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How Loss Avoidance Works Against You

By Motley Fool Staff – Jul 24, 2020 at 12:23PM

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For most people, losses are 3 times more painful than the joy of gains. Does that hold true for investing as well?

In this episode of Rule Breaker Investing: Blast From the Past Vol. 4, Motley Fool co-founder David Gardner takes you through five important learnings from the past worth revisiting and reinforcing today. Whether you're an old-time listener or a new one, you should definitely know these important lessons. Learn about the evolution of business, investing in great stocks, how many stocks should be in your portfolio, and more.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on July 21, 2020.

David Gardner: I never say never for just about anything, but I'm as close as can be to "never" on some things. One of them is, I never think I will enter the government, run for public office. First, I'm not interested in it. I'm pretty sure my brother Tom and I both believe we can effect far more positive change in this world through the vehicle of The Motley Fool, through the platform hundreds of Fools every day are building in order that we, all of us -- and I mean you too -- will make the world smarter, happier, and richer. And so there's no political office needed, no campaigning, no special interest, or pacts, or negative ads -- so, so many negative ads -- and no sloganeering either.

And this is particularly good for me, because one of the things I'm the worst at is just saying the same thing, the same sound bite over and over. I just can't do it. I take far more joy in coming up with something new for you every week on this podcast than if I were just saying the same thing over and over. But if I were good at that, well, that seems to be what politics are about. You stay on message. You say the same thing over and over. That gets you the votes, but that's the opposite of my own inclinations and joy.

So to a fault, I think I need to keep coming up with new tricks for you every week on this podcast. To a fault I say, because if you're always playing a new instrument or a new tune from one week to the next, you might make the mistake of forgetting to repeat some of the important truths, the timeless ones, the eternal verities. And so from time-to-time, I like to hail back to the past, remake some cardinal points that I have made before so they're not lost. Because a lot of you are new. We have more listeners, more newcomers to The Motley Fool than ever before. So I would be a fool, small f, if I assumed you knew that critical lesson I taught on this podcast in 2016 or one of my favorite stories from 2018 even.

And so I started a new series a few years ago, Blast From the Past. Five points I want to make sure you hear again or hear for the first time. And we have arrived at Vol. 4. Blast From the Past Vol. 4, only on this week's Rule Breaker Investing.


Welcome back to Rule Breaker Investing. Thanks for joining with me this week. We are recording on Tuesday afternoon, July 21st, and it is Blast From the Past Vol. 4. I have five points that I have queued up that have been important, I think, special to me for some reason, that I want to make sure that you get to rehear. And as I said at the top, if you're hearing this for the second or third time, I'm kind of glad, because I think these are worthy of that, but for many of you, it would be a mistaken assumption of mine to think that you were listening to me in, say, August of 2015 when I made one of these points. So it's helpful every five years, sometimes, to say some things again.

Now, before we get started, let me just mention that next week is our mailbag edition. So if you've got a question or a thought, I've shared a lot with you this month, it's been a fascinating month for Rule Breaker Investing. I realize a lot of people kind of take summer off, we don't on this podcast. We had Great Quotes Vol. 12 to kick off this month; and then Pet Peeves Vol. 5, along with reviewing 5 Stocks Celebrating the World Cup, one of my five-stocks sampler; and then we had a special episode last week Uncomfortable Conversations Vol. 1. I would love to hear what you think of any of these or, of course, what I'm going to share with you today. So that's the mailbag. And, of course, our email address is [email protected] You can also tweet us @RBIPodcast. That's coming next week.

All right, Rule Breaker Blast From the Past point No. 1. This one comes from, yeah, it was June 1st of 2016. So just about four years ago. It was Campfire Stories Vol. 1, where we were all gathered around our virtual campfire. These days, there are quite a lot of virtual campfires all around the internet, because we're all typically meeting with each other via Zoom and other virtual ways to connect, but there we were at Campfire Stories Vol. 1, and I made my point, it was story No. 4, the story of business, and I'm going to reshare that with you now with an updated thought or two.

So this is just the story of business as I see it, comparing it to evolution. Now, we have a lot of scientists who listen to Rule Breaker Investing and our Motley Fool podcasts. Unfortunately I'm not one of you, I wish I were, but I do, as a liberal arts person, as a humanities person, love to pull tropes, conceits, concepts from other fields and bring them into my field of investing, or business in this case. And I've always appreciated what I remember from my schoolboy studies of evolution.

So let me just tell the story briefly of business as evolution.

So I think every good business will start with a product or a service, and what it's doing is it's competing against the other businesses, the other species, that have products or services that are trying to serve that same purpose, and so you are naturally in competition. Now, what's going to end up happening is natural selection. It's an important term in evolutionary biology. It's a very important term that I like to borrow for business. Because that's what's really happening. Customers begin to naturally select your business, not mine. They're selecting these days, for example, online retail more so than offline retail. And so what happens through natural selection is that certain species end up thriving and succeeding. And when they do, they're able to pass their genes on to the next generation of businesses and species, if you will.

So natural selection is happening every day out there in the world. It's not just out in nature, it's happening very much so in business. And the ability to pass your genes on to the next generation is very specifically coded to your ability to thrive and survive.

Now something else is really important in evolutionary biology. It happens in business as well. And that is changes in environmental conditions. Now, sometimes randomly, sometimes sporadically, sometimes dynamically, sometimes not for a long time, but changes in exterior conditions occur, and all a sudden, certain businesses will be favored by that or not. And so if planet Earth goes into an ice age, all of a sudden, the creatures that can survive and thrive at much colder temperatures are the ones that are still around, and those that aren't, like failed businesses, bankruptcies, and whole industries sometimes, that just couldn't transition are gone. And sometimes it's by no fault of the companies that are gone that that happens. After all, they didn't know an ice age was about to hit.

So when I think about some of the big trends of our time, these are the ways that I think about exterior conditions coming in and changing the business world at large. And so to me, it's all of a piece, biological evolution and business evolution, the concept map. And I hope that's helpful sometimes as you think about maybe a little bit of systems thinking where a given company or industry or the world at large is headed.

So those were the points I made four years ago about business as evolution, and really, it's the thought that I've had for a couple of decades. I probably wrote an essay about this 20 years ago. But I was just thinking back to that old podcast from 2016 but now updating that thought briefly for where we are in 2020.

We've just seen a huge change in environmental conditions that nobody really predicted. I don't think really many people could have predicted it. Yes, there have been people who said a pandemic could come. Some people said it will inevitably resurface at some point, just like the Spanish Flu of 1918 wouldn't be the last big flu, and in fact, there have been big flus since then, we just tend to focus on 1918. Anyway, that was going to happen again, some people said, but most of us were caught unprepared.

And you're going back, and I'm using Wikipedia, my friend here, a little bit, but going back to the history of our planet, the Cambrian Era was a time of a huge explosion of new species. Most of the fossils and the creatures that we think about today were caused by an evolutionary change about 541 million years ago. So earth is 4.5 billion years old. So the first 4 billion years... Well, those first billion years, we didn't even have an atmosphere, there wasn't oxygen on Earth for the longest time; we had no real atmosphere. But over the course of time, photosynthesis started to happen for billions of years, and it built up and gave us oxygen. And it was in fact, a lot of scientists think, the rise of oxygen, 541 million years ago, that triggered so much of life. So a huge evolutionary change that changed everything.

And so while COVID-19, for me, is nothing that big, not on that kind of scale, from a business and a cultural standpoint, at least in the here and now, it is very big. And so to me, it's a great reminder of the importance of being ready to evolve, ready to adapt, which customer is naturally going to select my product or your product versus somebody else's, and are we buying stock in companies that are rolling well with how things are, this massive change in 2020?

Certainly, when I picked one of my recent Five-Stock Samplers, 5 Stocks for the Coronavirus some months ago, I was very specifically picking five companies that I believe are and will evolve and adapt successfully through this environment. And on the other side of it, because this too shall pass, COVID-19 will one day be a post, not a during- or pre-COVID story, a post-COVID story. I think those companies will do great in that environment as well. Anyway, there it is, from a guy who last took bio in ninth grade. Yep, I managed to opt out of it in college, but I love that parallel, and I wanted to share that again.

All right, Blast From the Past item No. 2. This time we're going to January 18th of 2017, a podcast I did for Rule Breaker Investing entitled Great Stocks Don't Make You Think. Now, that podcast from a few years ago was reacting to an essay I had written in 2008 called "Great Stocks Don't Make You Think." And in 2008, and I'm going to share a portion of that essay with you here, but in 2008, I read a great book. If you're into web design, you'll recognize it, I hope, it's Don't Make Me Think by Steve Krug. And I was saying, it was the best book I'd read so far in 2008. Near as I can remember, it contained no mention of the stock market or investing or 200-baggers. It's just a very readable, insightful book on web design.

So of course, what's happening with this podcast and that essay is, I'm relating web design, something that is outside of the field of investing, just like evolutionary biology is outside the field of business, I'm relating it to investing. Very specifically, I'm going to share with you now a portion of that essay, so here it goes.

Don't Make Me Think is not just a catchy title, its author Steve Krug's first law of making a great web page, that is easy to use. He writes, "People often ask me, what's the most important thing I should do if I want to make sure my website is easy to use? The answer is simple, it's not nothing important should ever be more than two clicks away, or speak the user's language, or even be consistent, it's don't make me think. It means that, as far as humanly possible, when I look at a webpage," Steve Krug wrote, "it should be self-evident, obvious, self-explanatory."

Well, I went on to say, in this podcast and this essay, my single strongest piece of investment advice distilled from more than 2 million Motley Fool books sold over the past couple of decades is, almost the exact same point. It goes something like this: "When we look at a great stock, it should be self-evident, obvious, self-explanatory." Now, does that sound simplistic, outrageous? Famed fund manager Peter Lynch stated that we should all be able to explain our reasons for owning a stock in a two-minute pitch. Lynch is counseling us to keep it simple, stupid. If you can't explain to a friend in two minutes why you own any given stock in your portfolio, the implication is clear: Sell that stock.

Well, I like Lynch's point. He's talking about understanding before acting, which leads to better actions. And it certainly helped me, but now let me help you, because I want to go a bit further. I want us to go beyond Lynch, looking not just for good actions, good stocks, we're now looking for great stocks. So here's my attempt at a eureka moment. Great stocks, those that are the true leaders of real emerging industries, don't take 60 seconds to explain. If you can't communicate convincingly to a friend in a sentence, even a mere phrase, why she should own the stock over the next five years, chances are, it's not a great stock. Now, it might be a good stock or a winning stock, and no complaints about that, but it won't be a great stock.

There's a wonderful German word, the word is zeitgeist, I use it from time-to-time on this podcast. It means the spirit of the age. Age, I think is, "Zeit," "Geist," I'm pretty sure is spirit. Spirit of the age. And so I think that you and I should be asking ourselves, what is the zeitgeist, what is the spirit of the age -- to relate to my previous point -- what big change is happening that we should be paying attention to that affects many things, including our decisions around our investment portfolio, maybe our businesses and our lives as well, what is the zeitgeist? And so the great stocks are going to be the ones that are clearly in the zeitgeist. They're probably leading the zeitgeist, they are top-of-mind kinds of companies. And it's ironic that many people resist buying them, because they always look overvalued, and so people never buy Amazon even though it was clearly the zeitgeist, or they buy it way too late.

One thing I discipline myself to do, as a younger man, is to not be afraid to go in and overpay for what are considered ridiculously overvalued stocks, and then we look back 10 or 20 years later, and we say, boy! That was one of my best stock picks even though it looked so overpriced at the time. That was the zeitgeist. That's a great stock; Great Stocks Don't Make You Think.

To conclude, I mentioned earlier my 5 Stocks for the Coronavirus, that was April 8th of this year, that was picked right in the teeth of the market drop. And when I look at the five companies there, I see Peloton Interactive, I see Roku, Sea Limited, Teladoc, and Zoom Video. Now, some of you may own all of those, some of you may have never heard of any of those five companies. We're all coming from different places. But what I can say to you right now is, looking back just three months later, three of these stocks have now more than doubled from where they were just a few months ago. And just to focus on one in particular: Zoom Video Communications. My brother did a great job picking the stock in the middle of last year. I didn't find it till months and months later, but I'm sure glad that even though people said it was so overpriced at $117.81 at a ridiculous multiple to sales back on April 8th, with 5 Stocks for the Coronavirus, it's now gone from $118 to $259 in just a few months.

And you might say, "Well, that's really overvalued now, would you still recommend it?" Yes, I do continue to actively recommend the best companies of our times, the great stocks that shouldn't make you think. When history books are written, I sure hope they'll mention how important Zoom was in 2019 and 2020. How the company exploded in size and relevance, and it feels to me like another one of those zeitgeist companies. As do some of the others on that list. Great Stocks Don't Make You Think.

All right. Blast From the Past item No. 3. This one goes back just a couple of years, it goes back to March 28th, 2018, a very important moment, not just for this podcast but possibly for the future of all investing. Now, I realize [laughs] that's a very bold statement I've just made, but perhaps some of you will agree with me, the importance of what happened on that podcast. Now, on that podcast, I had my friend, co-conspirator here at The Motley Fool, David Kretzmann. It was March 28th, 2018, it was a mailbag, right, because it was the last Wednesday of March 2018, and we were taking a question -- Simon, I hope you're still listening -- from Simon from Ottawa. And Simon was basically wondering, in so many words aloud, how diversified he should be. Whether you're in Canada, the United States, Dubai, or China, these are general truths. And it was on that very podcast that David Kretzmann and I spontaneously created the Gardner-Kretzmann Continuum.

Now, it's recurred in many mailbag questions since, it's been acronymized, made into an acronym, the GKC; a lot of my longtime listeners will definitely already know the GKC. I suspect, if you were to google "GKC," you wouldn't see Gardner-Kretzmann Continuum come up as one of the top acronyms, but at least for this podcast, and possibly for the future of all investing, GKC will take on a bigger and bigger profile and maybe be identifiable when you google the acronym on the future internet. The Gardner-Kretzmann Continuum.

Now, I've made light of how many new listeners we have here in 2020, so let me, of course, briefly explain the GKC. The idea is very simple. In general, David and I were promoting the idea that you should have roughly as many stocks or investments in your portfolio as years that you've spent on this Earth. So if you're 15 years old, you just got a great birthday check from Grandma, who wants you to get started investing. We love your grandmother. I would suggest that you don't just buy one stock with what Grandma has given you, you should try to buy, you're 15, you should try to buy 15 stocks. Get from 0 to 15 as quickly as possible.

Now, this used to be quite difficult to do, because when I was 15, you had to pay a lot of money to transact, to buy a stock. You'd have to pay about $50 just to get a broker to run that to the floor for you and get you some shares of that stock. Those $50 commissions have dropped over time down to, like, $10 and then $5, and now they're at about $0. So we are living in an amazing time where a 15-year-old doesn't have to pay any commission to buy a stock, and increasingly, many brokerage firms are allowing you to buy fractional shares of stocks, which is also amazing. All of these developments are in the last 12 months. And so increasingly, it doesn't matter how much money you have. You can divide it up into however many pieces and buy however many stocks in fractional shares as you would like.

And so if you're 15, the GKC suggests that you take Grandma's check and make it a 15-stock portfolio. Which is the right way to approach it, because you should have a portfolio, not just a single stock. You should be learning about a number of stocks and growing as an investor from the earliest age. And if you're 54, as I am, the GKC suggests you should have about 54 stocks, which in fact, I happen to have. Now, if you go back and listen to that titanically important moment of that podcast, March 28th, 2018, I'm going to ask my producer, Rick Engdahl, to play a brief snippet from it, so you can hear the very creation of the GKC. Spontaneous. It was not premeditated; we just did it right then and there. You're going to hear from David Kretzmann, who, this year is 27 or 28 years of age, he said back then, he had 70, 7-0, 70 stocks [laughs] in his portfolio. And I was saying, that's amazing. And so a lot of us have used the GKC and expressed it mathematically. The stocks that you have as the numerator, your age as the denominator, and we say, what's your GKC score? And if I'm 54 over 54, I'm about 1.0. If my friend David Kretzmann still has about 70 stocks and he's in his late 20s, he's more like 2-point-something. And so you can express it mathematically as well.

Before we get to point No. 4, I will mention briefly, that in that same note from Simon of Ottawa, he asked, what do we think of Teladoc stock? And I've already made light of how the world changes, how business is evolutionary as well, I've also talked about great stocks not making you think. So this question from Simon of Ottawa, listening again to that podcast a couple of years later, he said, what do you think of Teladoc?

Of course, we liked it, it's been a Motley Fool Rule Breaker pick for years now, it was at $40, I just checked, it was at $40 back then. By the time I picked it for 5 Stocks for the Coronavirus, you heard it was in that very sampler, it was at $139. So a great example, $40, basically to $140 in a couple of years by using our Rule Breaker approach. But of course, I'd also like to point out that I did just repick it a few months ago for that Five-Stock Sampler, it's now gone from $139 to $226. So Simon, Fools everywhere, I hope that you were listening and learning and thinking hard about Teladoc back in that GKC original mailbag podcast, March 2018.

All right. Well, before proceeding on to point No. 4, Rick, how about just favoring us a little bit with the original creation of the GKC?


Gardner: Here's a new thing, we're going to debut a new term on this podcast. I don't know if it'll stand the test of time, will it ever survive just this one podcast. Let's call it the Gardner-Kretzmann Continuum.

David Kretzmann: I like it.

Gardner: And, of course, continuum with a capital C. This is the Gardner-Kretzmann, with two Ns, right?

Kretzmann: Yep.

Gardner: We want to make sure people can spell, it's got a hyphen between Gardner and Kretzmann. And the continuum posits that you should have roughly the number of stocks equivalent to the number of years you've lived on this earth. That is the Gardner-Kretzmann Continuum. So I think that I'm a fairly good example of this. I'm 51, and indeed, I have approximately 51 stocks in my portfolio. Now, even though you've attached your name to this framework, David, you have blatantly violated, you are an odd, you're an idiosyncratic creature...

Kretzmann: I'm just planning ahead, David, that's all it comes down to.

Gardner: How old are you?

Kretzmann: I am 25.

Gardner: And you have 70 stocks; you are breaking the Gardner-Kretzmann Continuum.

Kretzmann: I'm ready for retirement, David, what can I say?

Gardner: [laughs] That is tremendous.

Kretzmann: Maybe I do need to work on my GKC score; I'll have to, yeah, pay some attention to that.


Gardner: All right. Rule Breaker Blast From the Past item No. 4. This one comes from March 23rd of 2016, that was the second-ever Great Quotes, it was in this case, of course, Vol. 2 podcast. And one of those great quotes came back to me again this week, reflecting in part, certainly, on our podcast last week, Uncomfortable Conversations, but thinking more through Walt Whitman's phrase. And I want to share this with you and think together about this briefly. So I've always loved this Whitman quote. It's from his Song of Myself. I never did really study Whitman in school, but I bet you'd recognize this famous verse:

Do I contradict myself?

Very well then I contradict myself,

(I am large, I contain multitudes.)

Now, four years ago, as I reflected on that -- and I hope you'd go back and listen to it, especially if you're a Whitman fan -- but I was talking mostly about investing and how good it is to be able to see both sides of things. For years now at The Motley Fool, we tried to feature, both, the bulls and the bears. We do that regularly. We've had Dueling Fools as an example of articles that have been written over time. We do that some on Motley Fool Live right now, which is, of course, our new live TV channel on our website. If you're a member, I hope you're enjoying us at, you'll see some good-spirited debates. I'm, of course, conscious that as a co-founder people probably think they should respect me, but even on my own stock picking teams, I'm the first to say, please disagree with me, even if you don't like a great company like Teladoc, that I might happen to favor, I want to hear from you, and let's learn together. Because how much do I learn from listening to other people, how much did I learn last week from listening to other people and hearing their perspective?

So we call that Motley at The Motley Fool, it's right there in the middle of our name that we selected from Shakespeare 27 years ago; it feels so au courant and important to say today. So whether we're talking about last week's podcast or what I was saying with Walt Whitman's help four years ago:

Do I contradict myself?

Very well then I contradict myself,

(I am large, I contain multitudes.)

It's very important not just to hear from the bulls and the bears, but to recognize in yourself that you might be self-contradictory, and that's OK. I feel, in this world, that sometimes there are Twitter mobs out and there's cancel culture, and a lot has been made at that, where people feel like they have to stay on point, they can't budge on any opinion they have, they might be scared to put their opinion out there because somebody might take them to task online, which is a very unfortunate development which is completely anti-Foolish, totally against the spirit of everything that we stand for at The Motley Fool.

But it's important to recognize that we can contradict ourselves in the present or over time. Some of my best moments were when I changed my opinion forever, going from a previously held opinion to the direct opposite opinion. A good example for me, early in life as an investor, I initially, at age 18, as I came and made my first stock market investments, I thought shorting the market was un-American. I thought it was just wrong. And I was saying, I don't think anybody should short. And there I was about a decade later shorting stocks right there on the site. [laughs] And some of those led to some of our best stories. For example, when we shorted Donald Trump's hotels and casino resorts. But I was all of a sudden shorting stocks, when 10 years before I would have been horrified by what I was doing given my thoughts at the time. So I hope you've changed your mind about things over the course of time.

There's a great line by Keynes, I think it's ascribed to Keynes, it's something like, "When I find out I'm wrong, I change my opinion, what do you do?" Which I've always loved.

So I realize, looking back at last week's podcast, largely centered on race, there are lots of things in play right now in terms of what you should think and who you feel comfortable saying that to. What I loved about our uncomfortable conversation last week, is that we did it in public, we had it with each other, and I hope that that was instructive for you. I hope that you saw some Walt Whitman in it.

And I even want to mention a moment I had earlier today, because it shows how much of two minds I am about things, and I hope that you can see both sides of this as well. I was in an investment discussion meeting earlier today with an analyst, somebody that I won't mention here who it was. But this person said they actively didn't like the stock because they had a white man as the CEO of this company.

Now, what this analyst was saying is given that the company itself is largely about fashion for women, this analyst thought that's not a good CEO for the company. I can easily see that. In fact, the company's Board was largely full of white men, and that does seem a little old-school to me and doesn't make me feel as if that stock or company is rolling with the times and is that well positioned. Are they really progressive? More important, are they going to innovate with a white male CEO?

Now, let me jump over to the other side of the table. Looked at in another light, that's something I can't imagine myself ever saying, to say that a white man, to say that a Black man, shouldn't run that company, that doesn't accord with my understanding of the melting pot and all of the possibilities of America. Do I contradict myself? Very well then, I contradict myself; I am large. You are too. We contain multitudes. I hope you could see both sides of that, and why either could be right in a given time.

I think in this time, it's a fair comment to make about that company. Looked at from the future -- I always hope we're going to get to where Star Trek did -- maybe we never will, but on Star Trek, my recollection is, they never mentioned race, there was no reflection that you look like this and I look like this, we're all humans [laughs] and we were meeting lots of other species at the time, so maybe we felt more commonality in our humanity. I've always loved that about Star Trek. And if we ever do get to that point, we'll look back and go, "Wow! somebody said that that person couldn't be CEO of that company because they're a white man?"

All right. Well, I don't know if I saved the best for last or not, we'll see. Here comes Blast From the Past item No. 5. Now, I first said this on this podcast on August 19th of 2015, early days.

Rick Engdahl, who I'm looking at through Zoom right now. We stay muted on Zoom, we're using Zencastr to do the sound remotely, which we've been doing for a few months. I hope the sound quality is good enough for you, whoever you are. I recognize it is not the studio quality that we rocked the first 4.5 years of this podcast, I'm looking forward to getting back to a studio at some future point, but I'm looking at Rick, and I see the exact same producer that I started this podcast with in July of 2015.

So here we are five years later, celebrating, if you will, perhaps this month, our fifth-year anniversary. I want to say thank you to Rick for his positivity, his resilience, his willingness to do infinite edits for me to get this podcast to the best version of itself that it can be. And I really value loyalty and longevity. I want it for myself personally, I try to do that with stocks in my portfolio and certainly my relationships in life. And certainly, our business relationship. So I can look back now at this podcast from August 2015 and see the exact same producer producing it right here right now. So thank you, Rick.

I was saying on that podcast, the pain of loss is 3 times the joy of gain. Now, that podcast was dedicated to analyzing my losers. I did a two-part series, David's Biggest Losers. It was the first time I had ever done on this podcast, I've done it every year in January since, because I think it's great to look back and admit our biggest losers, for one thing, and then of course to look at them and understand why did they lose so, so badly. And then any other reflections we might have -- and I always have them about losing, anyway.

But I read a study a couple of decades ago, I've written a lot about this since. Behavioral economics and psychologists generally agree that the pain of loss is about 3 times the joy of gain. And that's such an important human truth when looked at in the light of investing. Because what it suggests on the face of it is that you and I take it really hard any loss, whereas when we win, it doesn't feel nearly as great as it feels bad to lose. And so naturally, it conditions a lot of people to not take much risk, to not put themselves in front of the train, the locomotive that is surely coming, of loss. Because I lose all the time as a gamer, certainly, [laughs] but as an investor, and I always will.

But a lot of people, with the pain of loss being 3 times the joy of gain, they are just trying to loss avoid. Loss avoidance. And I suggest, as a fellow Rule Breaker, listening to me right now, that you not be that way. And I'm going to give you some math to remind you of why it's so true. So if the pain of loss, for our psychology, is 3 times the joy of gain, let's look at losses and gains for stocks. Now, what's the most you could ever lose on your worst stock investment, assuming you didn't do something crazy like borrow a lot of extra money and put it on margin? The answer is, of course, -100%.

Now, I have had a lot of -90% in my history of picking stocks for The Motley Fool. I somehow managed to lose 90% on Krispy Kreme Donuts once for Stock Advisor members. My worst loss ever was in excess of 94%, Satyam Computer Services, also for Motley Fool Stock Advisor members. Sorry, my friends, that was a fraud. It was a company that was, you could outsource a lot of your tech to India, and it had a lot of the Fortune 500 doing so, and it was all legitimate work, but they were cooking the books. And we lost just about everything. But I've still, knock on wood, with very little pride associated with doing so, I still have never lost 100% for our members. But that's the worst you ever could.

All right. Now, what's the best you can do as an investor? What's the most money you can make? And the answer, of course, is there is no upper limit, it's infinite. The reason Rule Breaker Investing works is because most of the world is walking around saying, "I don't want to lose, the pain of loss is too great, I'm just going to try not to lose my money as an investor." But you and I, as fellow Rule Breakers, fellow Fools, we recognize the math is flipped for investing. The pain of loss is tiny compared to the joy of gain, and that's what should embolden us to pick the best companies of our time even if they look overvalued, maybe especially if they look overvalued, and then buy to hold them well past Wall Street and well past most of the rest of the market. We buy to hold.

Now, this is a concept I tried out a few times every year on this podcast. I've done it since going back to August of 2015 when I did David's Losers Vol. 2, I did this podcast, but let me update the numbers most recently. So I looked at our Motley Fool Stock Advisor scorecard in conclusion this week, and 32 times, one stock pick every single month since March of 2002, that's about 18 years times 12 over a couple of hundred stocks, 32 times I have lost 50% or more with those picks. And every single one of them, I believed at the time, and sometimes I repicked that stock and rerecommended it. So I apologize, again, for the Container Store and my performance there, or FireEye, those are examples of not just -50 percenters, but I re-rec'd it and doubled-up and got two -50% plus-ers, so I've done that a couple of times, 32, taken in all.

And again, that's horrible. I'm a professional, you would think I would never want to lose or would lose half my money, and yet, a lot of those went down more like, 75%, not just 50%, 32 times.

Here's the good news though. The 32nd-best pick on my side of Motley Fool Stock Advisor is up 564.2%. It's Match Group, I picked it in August of 2016, and it's the 32nd-best pick, a six-bagger, up 564%. On its own, it wipes out a bunch of those -50s, but that's just the 32nd best pick, the best pick is Netflix. Netflix, as of this recording, is up 26,994.5%. The market, by the way, about 270% over that time. So if you take all 32 of my -50%s, and let's just assume they average a loss of -75%, if you do that math, you'll see that we lost 2,400 percentage points, with all of our worst, thorniest, ugliest losers, -2,400. Netflix on its own is +26,994%.

So now you see why the math works so wildly in our favor as Rule Breakers, while the rest of the world finds that the pain of loss is 3 times the joy of gain; enlightened, Foolish Rule Breaker investors, who use our principles not just to select the companies we're buying, but use our six hows, the six traits of Rule Breaker Investing, and show patience as Rule Breakers, know very well that the math of investing is flipped upside-down, and your wins are wildly rewarded, and not just 3 times better than the pain of loss, nope, infinite times.

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 Amazon, FireEye, Match Group, Inc., and Netflix. The Motley Fool owns shares of and recommends Amazon, Match Group, Inc., Netflix, Peloton Interactive, Roku, Sea Limited, Teladoc Health, Twitter, and Zoom Video Communications. The Motley Fool owns shares of The Container Store Group and recommends the following options: short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and short August 2020 $130 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.

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