In this Rule Breaker Investing podcast, David Gardner cleanses his podcasting palate from last week's show about his worst losers by bringing us some of his favorite quotes. These five clever quips around a theme of potential versus kinetic energy provide him with excellent entry points to talk about things every Foolish investor should be cognizant of -- it goes without saying, of course, that everyone ought to be a Foolish investor. His sources include a U.S. president, a countercultural guru, an innovation icon, an organizational psychologist, and a noted economist.
A full transcript follows the video.
This video was recorded on Jan. 17, 2018.
David Gardner: And welcome back to Rule Breaker Investing.
Yup, I'm still smarting from the blows I self-inflicted on last week's "David's Biggest Losers: Vol. III," my six stock picks that I went over from the last three years that have lost between 60% and 80%. Fortunately, the market in the last week, or so, was salve enough. It's gotten a very strong start to the year, and I'm all thumbs-up about that. I hope you enjoyed going through with me my losers and, with my teammates, taking a few lessons away as we keep investing going forward.
Well, this week I've got Vol. VII of perhaps my longest-running series here on this podcast. I'm very excited to bring you "Great Quotes, Vol. VII." Yes, we've occasionally themed these. For example, Vol. III was my all Warren Buffett quotes edition. This one is a more motley group, but I think we could probably sum this group up with the phrase,and we're not going to label the episode this. It wouldn't be a very good title, but we're going to talk about potential energy and kinetic energy throughout this time together that we have this week, as we go over five great quotes that I picked from the world at large, and we're going to talk about investing and business, as we usually do on this podcast. Without further ado, then, let's go to Great Quote No. 1.
First up this time around, this comes from Stewart Brand. I'm going to have a little bit more to say about Stewart in a bit, but let me first just go right to the great quote.
Great Quote No. 1: And I quote, "Once a new technology rolls over you, if you're not part of the steamroller, you're part of the road."
A great line from Stewart Brand. Now, some of you will know who Stewart Brand is. Others will recognize the name but not quite be able to place him in his background. I'm more in that camp. And then others will never have heard of Stewart Brand until Rule Breaker Investing brings him to your attention.
Stewart is presently a 79-year-old living somewhere in or around San Francisco, California. He's done a lot in his life. Anybody who'd ever heard of The WELL knows it was one of the early examples of an online community. A well-regulated, well-run, fruitful online community. Kind of pre-internet, so think year 1990.
Right when AOL was starting to get its first 100,000 sign-ons, The WELL was in operation. It was much admired, and as we started The Motley Fool and started to build an online community, ourselves, through Fool.com, some people would come to our site and say, "Hey, this is kind of like The WELL. I recognize this, except you guys are talking about stocks and money. The guys with the jester caps and their team. You're all talking about stocks, but it's kind of like The WELL."
Now, he also was behind Whole Earth Catalog. Some of you will know that. I was coming of age in the early '70s, when Whole Earth Catalog was popular, so I didn't really know a whole lot about it, but going back and researching it since then, it was kind of an early version of a countercultural, '60s-based view of life, focused on kind of do-it-yourself, in a lot of ways.
So, self-sufficiency. Alternative education. Ecology. Holism. Wikipedia uses that phrase. The slogan of Whole Earth Catalog was "Access to Tools," and the basis of Whole Earth Catalog's publications was generally presenting reviews of things that might be useful to people who are reading the Whole Earth Catalog. Things like clothing, or books, or tools. Machines. Seeds. There was a little bit of a rural, non-urban view of things coming from the Whole Earth Catalog.
That was Stewart Brand's brainchild, and I should mention that Stewart is on Twitter, followable. I just clicked on "follow" this week for him @stewartbrand, and he's now in charge of The Long Now Foundation, and I love this idea. It's said to provide a counterpoint to what is viewed as today's faster, cheaper mindset to promote slow and better thinking. It's hoping to creatively foster responsibility.
There's a picture of their sign on their Wikipedia page. It just shows a big X, and that's there because X is intended as the Roman numeral for 10,000, because Stewart Brand and his colleagues are thinking about what this world is like in the year 10,000 BCE; so looking way forward and asking how do we make sure in all the hustle and bustle of today's technology and growth -- a lot of short-termism whether you're looking at business, politics, so many aspects of our culture -- how do we think long so that we're creating something with sustainability that lasts thousands of years? So, I like the work.
But back to the quote. You're either part of the steamroller, or part of the road. You know, it reminds me of the advice that I'll often give to young people if they come to me and say, "Hey, what do you think I should do after college? I'm graduating. What kind of job should I seek?" And I look back on my own very fortunate time, there, when I was their same age.
I have to admit I was pretty aimless. I didn't have a plan coming out of college. I didn't have a job coming out of college. I traveled. I read. I wrote. I got rejected a lot, with freelance pieces, but I lucked into what became the internet. I had a love of online services. This idea that you could use your phone to dial your computer into bulletin board systems. Some of you will remember the acronym BBS. It's not as popular these days, but back then BBSes seemed really cool. They were online forums. There were WELL-like communities.
I was in Charlottesville, Virginia, at the time. My wife was going through graduate school, and I was just hanging out, clicking into Charlottesville's BBSes at the time. I loved what the medium might do, and now looking backward, I think about those first few years of starting The Motley Fool, and in those days people talked of "internet time."
And the idea was if you spent one year working at an internet company, it was the equivalent of 12 years at any other organization. One month of internet time was equal to one year of employment outside of the internet because things were growing so fast, and your learnings, your perspective, how much it was enriched by that kind of innovation and the speed that it was happening with.
That was internet time and that, my friends, was a steamroller, so when somebody who's younger than me today asks where they should go work, I often say, "Find the so-called bleeding edge. Find technologies. Places in our business world, for profit or not for profit, where you're working in spaces of extreme innovation, whether it's genomics or, darn it, how about still the internet."
Especially I think about areas around the world where it's going to be growing very rapidly over the next 10 years. Think of the cloud. Think of video games. How about augmented reality? Do you know what "mixed reality" is? Think about all the growth in media. Or how about the so-called Internet of Things? Yes, 3D printing. All these things are extremely high-growth areas with lots of rapid innovation.
I think the world is to the innovators. That's how I pick stocks. I had the pleasure of speaking as the keynote speaker at the Washington Winter Show this past weekend. That's the second longest, we think, second longest running antique show in the United States of America. It's been running for 60 years or so in the Washington, D.C. area. I'm not a big antiquer myself, but I was happy to speak to the group and talk about how a lot of the stocks and business thinking that I was able to share with them is around the innovators. That's what we're finding as rule breakers, that's what we prize, and I want to set as many people up around me to be part of the steamroller -- not part of the road -- as possible.
And before we move on to the next one, think about how our CEOs talk. The CEO of a company that you're invested in. Do you feel like you're investing in part of the steamroller when you hear him or her talk, or part of the road? Is it more Reed Hastings talking about the future?
Back in the day, it was that one day there might be streaming. Back then Reed was mailing DVDs to us all through the mail, but he was talking about something new. Or did he sound more like the Blockbuster CEO, somebody that my brother Tom and I interviewed on The Motley Fool Radio Show back in the day, who was talking about streaming as a very small cottage industry. Something that was interesting to him, but at the time Blockbuster, I believe, had about 25 million customers, and Netflix had about 100,000.
So, from his standpoint, it was more much ado about nothing, but fortunately, a lot of the rest of us recognized a steamroller in place. So, as much as we can, both with our business lives as early as we can with our careers, and, of course, our whole life long as investors, I think we should be looking for the steamrollers, respecting them, and getting onboard. Thank you, Stewart Brand!
Great Quote No. 2: Let's go to President Harry Truman for this one. And I quote: "A pessimist is one who makes difficulties of his opportunities, and an optimist is one who makes opportunities of his difficulties."
Well, I've had cause in the past and will always in the future talk about optimism and pessimism on this show. I love this Truman quote as one of the simple ways to express it. Catchy. Not so hard to remember. Pessimists making difficulties of their opportunities. Optimists making opportunities of their difficulties.
You know, back when Morgan Housel was writing for The Motley Fool -- we continue to be fans of Morgan, whoever he's writing for -- if you go ahead and just google this phrase, "Why does pessimism sound so smart," you're going to see a 2016 article by Morgan, which is a wonderful article that's largely making an orthogonal-connected point.
Pessimism sounds smart. In fact, I should quote just the start of the article, because it's fun. '"For reasons I have never understood, people like to hear that the world is going to hell,' historian Deirdre N. McCloskey told The New York Times this week."' That's how Morgan started this article.
And he goes on to say, "It's hard to argue. Despite the record of things getting better for most people most of the time, pessimism isn't just more common than optimism; it also sounds smarter. It's intellectually captivating and paid more attention to than the optimist who is often viewed as an oblivious sucker."
"It's always been this way," he goes on. "John Stuart Mill wrote 150 years ago, 'I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.'"
And Morgan finishes that section by quoting Matt Ridley, one of my favorite books, The Rational Optimist. Ridley wrote, "If you say the world has been getting better, you may get away with being called naive and insensitive. If you say the world is going to go on getting better, you are considered embarrassingly mad. If, on the other hand, you say catastrophe is imminent, you may expect a MacArthur Genius Award or even the Nobel Peace Prize."
Pessimism sounds smart, doesn't it? But the countervailing force, and the main thrust of my point here, is that optimism is not, to me, just a state of mind. Optimism is actually a creative force. It is, after all, those who believe something can be done who feel personally inspired, sometimes challenged, and inspire others and challenge others to actually go on to make that thing happen.
Whereas, understandably, when somebody doesn't believe something will happen and lets others know, it's very unlikely that that person will go on to achieve that or inspire anybody else to do so as well. So, optimism, at its heart, is not a state of mind. It is a creative force, and that's such an important part of our culture here at The Motley Fool, and I hope your culture in your workplace, your family, your community, your life around you.
One of our core values of The Motley Fool is optimism, because the brothers who founded the company and fortunately hundreds of people who work for us recognize the importance of that and are driven every day to try to make things better. In our case to help the world invest better, which is the purpose of our company. But enough about us. I'm talking about you. I'm talking to entrepreneurs, I know, who already recognize this. The entrepreneurs generally are the optimists in any society, and I'm not just talking about capitalists. I'm talking about social entrepreneurs. I'm talking about anybody who starts something. You're driven by a dream or a vision. Something that doesn't exist today. Something that you believe you can make happen.
You know, when I had Roy Spence on this podcast a few months ago -- I know everybody enjoys Roy; I sure did -- I don't think we talked about this, but one of my favorite Roy Spence lines is he says it's the greatest joy in life to put something there that wasn't there before. The greatest joy in life, whether it's having a child, starting a company, chipping something out of stone into a sculpture, any form of art, any creativity, the greatest joy in life. Entrepreneurs of all stripes -- artists, makers -- recognize that. And when there are difficulties, we make those opportunities.
I love the Harry Truman quote. I was happy to thread some Housel in there, and some Spence, too, and I would just say if you already know this, just make sure you teach your children. I'm occasionally hearing studies about how millennials or young people, these days, are more pessimistic than previous generations than we might think. If you're young I don't think you should be at all.
I think the world's going to continue to get better over the next 50 years. My money is backing that. A lot of us are invested in that belief, and I'm happy to say we've been proven time and time again, whether we're talking about the last 10 years or the last 200 years, that not just the world is to the optimists, but profits, and growth, and the riches are, too. I hope you're aboard the optimist train, and if you're not, I understand, because we all have to balance each other out a little bit, but maybe I moved you a little bit closer to our caboose.
Great Quote No. 3: This one comes from the American economist and Harvard Business School professor -- also editor of the Harvard Business Review -- who died about a decade ago at the age of 81. Theodore Levitt. Born in Germany in March of 1925. Died in Belmont, Massachusetts, in 2006.
You might have heard this one before, especially if you're in marketing, and I quote: "People don't want to buy a quarter-inch drill; they want a quarter-inch hole." Love it. Love it! Love it! And the reason I'm threading it, here, as No. 3 is because it speaks back to the previous quote.
Harry Truman sets us up with what I'm going to call "potential energy," and Theodore Levitt is giving us some "kinetic energy." Now, I need to explain my terms a little bit with a brief story.
One of my favorite teachers was Mr. Haslam in fifth grade at St. Albans School in Washington, D.C. Of all the teachers I had at that very traditional school, Mr. Haslam was the only one who had his own grading system. When you started chemistry or physics in fifth or seventh grade -- the elementary school version of those things -- the first thing you learned is that you're going to be graded not based on whether you got an A on the final exam, or a B on the midterm. You're going to be graded by accumulating points from the first day of the class.
And you're going to be trying to amass as many points as possible. Mr. Haslam all had us working toward amassing points. Maybe a quiz would be worth 100 points and maybe a test would be worth 500, and maybe you wouldn't have done so well on the test. Maybe you only got, let's say, 370 of the 500 points. You got the equivalent of a 74 out of 100. Well, Mr. Haslam would smile at you and say, "Well, that's disappointing. I bet you wanted more from that. I bet you thought you could have done better. And you know what," Mr. Haslam went on to say, "you can prove to me that you can do better by putting in some extra effort on this side project where I will award you X number of points."
Mr. Haslam had his own system, and I liked it at the time, but in retrospect, now I kind of love it, because I recognize he was doing his own thing, and he was being constructive and productive, and it made science a lot more fun. In fact, sometimes his classes got a little too fun. One of the things I noticed at the end of the fall term, just before winter break, is that a portion of the final exam was multiple choice, as many are; but, in the case of this multiple choice, I noticed that the letters were shifting. Question No. 1 might give you five choices -- A, B, C, D, and E. But question No. 2 would all of a sudden be L, M, N, O, P; and question No. 3 might be D, E, F, G, H.
After about eight or nine of those, I started to realize that they're spelling something, and I believe, if memory serves me right, it spelled out something like, "Have a very merry Christmas and a great winter break." Something along those lines. And so, I quickly realized that I could speed through the multiple-choice portion of that final exam by just writing, "Have a very merry Christmas and a wonderful winter break."
So maybe Mr. Haslam was accused of having too much fun, but the reason I'm talking about him, beyond just my encouragement to all teachers to think about what feels most rewarding and productive for your students, is that I learned from Mr. Haslam the concepts of potential energy and kinetic energy.
Now, I never did go on to take physics in high school or college, so my only real exposure to physics was elementary school, and I'm happier for that, though I'm probably worse off for it, but stick with me, here. I think you probably already know the differences, but potential energy is a stone sitting up high on a mountain. As soon as we tip that stone and push it, and it starts to roll down the mountain, you're getting that potential energy translated into kinetic energy.
And that's what's happening with these two quotations, because Harry Truman has set us up to recognize who optimists are and how they think, but Theodore Levitt is giving us how to translate that potential energy into kinetic energy. Theodore Levitt says, "People don't want to buy a quarter-inch drill, they want a quarter-inch hole." Again, as investors and as businesspeople, I think we do better to be focused on solutions. Think past the product, think past the service, and ask, "Is this company I'm investing in, or is what I'm working on, a true solution, because solutions are what win in the marketplace."
And there are three quick traits that I can see in effective solutions in those quarter-inch holes out there. The first is that I see empathy, usually. I see the product design team. I see the purveyors of this product or service spending some time looking through the eyes of their potential customers and saying, "What do they really want?" It becomes, "What would I really want from this product or this experience?" Empathy.
The second trait is usability, because beyond just what you would want, is it actually usable? We continue to get phone calls from our members who sometimes seem lost within their product experience, or they've gotten lost somewhere on our website. They're not sure what they've bought. That's clearly a sign to us, as an organization, that we could do better at usability.
Good news! We started hiring usability experts. GUI interface designers to improve. Our sites have continued to improve. I think we still have a lot of room to go, but usability. Again, looking at the products or services of a company whose stock you're thinking of buying, or of your own organization is critical.
And then the third trait is just making sure that you're scoring your outcomes. Are the results of your empathy and your usability ultimately winning? Are the solutions being used and are you hearing back from people who are using them that you've improved their life?
Well, that's something for us here at The Motley Fool that's easier, maybe, than some other organizations, because if you're subscribed to Motley Fool Rule Breakers, or Stock Advisor, or any of our services, presumably you're looking at the numbers of your own stocks. You're seeing whether you picked good ones or bad ones. You're seeing, ultimately, whether you are doing better with us at The Motley Fool than you would have without us. I certainly hope you are, but making sure that we're scoring that and aware of that, and letting us know if we're helping you, closes the loop for us as an organization. And again, every organization should be doing that.
So, solutions are what win in the marketplace. Thank you, Theodore Levitt, for translating the potential energy of Truman's optimism into one way of thinking about making it kinetic.
Great Quote No. 4: I first came across this one in the introduction to Warren Bennis' wonderful book, On Becoming a Leader. I've mentioned that book a few times over the last couple of years. I highly recommend it to anybody who wants to become a leader, or think more and think better about leadership.
And in the introduction to his book, Bennis talks about, "But the one competence," he says, "that I now realize is absolutely essential for leaders ... the key competence is," and that is a phrase he uses, "adaptive capacity." He goes on to say, "Adaptive capacity is what allows leaders to respond quickly and intelligently to relentless change. A whole new decision-making process has evolved in the last 13 years" -- he wrote this in 2003 -- "in response to a changed context." And now we're getting close to my great quote, here. He's going to be quoting the psychologist Karl Weick.
He writes, "As psychologist Karl Weick so eloquently writes, leaders of the old school could rely on maps. The leaders of today's digital age, whose world is never still or quite in focus, must depend on compasses." Weick explains, and here's the quote, "Maps, by definition, can help only in known worlds -- worlds that have been charted before. Compasses are helpful when you are not sure where you are and can get only a general sense of direction." Compasses, not maps. Adaptive capacity.
All right. Ready to play the Potential to Kinetic Energy game once again? Well, let's hail back to that first quote from this week's podcast. Stewart Brand. "Once a new technology rolls over you, if you're not part of the steamroller, you're part of the road." That's the potential energy as new technologies come along, but translating that into kinetic energy are leaders who, in Bennis' terms, have that adaptive capacity. Who rely not on maps, which were generally created by somebody long ago -- a backwards-looking, permanent view of something -- but instead by a compass.
And whenever I think of the word compass, the phrase quickly comes to mind, "moral compass." That's a good example of a compass that I hope each of us is guided by. Nobody's perfect, and the older you get I hope the more aware of your own faults you get, but I take great pleasure knowing, especially if I'm invested in a company and I have money backing the management team, that they would be guided by a moral compass. Now, certainly Warren Bennis is talking about a compass that might help you navigate the future, as a leader working in the digital age.
And this connects with one other concept that I want to share with you, which is the OODA loop. Do you know what the OODA loop is? Well, first of all, it's an acronym, O-O-D-A. The OODA loop. OODA stands for observe, orient, decide, and act. The OODA loop was developed by a military strategist and United States Air Force Colonel John Boyd. I first read about this in Alan Webber's book, Rules of Thumb: How to Stay Productive and Inspired Even in the Most Turbulent Times. That was a 2009 read that I certainly prize. I would recommend that to anybody. Alan Webber, one of the founders of Fast Company. Webber is spelled with two Bs.
There he talked about John Boyd and his OODA loop. The OODA loop, according to Webber, was developed by Boyd as a way to teach up-and-coming Air Force pilots. Observe, orient, decide, and act. And what he says is that great pilots go through that loop -- observe first, then orient, then decide and act -- go through that loop rapidly. Go through many OODA loops in seconds' worth of time. The best pilots will go through that loop much faster than the poor pilots, so you want to run that OODA loop.
In fact, Wikipedia says that Boyd was "dubbed 'Forty Second Boyd' for his standing bet as an instructor pilot that beginning from a position of disadvantage," up there in the skies, "he could defeat any opposing pilot in air combat maneuvering in less than 40 seconds. According to biographer Robert Coram, Boyd was also known at different points of his career as 'The Mad Major' for the intensity of his passions, as 'Genghis John' for his confrontational style of interpersonal discussion, and as the 'Ghetto Colonel' for his spartan lifestyle."
John Boyd was certainly a card, but that concept of the OODA loop just sounds like a synonym, doesn't it, for the phrase "adaptive capacity." I'm hoping to give you a tool, here, to hand you a little bit of kinetic energy to give you a way of thinking about what adaptive capacity is and encourage you to start running your own OODA loops. Much more likely to be run and run successfully, then, by those of us with compasses instead of maps.
Great Quote No. 5: best for last. This is my second favorite Motley Fool quote of all time, and in a way, I hope it ties a nice bow around this edition of Great Quotes, and in our case Great Quotes, Vol. VII.
Now, our favorite Motley Fool quote has to be the line from Shakespeare, Act II, Scene VII of As You Like It, where we took our name. "A fool, a fool! I met a fool i' the forest, a motley fool." It's a great scene that celebrates foolishness. That celebrates the court jesters of this world. People who can tell the king or queen the truth and have license to do so by using humor, by being a little bit more laid back, and by fighting the conventional wisdom of their time.
I think our No. 1 favorite Motley Fool quote always needs to be from Act II, Scene VII of As You Like It. But at least for me personally, this is my second favorite all-time Fool quote. And if I've done a good job throughout this podcast, I've set this one up with a few forerunners that you might recognize as I read this paragraph from the closing of Steve Jobs' 2005 commencement speech given to Stanford University graduating seniors. You may have heard this one before, but if not, it's my pleasure to share it with you, and listen for a few of the things we've already talked about here in this podcast.
He closed, "When I was young, there was an amazing publication called The Whole Earth Catalog, which was one of the bibles of my generation. It was created by a fellow named Stewart Brand not far from here in Menlo Park, and he brought it to life with his poetic touch. This was in the late 1960s, before personal computers and desktop publishing, so it was all made with typewriters, scissors and Polaroid cameras. It was sort of like Google in paperback form 35 years before Google came along: It was idealistic, and overflowing with neat tools and great notions.
Stewart and his team put out several issues of The Whole Earth Catalog, and then when it had run its course, they put out a final issue. It was the mid-1970s, and I was your age. On the back cover of their final issue was a photograph of an early morning country road, the kind you might find yourself hitchhiking on if you were so adventurous. Beneath it were the words: 'Stay Hungry! Stay Foolish!' It was their farewell message as they signed off. Stay Hungry! Stay Foolish! And I have always wished that for myself. And now, as you graduate to begin anew, I wish that for you.
'Stay Hungry! Stay Foolish!'"
And Steve, I never got to discuss that with you, or thank you for that, but it wasn't long after you said those words, now viewable till kingdom come, and with 9 million YouTube views the last I looked, it wasn't long after you said those words that members of our online community who'd heard it and seen it signed on and said, "Hey, did you guys just see that? Did you hear that?"
I don't know how the official transcript reads, but I like to think, I'm pretty sure, that Steve was spelling "foolish" with a capital F.
And that's a wrap for Great Quotes, Vol. VII. Next week I'm excited to bring you a look back at a few of the Greatest Hits points that I've made over the course of the first two and a half years of this podcast. I'm just going to dip into four or five of my favorite past points. Maybe from the Hype Cycle to the Five Monkeys story. In the meantime, have a great week and 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.