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Rule Breaker Investor Trait No. 1: Let Your Winners Run. High.

By Motley Fool Staff - Sep 25, 2018 at 8:50AM

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At the heart of the Foolish investing philosophy is the idea that great companies will keep being great.

Motley Fool co-founder David Gardner has a remarkably good track record in the market. Does he only pick winners? Heck no. But does his portfolio of stocks outperform the market fairly consistently, and over the long term? Oh yes, and by an appealing margin. (Feeling skeptical? Look deeper into our website and see for yourself -- the man keeps score of his performance with ritual consistency.)

Naturally, you might want to replicate such profitable results, but to do that, the answer isn't simply to copy his stock buys -- it's to emulate his investing style. So on this week's Rule Breaker Investing podcast, Gardner shares the six core traits of his investing philosophy.

And first among them is: "Let your winners run. High." In this segment, he explains just what that means, and tells us why he's not a fan of "locking in" gains, nor of the "buy low, sell high" concept, but rather holds on tenaciously to the companies he has in his portfolio.

A full transcript follows the video.

This video was recorded on Sept. 19, 2018.

David Gardner: Trait No. 1. How do you invest? Trait No. 1 is "let your winners run. High." So let your winners run. High.

By the way, each of these I've tried to make kind of a kernel. A shorter form so that they're easy and I've even added a mnemonic system, which I'll be mentioning in just a little while to help make them more memorable for you. But let your winners run. High.

And I kind of think of that as Rule No. 1, because in my experience, the most important thing you can do with your hows [the who you are as an investor] is that you should be holding. You should be buying companies exhibiting the six traits of Rule Breakers -- the whats -- you should be buying those companies, but then you should be buying them to hold. Buy to hold, as we've so often said in my services at The Motley Fool.

After all, if you sell Netflix in its second year or Amazon in its third year, and you didn't get to enjoy the 10th and 15th year, you left almost untold amounts of money on the table. You lose far more when what could have been a 150-bagger -- 150X your money held over 10 years -- when you sell that out for a three-bagger because somebody told you to buy low, sell high.

The amount of money you leave on the table in those situations far exceeds losing 100% in a whole bunch of other positions. Again, just do the math. So Rule No. 1 is let your winners run. High. And you notice I'm saying winners. We don't tend to add to our losers. I'm foreshadowing a future trait that we'll be getting to in a sec, but we really look and ask what is working out there not just in your portfolio, but yes, what's working out there in the marketplace? What are the companies that are introducing winning solutions? Who are the innovators who have real customers using real products? Who are buying more and more with growing topline sales, etc.? So it's the winners that you're going to let run, and you're going to let them run high.

Now for each of my six traits I'll be including maybe one classic quote that has come from me at some point that I like to use over and over, so longtime listeners will recognize some of these. But for my let your winners run high Rule No. 1, on Twitter this week I tweeted out an article I once wrote called The Greatest Secret of All. You can google "Greatest Secret of All," "David Gardner." I'm pretty sure you'll find it. But in that article, I have a couple of quotes which are relevant to this rule.

The first is "Find good companies and hold those positions tenaciously over time to yield multiples upon multiples of your original investment." And I just kind of tweeted that quote out. I like other things in that article. I hope you'll take a moment to read that article if you've not, but that's like, to me, the classic statement that I'm trying to make in that article.

I am happy to say that Gautam Baid on Twitter, @Gautam_Baid [thank you, Gautam]. You included one other from the article and I do love this one, too. It's, "We play an entirely different game -- a game measured by huge percentage points of profit and counted in years." An entirely different game from Wall Street. From fund managers who trade in and out of their whole portfolio for many managed funds in a single year. The constant churning. Trading. The way, in my experience, that a lot of financial television inspires people to think they need to follow the markets really closely and jump in, and jump out, and it just causes all of them [I hope not you] to violate Rule No. 1.

And if this is a new concept for you, I'm really glad you're getting to hear it, because I've seen it work not just in my portfolio, but in my dad's before me and over decades. Find good companies and hold those positions tenaciously over time to yield multiples upon multiples of your original investment and that's not just fantasy. That's fact. And you could just look at any of the great companies of our time. You can just look at the stock market over time. The facts are all there, but it's amazing how obscured they are by the Sturm und Drang of media coverage of the markets and by how people mislearn investing, in many cases early in their careers.

So again Rule No. 1, let your winners run. High.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of AMZN and NFLX. The Motley Fool owns shares of and recommends AMZN and NFLX. The Motley Fool has a disclosure policy.

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