We love to hear from all our listeners, especially those who are underrepresented in the world of investing and finance. In this episode of Rule Breaker Investing, we were delighted to hear from more women than usual and are eager to highlight their contributions.
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This video was recorded on April 28, 2021.
David Gardner: For whatever reason, many of them, really. Motley Fool members are predominantly male. Fact. Perhaps it's because we were started by two brothers, not two sisters. Perhaps it's because looking back over our culture of the past few centuries, at least, it's been men in the West to traditionally play the role of breadwinners and money managers. That isn't to say they're particularly good at managing money. Many studies have suggested that women are actually better investors. You know the meaning of that word, dear listener. We've gone over its Latin roots many times. Some of these so-called female energy traits of patients, endurance, humility -- there are others -- truly sing off the same song sheet of how Foolish investing works, and why it works.
I love my Fool women, particularly because I'm married to one, but also because you are a minority at our events, as our subscribers, and yes, as listeners of this podcast. In the same way, I celebrate the kids who write in, because conventional wisdom makes it sound like kids couldn't be interested in investing. It isn't nearly as cool as skateboards, or video games, or Roblox. For this reason, I often give carte blanche to the younger people who write in to be featured on this podcast. I also try to make a point of being especially welcome for female Fools.
Well, maybe it was because Rick Engdahl named last month's mailbag "Invest Like a Girl." Then all of a sudden, we had a preponderance of female Fools writing this month, which I love. Some of you encourage me, others push back. We'll feature both as we lean hard to the distaff side of the population this month. Mainly, because you all gave me such good stuff. Plus, our first ever YouTube mailbag submission, making a hilarious point, and sundry other benefits besides, only on this week's Rule Breaker Investing.
Welcome back to Rule Breaker Investing. It is mailbag time, and I'm delighted that you're joining with me this week here at the end of April 2021. As I mentioned at the start, we have a lot of female Fools making contributions to this particular podcast. It's not going to be exclusive, but it definitely is the dominant thread, and it's a lot of fun for me to share all that I get to share with you this hour.
I want to start with a story from Karen. Karen is a Stock Advisor member, and we had a wonderful event last week. Many of you who are members, I hope, had a chance to attend. It was an online event, of course, it was called the Investing Essentials Summit. I got to talk about why winners matter and losers don't matter as much. That was a fun thread. A lot of the things I shared last week you would've heard before on this podcast because it's all of a piece, and I'm the same dude hanging out behind all of them. But talking about building a Rule Breaker portfolio, etc., a big feature of the Investing Essential Summit, for me anyway, was interstitially, we were weaving in members stories in between one session to the next as we proceeded with a full day of seminars and learning last Thursday.
By the way, if you are a member, and I hope you are, the Investing Essential Summit is still there for you to watch or rewatch or share with friends in rerun. You would know that if you're a member. Feel free to avail yourself of all of that Foolishness.
But one particular member's story really jumped out to me, and I want to make it Mailbag Item No. 1 this month. It's short and sweet. Karen, thank you for sharing this story, which was shared with tens of thousands of people last week. It's about to reach more than 100,000 people this week. As I share this simple paragraph from Karen, she said,
I have instituted investment challenges, and seeding parts of cash for my nephews and nieces based on Motley Fool principles. One nephew is also now a Motley Fool subscriber, and has shifted into finance as a career, thanks to his love for stock-picking. The other is 12. Last year, a small private Swiss Bank called up his mother to learn the secrets behind an 11-year-old having the best-performing portfolio of any of the bank's clients.
I absolutely love that story. I'm sure anybody you follow us Rule Breaker Investing can appreciate that an 11-year-old outperformed all of the other clients of this private Swiss Bank. They were calling his mom to figure out what the heck [laughs] is he doing. What a fun way to start this podcast Rule Breaker mailbag item No. 1.
Let's move onto mailbag item No. 2. We're going to call this one Errata. Got a few for you. I try not to make mistakes. My talented producer, Rick Engdahl, is very good at covering for all kinds of mistakes that I make, but I made a few in the last few weeks. Let me cover those Mailbag Item No. 2.
First of all, Eric Easen, TMF, Foolish Eric, long-time contributor. Eric, you wrote, "Hi David. I'm listening now to your March Mailbag episode." That will be one month ago this week. "When I heard you," Eric says, "Speak of 'Our international members', after you read a letter from a Puerto Rican listener. As I understand American territories," Eric continues, "Puerto Ricans are American citizens and thus not 'international.' One could argue that they are 'overseas', but by that measure, Hawaii and Alaska are even further overseas. Cheers, Eric Easen."
Eric, you are absolutely right. To my fellow Americans in Puerto Rico, my apologies.
Then arguably, a smaller mistake, but also a hurtful one. I simply misattributed the name of one correspondent in the mailbag item to somebody else's name.
Here's what happened. Kenton Hagen wrote in,
RBI, thank you very much for using my note on the latest RBI podcast, while it was credited to PT Lathrop, as David continued talking, I recognized the words as my own. Perhaps I will use that moniker for future Fool community writings. I'm extremely humbled that you guys took the time to read my note, and share with the rest of the community. I had to pull over my car on my way to the clinic to pick my jaw off the floor. Yes, I'm still in the medical field as I'm recently out of training and feel the moral and societal obligation to treat patients. I love my job in sports and spine medicine!" [Kenton writes with an exclamation point.] "Instead of running to Wall Street or some other perhaps more lucrative endeavor. Truly humbled. Thank you, Kenton Hagen.
Thank you, Kenton, that was your wonderful note.
Not to be outdone, PT Lathrop took the time to write in PT's own self. Thank you for this, PT. You are attentive.
Hey David, just FYI, maybe it got mixed up because I wrote in so many times. But you read an email from me, PT Lathrop but I didn't write it. I'm a park ranger, as some Fools know, and a quote 'failed Fool writer,' but I'm no physician and I didn't write that email. Fine mistake, but it caught me off guard. I hope longtime listeners or any PT stalkers, don't think I'm now a serial liar with my many professions. I guess you're a human or maybe there are two PT Lathrops. That'd be odd. Signed, PT Lathrop.
Sure enough, that was completely my mistake. My apologies again to Kenton Hagen and to PT Lathrop. PT Lathrop is a park ranger; Kenton Hagen is a physician. Both of them are wonderful Fools. Thank you for writing in. And as a make-good, my world-class producer, Rick Engdahl, will be patching that episode in the week ahead. Please know, PT, Kenton, and Fools everywhere, that that podcast will now contain the correct name attribution, which I meant to do in the first place. Thus we close Rule Breaker mailbag Item No. 2 Errata. Not just erratum, sadly; errata.
Rule Breaker mailbag, item No. 3, we'll call this one, reactions to the month that was. I'm gonna thread a few together here, Telling Their Stories, Volume 2, this time, with Matt Argersinger and Jason Moser. Got some great reactions. Thank you very much. Jason Moore, @JimminyJilickrz , who says, "Wow, I can't believe I heard DavidGFool make a Oh, the Places You'll Go reference on Rule Breaker Investing podcast, but glad to get to know @MArgersinger and @TMFJMo a little bit more. Thanks for taking the time to share your stories."
Fergus Colin, @ferguscolin: "Thoroughly enjoyed this episode and the prior stories. Feel like I've been spending one to two hours a week with these analysts for years. All of them seem to follow your recommendation to lead a more interesting life too."
Gowrish S, @always1stday on Twitter, Gowrish, you said, "I absolutely loved the episode, and was delighted to hear about one of my Favorite Fools, both uppercase on-purpose, FF. Favorite Fools @TMFJMo. Two takeaways for me," says Gowrish about Jason Moser telling his story. "One, the world owes you nothing. Two, the power of networking." Gowrish closes one question. "Do you guys still have the Analyst Development Program?"
Gowrish, the answer is yes. Yes, we still do have the Analyst Development Program, which both Matt Argersinger and Jason Moser went through years and years ago. It continues to be very vital for the Motley Fool, as I think you'd expect and hope today.
One other reaction, this one reacting to our Market Cap Game Show, which had its revision last month. This is also from Eric Easen, who gets featured twice this week. Eric, you wrote, "Hi David. Just a quick note to say how much I enjoyed the new acey-deucey format for the game show. It's by far the best format yet. Hats off to the member who suggested it."
By the way, that was Adam Nelson, I want to make it clear again, Adam Nelson, the genius behind our improvement to the Market Cap Game Show format.
Eric closes, "My score measured against the 5-5 score of the battle of the Rule Breaker titans, Rick Munarriz versus Tim Beyers was five. [laughs] A
fellow gamer Thane Walton writing in from Mesa, Arizona, said he liked the format so much, he's going to take the board game Wits & Wagers, which many of you may know. -- I certainly do. I would recommend it for families or groups of people. Usually, five to seven people, not that many games. Play five to seven people really well. -- Thane Walton says, "Hey, I'm going to use that format to tweak Wits & Wagers." Good luck, Thane.
Rule Breaker mailbag, item No. 4. I love this one. Thank you for writing in, Reagan Davis. "It explains some for me about the recent history of Baylor University." This is the national champion for college basketball for the men's side in this year's March Madness and a wonderful Foolish reflection besides. So thank you again, Reagan Davis.
Dear David, I'm in a reflective mood after my Alma Mater, Baylor University, won the NCAA Men's National Championship in college basketball. For those who don't know or remember the unfortunate back story, and I'm certainly one who did not. In the early 2000s, one Baylor basketball player murdered a teammate, and the former coach, Dave Bliss, attempted to cover up the crime by painting the deceased player as a drug dealer. This was an embarrassing and sad time for our university. These events led to harsh self-imposed punishments and NCAA sanctions that crippled the program for many years to follow. The death penalty was on the table for the basketball program. Baylor hired a 32-year-old Scott Drew, who promised to build a program built on integrity. Baylor is the world's largest Baptist university and is an institution where spiritual growth is as important as the education received. One of the more impactful things I've learned from you through the Rule Breaker Investing podcast is the Latin origin of the word "to invest," which is "to be clothed." You often compare it to wearing your favorite sports team jersey. Many have continued to support my Alma Mater through thin and thinner and it is rewarding to see Baylor's culture of JOY. That's an acronym -- Jesus, Others, then Yourself, JOY -- on this large stage. My question is, at what point in investing does it go from being a loyal investor or a fan through highs and lows to having a bias and unwilling to recognize when it is time to sell? Just like sports fans can be biased when analyzing their team versus the competition, I can see where the fandom of certain companies can make us blind or unwilling to see when it's time to cut or trim a position.
Reagan goes onto close,
I take great pride in being an owner of the products and services I consume. I love wearing my Lululemon shorts during a morning run. I love treating myself to an iced coffee at Starbucks. Heck, I love seeing the green-and-yellow Waste Management truck go through my neighborhood. The joys of being a shareholder, love it. I plan to continue to hold these companies among many other Foolish recommendations for years to come and cheer for their success. Thank you for everything, you, your brother, and your team at The Motley Fool have taught me these last few years. Sic 'em Bears. Signed, Reagan Davis, Baylor University class of 2010.
I will give a quick answer to Reagan's main question, but I do just want to say that I love this story. I didn't know it. Of course, resilience, to me, is one of America's five core values, and boy, if it's not implicit in this story, anybody who's a Foolish investor can appreciate acorns becoming oaks and how it takes time to do that, and I admire people who step into tough situations. And nearly 20 years later that young coach who's more middle-aged now wins it all for his team, his university, and one for the books. So congratulations again to Baylor for its championship. I really enjoyed watching the team this year. Arguably, I enjoyed watching them more than my team this year, the North Carolina Tar Heels, whose Hall of Fame coach retired shortly after the end of the season.
Now, Reagan, your question as to, now, what point could an investor turn from being a rather objective capital investor to being too much of a fan and being maybe unwilling as you write, "To recognize when it might be time to sell?"
Well, Reagan, I'm really good at talking out both sides of my mouth, so let me do that really quickly. First of all, I want to say, a lot of people say don't fall in love with your stocks and that's usually more of a trader mentality. For me, I do fall in love with my stocks. I think you should fall in love with your stocks. Let's make our portfolios reflect our best vision of the future. I love your story about running in Lululemon shorts with your iced coffee and Starbucks and enjoying the Waste Management truck driving by in your neighborhood. That's the world that I want to live in. That's how I think about the world.
I was once out with a reporter and we were talking at Starbucks, this is years ago, and I picked up a napkin that was on the floor, and the reporter said, "Why did you just do that?" I said, "Well, I'm a part owner of Starbucks, so I feel like I want to keep the place up a little bit." That made a huge impression on him in the story that he later wrote, but that really is my mentality. We're all part owners when we own stocks, and I prefer owners to renters. Owners try to take care of things. So I celebrate ownership and that's out of one side of my mouth about how you should love the things that you're invested in.
Yet out the other side of my mouth, I can say love can be blind. So I think we always have to maintain a measure of skepticism and/or self-awareness to the point that we're not losing track of what's actually happening in the world and what our company looks like, or our friend is doing, or whatever it is. I think you have to keep a well-balanced and integrated mind, and if you have questions about that, a great thing you can do is check in with a friend.
I try never to be a homer for my teams. I try to be the most active and outspoken critic. If my own sports teams do something that I think is either dumb or wrong, I try to be that objective fan while still being a fan, but I truly believe you can be both, and you're better if you're both. If you're worried that love is becoming blind, maybe check in with a good friend and find out whether that person thinks that you are in too deep. Thank you, Reagan. Great note. All right.
Rule Breaker mailbag, item No. 5. Now we hit the female Fool frenzy on this podcast. The next several items all come from our fellow female Fools. This one from Nesa Clark @DockHousewife on Twitter. This was her Twitter thread. I really enjoyed this. Nesa, I hope I'm pronouncing your name correctly. Here it is. "A year ago, I started my investing journey," she wrote.
My husband signed me up for The Motley Fool. I listen to Motley Fool Live while playing Lego with my son in lockdown. Scared out of my mind, I bought our first stocks and hoped for the best. That is what it was then, pure hope. Over the next few months, it was incredible to see our little portfolio do so well. It was strange, as it was juxtaposed with the pandemic isolation and fear of the unknown. Motley Fool Live was critical for keeping my mind focused on positive things during that time. Well, fast-forward to January 2021.
I think I'm pretty much a genius for choosing to invest near the bottom, April 2020, then February and March 2021 hits, and bam, guess what? Stocks are volatile and don't only go up, surprise. Luckily for me, I've been listening to Motley Fool Live Mindset sessions for a year and I've gained some tools to quell the emotional response to abandon ship. Now my convictions were tested: "Do I really believe in this company?" Well, I repositioned to my highest-conviction position. Some stocks I didn't even consider selling and some, well, they didn't make the cut. I lean more toward growth than value and I like to keep it simple. Staying in the market and sleeping at night is more important to me. I learned a lot about myself as an investor in the last two months. The Fools say, "Know thyself." Well, I'm getting there, it's been an exciting journey. With that said, thank you for helping me become a better investor.
Nesa very kindly lists a whole bunch of different Motley Fool analysts, advisors, and personalities, many of whom have previously been on the show and you would recognize.
Well, I want to start with this inspiring story just to remind us that really anyone can do it. It doesn't matter if you're male, female, or other, if you're young, old, or other. I truly believe all of us are investors, and the earlier you can switch on to this reality, the better off you'll be. It might take sometimes a pandemic to get us to realign our time or rethink our future. Sometimes, it doesn't take a pandemic, it just takes a revelation.
I'm so happy to hear about Nesa Clark, in particular, that Motley Fool Live, which is basically the television channel that runs 9:00 to 5:00 weekdays and seven days a week on our website, and any member should know about Motley Fool Live. I'm so happy to hear that it has helped you with your mindset in particular. Because it's one thing to know the six traits of Rule Breakers stocks, but it's an entirely other thing to know the six habits you need to have as a Rule Breaker investor, and our opportunity, whether it was the Investing Essentials Summit last week or our opportunity through Motley Fool Live constantly to reinforce these frameworks, these thoughts and best thoughts. It is our delight to bring that to you. Thank you.
Rule Breaker mailbag, item No. 6. I mentioned the top of the show. Some of these notes encouraged me, some challenged me. This one challenges me. Thank you, Jon Zarky. You write,
Hi, David. I've been listening to your podcast for about four years. In the last couple of years, I feel like you've gone away from helping your listeners, especially the new ones, with very specific information about the nuances of investing. I think you've been indulging yourself and trying to use your time to teach us life disciplines that are yours, not necessarily ours. As a new investor, I don't really want to hear about the books you like or the stories that have touched you. I want to learn about investing. What is a P/E? What is the implication of forward times earnings? What are forward times earnings? What's beta? How do all of the numbers help me make better investing decisions? Tell me about balance sheets, and how you can guide us to making those good decisions. What about the fundamentals, and why do they pertain to Rule Breaker investing? What about the basics again? Not all the time, but you need to continue to help newer investors, and I think you've been lacking in that area.
Maybe you're bored with those things after all these years, but don't be, we need your guidance. I find I may only listen to a few weekly shows now, it saddens me because as much as you'd like to pour your personal ideas and likes and favorite games, I don't need that. It's not why I tuned in years ago. You're not a prophet -- I think that's with the PH -- nor a social worker, you are an investment giant. Get back to your roots. I'm sorry, if this really falls under what you're doing wrong and maybe I'm in the minority, but I really hate only tuning in for the Market Cap Game Show and Five-Stock Samplers. That's what I'm looking for. Signed, Jonny Z from Chicago.
Well, Jonny Z, I think you have a good point. I think earlier days, the first few years, I did focus more on investing fundamentals, and you're inspiring me to get back a little bit to that in the month of May. I'll tell you about what I'm going to do in a sec. But I also want to say that for years now, I've thought Rule Breaker Investing is one-third investing, one-third business, and one-third life, and I think I'm probably going to keep doing that.
I will note, just looking back over the year thus far, and led off as I do every year with David's Biggest Losers, my worst stock picks and why. I then covered new territory, six principles of a Rule Breaker portfolio, and then I started rolling up stocks at random. Keep in mind, the end of every month is always a mailbag, where I'm here to respond to notes just like yours. If there are a lot of questions about price-to-earnings ratios, I will speak to those. If there are a lot of questions about how to break the rules, whether again, in investing business or life, I'll do that too. I absolutely prize your perspective. I'm glad that you wrote in. I'll explain in a sec how you've inspired me for May.
I also want to mention I got a note from a woman who said that I don't use inclusive language enough, that I say things like son or daughter, which presumes that there aren't third or fourth possibilities there. I'm going to say that's something I'd take to heart. I tried to be inclusive with my language, but I don't think I'll ever be bleeding-edge inclusive. I think once things enter more of the mainstream, especially when we talk about the language we all use with each other -- which constantly changes by the way -- I think I'm pretty good at adopting those things. I really do focus a lot on the language of investing. That's very important to me.
Let me mention that I've decided from May, I'm going to focus specifically on risk ratings in the middle of the month. A few weeks from now, I'm going to go back to old material. For some of you, you may remember our series from almost five years ago, I think, but I have a 25-point risk rating system that we built for Stock Advisor and Rule Breakers. If you remember, you know about the risk ratings, but many won't or may not have taken the time to think them through.
We're going to cover the 25 yes or no questions in a few weeks that we ask ourselves as we're analyzing a stock. Every time we say no to that yes or no question, we add a point and that equals risk. The bigger the score, the higher the risk of the stock. This is something that I published with every one of my recommendations in Rule Breakers and Stock Advisor, and for years now, I have to admit Jonny, I haven't gone back and shared that system back, especially with many new people to this podcasts and so many new members for The Motley Fool. That will be, I hope, a May highlight. Just as the first time I went through, I took two different example companies, I'll take two contrasting companies, and let's do risk ratings together in May.
Final quick thought: I think that I am a sucker for stories, and I think I have been airing it out, especially during this hard last 15 months with lots of our stories. I don't think that's going to change. I think most people like it, but truly, if I can only get your attention for Five-Stock Samplers, or when I introduce new Rule Breaker material, or the Market Cap Game Show, darn it, well, at least I got your attention for those things in a time-starved world. Again, I hope we will be worthy of your listen, but I totally understand if my tastes do not align enough with yours or anyone else's. Fool on.
Rule Breaker mailbag, item No. 7. This one from Vicki Bushnell, her screen name on the Motley Fool is Tyger Spark. That's Tyger with a Y, burning bright but not wanting to get burned. Vicki writes,
Hello David, you say dips buy on dips. Do you also agree with the axiom, more money has been lost preparing for bear markets than in bear markets? I've been a Fool since January 2015," Vicki writes, "and a Rule Breaker podcast listener from the beginning. I've also subscribed to many of the Motley Fool paid services, including everything from Stock Advisors and Rule Breakers, to Options, Supernova, Extreme Opportunities, Blast Off services, and more.
Wow, Vicki, thank you so much.
With all the great recommendations and a reluctance to sell and a predilection to buy, my portfolio had gotten a little unwieldy. I also believe the market has gotten a bit frothy. So I've spent the last couple of months going through my stock picks and reviewing each stock to see what may need a little trimming and what may need a little water. My approach has been, [and she includes four quick points,] one, review my original thesis for buying each stock and establish if the thesis is still valid. Two, break down my holdings by high, medium, and low conviction. Three, harvesting some losses. GoPro, you will not be missed --
Vicki writes. GoPro, one of my worst picks ever.
-- and sold some ho-hum winners that had lost their luster, and/or my interest, bye-bye ticker symbol BABY, [she writes,] I mean, Natus Medical. Four, review my overall portfolio percentages by stock, sector, market cap, etc. I do not rebalance. I'm very comfortable letting my winners run. Go, MercadoLibre. Although I'm not cashing out of the market, far from it, I am battening down the hatches and preparing for a potential bear market. Am I Foolish or foolish? Signed, Tyger Spark, burning bright, but not wanting to get burned, Vicki Bushnell.
I'm going to say, capital-F Foolish, Vicki. How could I not love your approach? I love that you've laid out your framework, reviewing your original thesis for buying each stock, and is it still valid? That's something we should all do probably once a year for each stock we're looking at. Maybe more frequently depending on how dynamic that business is. No. 2, breaking down your holdings by your own conviction levels. No. 3, you harvest some losses, you sell some ho-hum winners. No. 4, you look at your portfolio percentages. This reminds me of one of the six principles of building a Rule Breaker portfolio, which is to check back quarterly and see how you are allocated, and I'm hearing you do that.
I think you were asking, is this small-f foolish because you're thinking some about market timing you have, a presentiment of doom. You think something bad could happen next quarter or this year, you could be right. But you also say, "Although I'm not cashing out of the market," and I think that's the important point, Vicki and everybody else. I, my entire life have never cashed out of the market. I was invested in the market as it crashed in 1987. I was invested in the market as it crashed in 2001. I was invested in the market as it crashed in 2008-2009, and I lived through all of them.
The market could crash in 2021 or 2024; it's going to at some point. I realize that's disconcerting for a lot of people, but especially regular listeners of this podcast for one to six years know that I have made, and I suggest, you make a lifetime commitment to the stock market. You stay in it to win it all the way through, you don't start playing near-term worries, nor should you overweight near-term excitement. I think it's about taking the long view and playing the long game, so Vicki and everybody else, I hope that's helpful.
Rule Breaker mailbag item No. 8, this one from Laura Andrews. Laura, thank you for this note. I loved it.
Dear David, good morning. I so enjoy your Rule Breaker podcast which complements my Rule Breaker and Stock Advisor memberships. I've been a Fool for several years now and enjoyed listening to RBI and other Fool podcasts on my morning strolls. It's a great way to start the day.
My professional life is in academia, and professional development is really important to me. As a person fairly new to investing outside of my retirement options, I've been searching for sound and practical advice around stocks and investing, and one of my priorities is making the world a better place. I'm so glad that it's one of the Fool's values as well.
In searching for podcasts and investing knowledge, I've been discouraged with how few shows feature analysts and perspectives of women. Well, not so at The Fool. Thank you for that. I enjoy you, Tom, and all of the Fools, and I'm particularly pleased when I hear the women of The Fool; Maria Gallagher and Emily Flippen are two of my faves. Allison Southwick makes me smile every time she introduces Motley Fool Answers. The list goes on. Give those women big raises. They are amazing. After Maria's recommendation, a couple of weeks ago, I bought Warren Buffett Invests Like a Girl,and I'm totally enjoying it. Thanks for that, Maria. The more content to bring along women into the world of investing, the better. Perhaps, David, one of your Five-Stock Samplers, could even have a female-focused investing theme sometime.
In closing, thanks for all of your good work at The Fool and RBI. Keep it up, with the Fools' help, I'm on my way toward making the world smarter, happier, and richer, and also a better place. Take care, Laura Andrews.
Well, I completely agree, that's why it's my delight to have those talented Fools of every gender on this show, certainly, our female Fools included. The more content, Laura wrote, to bring along women into the world of investing, the better. I totally agree, Laura, and I love your point about giving those women big raises. That's why I'm delighted, it's my brother Tom, who's our CEO, we'll let Tom make the tough calls there. I just get to be a cheerleader and fan.
Side note, Laura and everyone else: I get to be on Motley Fool Answers. Pretty sure it's going to be next week. Allison Southwick and Robert Brokamp have invited me on to talk through rule breaking for the many listeners of Motley Fool Answers who don't get to hear about Rule Breaking as we do every week. So I'm really looking forward to joining you with Allison once again.
Rule Breaker mailbag item No. 9.
Hi David and Rick. I'm a new investor November 2020 from Australia, and I'm a grateful member of Rule Breakers and Stock Advisor as well as a couple of your Australian services. My mom(!) put me onto The Motley Fool. She's been a member for a little while as well. I really respect your approach to investing. I've spent the last few months reading and listening to as much Foolish wisdom as I can find between your U.S. and Australian teams, including the Rule Breaker Investing podcast.
Whilst the S&P 500, and the Dow have been pretty steady recently, there's obviously been a bit of a slump in a lot of the Rule Breaker stocks since mid-February. With that in mind, I have a question about your Six Traits That Make a Rule Breaker Investor episode, which aired in September 2018, specifically trait No. 2: Add up, don't double down. Unfortunately, [Nick writes,] given I only started investing recently, most of my stocks are in the red. Many of them have dropped 30%-40% from where they were in early February. Because I'm a Foolish investor and my time horizon is 30+ years, I have no intention of selling. Given nothing material has happened at the companies in question and they're businesses I'm proud to own, I actually want to add to many of the positions.
You said many times that you're not an advocate for buying the dip, and then it's generally better to add up, not double down. But what if I don't have many winners? At one point recently, out of the 29 stocks I own, I only had two in the black. I'm adding a little bit of money to my portfolio every fortnight as my pay comes in. But is it OK to add to your losers if there's a sectorwide or marketwide downturn that doesn't reflect underlying business performance? Put another way, can you add to losing stocks if you still think the business could be a big winner over the long term, can I have permission to break a Rule Breaker trait? Fool on, Nick.
Well, thank you for that, Nick, I have two points back for you. First of all, the reason that I have many times said "dips buy on dips" is not because it's always a mistake to add money to a stock that is down for you or initiate a new position in a stock that has been doing poorly. I typically don't do that, but that's not why I say dips buy on dips.
The reason I say dips buy on dips is because I think it's a mistake to be looking or waiting for dips constantly as your way of approaching the stock market. A lot of people are reluctant to buy a great company because they hope/think it will drop, and they say they're waiting for the dip and guess what? Great companies sometimes don't dip, and they end up missing the best investments of their generation, because they were waiting for a dip that never showed up. Then they feel like a dip and then they decide they missed it, which is also a dippy mistake, and they never buy into Amazon, or Netflix or the list goes on of great companies -- Zoom, more recently. Great companies that seem to go straight up without dips.
And yet, Netflix and Amazon and Zoom and Tesla and the list goes on. Many of these stocks do dip, but I don't sit there waiting for dips to take action on the stock market, I decide I like this company and I usually will buy just my full allotment to that company for my portfolio. I don't care what day it is, I don't put in limit orders, I just buy the shares because I'm buying them for years. It really doesn't matter to me very much, whether it dips, or not yesterday, or will this quarter. I hope it's clear that the reason I say dips buy on dips is not because it's dumb to ever buy on a dip; it's the wrong mentality to take to investing.
Point No. 2: Sometimes, the market drops. We saw that this February, March. We've seen a lot of our favorite stocks. Some of them lose a third of their value. By the way, in the six years of this podcast, that's happened multiple times already. I know a lot of people say, the bull market's never ending and it's going on for years. I've seen my whole portfolio lose a quarter, or more of it's value a couple of times in the six years that we've done this podcast, that through a good market. It never feels good, but ultimately, I don't let it bother me out of my stocks, or my belief that these are good companies and they will rebound, which surely they do.
A quick look at the stock market graph, just talking about the Dow Jones industrials or the S&P 500 or the Nasdaq here in the U.S., you'll see, it goes from the lower left to the upper right over any meaningful period of time. That will continue to happen. There are great reasons why that will happen. But Nick, sometimes, we get started investing with stocks going down, and as you mentioned, you have 29 stocks, and at a certain point maybe in February or March, 27 of them were in the red.
I think it's fine to go ahead and add to those companies. If you don't believe anything material has changed and you're getting a better price and you're just patiently continuing to allocate from your salary every two weeks, which is what I've always said here in the U.S., people tend to get paid every two weeks. I say try to save 10% of that if you can and get it right into the market. Funds if you must, but we prefer stocks, we think you'll do better if you find great companies. I should have done better for that reason.
Anyway, I hope it's clear that you should feel comfortable, even if it's been a dip recently for companies that you feel like you could have more allocation in them for your portfolio and they just happen to be down a little bit. Maybe I should've phrased it this way: Dips wait for dips. Maybe that's a better line, Nick, thanks.
Two more before we go. Rule Breaker mailbag, item No. 10. This one's from Vinnie Longo. Vinnie, you write,
Hi, David, I'm new to The Motley Fool family, though I was fortunate to marry into a very Foolish family. My father-in-law has been with you since the mid 1990s. My wife and I are Stock Advisor members, and I began listening to the Rule Breaker Investing podcast earlier this year. I'm hooked and have started going through the archives. I'm 28; my wife is 30. We were both lucky enough to have family members start portfolios for us when we were young.
I was also lucky. I wish everyone was so lucky, but if you, dear listener, were not that lucky, here is something: You can give luck to those around you, either those tied directly to you, like kids, nephews, nieces, grand kids, or friends, or the next generation. You can give the good luck of an early start to others.
Continuing with Vinnie's note,
Now we're starting to take complete control of our portfolios -- both a terrifying and exciting prospect. Now, and what I promise is a related note, I love how often you refer to the market and speak in terms of baseball and sports. Although, I don't always like the notion that baseball is the sport where you can succeed three times out of 10 --
This is a really good point, Vinnie.
-- that's hardly true for pitchers or fielders.
There's an old line; this is me, not Vinnie, speaking. There's an old line that you can make the Hall of Fame if you just succeed 3 times in 10 as a baseball player, that really is just a hitter-centric view, isn't it? You wouldn't be so good as a fielder if you only caught the ball or fielded the ball 3 times in 10, and you certainly need to retire more than 3 out of every 10 hitters you face if you're a pitcher. So I really appreciate that point.
In a sec, all of my listeners will understand how that point might emerge from Vinnie, because, Vinnie writes,
My first career was as a baseball play-by-play broadcaster, a job that requires one to weave in both important statistics and storylines to the broadcast. This is why despite my lifelong allegiance to the San Francisco Giants, [Vinnie writes,] I will always regard Vin Scully as the best broadcaster of all time.
On a side note, I have to say I'm a huge Vin Scully fan myself. Thank you, Vinnie, for referencing Vin.
I feel like many stock-picking services and brokers attempt to tell a company's story, but like some broadcasters, they focus on the statistics and end up missing half of the picture. I appreciate how the Rule Breaker approach looks at a company's story through a different lens, going beyond number crunching and spreadsheets to hit at the root of a company's success: brand recognition, leadership, proven success, things that are harder to measure. I'd argue because of that, more important to a company's holistic health.
For the first time, I'm finding myself invested in my investments while I look to find the companies that will help shape the world as I hope to see it in the future. I also find myself translating aspects of the Rule Breaker approach into my noninvestment life. Suffice it to say that so far, I'm experiencing strong returns, I'm feeling much smarter and happier, and I hope I can someday become wealthier thanks to these new philosophies that I'm learning. I think I'll let this winner keep on winning. Thank you for all that you do, and Fool on.
Vinnie lists a postscript, which I certainly want to speak to. He says,
P.S. In the spirit of breaking conventional rules, I recently finished listening to your podcast highlighting 10 traits of a strong company culture, and your team's excitement and passion for treating your employees well resonated with me, and as a soon-to-be holder of an MBA who's looking to leave the sports world in the near future, keep an eye out for my resume in your marketing openings.
Well, thank you for that. Vinnie is speaking here to what I think gives us an edge as Rule Breaker investors in a world that is so numbers drunk and statistics driven and algorithmic that it can be easy sometimes to feel intimidated and to think you couldn't possibly beat the market. Because computers, even as you're listening to this, might be trading millions of shares that might or might not be yours. As a little guy or gal or other, how could you ever end up beating the professionals? Yet, here is the capital-F Foolish truth.
My own experience anyway, my lived experience, is that you can, in fact, wax the professionals of what they are doing by using the principles that we talk about every week, and in particular, thinking about the stories of companies. We do stock stories on this podcast. That's another of our series that we've done in the past. A lot of people don't like story stocks, well, I like to reverse that phrase and talk about stock stories. How about you and I become more aware of what's happening in the world and how the future will be shaped by being aware of innovative companies in new fields that we're researching as we think about them for our portfolios. I do think it is often the right brain that gives us an advantage when everybody else brings the left brain into this world.
Vinny, in conclusion, one baseball guy to another, I'll also say that numbers count too, and I think it's integrating, in fact, the left and right side of your brand, it's integrating the stories with the numbers that is at the quintessence of great investment. It's what I've always tried to do, and I encourage you to do the same. I sometimes lean more toward stories because everybody else is already doing the numbers and you can find the numbers on the internet for free. The balance sheet numbers, all of those things -- and yes, there are computers crunching those numbers all the time making decisions. That's why probably, I think, our advantage lies on the other side in understanding the implications and purposes of new technologies and the companies that bring them to market. Thank you for a great opportunity to reflect on the power of story over statistics although I think you have to have both.
All right, did I save the best for last. Rule Breaker mailbag, item No. 11. This one comes from the U.K., while Owen at least that's where your accent places you, and indeed, I follow you on Twitter and I enjoy a lot of your tweets, and so I'm pretty sure you are a Brit through and through. I just thought this was hilarious. I said at the top, we've had our first-ever YouTube mailbag entry. That's not entirely true, because Owen has written this note and attached a YouTube link to it and we'll be sharing the audio that right here in this podcast Owen writes,
Dear, Mr. Gardner & all at Fool HQ, was going to write my feedback on the shocking revelation I've had in listening to your Five Stocks to Teach Rule Breakers episode but realized that of course that couldn't capture what I was feeling, so recorded this video.
It's at this point that Owen includes a link to his YouTube video, and I've asked my talented producer, Rick Engdahl to do a first for this podcast: bring the audio straight from YouTube right here to you in this podcast. I do want to mention Owen's language, just a little bit salty. I've always tried to be family friendly, and I think you and your 10-old-daughter are probably fine with this. But if it's a little bit much, hey, I saved this one at the end, so you could move on if you like.
We are going to include in the show notes a link to Owen's video at the time that I saw, it had only three views on YouTube. I predict it will have more views after this week and in fact, we've truncated, we created a tiny URL for this one, you can even hear me and remember it without having to click a link in the show notes. It's mot.ly/owen, which is spelled O-W-E-N. It's highly entertaining, so I point you there, dear listener, and here it is.
Owen Lean: Hi there, so I just want to say something about the Five Stocks for Rule Breakers podcast and stock sampler. Because it really spoke to me on a very particular level, and the reason I'm saying this, not writing it, is because I can't quite get across my emotion with just words, and that emotion is, "What the hell?"
I knew the rules of Rule Breaking, I guess, the Rule Breaker portfolio, I have read a couple of times, and passed to the same extent what the underlying thing of that meant, because these things will make sense. Invest in stocks of companies that do well. Invest in companies that are leaders in their field. Obviously! It struck me listening to it.
Why are these Rule Breakers, how are these not the rules? Does this mean that most investors aren't doing this? They are doing the opposite. The opposite of sense? Is that what is happening? Really?
I'm really glad I found Motley Fool before I found a different service, in that case. Blimey!
When I was young, I hated capitalism. Is this why so many people hate capitalism, because people are investing in stocks of companies that suck and that don't do well and haven't done well? And what are people doing? What in the name of John Belfort sham portfolios are people doing?
What I'm trying to say, that it was a really great podcast. Thanks so much.
Gardner: All right. Owen's notes conclude with a summary of his main point, which I love: "Honestly, I can't believe these are the Rule Breakers when they should clearly be the rules."
Listen to the podcast every week. It's utterly mind blowing stuff. Keep telling my 'students' to get listening until they can afford a proper membership. Hopefully, some of them are listening now. Fool on, you utter legend. Owen.
Owen, I am going to take that slightly tongue and cheek, since I think you're telling me in so many words that all of my innovation around investing is just straightforward thinking, truly legendary. Keep in mind one of the dictionary definitions of the word, "legendary" is, quotes, "of devious authenticity." Well, Owen, again, thank you for innovating on this podcast and bringing an extra bit of happier to a smarter, happier, and richer world.
I do want to say, if listeners and members enjoyed what Owen did on YouTube, we are very open to future mailbag submissions not just coming by email to [email protected], but why not coming as YouTube videos? If you like video, kill the emailing star, and if that happens, then Owen Lean, you, my friend are the innovator. So thank you for bringing that to this podcast.
Wow, do we just get through 11 mailbag points in a single mailbag? Yes, we did. Thank you again to my producer, Rick Engdahl.
Next week, I am excited to bring you company culture tips, our latest entry in this long-running series. Our focus is going to be on returning to work on some of our best thoughts for you from the Motley Fool, from our talented team, Kara Chambers and Lee Burbage, about how you best can return your best self to work. And for employers -- we have many entrepreneurs listening -- some of the things we're doing in thinking about for our employees here in this new hybrid world, we might be entering a new world of work. Company culture tips, new episode next week.
Well, the old expression, April showers brings May flowers. Let's hope the market strengthens up a little bit here in May, although who's counting from one month to the next? I'm pretty sure though I will say May will be a dynamic month of change. In the meantime, Fool on!