Style boxes are grids used to sort companies into broad, useful categories based on criteria such as size and risk profiles.

In this clip from Rule Breaker Investing, David Gardner shares his own style box, which expands on the classic two-by-two or three-by-three grids with two more criteria. Listen in to find out how these two categories are critical for investors looking to succeed in a sea of competition. Learn which particular square in Gardner's box is what Rule Breaking is all about, and how investing like an underdog gives you pretty good odds of beating the market.

A full transcript follows the video.

This podcast was recorded on Dec. 9, 2015. 

David Gardner: And now, I want to share with you my style box. I don't want to oversimplify what I do, say, or think, and I wouldn't do the same for you, either. So any time we're talking about frameworks, whether it's a four-box or a nine-box, it's always going to oversimplify. And other frameworks, like the Myers-Briggs, these are always, of course, somewhat oversimplified.

But what we're doing is, we're typing, and we're getting quick pattern recognition as our minds fly over -- if you ever watch golf, they'll sometimes have the fly-by of the course, and you have a drone take you from the tee right out to the 18th hole, over all the green, it's that kind of fly-by that good frameworks can give us. So I don't want to oversimplify what I'm doing, but I want to share with you something that I think, I hope, you'll understand, I hope is illuminating.

So I, myself, see two more axes. I'm going to call the Y-axis long-term at the top and short-term at the bottom. And across the X-axis, we're going to go with predictable on the left, right through to innovative on the right. So, what am I talking about here? Well, long-term and short-term is the term over which you and I are playing the game of investing or trading. If you are thinking long-term, I would say you're an investor and you're investing, so that's at the top of the Y-axis. If you're thinking or acting short-term, I would say you're not investing; I would say you're trading. So maybe I should have just said "investing" or "trading." But it's the same either way to me. It's the time frame that you are putting your capital into the markets.

Along the bottom, we have the types of companies that you are investing in. And it's not a perfect yin and yang here, but, I would say that most companies either fall in the bucket of predictable, rote, going through the motion, doing that business. They might be an oil operations company, or they might just be Dunkin' Donuts. It's going to be a company that is staying within what you expect it to do. And it might be innovative in its own way, but for the most part, you and I wouldn't point at it and say, "That's a real innovator there." 

And then, of course, right out on the far side of that X-axis are the innovators -- the companies that are less predictable. And there's more risk associated with them, but there's also much more opportunity associated with them as well.

By the way, if you've ever worked with consultants along these kinds of frameworks, you know that it's always good, of those four boxes, you always want to be in the upper right box. Any of the other three isn't quite -- so, I've set it up that way, so you can see where I think I am, or my approach, or our approach that we practice here at The Motley Fool, specifically we as Rule Breakers. We're invested for the long term, and we're investing in the most innovative companies. So, ultra-long-term, ultra-innovative. 

And here's why I think that works. The reason is that there are very few other people playing in our box, very few other kids swimming in the same pool. And it's understandable, because, for a lot of people, when they think about innovation and technology, they're thinking it's all fly-by-night. In fact, great investors like Warren Buffett have said in the past, "I don't invest in that area. I don't swim in that pool, because it's so unpredictable. I can't know 10 years from now who's really going to win the battle for leadership in drones or Internet of Things, or cloud computing. It's just too hard to predict." So, this type of person says, "I don't even invest there."

So those who do, those who really enjoy technology, innovation, bleeding edge, they're often taking a lot of risk, and thinking much shorter-term. So when you hear this, people talking about tech stocks on CNBC, often, it's very short-term oriented. And it sounds crazy to allow yourself to lose 20% on one of those stocks. People like William O'Neil, an otherwise very good investor, talking about how you want to sell before you ever lose more than 7% on a stock, it's just very short-term.

By contrast, often, the people who are long-term with their investing shun these innovative companies because we can't predict them. They tend to find mature, very predictable, rote businesses, often so-called "value stocks," or they pay a good dividend, and they tend to just, there are a lot of people swimming in that pool. There are a lot of people in that style box. The long-term investing in mature and more predictable companies. 

So one thing that I've learned about games and game theory over the course of time, and Malcolm Gladwell's great article-turned-into a book, How David Beats Goliath, makes this really clear. By the way, you can search The New Yorker, "how David beats Goliath," and reread Malcolm Gladwell's great article of five or six or seven years ago now, turned recently, in the past couple of years, into a book. How David beats Goliath is, David, while he's playing the same game, in this case, we'll say, David and Goliath, warfare, he's taking a totally different approach than the way everyone else is doing it.

And for that reason, he's able to win. He's able to win that contest. And Gladwell has lots of examples of underdogs that are consistently winning, and the way that underdogs typically are winning -- and I think we're underdogs, and I think we're winning -- is by, on the same field, with the same rules, just taking a totally different stylistic style-box approach.

So I just shared with you my matrix, which is that, if you are really fascinated by innovation, and these are your kinds of companies, one of the best things you can do is invest for the ultra-long-term, because when so few other people are playing that game, they'll be the first to sell Salesforce.com (NYSE:CRM) if cloud computing has a bad month. They'll be the first to sell Monster Beverage when there's an alarming but largely overreported, somewhat misleading story that energy drinks are killing people. Or, Under Armour (NYSE:UAA), when Under Armour has a slip-up. The list goes on of these kinds of companies. Tesla Motors (NASDAQ:TSLA). Remember? The batteries were catching on fire underneath the cars, and it was going to be a big problem for Tesla.

These are the kinds of stories that pop up all the time for innovators, and they're not always great stories. It's sad, thinking about the E. coli breakout for Chipotle (NYSE:CMG). But at the same time, these are very small stories in the grander scheme of these companies. In our society and culture, they get highly overreported by media, they set a tone, and of course, you have the shorter-term players all ready to sell.

So when you take that ultra-long-term focus into these kinds of companies, I think you and I as Rule Breakers stand a better than average chance of beating the market, and that's why we've been doing that for years.

David Gardner owns shares of Chipotle Mexican Grill, Tesla Motors, and Under Armour. The Motley Fool owns shares of and recommends Chipotle Mexican Grill, Tesla Motors, and Under Armour. The Motley Fool recommends Salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.