The Stock Picking Philosophy to Find the Next Amazon with Motley Fool's David Gardner

Barry speaks with David Gardner, Author and Co-Founder, at The Motley Fool. They discuss David's new book "Rule Breaker Investing: How to Pick the Best Stocks of the Future and Build Lasting Wealth." They also discuss the pros and cons of different investing strategies and trends. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

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• 0:38Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 1:21Speaker 01

  But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 2:01Speaker 02

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• 2:37Speaker 01

  Bloomberg Audio Studios, podcasts, radio, news. This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

• 2:53Barry Ritholtz?

  This week on the podcast, I had so much fun chatting with David Gardner of The Motley Fool. I remember the Fool back in 93, 94, when it first launched on AOL. What a fascinating career. If you're a stock picker, if you're someone who really is committed to finding the best companies and then riding them for decades, you're going to find this conversation really fascinating. I thought his book was really interesting, his whole approach to life, to investing is really great. I enjoyed our conversation, and I think you will also. With no further ado, my discussion with The Motley Fools, David Gardner. Thank you, Barry. It's a delight to be with you. Thank you so much.

• 3:36Barry Ritholtz?

  I have a vivid recollection of sitting on a trading desk and watching you guys pop onto TV at various times. And as soon as you guys showed up, I'm like, all right, let me pull up Nvidia, Netflix. I knew they would start running and then soon turn around and fade. So as always, I mean, just intra-day, we'll get a little later to the difference between investing and trading. Yes, sir. But first, I have to go back to your background because it's so unusual. University of North Carolina on a Morehead Scholarship, focused on a bachelor's in English and creative writing. I assume Wall Street was not the original career plan?

• 4:20Speaker 04

  It actually was a career plan as I came to UNC Chapel Hill as a freshman. I was telling people, I think I'm going to go to work on Wall Street. I had a formative summer in between my sophomore and junior year where I worked at Solomon Brothers back in the day, the Good Friend era. I think Michael Lewis was writing Liar's Poker somewhere around then.

• 4:40Barry Ritholtz?

  Late 80s, I think, it first dropped.

• 4:42Speaker 04

  Yep, the year was 1986 for me that I was at Solomon.

• 4:45Barry Ritholtz?

  You probably overlapped with him at the same time.

• 4:46Speaker 04

  It was, I don't recall, Michael, and I'm really glad to see where he's gone on to great heights. But that was the summer I learned I was never going to want to go work on Wall Street.

• 4:55Barry Ritholtz?

  Uh huh.

• 4:56Speaker 04

  That was a really wonderful experience. I just realized it's not a culture that I'm going to probably spend time with as an adult. And so that was so helpful. I love the markets, I just wasn't a Wall Street person.

• 5:09Barry Ritholtz?

  And you grew up in a household where markets, investing, stocks were part of the daily conversation. Your dad helped you win a high school stock picking contest? Tell us a little bit about that.

• 5:19Speaker 04

  Sure, it was actually earlier than that. It was 4th grade.

• 5:23Barry Ritholtz?

  Really?

• 5:23Speaker 04

  But my dad probably did what other dads did, picked stocks for their son in this all-boys school, St. Albans School I went to in Washington DC. And I remember he had Harcourt Brace, Jovanovich, he had Getty Oil. This is bad, these companies aren't around anymore too much, but that was my stock portfolio. And over the course of three months, I outperformed my classmates. And so I won a gigantic Hershey bar. Like, to my 10-year-old eyes, it was the biggest Hershey bar I'd ever seen. But it was a wonderful introduction. You know, the real exercise then, Barry, was just to look in the newspaper, to write down 16 and 5 eighths, where the stocks closed. We would do that once a week over the course of three months and just start understanding the markets.

• 6:04Speaker 04

  So that was an early experience, but really dad was so formative for me as an investor.

• 6:09Barry Ritholtz?

  It's always fun talking to the youngsters who grew up with decimalization. Because I vividly recall, what's the price? Up a teeny. You don't get that anymore. It's a whole, it's a whole...

• 6:23Speaker 04

  A lot of your listeners do, Barry, and I get it.

• 6:25Barry Ritholtz?

  16th and right.

• 6:26Speaker 04

  Yeah.

• 6:27Barry Ritholtz?

  Right, up a stick, up a half, whatever it happened to be. And then how did you end up writing for Louis Ruh-Kaiser's Wall Street Newsletter?

• 6:34Speaker 04

  Yeah, so I started out of college, took a couple of years to read and write and travel a lot, got married without a job, and then it was time at the age of 24 to get my first job. And as it turns out, the newsletter that was supporting Louis Ruh-Kaiser, you remember his show Wall Street Week?

• 6:50Barry Ritholtz?

  Sure.

• 6:51Speaker 04

  Longest-running show on PBS, and he had a newsletter, a financial newsletter, and I got to write the back page of that newsletter for that first job. We were reaching hundreds of thousands of people, and I could pick whatever topic I wanted, so it was really fun, except it ended up not being fun. And the reason it wasn't fun is because I would pick a subject like discount brokers, which was a brand-new, amazing thing back then in 1992. Schwab, what's that? Or Quicken, there's now software you can DVD load onto your computer and track your finances and your stocks. So I would write these up, and then the edited version would come back with all of my jokes, color, and fun stripped, and the second half freshly written by my editor,

• 7:34Speaker 04

  explaining all the reasons you wouldn't want to use a discount broker or Quicken. And that's because I was instructed, I was never, I never took a journalism course, but I was just an English major, but they told me, you know, we have to balance it out here, David. In fact, Ruh-Kaiser is the personality. He's the color of this newsletter.

• 7:53Barry Ritholtz?

  Not you.

• 7:54Speaker 04

  We're not, we're stripping out the color, and also you gotta be, you gotta talk about the downside of discount brokers and Quicken. I was like, I don't want to do that. I don't see downside.

• 8:01Barry Ritholtz?

  Well, the downside is you're taking money out of stockbrokers' children's mouths. I mean, what's the downside of paying less to trade?

• 8:11Speaker 04

  Yeah, well, I discovered that the downside was a job that just was kind of creatively deadening. It doesn't really reflect on Ruh-Kaiser. It was the goal of that newsletter, just to, you know, supplement his TV show and all the rest. So, but after six months, I quit the job, because I was just like, this is not fun.

• 8:26Barry Ritholtz?

  There's an argument to be had that Ruh-Kaiser was peak financial television, and it's been downhill ever since.

• 8:33Speaker 04

  Yeah, I, I hear you.

• 8:34Barry Ritholtz?

  Like, an hour a week is plenty. Was he a half hour or an hour? I don't even remember. It was an hour a week.

• 8:39Speaker 04

  I think it was an hour a week. It was generally Fridays. It would air different times.

• 8:42Barry Ritholtz?

  Right, Friday night.

• 8:42Speaker 04

  Friday night, you know, after the.

• 8:43Barry Ritholtz?

  I remember him from Friday nights.

• 8:46Speaker 04

  And you remember his wit? He always had a monologue to start with?

• 8:49Barry Ritholtz?

  Very dry, right. Let's go over to our, what was it? Elves, wizards? I'm trying to remember. Elves, right?

• 8:54Speaker 04

  I think it was elves.

• 8:55Barry Ritholtz?

  And it was always fascinating and I, you know, it's funny. I've seen as many of those on YouTube decades later.

• 9:03Speaker 04

  Yeah.

• 9:04Barry Ritholtz?

  Uh, that I saw, as many as I've seen live on a Friday night. Like, I got no plans. All right, let's see what Louis has to say.

• 9:12Speaker 04

  That's really fun that you would go back and revisit. You know, I'll just say, he was, he was a wit. He was himself outside of Wall Street. I mean, he's sort of a journalist, but he, he enjoyed, um, bringing together, uh, brilliant minds on Wall Street. You know, he had Peter Lynch. He would regularly focus Lynch and others.

• 9:28Barry Ritholtz?

  Peter Lynch, Lizanne Saunders. You go down the list of people that he had. Um, I'm trying to remember, was it Paul Tudor Jones before the 87 crash?

• 9:38Speaker 04

  Might well have.

• 9:38Barry Ritholtz?

  Basically saying, I, I'm, I'm out of stocks. I'm short. I think something terrible is about to happen. And then Black Monday happened. Um, was like you, there was no other place to see stuff like that, except we take it for granted today that, oh, you want to see something? It's out there.

• 9:55Speaker 04

  Yeah, Bloomberg, CNBC.

• 9:57Barry Ritholtz?

  Right.

• 9:58Speaker 04

  I remember FNN was like the early player.

• 10:01Barry Ritholtz?

  Pre-CNBC.

• 10:02Speaker 04

  Definitely.

• 10:03Barry Ritholtz?

  And, and then CNN FN was another one.

• 10:07Speaker 04

  You are right.

• 10:07Barry Ritholtz?

  And then, so now.

• 10:08Speaker 04

  We're going down memory lane. Is this what, is this what your audience wants, Barry?

• 10:12Barry Ritholtz?

  No, no, it is not what they want.

• 10:13Speaker 04

  Stay down memory lane here, but I'm enjoying it.

• 10:15Barry Ritholtz?

  But, so, so let, let's talk about, you go from Ru Kaiser. Where did the idea, um, with you and your brother, working in a shed in the backyard? Where did the idea come from? Hey, I want to put my own ideas, wit, personality into a newsletter. Like, how did that become an actual product?

• 10:37Speaker 04

  Well, I quit that job with nothing to go to and then my brother's best friend from Brown University, they both went to Brown. Uh, Eric said, hey, David, I, I went to Brown, but I, shockingly, I really know nothing about investing in the stock market. I'm from. From great education, great family, I'm a television sports producer. What's going on in stocks? So would you teach me? So I spent a couple of nights just sitting down with Eric going, you know, here's what I look at, here's what I do. I was raised in a family where you buy individual stocks. We're not just going to index here, we're going to, we're going to be choiceful. And we had so much fun. Eric's like, why don't we open up? This is a newsletter. You have no job now, you just work for a newsletter. I was like, okay, let's do that. And then I flipped through a book of quotations one night and I settled on a fool, a fool, I see a fool in the forest, a motley fool.

• 11:22Speaker 04

  And I just thought, you know.

• 11:23Barry Ritholtz?

  Shakespeare?

• 11:24Speaker 04

  Shakespeare, those were some, as you like it, act two, scene seven, for those keeping score at home. But for me, this was, you know, a character I loved studying, certainly going through school, and everyone loves Shakespeare's fools, they could tell the king or queen the truth, and they did so with humor.

• 11:37Barry Ritholtz?

  The only one who could get away with it.

• 11:39Speaker 04

  That's, that's right. They were given license to tell the truth. So I sort of loved it. Also, great lines like, "A fool and his money are soon parted," you know, "gave us a steep hill to climb as we tried to build trust with people. Why would you call yourselves fools?" And it started there, and it started as a print newsletter. You mentioned that Barry, it was July of 1993 was the first issue. Forty-eight dollars a year, the only people who subscribed, our parents' friends. They were the only ones who pay us 48 bucks a year. Our friends sure, sure weren't going to for our financial advice back then. But as we started that newsletter, 1993, early 94, we were signing on using our modem, our telephone, onto AOL, Prodigy, and Compuserve, the big three in the early private online services battle.

• 12:24Speaker 04

  And we were starting to discover this new medium and getting fascinated by it.

• 12:28Barry Ritholtz?

  And I recall AOL as a stock was two or three dollars in the early 90s, something really moderate before it had a hellacious run, straight up for that whole, whole decade. What was it like? First of all, you guys got fool.com today.

• 12:46Speaker 04

  Nobody else wanted it.

• 12:47Barry Ritholtz?

  Every, every proper noun, every dictionary word is taken, although who knows what, what AI and the slow shift from Google, from SEO to AI is gonna do to

• 13:00Speaker 04

  There you go.

• 13:01Barry Ritholtz?

  all these domains, but like domains changed hands for millions of dollars. It's kinda crazy. You, you went to get fool.com?

• 13:08Speaker 04

  No, no competition. Yeah.

• 13:10Barry Ritholtz?

  Nobody wants it.

• 13:10Speaker 04

  Nobody wants fool.com.

• 13:11Barry Ritholtz?

  Oh my god, what a, so the missed opportunity was, I could domain squat on every proper noun. So you launched the website. How long was it before it was, got some traction?

• 13:22Speaker 04

  So, we really launched, first of all Barry, it was August 4th of 1994. It was just on AOL. Because this is pre-worldwide web.

• 13:29Barry Ritholtz?

  Right.

• 13:29Speaker 04

  People were not using that phrase yet.

• 13:30Barry Ritholtz?

  97 was Netscape, right?

• 13:31Speaker 04

  Yeah, I, I would actually say 96-ish was when we started coming online, on the web. But no, it was just keyword fool on AOL, but AOL was going through a period of dynamic growth.

• 13:42Barry Ritholtz?

  Huge. Unbelievable.

• 13:42Speaker 04

  So it was fantastic for us. We launched in August. By November, we were written up in the New Yorker, in the Talk of the Towns section, and then we had agents and publishers saying, "There's a book here, guys." And we're on television, we're, we're, we have a, a radio show coast to coast. We just, we were like the early pioneers who believed in this new medium, and we were going offline as fast as we could, while everybody else was trying to come on, online. Exactly.

• 14:08Barry Ritholtz?

  So, so you were, you were already in, I, it's almost embarrassing to use the phrase, cyberspace. So you were online, but you used traditional-

• 14:16Speaker 04

  On the information superhighway.

• 14:18Barry Ritholtz?

  But, uh, all the traditional media to point towards, uh, the website, how long did it take before you kinda said to yourself, "Hey, this is real business. I don't have to go get a job. I could just build this."

• 14:31Speaker 04

  We started at such a good time, because AOL, as you'll recall, was a pay-per-hour service.

• 14:39Barry Ritholtz?

  That's right. In the beginning, anyway.

• 14:40Speaker 04

  Correct. Like $3.25. I think they raised it to four at one point.

• 14:43Barry Ritholtz?

  Right.

• 14:44Speaker 04

  And so- The business model was remarkable for us. If somebody spent an hour at Keyword Fool, we would get 10% of that. So if they're paying AOL four bucks an hour.

• 14:56Barry Ritholtz?

  Forty cents?

• 14:56Speaker 04

  Forty cents for any hour that anybody would spend at our site. And so with a tiny staff and a big dog that was mailing out CDs and DVDs to get on AOL that serves as cocktail coasters at parties, we really benefited from that ramp. And so we began to be able to hire other people.

• 15:17Barry Ritholtz?

  When the...

• 15:18Speaker 04

  Yeah, that was it.

• 15:19Barry Ritholtz?

  When the CDs started getting mailing, I think they had moved to like all you can eat, $10 a month or something like that.

• 15:27Speaker 04

  It was more like $30 a month.

• 15:28Barry Ritholtz?

  $29.95. Yeah, I don't remember exactly what it was. I just remembered that that was the end of surprise bills. Oh, it's infinite? Okay, great, I'm on 24/7.

• 15:39Speaker 04

  And that hurt our business a lot.

• 15:40Barry Ritholtz?

  Oh, really?

• 15:41Speaker 04

  It also was a major inflection point. Yeah. Because we had built a site that was really fun to visit. We had very active forums. We were publishing multiple times a day. Lots of people were showing up. There were even chat rooms back then, right? People were spending time online. And 40 cents for every hour. So we were starting to hire people and then within a few years AOL went flat rate. And all of a sudden, we had been the stars of AOL. They were putting us forth at their partners conference. We were on the cover of Fortune magazine just three years after we started Print Newsletter. We were right out front. And then we became kind of poison for AOL. In this sense, every hour that anybody spent, AOL had to pay connect fees.

• 16:22Barry Ritholtz?

  Now it's a cost instead of a...

• 16:24Speaker 04

  Yeah, they're only charging $30 flat a month. And so all of a sudden magnet sites like ours were not as popular. And then meanwhile AOL, understandably, no harm, no foul here, but they were starting to launch AOL Finance and AOL Stocks and competing directly with kind of where we'd camped out and built our base.

• 16:43Barry Ritholtz?

  Hold my beer, we're gonna launch our own website, whether people access it through you or not.

• 16:48Speaker 04

  Yeah.

• 16:48Barry Ritholtz?

  That's fine. So, and we know how the AOL story ended.

• 16:55Barry Ritholtz?

  At that point, you're thinking, uh oh, this is a big issue. How long did it take before the website hit the same sort of, oh, this is a self-sustaining business?

• 17:06Speaker 04

  Yeah, so we launched the website alongside our AOL site with our first book, The Motley Fool Investment Guide, in the summer of 1996. And the website, AOL took part ownership in us, so we gave a minority interest in our company to AOL. And they're like, guys, go out on the web, compete with your own site, compete with us. Ted Leonsis, who was a real visionary, and Ted was like, guys, no one's making money on the web. Show anybody how to make money here on the web. And so we built our website and we started pointing people to both our website and our AOL site. And as it grew and as AOL went flat rate, the good news for us is a lot more people came online at that point. Thirty bucks a month versus $4 an hour, a lot, that's mainstream.

• 17:48Barry Ritholtz?

  Yep.

• 17:48Speaker 04

  And also good news for us is that we could survive as a free site. So we could now be free for a lot of people. The bad news was we've shifted business models straight up advertising. Right? At that point, it's all about eyeballs and clicks. And your customer, our customer just changed because our customer had been the beloved fellow individual investor who was taking a risk to even go online back in the day. And there they were paying four bucks an hour and they loved us and they were our members and they were paying us directly. All of a sudden, they became the product that we sold to advertisers, right? Because that's obviously the free ad business is your customer's eyes, your eyeballs are now your new product.

• 18:29Barry Ritholtz?

  And as a reminder for the youngsters listening, 96, 97, wait, you want me to give my credit card to a random?

• 18:38Speaker 04

  This is such an important moment.

• 18:39Barry Ritholtz?

  Like early days of Amazon, early days of AOL. All right, there were a handful of companies you might trust, but there's a million websites. I don't trust any of these guys. I heard that over and over again. How long was it before people felt, oh, we could subscribe to this newsletter? We could give these people money to manage? What was the forward timeline?

• 18:58Speaker 04

  So thank you for that memory because this is very important. Anytime a new technology shows up, it's generally, we're fearful about it. What is AI? gonna do to jobs.

• 19:06Barry Ritholtz?

  Well, back, back then, I, I had a tech buddy who always used to tell me, if you want to know where technology goes, watch the X-rated stuff because they'll be the, they'll be the first with micro payments, they'll be the first with faster than real time and streaming and things like that. And it turns out that that's a big driver of online business, even to this day.

• 19:27Speaker 04

  Yeah, and I think that's, that's true. So you're right, premium experiences and premium services are where the web has ended up. However, there was a whole shift, um, ninety eight, ninety nine, two thousand. You really couldn't charge for anything on the web. If we had tried to say, you now shall pay for our site, or there, we have a subscription service, we would have been laughed at.

• 19:47Barry Ritholtz?

  Right.

• 19:48Speaker 04

  Um, at the same time, though, as a stock picker, I was picking AOL stocks, saying, I think this is an amazing company, and it sure enough was, it ended up being a hundred fifty bagger at its top. Didn't end there, but it was still a remarkable investment and lots of people had followed us into AOL and other stocks like that, Amazon. And, and it was really going against conventional wisdom at the time to say, buy Amazon, buy AOL. And so I, I want people to remember that because now it looks so obvious. I mean, AOL didn't end well, Amazon has ended really, really well, it hasn't ended.

• 20:21Barry Ritholtz?

  Right, that's right.

• 20:22Speaker 04

  So, so it's important to remember those moments because we tend to forget them. We, we, we also forget the dawn of AI. This is first inning of this ballgame and people will look back and go, it's also obvious in retrospect.

• 20:32Barry Ritholtz?

  It's always obvious in retrospect.

• 20:34Speaker 04

  It is indeed, Barry.

• 20:35Barry Ritholtz?

  It's at the time, it's really challenging. Um, so last question in this segment, if you were starting The Motley Fool in twenty twenty six instead of nineteen ninety three, so we have social media, we have free trading, we have ETFs everywhere, the, the world is so different today than it was forty years ago. What would you do, thirty years ago, anyway, what would you do differently? How would you build a site and a business today, this time around?

• 21:05Speaker 04

  Well, I think first of all, one thing that we know today that we didn't do back then, that I think is very helpful in every era, is to be a purpose-driven business and to state, what is your mission, what is your purpose, and really hew to that and breathe through that and, and hire for that and promote because of that. And conscious capitalism is one of my themes as an investor and a board that I've served on. So I now have those eyes that I didn't have back then. And I think that that is. Such a strong thing. Most of the best companies I know, look at crazy business of fast food chicken. Chick-fil-A is an amazing company. I wish it were a public market company. It would have been one of my stock picks, but they just fundamentally act differently

• 21:48Speaker 04

  than McDonald's and their competitors. And it's because it's like a leadership academy masquerading as a chicken joint.

• 21:55Barry Ritholtz?

  Still closed on Sunday.

• 21:57Speaker 04

  Yeah, exactly. Which is their choice. Radical. So, those are the kinds of companies that I admire and like. That's what I've always wanted The Motley Fool to be. So, I would do that in earnest today, in a way that I think would cut through a lot of the noise and people saying, "There's too many choices and all the rest." Standing for something and then living that every day. Most of the best companies that I can think of do that. So, I would be trying to do that, Barry. But yeah, it is a different world. I mean, one thing that's changed, I think for the worse, and I'm an optimist, almost everybody's mailing it in with index funds these days. Like, I was raised in an era where it was kind of normal, at least in my family, buy a stock. These days, the conventional wisdom has become,

• 22:37Speaker 04

  "You'd be crazy to buy individual stocks. That's so risky. Just index." And while I admire Jack Bogle deeply, and I appreciate indexing, and The Motley Fool has always been a big supporter of index funds, have we really got an era where you shouldn't even pay attention or care anymore, and you can't probably beat the market because it would just be locked to pick Chick-fil-A over Kentucky Fried Chicken? I don't think so. I didn't think so back then. And so, I would be definitely sounding that loud and clear today. There's even more big dumb money sloshing around than ever before, because so much is just throwing it at everything and not discerning this one versus that one.

• 23:11Barry Ritholtz?

  Really, really interesting. Coming up, we continue our conversation with David Gardner, co-founder of The Motley Fool, discussing his book, Rule Breaker Investing: How to Pick the Best Stocks of the Future and Build Lasting Wealth. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

• 23:38Speaker 00

  At Brookfield, we invest in the thing behind the thing behind the next big thing. Our focus across infrastructure, energy, real estate, private equity and credit is helping to build the backbone of the global economy. We combine deep operational expertise with disciplined long-term investing, uncovering value and partnering alongside clients to shape tomorrow's economy today. Learn how you can own what's next at Brookfield.com/own. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital.

• 24:13Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 24:55Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 25:38Barry Ritholtz?

  I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest is Dave Gardner. He's the co-founder of The Motley Fool and the author of the book Rule Breaker Investing: How to Pick the Best Stocks of the Future and Build Lasting Wealth. So I want to talk a little bit about the philosophy around rule-breaking investing and stock selection. One of the things that jumped out of the book from your framework was top dog and first mover, customer love, visionary leadership. Discuss.

• 26:16Speaker 04

  Yeah, well, thank you. These are some of the traits that I'm looking for in stocks. And I think before we start this, Barry, I should just again underline, I believe it is a worthy thing to choose stocks. I really want to find the best companies of our time, and I want to own them for a long period of time. And actually, it's, for many people, it's actually easier to find Amazon, or eBay back in that era, or Nvidia more recently, but to actually hold them, to hold them, to allow them to multiply in the way that they will if you do. In my experience, that's hardest for most people.

• 26:51Barry Ritholtz?

  Let's talk about that, because Amazon, after the dot-com crash, plummeted to single digits.

• 26:58Speaker 04

  Yep.

• 26:58Barry Ritholtz?

  Apple has had more near-death experiences than I can count. Nvidia, go down the list. Google, Facebook.

• 27:05Speaker 04

  Tesla.

• 27:05Barry Ritholtz?

  Facebook's IPO was a disaster. It got cut in half, like, within a few months of that, and then they kind of unlocked mobile and it was off to the races. Yeah, Tesla? These companies trade more like cryptocurrencies than companies. How do you find the confidence and the commitment to stay with something down 40, 60, 80%?

• 27:29Speaker 04

  So, thank you. And I would say, first of all, it's not worth doing that for every investment. Certainly, if it were some dodgy crypto, I wouldn't be holding. But you used an important phrase a minute or two ago. You said "top dog and first mover." So when I look at important emerging industries... And I see a company with a large customer base. They may not be profitable yet, but they're doing good things in this world, a world I want to live in. And their stock's down? Their stock's been cut in half? What's the reason? Sometimes it's the CEO, like Howard Schultz, back in the day with Starbucks, was just occasionally conservative. And the analysts were surprised as he under-promised. And then the stock drops 15%, you know, in a week.

• 28:14Barry Ritholtz?

  You told the story about this going on The View.

• 28:17Speaker 04

  Yeah.

• 28:17Barry Ritholtz?

  The stock ends up down 30%, and that was your last appearance. And then what happened to Starbucks?

• 28:23Speaker 04

  It went up 30 times in value. We've never been back on The View. But, and by the way, I'll return at any time. We'd love to close the loop on that story. But yeah, that was 1998, early TV appearance. We picked a stock for the ladies of The View. And then it was Starbucks. That's the punchline, by the way. I shouldn't have given that. But yeah, the stock dropped 30% in just a couple of months. And we went back on the show to update the story. And they booed us good naturedly. And they're like, oh, well, I'm really, keep holding, though, keep holding. And then they've never invited us back since. And it's gone up 30, 33 times in value from our first appearance, not even including the 33% drop. So, I mean, that was an iconic moment. I didn't realize it at the time. But as I wrote Rule Breaker

• 29:06Speaker 04

  Investing, I was just thinking, that's my story. Because that's what most people miss. Most people are following the headlines instead of following real progress. And they're chasing stuff. And if you just look and ask, who are the movers and shakers delivering products and services? Electric cars, robotic surgery, coffee houses, better fajitas? The list goes on. Who are the-

• 29:30Barry Ritholtz?

  So I'm thinking Stryker, Chipotle, Tesla.

• 29:34Speaker 04

  Yeah, well, actually, Intuitive Surgical.

• 29:35Barry Ritholtz?

  Okay.

• 29:36Speaker 04

  Yeah, yeah. But yes, you're thinking exactly the company I was thinking of.

• 29:39Barry Ritholtz?

  I'm using the robot that did my surgery.

• 29:41Speaker 04

  Ah, very happy to hear that.

• 29:43Barry Ritholtz?

  And when I recall walking into the surgical theater and looking around and saying, oh, this is where the future is. I've just gone 20 years forward because this whole thing is, here's the big robot with all the, like- Oh, now I understand. Like, the rest of the world, we're living in the past. This technology is, is as cutting edge as it gets. It's, it's really amazing.

• 30:05Speaker 04

  I love that, and I'm so glad to hear that for you in successful surgery, which is what we all want. Robot or human, but yeah, it turns out there are lots of advantages to robot-assisted surgery.

• 30:15Barry Ritholtz?

  Yes.

• 30:15Speaker 04

  And Intuitive Surgical has really been the, the pure play, small company. Stryker is a more bigger diversified company, yeah. Anyway, but for each of these, like-

• 30:24Barry Ritholtz?

  I just happen to remember what the little logo on the site, the last thing I saw-

• 30:27Speaker 04

  That's a good thing to do.

• 30:29Barry Ritholtz?

  They're like, "This'll help you relax," and then the next thing I know, I'm in recovery. But the last thing I saw was the Stryker logo.

• 30:35Speaker 04

  Great story. And, you know, so it's funny you mentioned the future and feeling like you're living in the future. That's generally where I try to be as I pick my stocks. And just for the fun of it, one of my best stock picks in the last 15 years has been Tesla, which I picked in 2011, still holding. And, and I bought, I've owned a number of Teslas since, and I was driving around in Tesla in 2013. My license plate in Washington DC is "Future." Like, no one else thought of it, so I'm, I'm watching out for the future in Washington DC. And I'm driving around going, "I really am inside the future," and I'm surrounded by not just other cars that aren't yet, but a whole, um, industry, gas stations, et cetera, of things. There's not as much maintenance needed.

• 31:15Speaker 04

  So, that's a great iconic example of, for me, whether it's Starbucks back in the day, which was questionable for a lot of people because it looked like a fad. That was the big rap on Starbucks, early 90s. "Where have coffeehouses ever come from in America? There's no background for this. This is such a fad." Paying five bucks for coffee? Are you serious? Right? So, AOL was all just chat rooms, they're all, all gonna be hyped, no one will ever give their credit card over the internet. Tesla, electric cars will never work. Intuitive Surgical, "Why would you have a robot when humans can do it just as well?" Dot, dot, dot. The list goes on.

• 31:50Barry Ritholtz?

  Other way around. "Why would you have a human when a robot can do it?"

• 31:53Speaker 04

  That is indeed-

• 31:53Barry Ritholtz?

  More, not only just as well, but more consistently.

• 31:57Speaker 04

  Yeah.

• 31:57Barry Ritholtz?

  And it doesn't matter if they had a bad night, it's, it's fine the next day.

• 32:01Speaker 04

  And minimally evasive, and speaking of the next day, you're walking home the next day.

• 32:05Barry Ritholtz?

  That night.

• 32:05Speaker 04

  As opposed to two days-

• 32:06Barry Ritholtz?

  Oh, no, same day. You walk out- Out of the hospital, it's kind of terrifying, although you're still on a lot of drugs at that

• 32:11Speaker 04

  Yeah, well, one of my heroes is Clayton Christensen, who wrote The Innovator's Dilemma, and he's somebody who helped me understand and think about disruptive innovation, and I've always invested in the innovators. And back to your earlier question, Barry, you know, I can keep holding my Netflix when it loses two-thirds of its value when I believe in Netflix and I see visible proof every day of how important Amazon back in the day, Netflix, Tesla, the list goes on, the companies we've mentioned. So that helps me hold these companies. If you follow the company as opposed to the zigs and zags on the stock charts or the headlines, you're going to be much more patient, I think, as an investor. And that has been my, that's been a superhero power for me.

• 32:51Barry Ritholtz?

  So walk us through your, your stock picking process. How does a company first land on your radar? What sort of analysis do you do? When do you decide you're comfortable to put it on your buy list? And are there any non-negotiable checkboxes that you say, nope, that's a knockout, they don't have this?

• 33:10Speaker 04

  I mean, every one of those questions, I could possibly fill your ears up. So I'll try to be brief. I love the questions. In reverse order, by the way, I'll say, any non-negotiables? I don't invest in companies whose fundamental business is to take money from other people. And so you'll never see me recommend a so-called gaming stock. And I think sports betting is a joke. And it's, while I think it always should have been legal, I think it is a sad waste of money for anybody who does the math. And so that would not be on my list. No Motley Fool member has ever received a gaming recommendation from me.

• 33:41Barry Ritholtz?

  And they have been very destructive, primarily to college-age men.

• 33:45Speaker 04

  Yeah.

• 33:46Barry Ritholtz?

  There's a growing gambling addiction problem, and these companies just, that's their, that's their clients.

• 33:52Speaker 04

  Yep. And, and I will say, I love sports. I know you do, too. And I'm happy making a bet with friends. But if you really do the math of a 50-50 prospect where the house takes out its 10%,

• 34:03Barry Ritholtz?

  Right.

• 34:04Speaker 04

  And you just do your expected return and play that forward with all your money, I know where that goes. And you could have had 9% to 10% annualized returns.

• 34:11Barry Ritholtz?

  There's a huge

• 34:12Speaker 04

  You knuckleheads!

• 34:13Barry Ritholtz?

  There's a huge difference between doing a box for the Super Bowl or something.

• 34:18Speaker 04

  Yeah.

• 34:19Barry Ritholtz?

  March Madness.

• 34:19Speaker 04

  Have fun.

• 34:20Barry Ritholtz?

  And betting on free throws. I mean, it's, it's just, it has nothing to do with sports. That's just the medium by which they are tickling your adrenaline and dopamine. It's, it's so. And yet, these have become giant businesses.

• 34:35Speaker 04

  Yeah. And you know, even something as innovative as prediction markets, which I am fascinated by, are also being turned into quick, quick money and or sometimes questionable who can influence the outcomes of prediction markets. So these are unfortunate things where I think they're fascinating to follow. But if you're serious about your own money and you would like financial freedom one day, you're making a huge mistake if you go there. So, back to your question, that's a non-negotiable for me. I don't like businesses that just fundamentally lead people who don't know math to give their money away regularly. I don't feel great about that if I'm a shareholder.

• 35:06Barry Ritholtz?

  So, so let me roll you back a little bit. How does a company typically find its way onto your ra- radar? Is it something you're using or something you hear about? Like where do most of these ideas come from?

• 35:18Speaker 04

  So the ideas come from, first of all, I'm an early adopter. So I've got a closet full of things where I bought the thing early first gen and it's not really working or wasn't relevant anymore. And so, but, but it also meant I bought Tesla very early on. I, and, and I tried online services with my scratchy phone, that sound we can all hear if you're over 40 years old today, of logging on to AOL. So I, I love the new. I'm excited by AI. And that's not an industry, by the way. That is a plate tectonic shift for our society that's going to create many industries. Many of which don't even exist yet. Just as we were excited about the internet with Amazon where my cost basis today is 16 cents, still holding. Uber hadn't even shown up yet. Google hadn't shown up yet. I mean, it's, it will be years before AI companies

• 36:01Speaker 04

  that are amazing, that are great stocks, show up. So no one should feel anxious that they don't have an AI portfolio yet. But anyway. So I'm an early adopter and then I'm connected to a community. The Motley Fool community, our forums, discussion boards, meeting people at book signings, the list goes, this conversation right now. You mentioned Stryker. I probably need to look back at that one. I'm curious how it's done. So I'm just always listening. Of course, social media is full of these kinds of opportunities. So. Intellectual curiosity is the flame that will burn my whole life long and in many of my fellow fools and I think my host today as well. So I think that if you're curious and you're asking questions about where society is headed and you're specifically looking for products and services that will improve our lives and our kids' lives, you're going

• 36:46Speaker 04

  to be looking, you're going to be fishing in the right pond.

• 36:50Barry Ritholtz?

  So, once something falls on your radar, you have six rule breaker criteria? Walk us through those six.

• 36:56Speaker 04

  Yeah.

• 36:56Barry Ritholtz?

  Really, that's the heart of the analysis that you do, right?

• 36:59Speaker 04

  It is. It's six traits that I'm looking for and that's the middle of my book. And I didn't start the book that way and we can talk about that later if you like, but let me just rattle right now through my six traits of rule breaker investing. And by the way, I have used these now into my fourth decade. I didn't just come up with these yesterday. This is exactly what caused me to pick AOL, Amazon, Tesla, Nvidia, the list goes on. And some of them are so contrary, which is why I think it works. Number one, top dog and first mover in an important emerging industry. We already spoke to that one. We could go deeper.

• 37:29Barry Ritholtz?

  So for today, that might be Nvidia, it might be Broadcom, it might be ASM lithography, it might be AMD, it could be any of the semiconductors or some of the software companies, Google, Microsoft, whoever.

• 37:42Speaker 04

  Yeah. And also, by the way, restaurant companies, retail, I mean, every industry, I'm asking, who's the innovator? I want to know who the innovator... And if you honestly just only focus your stock market attention on the biggest innovator in each industry, some of them are small, emergent, some of them are big, you're going to do so much better as an investor.

• 38:02Barry Ritholtz?

  So Starbucks, the third place, that was the big driver of them. Chipotle, they came up with a way to assembly line, fresh food.

• 38:11Speaker 04

  Yeah, better quality.

• 38:12Barry Ritholtz?

  The fact that it happens to be Mexican-based is almost irrelevant. You see Cava today doing the same thing with Mediterranean and I'm sure there are dozens of others coming up.

• 38:23Speaker 04

  There are. And by the way, not all of these work out as stocks. I certainly have a closet full of bad stock picks as well. We could talk about that later, but that's very important. If you have sort of a venture capital mentality as you look at the public markets, which is how I describe myself. You need, just like a VC, you need to be comfortable with losing.

• 38:40Barry Ritholtz?

  In other words, it's, you're looking for, here are 100 investments. 50 in Mark and it'll work out, 30 will do okay, but it's the top two or three that make it worthwhile.

• 38:51Speaker 04

  Yeah, and I truly go into all 100 saying, I like this company, I believe in it, I hope it works out. But I'm never loading up on one, et cetera. So top dog and first mover in an important merging industry of my six traits. That's the most important. So, number two, we're looking for a sustainable competitive advantage.

• 39:09Barry Ritholtz?

  A moat, as Buffett likes to say.

• 39:11Speaker 04

  You bet. And because we're holding stocks for a dead minimum of three years. Preferably three decades. Sustainable competitive advantage really, really matters. And that takes many forms, we could talk about that. Number three, so the first two are about the company, the third is about the stock. And this is, I'm looking for a strong stellar past price appreciation in the stock.

• 39:36Barry Ritholtz?

  In other words, you're not looking for the cigar stub, to use Ben Graham's phrase. You're looking for something with a little momentum and where more and more investors are stepping in.

• 39:49Speaker 04

  There's a chapter in my book, and it was an eye-opener as I wrote it and realized it, where I listed out seven of my best stock picks, from Intuitive Surgical to Netflix to Apple to Amazon to Nvidia and a couple of others. And I noticed, and I only realized this in retrospect, that in the three to nine months leading up to my first pick of them,

• 40:10Speaker 04

  on average, they had risen 30 to 90%.

• 40:15Speaker 04

  And a lot of people, I think most people, when they are researching a stock, it goes up 50%, they're like, missed it.

• 40:21Barry Ritholtz?

  Oh, that's 30, right, it's done.

• 40:22Speaker 04

  Yeah, and so, part of the reason rule breaker investing works is because I'm willing at that point, not just to buy it, but to actually be more excited about it. Because clearly, the market is noticing what's happening now. And when companies rise, Reflexivity starts to show up, Barry. They start having more resources. They're getting mentioned on Bloomberg Radio. All of a sudden, a lot of good stuff starts coming to them. That strengthens them. That's not a reason to look for another cigar bot and ignore Nvidia. So that is trait number three. Stellar past price appreciation in a world where most people are like, "Buy low, sell high." "I'm looking to the 52-week low list, friends." "Not the 52-week high." And when I say "friends," I mean that's the average person speaking. "I'm looking for the 52-week high."

• 41:05Barry Ritholtz?

  Give us four, five, and six.

• 41:07Speaker 04

  Sure. So number four, it's all about the people. We're looking for smart backing and excellent management. So it's the human capital. And this is, again, in some ways obvious. Yeah, we'd love to have Steve Jobs be our CEO. Yeah, we're glad that Jeff Bezos is our CEO or Warren Buffett. But keep in mind, and this is a really hidden in plain sight, I think profound insight that most people don't see, even though it's hidden in plain sight. There is no number to express the value of the CEO running companies. So we have a whole Wall Street world that's built on valuation ratios, generally off of earnings or cash flow, sometimes off of assets. And they're not including that Elon Musk is the CEO of the company.

• 41:50Speaker 04

  And by the way, there are a lot of CEOs who are subtracting value from their companies, and there's nothing to express that. And so we have a whole world driven off algorithms that increasingly is computer trading. It's not even humans anymore. And they're not noticing or caring, I think, about trait number four. Who the heck's running this thing and who's backing it? That matters deeply to me, especially if I'm holding, as I do for three decades. Number five, we're looking for strong consumer brands. I love companies that have raving fans. And it doesn't mean every time that they are a consumer brand, Stryker Drilling, Intuitive Surgical. These are not consumer brands per se. Although Intuitive Surgical with its DaVinci surgical robot, you will hear your local, on your local radio,

• 42:35Speaker 04

  if you still listen to it, you'll hear an ad for the hospital bragging, in some cases, that they have a DaVinci. So there is some brand recognition there, but Starbucks, Netflix, Amazon, these are all my best stock picks, and I bought them years ago and still hold them today. And they all exhibit that strong consumer appeal.

• 42:52Barry Ritholtz?

  And the final?

• 42:54Speaker 04

  Probably my favorite secret sauce. So if you're following us, the first two were about the company, the third was the stock. Then the next two, four and five, the people and the brand are about the company. Number six is about the stock, and it's specifically that the stock is generally considered capital O, overvalued by the world at large, by Wall Street commentators, by people in Barron's, CNBC, never Bloomberg Radio.

• 43:21Barry Ritholtz?

  So a little contrarian perspective.

• 43:23Speaker 04

  We are specifically wanting people to call out Tesla as ridiculously overpriced. Amazon will never make money. Intuitive Surgical, when I first recommended it over 100 bagger ago, it was at 73 times earnings. There are people, if they even do pay attention to stocks anymore, that say, I would never buy a stock with a price to earnings ratio of 73. The list goes on.

• 43:43Barry Ritholtz?

  So a lot of times when we see stuff, especially with a company that's relatively young, you start to see the company grow into their valuation. Nvidia is a great example. It was a semi maker, then it was a floating point chip maker for gaming before it did the pivot to full AI, because FPUs are, turns out to be better than CPUs for large language models, and I don't pretend to be a wizard on that.

• 44:13Speaker 04

  GPUs.

• 44:14Barry Ritholtz?

  Than GPUs, right, that's right. I don't know what F is, floating point unit, but GPUs, that's exactly right. But, you know, two years ago, Nvidia was like a 75P, now it's like a 40P and falling. Can't some of these overpriced companies just grow? Apple is another example. For the longest time, people looked at Apple in the 2000s, when that new fangled iPod came out and said, oh, they don't have any profits whatsoever. Why would I want to own Apple in 04, 05?

• 44:50Speaker 04

  So I think that, first of all, let's be clear, there are things that are overvalued that you and I would not want to buy. But if you're following our conversation, if you're buying a top dog and first mover in an important emerging industry with a sustainable competitive advantage, stellar past price appreciation, excellent management, smart backing, strong consumer appeal, it has all five of those things in place, and then some guy on CNBC is telling you it's blatantly overvalued, it's crazy, no one should ever buy that stock, amazon dot bomb cover of Barron's. That is the special sauce that causes me to say bam, now we're buying.

• 45:28Barry Ritholtz?

  Well, the Amazon.

• 45:29Speaker 04

  So contrary.

• 45:29Barry Ritholtz?

  The amazon dot bomb was, I want to say, January 2000. And we did see a giant collapse. What was the queues fell about 82% peak to trough? That's a pretty big.

• 45:41Speaker 04

  I experienced it all the way. In fact, our cost basis 16 cents, it had gone up. It was a 30 bagger. And again, when I'm picking stocks, this is not for my, this is not for my own portfolio. This is not, this is lots of people following the Motley Fool. These are people subscribing to us. So when I pick a good stock, it feels really good. It's not about me. When I pick a bad stock, it doesn't feel very good. It's not about me.

• 46:04Barry Ritholtz?

  Or a big, a good stock that hits a buzzsaw when a market gets shellacked.

• 46:09Speaker 04

  Exactly.

• 46:09Barry Ritholtz?

  You could own anything during the financial crisis. Everything still got cut in half, more or less. It was quite a, quite a crash.

• 46:16Speaker 04

  You're right, Barry. And the truth is that if you follow any of these companies, I've, I've littered our conversation with 15 to 20 company names that are really 15 to 20 generationally great stocks. Every single one of these stocks has lost 50% or more of its value more than once, which means that if you'd followed Motley Fool advice, depending on your timing, you might love me or not like me. You might be like, yeah, I got in there, but uh, got cut in half and I got out. We're holding all the way through. We're buying and we're holding. So I have watched Amazon go. This is kind of pre-split. It was at three when we first recommended it. Went to 95, down to seven during that.

• 46:56Barry Ritholtz?

  I recall for sure.

• 46:58Speaker 04

  Incredible.

• 46:58Barry Ritholtz?

  More splits soon after.

• 47:00Speaker 04

  Yeah, yeah. It's now split down to 16 cents, which by the way, is also my cost basis on Nvidia. Thanks to the magic of stock splits, they both got me at my 16 cent cost basis still holding. So, but to do that, like Nvidia just three years ago, lost half of its value in one year. This is one of the largest.

• 47:16Barry Ritholtz?

  It was like four months it got cut in half. Yeah.

• 47:18Speaker 04

  So this is just gonna happen.

• 47:20Barry Ritholtz?

  2022, it got shellacked.

• 47:22Speaker 04

  This is not gonna happen for companies that are not dynamic. This is not gonna happen so much for cyclicals. I mean, there will be some cyclicality. These are rule breakers. These are stocks that buy most. Popular view were blatantly overvalued. You should never have bought Amazon all the way through, etc. And so they're going to be more volatile. Netflix was going to get put out of business by Walmart. I don't know if you remember this, but back in the day of the red envelopes, all of a sudden Walmart said, hey, you can just drop it off at your Walmart, your DVD. You don't have to mail it back to Netflix. That was gonna, Netflix was supposedly toast then. So AOL was going to be toast. It eventually was kind of toast, although it sold out.

• 47:58Barry Ritholtz?

  The merger was the problem.

• 47:59Speaker 04

  Yeah, but I've watched, it's such a key indicator trait number six. When people say it's toast, that not for every stock, but for the rule breakers, that is magic. It has been for me.

• 48:12Barry Ritholtz?

  So I want to ask you about the first stock you purchased where you said, oh, this checks all six boxes. This is my rule breaker.

• 48:23Speaker 04

  It was AOL.

• 48:24Barry Ritholtz?

  Yeah.

• 48:25Speaker 04

  Definitely AOL.

• 48:25Barry Ritholtz?

  1991, four, five, six?

• 48:27Speaker 04

  We literally picked it the day we launched on AOL. 1994, August 4th, 1994. And from that point, I watched AOL and again, we were, I mean, we're always fully transparent. People are like, wait, you guys are on AOL. Is there a conflict of interest? You're recommending AOL stock?

• 48:43Barry Ritholtz?

  No, we know what it is because we're on it. We see what this can do for investors and what the future of the company is. It's pretty self-evident.

• 48:51Speaker 04

  You know, you're right. And yet not everybody would have felt that way back then. But it was, I mean, we had no inside view of AOL. We were separately domicile. But we watched AOL grow and it was such an object business lesson as an entrepreneur for me. And but as a stock picker, I was watching it get called out as the most overvalued stock, um, repeatedly by august bodies like the World Economic, it's not the World Economic Forum today, but basically all the economists in the world would get together every summer. And two summers in a row, it was like 96 and 97, they voted the most overvalued stock. And it was the stock that we had backed and our members were like, guys, they're calling it the most overvalued again. We're like, this is an amazing company.

• 49:34Speaker 04

  It went up 150 times in value and I learned so much from that experience. And as we mentioned, it didn't end there. It started to drop back and fell back and eventually just kind of. Got taken over and, you know, it merged with Tom Warner.

• 49:47Barry Ritholtz?

  When people stop calling stuff over valued and every analyst on the street has a strong buy on it, that's usually when you want to be on the other side of that, right?

• 49:57Speaker 04

  That can be true. I will also say though, no, no, no, I definitely appreciate the sentiment and I smile at that askance with you as well. I will say that we typically just hold well longer than whatever analysts are thinking or saying. We don't really pay attention.

• 50:11Barry Ritholtz?

  So you're not quarter to quarter? Is that what you're saying?

• 50:14Speaker 04

  Yeah, no. I mean, we love following business. By the way, one thing you asked me to think a little bit about is, is there anything that people should be talking more about, especially if something that troubles me, and a quick example would be, I really think we should have companies reporting every three months their financial results. And you may know there's a movement afoot to allow some companies just to report twice a year. I think that's a really bad, bad decision and I hope we don't do that. I hope companies will self-report and choose to to be transparent on a regular basis with their results.

• 50:42Barry Ritholtz?

  I'm going to take it a step further than you and say, and I wrote this before AI was ubiquitous. If you want to get rid of quarterly reporting, instead of going once or twice a year, make it real time and 24/7.

• 50:57Speaker 04

  Really cool.

• 50:58Barry Ritholtz?

  Because you could update that, you could set up technology to update, here's where we are, here's how close we are, here's our range, you can Monte Carlo, what we would likely to do each quarter. And so the problem is the focus on quarterly, if it was all the time, like you can look at your portfolio or your checking account 24/7. You shouldn't, but you can. And it's made, I remember in the 90s or in the 2000s, we would be printing stuff out, folding them up, sticking them in envelopes, sending them out, and the quarterly report was, when I was a junior, having to do that crap in the mailroom,

• 51:39Barry Ritholtz?

  it was a big deal, the quarterly report. Now, nobody really thinks about your portfolio quarterly because you can access it whenever you want. It's kind of, I think it's absolutely heading in the wrong direction.

• 51:51Speaker 04

  Yeah, well, so more transparency is. Is, you know, the, the theme here, but, um, so for me, I think a lot about, you know, what, what is going to be in the best interests of armchair investors like me? Because Barry, we are, we're individual investors. And so I'm there representing anybody who is in an investment club or was given a portfolio of stocks and they're trying to figure out how to make better decisions. And I think it's so rewarding to, to pick stocks in a world where it's increasingly called out as crazy talk to actually buy an individual stock.

• 52:25Barry Ritholtz?

  So, so we talked earlier about, uh, stocks like Apple and Nvidia and Netflix and Amazon that have all gotten cut in half repeatedly. How do you tell the difference between a stock that's just going through sort of regular volatility versus GE got sliced in half? We look at, I'm not even talking about the Lehman Brothers or the World Comms of the world. I mean, just stocks that their best days are behind them. How do you know the difference between just a regular stumble and beginning of the end?

• 52:58Speaker 04

  Well, first of all, I'd say you can't know. I mean, it would be too headstrong of me to say, here's what, here's what you do. Here's how you know. So for me, I, I just like to keep my stocks in place and recognize someone are going to trip. I love horse racing metaphors and not every horse is going to win the race, not everyone's going to make it to the race. Some get out to a great start and don't finish well. And I can't always know, but by holding, I allow the ones that clearly will win, uh, to win so grandly. You know, when you make more than a thousand times your money on Amazon or Nvidia, it doesn't actually matter that you had some dogs in your portfolio. So you can be wrong and that's okay, because being right is so much more valuable. I will also add though, to answer your question a little bit more directly, um, usually the

• 53:43Speaker 04

  companies that fall and don't come back are being disrupted. Earlier I mentioned Clayton Christensen, Innovator's Dilemma. You can usually kind of see it, that the world is changing. The company might still be best in class and it may have a famous CEO that everybody loves, but all of a sudden there's this upstart, might be a whole industry of new players. And when I see that in a company going down, I may not want to hold on to that stock. But if Netflix, which has been ascendant now for 20 plus years every time, if it's down two thirds of its value, which has happened more than once, including Quickster. I keep holding that one, right? So the question is, does this company remain a rule breaker? Is it a top dog and still first mover in an emergent industry?

• 54:27Speaker 04

  And when it is, I'm going to keep holding that stock. Coming up, we continue our conversation with David Gardner, co-founder of The Motley Fool, discussing his book, Rule Breaker Investing: How to Pick the Best Stocks of the Future and Build Lasting Wealth. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

• 55:00Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 55:42Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 56:25Barry Ritholtz?

  I'm Barry Ritholtz, you're listening to Masters in Business on Bloomberg Radio. My extra special guest is Dave Gardner. He's the co-founder of The Motley Fool and the author of the book Rule Breaker Investing: How to Pick the Best Stocks of the Future and Build Lasting Wealth. When did you realize that Blockbuster was being disrupted by Netflix? And PS, at one point in the 2000s Netflix tried to sell themselves to Blockbuster for $50 million and they turned them down.

• 56:57Speaker 04

  Yeah, it's like Yahoo could have bought Google. You love those stories. But, you know, I would say that I never really thought too much about Blockbuster as a stock. I remember we had the CEO on our Motley Fool radio show and at that time Blockbuster maybe had 25 million customers and Netflix had 1 million. And he was like, you know, we're watching what they're doing. It's neat what they're doing. I don't think it's not a big scaling thing. You know, it's kind of a niche thing. Do you want to mail your DVDs back and forth? And that, I think it was John Antiocho, but I mean, good man probably, but wrong. He was wrong. And so it wasn't so much that I ever cared or loved Blockbuster. I just was watching this rule breaker emerge and it was doing crazy stuff like you can't just drop it off two blocks away at your Blockbuster.

• 57:42Speaker 04

  You have to mail it and keep a queue and send it back and forth.

• 57:46Barry Ritholtz?

  But the queue is half the value of it. Here's all the movies I want to see, which by the way, every time I roll into Blockbuster, it's rented and I'm not even talking about a Saturday night. Like on a Wednesday, what do you mean you don't have this?

• 57:59Speaker 04

  Remember those days?

• 58:00Barry Ritholtz?

  So instead, just working through the queue, Netflix was like, so the initial question is wait, you want me to mail DVDs back and forth to, oh, I see how this works, but this will never replace Blockbuster to no late fees? Oh my God, why do I want to give anything to Blockbuster? It was super disruptive before online streaming.

• 58:24Speaker 04

  And as a master of business administration, actually I don't have an MBA, but I know I'm a master of business, kind of beautiful, but as students of the game. As people who love business, what actually was happening was Netflix was changing the business model of the consumer proposition in the whole industry, right? Because as you just pointed out, Blockbuster was a transactional late fee driven, and all of a sudden, you're subscribing to Netflix. You're now in a subscription relationship. Very disruptive. There was no, there was really no precedent for that in that industry. So it looked like this crazy thing, and it was easy to mock. Why wouldn't you just drop it off a block away? Mail it to these people? And yet, it fundamentally changed the business model forever.

• 59:07Speaker 04

  And then, we're not even talking about streaming, which we don't have to, but they keep innovating.

• 59:11Barry Ritholtz?

  And the, you know, the interesting thing is, you, we were mentioning late fees. You know, if you get a late fee from your bank, or a bounce check fee, or something, it's part of your statement. It's not the same thing as showing up and having someone say, "Give me another seven bucks." "What do you mean, 'give you another seven bucks'?" It was just like so annoying and alienating. Like, I think it's a good rule of thumb, try not to really piss off all of your clients, all of your customers. Not a good long-term strategy.

• 59:44Speaker 04

  I have a small confession to make. That Wall Street summer I referenced, when I went to Solomon Brothers, we did, we had a video out from Blockbuster, and we kept it the whole summer. We just kept not returning. We were irresponsible college sophomores, and at the end of the summer, I'm not even sure, like, we had racked up a triple-digit late fee.

• 1:00:01Barry Ritholtz?

  Right, and the video was 20 bucks to buy.

• 1:00:03Speaker 04

  Exactly.

• 1:00:04Barry Ritholtz?

  Just go buy another one.

• 1:00:05Speaker 04

  So we had a friend of ours, who is British, go in with a British accent, and explain to Blockbuster that we were renting his place, he doesn't really know about it, but here's this video that he found, and so, we kinda got out of that one. It wasn't totally above board, so I'm happy now to admit that, this is helpful for me. But yeah, that was kinda the state of things, the anxiety, the angst around returning a video late, and not feeling great, you know, from a consumer branding standpoint.

• 1:00:31Barry Ritholtz?

  Right, right.

• 1:00:32Speaker 04

  So yeah, Netflix, love 'em.

• 1:00:33Barry Ritholtz?

  So, so let's talk about rule breakers today. They're gonna be in different spaces, biotech, defense tech, obviously AI.

• 1:00:43Barry Ritholtz?

  And a lot of these areas don't have a whole lot of earnings or and they do have a massive cash burn. So how do you think about valuation in this space? Does it not matter if the growth is there? Define the modern era of rule breakers.

• 1:00:57Speaker 04

  So I would always be first of all, looking at industries and you just did that some. And you know, even something like biotech, which you said, right? That's as you know, Barry, that's multiple industries. I mean, there's, there's so the internet was never an industry. AI is not an industry. So we're talking about again, huge technologies. I was saying earlier, plate tectonic shifts for our society and you're looking for the beneficiaries and you're looking for the visionaries who are starting something that might sound a little crazy like mailing DVDs back and forth or an electric car. And you, you want to get invested in those, assuming that you agree with the vision, you think the person is great.

• 1:01:37Speaker 04

  You and I were referencing investment research circa 1980s, 90s, an annual report being mailed to you through the mail. That was about all you had. There weren't online forums or anything. These days, you can watch long form YouTube videos, watching any CEO be interviewed and learn a lot about their character, which carries, which matters deeply to me. I'm a big character person, so I want to feel really good about the people I'm invested in across my portfolio. So we're looking at important emerging industries and we're not trying to force things that don't exist yet. There's no ultra AI stock. I mean, Nvidia has been an amazing hold for us now 21 years and counting. It was not an AI company when I first recommended it, but we're still holding. But you know, these things are going to emerge.

• 1:02:19Speaker 04

  I already mentioned earlier, things like Uber, Airbnb didn't show up till more than 10 years after the internet had really started to penetrate American life. And so for me, it's just keeping our eyes out, whether it's genomics or some Duolingo.

• 1:02:38Speaker 04

  A video game on your phone where you're learning languages. Again, all of these are from different industries, but they are the innovator. And so, yeah, we're staying focused in the modern day. Go forward on what are the companies that are going to add value to our world in a way that is consumer noticeable? And when they're called overvalued, that's even better for us as rule breaker investors.

• 1:03:01Barry Ritholtz?

  So let me share some criticism that you share with Warren Buffett of all people. When I'm doing my research for this conversation, one of the things that came up was you have this really good long-term track record, but if you've been involved in more recently in the past 10, 15 years, well, all those Amazons, Netflix, Apples from the early 2000s are driving most of your gains. From what I'm hearing from you, you're implying that doesn't really hold true. If you look at the Teslas and the Ubers and the more modern positions, respond to that criticism, hey, if you weren't in it in 03, you really didn't get any benefit.

• 1:03:43Speaker 04

  Well, first of all, I would say that invest every day of your life, every two weeks if you can. Young people, the first thing you should do is open an account if you haven't already. Save and with every paycheck, try to put up to 10% away and put it in. If you want, you can index, but I think you should be buying stocks as well alongside that and learning as you go. And anybody who's playing the long game in the markets, as they start to hit their 30th or 40th year, which is where I am, it's always going to look like all your big winners were the first 10 years because of course, they are, I mean, literally, Amazon is now more than 1,000 times the value for me. I'm not trying to be Amazon guy. You don't walk me, you don't see me walking around going, I'm the guy who had Amazon. 16 cents. I also have that for Nvidia.

• 1:04:27Speaker 04

  But just by the nature of compounding, Barry, which I think you understand as well as anyone, it's always going to look like all your big winners were early. But you know, whether it's Tesla picked in, you know, 2011 or Shopify in 2016, these are all rule breakers. They're not going to hit right away. Shopify has been up and Down, but mostly up. It's a great example of a rule breaker circa the last 10 years, not the first 20 years. But I never want people to forget, we were right there at the beginning with AOL and we were picking AOL and Amazon. And Starbucks, by the way, and the list goes on. So I would just say compounding numbers are always going to make it look like all of your big winners are early in your career.

• 1:05:09Barry Ritholtz?

  So before I get to my favorite questions, there's just one question I'm excited to ask you. When you're looking ahead, what trends, what businesses, what ideas generally get your curiosity going?

• 1:05:23Speaker 04

  Well, this is, this is, and in the same way that 7up was the un-Cola back in the day, this is an un-answer because.

• 1:05:31Barry Ritholtz?

  By the way, you're talking to a generation.

• 1:05:33Speaker 04

  I know.

• 1:05:33Barry Ritholtz?

  That has no idea what that means.

• 1:05:35Speaker 04

  But you, you and I do though.

• 1:05:36Barry Ritholtz?

  Yeah, of course.

• 1:05:37Speaker 04

  And we got some of our peeps listening, right?

• 1:05:38Barry Ritholtz?

  Right, right.

• 1:05:39Speaker 04

  Yeah, all right, sure. So, yeah.

• 1:05:42Speaker 04

  I should have just answered the question. So I, I look for companies that are conscious capitalism kinds of companies. I want companies that first of all are doing good in this world by my perception. A lot of people think it's a trade-off in life. They think capitalism is greedy and evil. And, you know, you're abusing workers and it's all about maximizing shareholder value. I completely disagree in many cases. Sure, that exists in the world, but that's not the story of Amazon. Amazon is a big, beautiful, amazing enterprise that helped save lives during COVID. And yes, they'll get criticized for some of the things that they've done and Jeff Bezos is considered an egomaniac by some. But net-net, please, Amazon is a huge value contributor. So that's an example of a company.

• 1:06:28Speaker 04

  Reed Hastings and what he created at Netflix. I mean, there's a whole 80-page slide, a lot of entrepreneurs have seen about how Netflix does culture, that they just kind of share it out and you could see why they're so successful because how they treat their employees and the standards that they hold where doing good actually leads to doing well. And again, many people think that's a trade-off or they don't actually think that's real. So I specifically want you and I to make our portfolios reflect our best vision for our future. And so every company that I already like. Invade against the entire industry, the gaming industry earlier. Sorry gamers, but by the way, I'm a gamer, but I play video games and board games, not a 50/50 and the house takes 10% game. But I would say that you're looking for the people who are doing good,

• 1:07:12Speaker 04

  or within their industry, they're admired for how they treat their employees, how they win for their customers, and how their partners and suppliers are proud to be associated with them. And guess what? Usually the stocks end up outperforming in a world where many people think it's too risky to even buy individual stocks. So the more there's big dumb money sloshing around out there, Barry, the easier it is for stock pickers like me, like you, if you like, like anybody listening to us, to actually pick and discern the good companies, hold them longer than Wall Street, longer than the headlines, than CNBC will be talking about, and do really well.

• 1:07:48Barry Ritholtz?

  So let's jump to our speed round, our favorite questions in the last five minutes we have, starting with, who are your early mentors who helped shape your career?

• 1:07:57Speaker 04

  So my father, who at the age of 18 said, here you go, David, I've been investing in this for you from birth. This is all you're ever getting from me. And I've taught you at a value line, that big black tome, the numbers of investing, and I know you love sports statistics. Another of my mentors, Bill James, the awesome baseball statistician, actually, he was a journalist, but James, who influenced Moneyball, of course.

• 1:08:21Barry Ritholtz?

  Of course.

• 1:08:22Speaker 04

  So, who I've met before, but you know, these are early people who convinced me of the fun of life, and that it could be counted with numbers. I'm an English major, but there's a, there's a big left brain going on with me with loving, loving numbers and baseball stats and college basketball stats. Ken Palm, by the way, Ken Palm, that is a $25 subscription any sports fan would enjoy. So, so Peter Lynch, I'm thinking about Clayton Christensen I mentioned, these are all people who really have helped me think about what wins.

• 1:08:55Barry Ritholtz?

  Look, you mentioned Moneyball, let's talk about books. What are some of your favorites? What are you reading right now?

• 1:09:02Speaker 04

  Yeah, so, first of all, I'm reading right now, The Score by Tin Nguyen. And The Score is an amazing, but I think the subtitle is something like, how to stop playing somebody else's game. And Nguyen is a games philosopher. So people are philosophers about ideas or art. He specifically looks at games. And his book talks about how social media, for example, is sort of a game. Like, as soon as you start imposing likes and follows, you're playing somebody else's game. You're playing Twitter X's game or Facebook's game. When you have to accept GPA as a measure of how well you've done in college, and it becomes big and bureaucratic, and everybody's using that,

• 1:09:46Speaker 04

  you are unfortunately playing somebody else's game. Sometimes you have to do it, but being self-aware of what is motivating you. It is an amazing book, and I highly recommend this score. I've had T Nguyen on my podcast a couple of times. Love the guy. I mean, we just can geek out about board games, but that's what I'm reading right now. But you know, when I think about books, I mean, it's a motley array of books.

• 1:10:08Barry Ritholtz?

  No pun intended.

• 1:10:09Speaker 04

  Barry, indeed. I mean, "The Inevitable" by Kevin Kelly is a great book about the future. I'm a big Kevin Kelly fan. He founded Wired Magazine. He's a genius. I enjoy Arthur Brooks's columns in The Atlantic. He writes about happiness. I really loved his book, "Love Your Enemies", talking about the divisiveness in our country and how to solve that. And I would love to see more of that. Steven Pinker and all of his data accumulation around technologies, trends in our culture. It seems always to be smart to be a pessimist. You always sound smarter when you talk something down. And yet, we're pinch yourself that you're living today. I know we have a lot of problems. We have many, many better problems. There are many worse problems in over-human history. Steven Pinker reminds us of that.

• 1:10:53Barry Ritholtz?

  Right. Our world in data, Hans Rosling, same thing.

• 1:10:57Speaker 04

  There you go, Barry.

• 1:10:57Barry Ritholtz?

  And I was rudely using my phone to get the exact name of a book that I'm going to recommend to you because it's sitting on my desk. And the author is Danny Funt. Everybody loses and it's all about um the tumultuous rise of American sports gambling. And why it's such a

• 1:11:18Speaker 04

  I'm glad he wrote that.

• 1:11:19Barry Ritholtz?

  So uh I it's literally waiting for me to it's next up. This this giant

• 1:11:25Speaker 04

  I love it.

• 1:11:26Barry Ritholtz?

  But um uh it's writing your writing your MO.

• 1:11:29Speaker 04

  Yep.

• 1:11:30Barry Ritholtz?

  Um I mentioned earlier uh some streaming time. We've been talking about Netflix and Amazon. So tell us uh what are your favorite Netflix or Amazon Prime videos or what podcasts are you listening to?

• 1:11:43Speaker 04

  Thank you. I I you know, I really enjoyed Apple's uh Pluribus if you saw that.

• 1:11:47Barry Ritholtz?

  Also in my queue next up.

• 1:11:49Speaker 04

  Totally, totally recommend that. Um uh that's just season one. I mean, we had a lot of British comedy fans in my family. So um shows like Mitchell and Webb, the comedy duo, their clips are all over um YouTube. But um IT Crowd hilarious show streaming. Totally recommend that. Um not as funny, but very British. All Creatures Great and Small, just an absolutely delightful.

• 1:12:12Barry Ritholtz?

  Early 20th century.

• 1:12:12Speaker 04

  Exactly. Just such a Slow Horses, great, great show. Apple um Andor. Sure, I I love sci fi. I love all the Marvel stuff. By the way, Marvel's been an amazing stock for me. It got bought out by Disney, so these days we have a very low cost basis. You couldn't have gotten because when Disney bought Marvel at a huge premium, we Marvel shareholders, we happy few buying a rule breaker that looked overvalued.

• 1:12:35Barry Ritholtz?

  Right.

• 1:12:35Speaker 04

  We've ended up doing really well. So but you know, Andor, obviously Star Wars, and I I love brands and I love family entertainment. So those are some that come to mind.

• 1:12:42Barry Ritholtz?

  I I just flew back from San Francisco and on the flight I rewatched um Deadpool and Wolverine. And it's like, I forgot how much fun that movie was. Um really, really a blast. Our final two questions. What sort of advice would you give to a recent college graduate interested in a career in investing?

• 1:13:01Speaker 04

  Well, I would first of all say that you should pick individual stocks and you should pay attention to the game and you should love it. You should have a lot of fun. I mean, I love sports. We've talked, I know you do too. We've talked about that a lot. People follow their sports teams day to day. I follow the markets day to day and the difference is you actually can make serious money by learning and following the market in a way you never will as a sports fan. And I love sports and you know, sports can be a little bit more fun day to day, but the markets are open every day. Your NFL team only plays on Sundays and starting to figure out what wins in the marketplace and why is that app on your phone not somebody else's app? What's in your fridge? What are you wearing? Noticing the things that go on around you. This is going to lead to riches, but it's also going

• 1:13:43Speaker 04

  to open your mind to awareness of what's happening in our society. And I do think that people who are taught to index and not really care are kind of walking blind in society when they could be poking their feelers up, seeing what's happening in genomics or robotic surgery or whatever. And I'm an English major and I care about these things and profiting is a consequence. I would also say that any young person, start investing yesterday.

• 1:14:08Barry Ritholtz?

  And our final question, what do you know about the world of investing today might have been useful back in 1993 when you were first getting started?

• 1:14:16Speaker 04

  I would just say that when I first got started in 1993, investing was more of a math exercise for me. I was taught by a dad. I mentioned value line, lots of ratios that we know. I never learned financial statements until I bought how to read a financial statement the year after I graduated college, thinking, you know, I kind of missed that. I never really did that. And so I was very numerically driven. I think what I've realized is that using your right brain in a world where many people are just using their left brain is where the real value is added. My favorite chapter in my Rule Breaker Investing book points out that most of the things that win in business are not actually on the financial statements. We've already talked about a few of them. Who's running the company? That

• 1:15:00Speaker 04

  is incredibly important. How about the brand value of a company? Most of those are never expressed anywhere in the financial statements. The culture of the company. Can it innovate? Those four things are the bedrocks. As an entrepreneur, I know, I see it at my own company, when we fail and when we succeed. None of those is being captured in the financial statements and we're living in a left brain driven algorithmic world. And so I think here now I see, and I only think longer term than I ever did before when I was 30 years ago. I think longer term today at the age of 59 than 29, and I use my right brain.

• 1:15:34Barry Ritholtz?

  David, thank you so much for being so generous with your time. This has been absolutely fascinating. We have been speaking with David Gardner. He is one of the co-founders of The Motley Fool and author of the book, let's see if I can spit this out, Rule Breaker Investing, How to Pick the Best Stocks of the Future and Build Lasting Wealth. If you enjoyed this conversation, well, check out any of the 627 we've done over the past dozen years. You can find those at YouTube, Spotify, Apple, Bloomberg, wherever you get your favorite podcasts. I would be remiss if I didn't thank the crack team that helps these conversations

• 1:16:16Barry Ritholtz?

  come together each week. Alexis Noriega is my video producer. John Russo is my researcher. Anna Luke is my podcast producer. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

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