows the video.

This podcast was recorded on Jan. 15, 2016.

Alison Southwick: David Gardner, co-founder of The Motley Fool, is really good at investing.

Robert Brokamp: It's true.

Southwick: He's got a knack for finding those game-changing technologies amid all the noise. So, we've asked him to come here today to talk a little bit about what the future looks like. David, thanks for joining us! We really appreciate it.

David Gardner: It's always a pleasure to spend time with you on air. I'm happy to say that I see you both around Fool HQ, and you're just as fun off the air as you are on the air. But thank you so much for Motley Fool Answers and for all that you've done over the last year plus ...

Southwick: Thank you!

Gardner:  ... for a lot of people who are turning on and switching on to the idea that maybe taking some control, sometimes, back of their financial lives, will indeed more than repay itself going forward. Thanks.

Southwick: Aww! If you're always going to say nice stuff like that, we're going to have you back more often!

Brokamp: Every day.

Southwick: Every day. "Here's our moment of David Gardner saying how great we are: Go!"

So, like I said, today we're going to talk about the future. I was thinking about how people thought the future was going to be back in the '50s and '60s. So, one thing I looked into was, back in 1964, for the World's Fair, sci-fi author Isaac Asimov wrote a piece for The New York Times with his predictions for 2014. And while we haven't colonized the moon, he did get a few things right. So, I wanted to call out some predictions he made that were great or not so great.

Gardner: I'd love to hear them. I love these things. People who were thinking about the future 50 years ahead of time, so smart, so often.

Southwick: Yeah!

Gardner: What? Tell me.

Southwick: So, what's interesting, actually, he kind of the dialed back a few things. In the '60s, people were just going crazy for technology, and the Jetsons was on TV, and they had these wild dreams, and he actually dialed it back a little bit, which made it more accurate. First one, cars. He predicted that we would have self-driving cars. Although, he also thought they would likely hover above the ground. So ...

Brokamp: Getting close.

Southwick: I'll give him points for self-driving cars. Robots. He predicted that robots wouldn't be common nor very good in 2014, which I thought was interesting, because at the time, everyone was thinking that our whole lives would be run by robots.

Brokamp: And we'd work 20 hours a week because robots would be doing all of the jobs.

Southwick: Yes, and that basically, our lives would be ...

Gardner: Leisure. 

Southwick: ... leisure, and basically herding robots and telling robots what to do.

Gardner: Do either of you have a robot in your life yet?

Southwick: Does our BB-8 count?

Gardner: Sure!

Southwick: Our little toy BB-8, I don't know!

Gardner: He talks, right?

Southwick: He talks, he does. He just doesn't serve a purpose.

Gardner: But neither the Southwicks nor the Brokamps have deployed a Roomba, for example?

Southwick: No.

Brokamp: No.

Gardner: OK.

Southwick: There's got to be other ...

Gardner: We haven't either. But, I mean, it's been a fairly successful consumer product.

Southwick: Sure.

Gardner: They're out there, for some of us.

Southwick: Alright, and the last one I wanted to point out was online education. He predicted that classrooms would be held through closed-circuit TV -- so, basically, the idea of a computer. But he also predicted that high school students would be taught how to use a computer, and they would all be fluent in all the computer languages.

Brokamp: Partially right.

Southwick: Partially. I have a vision for Hannah that when she's in high school, instead of taking Spanish, she will take a computer language class, for example. Anyways, I thought that was cool because he was pretty right. I personally am excited about flying cars and all that in the future. But David, what do you think about ... I don't know exactly how to phrase this, because I don't want to just say, "The future. Talk." (laughs)

Gardner: Right. Let me just say this, one of the best ways to predict the future is to invent it, as has often been said. Arthur Clarke, who is an author as well, like Asimov, I think, if you go on YouTube and just google Arthur Clarke -- and this is spontaneous, so no fact checking went into this ...

Brokamp: This is the future.

Gardner: ... somewhere in the early 1960s, around the same period, he did a BBC 10-minute "what I see of the future." And I think you can watch it on YouTube. It's pretty remarkable. One of the things he was talking about back then were satellites and how they would make it so you didn't have to go to work every day. And part of it was that Clarke helped invent, I think, the satellite. He was one of the inventors. So, when you're actually developing that stuff, it enables you, certainly, to make much better calls than people who are disconnected from it or just guessing as "futurists." So, that's why I like Elon Musk a lot, because while he's not technically the inventor for much of what he's working on, he's so inured to that, and he's so embedded in key technological trends, that these are really valuable people when they talk about where the world is headed.

Southwick: Right. Going to the moon? I'll make a rocket myself, what up?

Gardner: That's right. The big trick, Alison, is you just need to invent, and then you can really make awesome predictions.

Southwick: Well, I'm not a very good inventor.

Gardner: Neither am I. That's why we're doing this podcast.

Southwick: That's why we're doing this podcast. So, a lot of people have made predictions that were pretty awful. How do you, when you're looking at technology, separate, "This is crazy stuff, this is Jetsons stuff that's never going to happen," versus, "You know what? I think this actually has some legs, and this really is the way of the future"?

Gardner: I don't think it's that easy to do anymore, and that's really my primary point, because I think this is an important point and maybe not everybody shares this perspective. In case this adds value, I'll say this briefly: The ability to predict where things are headed has been narrowing over the course of time, dramatically. Like, 3,000 years ago, in ancient Egypt, you are I could have made a good prediction about where the world was headed in the next 100 years or so. We'd say our grandkids are great-grandkids would probably be farming, and irrigation will be important, and the Nile, we'll want that to overrun its banks, and you would have made a good call.

But as you fast-forward through time, I grew up in the 1970s, and I would say, back then, you could have made about a 20 to 25 year prediction decently -- that's why, for people who were doing it 50 years ahead of time in the 1960s, that's really impressive to me. By the time we reached, I'm going to say 1993, and here's a specific reason why, because there was an AT&T (T 1.10%) campaign in 1993, which you can watch on YouTube, it's definitely there and I highly recommend it. Go Google "1993 AT&T ads." They were saying things like, "How would you like to drive across the country without a map? You will. And AT&T will bring you there."

It was a series of ads where they were looking at life 10 years ahead of time, and literally within about 10 years, 1993 to 2003, GPS systems were in cars and ubiquitous. So, you go back and watch those ads, and it's hilarious because they totally nailed it. Of course, what's hilarious is AT&T didn't bring us any of those things. They had Bell Labs, they had people who could see it, but they literally didn't create things like GPS. So, I would say, the window had narrowed to 10 years then. Today, it's more like three to five years now.

So, if you think about that and the implications of that, you're seeing that it's increasingly difficult specifically to know or say with confidence what the world will be like five years from today. It's much harder than it ever has been in the course of human history. So, I just think that's a profound point to recognize. For me, the investment implications, as somebody who's trying to pick stocks within this, is don't think about the trends or specific products so much. Ask yourself, "Who are the people that I want to be invested in?" You mentioned, was it the World's Fair?

Southwick: From around 1964's World's Fair.

Gardner: Yeah. So, I was reading a book recently about the 1876 Centennial Exhibition, which was kind of the same thing, 100 years after the founding of America, and Alexander Graham Bell was there in a very small room. Think of the Consumer Electronics Show today, where there's thousands of yards and lots of rooms everywhere. It was kind of like that back then in 1876 -- by the way, the Statue of Liberty's hand was all that was completed, and it was there, about 20 feet tall, just the hand. But, Alexander Graham Bell was there being largely ignored, and he had the telephone and he was showing it off to people.

So, I'm not even sure where I'm going with that, other than to say, it was a lot easier back then to kind of see where the world was headed. But, the answer is, invest in Alexander Graham Bell. Invest in Elon Musk. Find the people -- Reed Hastings, Jeff Bezos -- who truly are creating the future. To me, that's a much more sustainable way to invest successfully than to try to guess whether the Roomba 4 is going to go autonomous and start taking over your house.

Southwick: Taking over! Agh!

Brokamp: We talk a lot at The Motley Fool about buy-and-hold investing, being a long-term investor. If things change fast, and it's getting faster, how does that change that investing mindset? If you have a company that has come up with a certain technology, but management changes, the technology could be obsolete. Do you think differently in terms of how long you can hold on to a stock?

Gardner: It's profound, Robert. I'm glad we're having this conversation. I don't have firm answers. I would say that I continue to believe that buying to hold is the best way to invest. It does mean that maybe you're not chasing the latest thing, unless that thing truly has huge buy-in. So, when Facebook became public, we did recommended shortly after the IPO, because at the time, it was considered a failed IPO. But they were on their way to a billion users.

 So it's a lot safer when you find those kinds of situations. Even though Facebook was considered very risky at the time that we recommended it, five years ago or so. So, I think making sure that you're investing in companies that have real heft, real consumer buy-in. I was talking with the now-increasingly famous Chris Hill, earlier today in the office, and Chris was talking about which I value more, Amazon (AMZN -2.56%) Prime or Amazon Web Services -- which I would pick if I could only have one -- and I said I would take Amazon Prime, because I much favor the portion of the company that has 38% of America's households buying as customers than Web Services, where it's just a B2B business with many fewer buyers.

So, I love companies that have tons of buyers. That's why I liked Amazon very early on as a stock, because even though it was just books online at the time, they had such traction for what they were doing. So, I think that's important, Robert. Think about something like Etsy (ETSY -0.86%). Etsy, it's something that's kind of borderline. Is it here to stay or not? It came out of nowhere, it built very organically and impressively quickly, it IPO-ed about a year ago, it's down about 80% from where it IPO-ed. It's still about an $800 million company. But these are the kind of companies where it's kind of caught in the middle. I can't tell. I haven't recommended Etsy.

I've recommended some other stocks that have gotten crushed like that. GoPro is an example in Rule Breakers. But, I think the Googles, the Netflixes (NFLX -9.09%), the Amazons, increasingly, finding the ones that will definitely be around in 10 years makes me comfortable for my buy to hold approach.

Brokamp: I remember when Netflix was down around 70%, a few years ago.

Southwick: Qwikster. It was Qwikster.

Brokamp: It was around that time. And I remember asking you, "Do you have any doubts, concerns, anything like that?" And you were as cool as a cucumber. You had your analytical concerns, but it did not bother you at all, it seemed to me, that it was down so much.

Gardner: Yeah. Well, first of all, I'm not really ever cool as a cucumber.

Southwick: You fake it very well.

Gardner: I take that as a compliment, but I don't think I deserve it. If I were really cool, I would have been saying, "Buy buy buy!" And I usually don't do that. When stocks that I have that have lost 50% or more of their value, when that happens, I usually have my head under a pillow and I'm thinking that I got it wrong. But the one thing I will say in my defense is that I tend to just hold if I still like the company just as much.

I was disappointed by the Qwikster announcement. The idea, as a frequent Netflix user, that I would have to divide my queue now between the ones that were DVD and ... those totally separate user histories, that was just a bad decision. It obviously wasn't sustainable. It did create a great buying opportunity for braver people than me. But we had recommended it seven years before that, and we were just patiently holding, and our cost today is about $2 a share. So, with the stock at $109, we've done really well by being incredibly lazy.

Southwick: Well, I remember when that Qwikster thing happened, because the whole office was abuzz, because this is a stock that we love at The Motley Fool, and I was surprised. There were a few analysts who were like, "No, Netflix is done. This is it." I was like, "What?! How is this possible?" Some people were ready to turn tail and abandon Netflix just because of that Qwikster thing.

Gardner: Well, it wasn't just our analysts. There were a lot of people outside Fool HQ who thought that, and certainly, the stock lost 75% of its value in less than a year.

Southwick: Oh, yeah.

Gardner: So, I mean, that can happen, and sometimes those don't come back. If you really looked at what was happening when Netflix had -- I'm making this up slightly -- about 25 million customers at that point, and during that really difficult time when they were being hammered in the press, and rightly so, I think they lost about 800,000 customers net. In other words, they went from about 25 million to 24.2 million at the bottom of what they were doing, when sentiment was as bad as it could be. It's a tiny real loss for a growing business.

Southwick: Yeah, nothing.

Gardner: And if you looked at the future and asked, "Will online streaming be big, and who's the leader, and who can go global?" The Comcasts, most of these regulated domestic entities -- there was no competition for what Netflix was doing, globally. So, I just think, obviously, we've gotten that one right, and it continues to be a good pick.

Southwick: Yeah. So, you talked about not necessarily buying the companies, but looking at the leaders. Most of the people you've mentioned so far are founder-led companies, and the founders of companies. What are some of the traits that you look for in these founders and these entrepreneurs?

Gardner: Certainly, one thing that I favor is when they do own a fair amount of their stock. Usually, that's true, especially if they started young. Which, in general, I do favor. I like it when my brand new entrepreneur is 20, as opposed to my age, 49. It's not that I don't believe in 49 year olds like me, but if somebody has gotten a company to the public markets, which is an unbelievably hard thing to do, you've gone through a thousand or more really hard decisions.

If you've actually done that at a very young age, created something of real value, that is a remarkable demonstration, I think, of visionary status, and likely, somebody who's going to keep doing that for the long term, whether it's Jeff Bezos some years ago, or more recently, Mark Zuckerberg. So, when I find a combination of youthfulness and inside ownership, that makes me happy right there. I also like daring. I like it when people are taking on the establishment. Whether it was Netflix, in a lot of ways, taking on Blockbuster back in the day, as a real upstart, when Blockbuster was the heavyweight and the favorite. Or, then, subsequently, the cable companies. Or, Amazon taking on the entire retail world. So, when there's an element of daring there, somebody who's willing to be ambitious and take risks -- Elon Musk, etc. I hate to use the same names over and over, but these are the best entrepreneurs of our time, creating the most value.

And often, what's funny is, the world doesn't really want to believe them. It's either that Mark Zuckerberg's so young, or it's that Steve Jobs is hopelessly focused on quality, and Microsoft is running roughshod over him, or Reed Hastings has lost his mind in 2011, or Jeff Bezos, they'll never make a profit, those kinds of things. I love it when there's that element of daring combined with extreme skepticism, often from the financial press. There are some other factors besides, but there are a few that I look for.

Brokamp: The Motley Fool has an annual meeting called Foolapalooza, and you may remember, at the last one, you and I were talking about Xerox (XRX) as a company that, at one point, was one of those buy-and-hold stalwarts. And I checked the price the other day -- it's at the exact same price today that it was 30 years ago. That's a company that was innovative at one time. Actually created some technologies like the mouse, and then eventually gave it away to Apple. So, the whole idea of, at some point, a company becomes innovative, but then it changes, and almost becomes part of the establishment. At what point do you look at a company and think, "OK, that period of innovation is over, and it might be time to part with the company?"

Gardner: Yeah. I just think we all should be actively asking -- and you both can see this as well or better than I can -- asking, "Are they still innovating? Who is innovating in a leading way?" And often, the companies that were once innovative did not keep it up, or did not keep it up at a more consumer level, or a daring level. So, Xerox had Xerox PARC, which has given rise to so many wonderful inventions. We talked earlier about AT&T, "You will. And AT&T will bring it." Well, actually, AT&T didn't, but AT&T's research and vision did help lots of others. But I don't think it took a genius to see that Xerox wasn't really continuing as a company that you could buy shares in with its own products, has not been a leader for quite a long time.

Similarly, I feel the same about Wal-Mart, which I do consider to have been very innovative in the 1970s. Their whole model and everything, lowering prices, widening the choice that you had when you went into your store of what to buy, and better prices -- brilliant. And going into small towns was very innovative. However, Wal-Mart stopped innovating somewhere around the time that the Internet started, and Amazon took advantage. So, I just ask who is innovating? And those are the people I want to be invested in. In some cases, they're the same people that were innovating 10 years ago, like Google. And in other cases, there are companies that were doing it 10 years ago that aren't anymore. And there are new upstarts that we'll see in 2016 that you and I don't even know yet, that we'll see that thread embedded in their DNA. So, that's what I look for.

Southwick: So, David, we received a question from a listener, Paul, which we thought you would be particularly well-equipped to answer, probably because he calls you out by name. 

Gardner: Great.

Southwick: The question is: "I'm nicely positioned for a comfortable retirement that I hope to start in four years. I have a long term view in spite of being 56, and I'm a techie at heart that believes the Internet of Things it's going to be a game-changer that I really should participate in." For everyone who's listening, the Internet of Things is the idea of a connected world where your thermostat talks to your chip in your clothes, everything's talking to each other. Either of you could come up with a better definition of the Internet of Things, but it's the idea that everything is smart and technology, yay!

Alright. "If I carve out $125,000 in my Roth for this, it would represent less than 10% of my total investments, so I see it as a good, managed approach to taking on more risk and reward within my total portfolio. David Gardner seems quite supportive of the Internet of Things movement as a place to grow wealth, and I'm thinking he's likely right, so I should hook my cart. Thoughts?"

Gardner: So, of course, I do like and believe in the idea. Getting away from phrases and sometimes buzzwords like Internet of Things and just saying, there will be a chip, or should be a chip, in almost anything that is consequential. A chip in, certainly, our iPhone today, that's Find My iPhone, it makes it possible for you and me to do, right through to the table that's there in your corporate staff room, so that people who are managing assets, the physical assets and the property, know where the table is. It might sound mundane to put a chip in just a table. At the same time, chips are so cheap, it just makes sense, so you know where everything is. So, less theft, all kinds of implications for this.

Chips inside you and me. I will be somebody who's perfectly willing to take the tiny little pinprick incision or whatever to no longer have to keep my driver's license. I would be happy. Not everybody would agree with this, but I would be more than happy to take my vitals in a tiny little microchip and just have it inserted in, I don't know, let's go with my elbow, so that I could just slam on my elbow and just make my life easier. Chips in everything.

So, I think, yes, that's the case. However, I don't think you necessarily should think in terms of, "I will allocate 10% of my portfolio to Internet of Things." What I would do is I would say that you should be looking at the next 30 years as an investor and asking, "What are the technologies and companies that will get me there?" And I would pick ones that you yourself know or feel comfortable with.

So, you don't have to go out and find which is the next best Internet of Things company when you know that, this might be a little silly of an example, but Amazon is going to be selling tons of things that have chips in them, and you and I are going to be buying and upgrading our tables, perhaps. So, I think that recognizing a trend doesn't mean that you have to latch on to a single company or The One.

Southwick: The Chip Company.

Gardner: I think it's more recognizing the importance of that, and making sure that you're invested not in Xerox but in Amazon, as an example. Did that answer that good question? Did I hit at least half? I go for the gentleman's C, so if you're telling me I got a C-, I'm really satisfied with that.

Southwick: No, no. I think one of the issues that comes to investing in "growth stocks," which is the phrase that people throw around ...

Gardner: I try not to use it.

Southwick: I know you try not to use it.

Gardner: Yeah, that's a hangup of mine. But keep going.

Southwick: But, the idea that these are stocks that are just going to take off and head into the stratosphere. We all want those stocks. Like, yes, I want the stocks heading to the stratosphere. But there is a certain amount of risk involved with these stocks. So, I guess, for our listeners out there who are thinking, "OK, yeah, you know what? I want to invest in some really good companies that are going to take off," there's no guarantees that they are. So, I guess, what's some general advice from you for people who are really new investors? Who are really new and are thinking, "OK, I want to invest in some "growth stocks"?"

Gardner: Well, I think your first 15 stocks, and I hope you get, if you're at zero today, I hope you get to 15 as fast as possible. We want our cars to go zero to 60 in five seconds. I'd like you as an investor to go from zero to 15 as quickly as possible. That means if you have $1,500, that means you put $100 in 15 different stocks. And you can do that through things like ShareBuilder or other accounts you can open today. So, getting diversification right away. And then, make those 15 the 15 that you know best.

That's how you should start. And if that means, because you love technology or are into this and you start to buy those kind of companies, great. If not, that's fine too. So, for most people, at Motley Fool Answers, we're talking about one answer to you: "How do I get started investing?" Start with stuff that you know and love, and make sure that you have a bunch of them, not just a single one. So, from there, I think that if you find that you're missing a lot of the key tech trends, I would say, really quickly, the Internet, virtual reality, and biotech and genomics are three really important to trends of our time. History will look back and say not that we were generation X Y or Z. They'll say we were the Internet generation. And that's going to continue to be very vital.

So, if you find that none of your money is in those three things, I would encourage you to take, let's say, 10% of your growing portfolio and put it there. And have fun. If you're totally wrong, if you blow it, that was only 10% of your portfolio. On the other hand, if you find a company like Netflix or Amazon early on, it'll grow to be a large part of your portfolio in a good way.

Brokamp: I'll highlight something you said when you first started addressing this question, having the money invested for 30 years. So, long-term horizon. This is someone who's close to retirement. And some people think, "Well, I don't have 30 years." But you do. This fellow is in his 50s -- 30 years is his 80s. He needs his money to last a long time. So, having a portion of your portfolio that you designate as very long-term is smart.

And it's particularly smart that he's using his Roth, from a financial planning perspective, because if you look at various studies, they show that when you retire, you should tap your taxable account first, then your traditional tax-deferred, and then your Roth. So, if you're going to do this type of investing for something that you don't need for 30 years, a Roth is a great place to do it.

Gardner: Yeah. Good, very well put.

Southwick: Alright, last question before we let you go: What is your completely wildly outrageous maybe-a-little-bit-irresponsible Isaac Asimov prediction for 50 years from now?

Gardner: I love Motley Fool Answers. I'm very much hoping that nobody's listening to this 50 years from now, this particular one, because I earlier talked about how we don't know what's happening in five years at this point ...

Southwick: I couched it as irresponsible and outrageous! It's OK!

Gardner: I love that, thank you. So, I certainly think that some things like massive growth in human longevity, probably aided by technology, is very, very likely to happen. We've already seen longevity increase by a third globally in the last 50 years. Time magazine a few years ago had a cover that said people being born today may live forever, and that was Time magazine, on its cover.

So, I think there are some shocking things when we think about the implications of long human life, and I think that's going to happen. But just to be a little bit less ambitious than that, some combination of, first of all, virtual reality is such an important medium. How often are new media born? In my lifetime, the most prominent thing that was born was the Internet. Before that, for some people older than we, it was television. A new medium. And before that, radio. When these things happened, they're really plate tectonic. For 30 years or so, there's huge value creation that happens.

We're really just at the dawn of virtual reality. It's such a profound and important technology. It will be ubiquitous in 50 years from now, and we'll be doing everything from replacing our universities -- which is another little prediction that I'll make -- through learning and communications and entertainment. I mean, the implications are really deep and vast. So, I'm just a big bull on virtual reality as the dawn of a new medium. If you're an entrepreneur, I would suggest you look in or go work that space. If you're just coming out of college right now, I would say find a job at one of those companies. It's the same thing -- "Plastics! Plastics!"

Brokamp: "Plastics!"

Southwick: "One little word. Two words."

Gardner: There's a little bit of "The Graduate" going on. But, if somebody had said to me, "You're graduating in 1988 from college," which I did, "Internet." That was the right word then. Plastics. And I think virtual reality is the right word now.

Southwick: Awesome. David, I want to thank you ...

Gardner: Although, it's a phrase, admittedly. It's not a word.

Southwick: Two words. We'll hyphenate it for these purposes.

Gardner: Alright, we'll go with that.

Southwick: I really want to thank you for joining us. And also, before we go, I want to mention that if you're a listener, like Paul, who wrote in, you're looking to build a portfolio of stocks with advice from David and his team of analysts, his Motley Fool service is called Supernova, and it's about to open up to new members. You can head to our micro-site, supernovaradio.fool.com, to learn more about how you can invest like David Gardner.

Gardner: I hope you will. And thank you very much. I really so very much appreciate it, Alison and Robert. A pleasure. Let's do it again sometime in 2016. Sometime.

Southwick: Absolutely!

Brokamp: That would be great, especially if you keep saying nice things about us. Do it frequently.

Gardner: (laughs) Truly a pleasure.

Southwick: And, finally, a little disclosure: The Motley Fool may have formal recommendations for or against the stocks we mentioned on the show. Don't buy or sell stocks based solely on what you hear.