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Welcome to Stocks and Translation, Yahoo Finance’s video podcast that cuts through the market mayhem, the noisy numbers, and the hyperbole to give you the information you need to make the right trade for your portfolio. I’m Jared Blicker, your host, and with me is Yahoo Finance’s Ali Cannell, who’s here to keep things simple and understandable and lively. And today we’re gonna be talking about good old fashion.In stock picking, rule breaking and how we can level the investing playing field for the average investor. You. Our phrase of the day is conscious capitalism. It’s about serving all stakeholders from employees to customers to communities to the shareholders themselves. As our guest says, conscious is no longer optional, it’s becoming the default expectation.And this episode is brought to you by the number 27. That is the number of record closing highs this year for the S&P 500, maybe 28 by the time this airs. Why all-time highs are not necessarily a reason to hit the sell button.And let’s welcome our guest today, who is a true rule breaker, David Gardner, co-founder of the Motley Fool. He started in a backyard shed with Alley Katz’s tenants, then built one of the biggest investing communities on Earth. He spent nearly three decades more than doubling the annual returns of the S&P 500, helping identify stock picking wins for millions of individual investors. David also helped push through regulation FD or Fair disclosure. The SEC ruled that open company.Earnings calls to everyday investors, not just Wall Street insiders, and he just published his most recent book, Rule Breaker Investing. David, it is great to have

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you. I’m so excited to be here. Thank you very much, Jared and Allie. Yeah.

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Let’s get started with you just giving us your overview of the market as you’re seeing it right now. Well,

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I’mreally enjoying the stock market and 2 years out of 3, the market rises. 1 year and 3 historically, the market drops. This appears to be one of those that’s going up, and Jared, at the start of the year,People didn’t necessarily feel that way. A lot of people said the market was high, etc. I make no effort to actually guess where the market’s headed. I’m buying and holding and holding and holding. So I love new highs. And if you really look at a graph of the market historically, it goes from lower left to upper right. I constantly hitting new highs. Like we shouldn’t be afraid of that if you think about it.

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All right, and we’re gonna get into that too. But now let’s hit our phrase of the day, which is conscious capitalism. It’s a business approach where companies consider theFirst of all stakeholders. This is customers, employers, employees, suppliers, communities, and shareholders in decisions and operations. So how, what does this mean to you and some of the companies that you try to invest in? How important is that?

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It’s a really beautiful phrase. First of all, thank you for making it the phrase of the day. And for me, it’s, it’s the sustainable way to win in business. And I think increasingly younger people want to work for companies that they believe in what the company does.And companies themselves are trying to make their packaging better for our planet. They’re trying to treat their employees better. Starbucks is a recent example, you know, offering to put baristas through college. Years ago, Apple, probably, um, one of my favorite companies, a very consciously capitalistic enterprise. uh, First Solar, um, Patagonia, not all of them are public. I wish Chick fil A were too. These are all companies where the employees generally love working there. The customers love buying from them, uh.The shareholder, uh, even if they’re private, has done really well, and this is to me one of the things I look for when I’m picking stocks. Jerry and Alley, I want companies that are winning for everybody.

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And I know we haven’t addressed it yet the first few minutes of the interview, but the jus are high. Is that, is that a tie to see what’s going on in the stockmarket?

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That the elephant in the room. I thank you for pointing that out. Yeah, I mean, as co-founder of the Motley Fool, um, I’m the one who is flipping through the book of quotations trying to figure out what we would call our paper newsletter back in the day.We started the Fool, and you know, I always loved Shakespeare’s jesters. They could tell the king or queen the truth. Alas, poor. Thank you. Yeah, and yeah, invest me in my motley also another great line that we like in the Motley Fool, but truly we love the fools because they used humor. They made things understandable and they could tell the truth, uh, and that’s what we try to do with our, with our members. And yeah, I think it’s more fun to be wearing a jester cap on television than not, especially given the amount of hair I have right now.

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It’s very appropriate for one of 3 of us to be doing that. Um, let’s talk about your book Rule Breaking Investing. What are some of the rules you like to break?

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Yeah, I think first of all, for most of us, people are looking to, um, buy low and sell high. And Jared, that’s something that those are 4 of the most harmful words in English language. I think we can talk about that later or talk about it, but that’s a great one. a lot of people think that you should be waiting for the dip. I often say dips waiting.For dips. Um, I really think that we should always be buying great companies, not looking to buy low, find the discarded cigar butt in the, in the, uh, in the gutter and, and wait for that thing and then hope you can sell it high. The third word of that phrase, sell, as people focus so often on getting out. And I think that’s a big mistake if you’re finding great companies, conscious capitalism companies, you should be buying and holding them for long periods of time. So that’s one. I’ll throw out one more quick one. How about just buying individual stocks.At all. I mean, that is such a minority thing in our, in our society. We’re told by academics that it would just be luck to beat the market averages, blind monkeys throwing darts. I obviously completely disagree.

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EMH hypothesis,

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but you’re right. Although I will say I do think that the markets are efficient in the near term, but I would say the markets are efficient for the next 6 months at any given moment. And in fact, if you pull institutional money measures, that is the average holding period orTime frame that they have in mind as they manage money. So, um, if you play it differently and break the rules, you’re buying stocks directly. I don’t want to buy index funds because I don’t want to buy all the bad companies. I actually want to buy the great companies and then I want to hold them, not third word, buy low sell high. I’m not looking to do that. So I think there’s a lot of rule breakery stuff going on. Obviously, we called ourselves the Motley Fool. That itself is strange in the financial world. So yeah, I love rule breaking. Now,

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how active do you have to be as a stock?Because I don’t know, I think of myself, my days are crazy. I like the fact that I am at least invested somewhere as a passive investor in the S&P, and you work in finance and I work in finance, by the way. So I, I can understand how a lot of folks out there might feel overwhelmed by the idea of stock picking and constantly having to manage their own portfolio. So how do you balance sort of passive versus activeinvesting?

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Great question. And obviously felt by many, even professionals working in the realm of finance.I completely get that, Ali. I would say, first of all, you should be putting in the time that you want to put in because truly, you can just buy index funds through a 401k and probably retire 40 years from now if you just keep saving and investing all the way through, not trying to head fake your way out of the market or try to time the market, in my opinion. So I think that’s OK. And yet, I think everyone in America should own one stock, at least one stock. It doesn’t have to be a big part of your, of your overall nest egg, but I, I really feel.It’s important to, to find companies that you like and become a part owner, which is what the stock market lets us do. And if you’re doing what I’m doing, I’m buying a few times a year. I’m almost never selling and it doesn’t take me much time. In fact, I think one of the beauties of rule breaker investing is that we spend less time and do better than those than the others. And it’s an amazing, like, my favorite trade-offs are when there’s no trade-off, less time, better performance.

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I want to ask you about the retail revolution that we’ve seen kind of evolve around the pandemic, and then, you know, things have kind of revived and and fits and starts since then, but retail investors now have probably an effect on the market that’s greater, for better or for worse, through options activity, through some of their coordinated buying activity. Wall Street bets is an example. What do you think about the retail investor revolution andHow, how does Motley Fool, uh, fit into that? Well,

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in alot of ways, we’ve always championed individual investors, Jared and Ali. So I, you know, I, I love the idea that more people care about the markets and feel included. Um, gamesmanship around small market caps and jacking things up based on coordinated activity feels not that different from hyping penny stocks, which, which is what boiler rooms used to do back in the day. So you’re not gonna see.GameStop amid my personal holdings. Um, but of course, I’m a huge fan of people paying attention and caring. I just want us, just, just as I think a lot of people are betting money on sports these days, which I think should always have been legal. And yet I think there are better ways for us to use our money if you’re actually seriously trying to retire or retire early. So I, I wanna, I want everyone to know just like Yahoo, back in the day, the Motley Fool.Now for 30 years, our companies have been trying to help individual investors and that’s really meaningful for us at the full and I would suggest you not spend too much time with meme stocks.

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And you talked in the beginning of the show about how the stock market chart, if you look at it,

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right. Yeah, you’ve seen it. I’ve seen

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it. I’ve seen it and I love it and I agree, but there have been a lot of analyzed strategists out there.Talking about bubbles, at least it’s part of the conversation. Now, the general consensus on Wall Street seems to feel like we still have a lot more room to run in the stock market before we reach bubble territory, but it is part of that risk, maybe. So what are your thoughts on bubbles?

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Yeah, well, first of all, I take them very seriously. We’ve already seen a number of them. The Motleyville start as a print newsletter in 1993, so 2001.2008 2009, uh, COVID, 2022 was a really horrible year for my portfolio. I was cut in half. I don’t know about you. So I think we’ve seen, we’ve lived through this, and guess what? Bad news. There are more to come. There’s going to be another one in the next decade, and then probably 110 to 15 years after that. And my point is not to call individual cycles, but to point out that the, the annualized returns of the stock market, 9 to 10.percent a year include every bad bubble, most of which were predicted 8 times out of 2 actually happening. And, uh, and, and yet if you just buy and hold great companies all the way through, I’ve remained fully invested through all of those. The dot bomb, when I watched my Amazon go from 95 back down to 7. My cost was 3. It went to 95%. I held it all the way back down to.the Bitcoin drawdown. Yeah, it was incredible and, uh, and good news, it’s way higher than than 7 or 95 today. So truly, Ali, without trying to sound like I have my head in the sand, I think most of us are better served to buy and buy some more and keep adding and recognizing 1 year and 3, the market is gonna drop and once every decade, we’re gonna have a really bad stock market andI don’t try to get out because you interrupt your compounding returns. If you hop off the train of compounding returns, 9 to 10% annualized, if you’re trying to get off just before the bubble, and then often people don’t get back on in time, uh, I think it’s a huge mistake. So we have, I think we’ve created a lot of prosperity for our members and for those who follow us by saying,Don’t worry about that. Just stay invested. It’s not like it’s gonna, uh I don’t like the word bubble because it makes it sound like pop and it’s gone like a soap bubble. That’s never been the case. It’s more like blah blah blah, but then it comes back again. And I don’t mean as a bubble, like that’s what the market does over time. Let’s let it.

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And we talked about this on this show too about how maybe sometimes you ignore the news, like the April tariff flows. If you got out then, you would have missed out on pretty significantgains.

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I agree, but that’s why I’m not ever trying to get out of the market, Ali, truly. Um, now there are reasons to sell stocks and sometimes, um, you know, as people approach retirement, um, a market crash would be much more devastating at the age of 7.70 than at the age of 20, right? So we’re all in different places on this and certainly, uh, part of the Motley Fool is we have a lot of motley, many different types of people, different ages with different perspectives. But I think the key that unites most people who actually make money, and I mean serious money in the markets, is that like Warren Buffett, like Peter Lynch, they’re buying.And they’re holding, and they’re holding great companies, and they’re not timing the market. So that’s my perspective. I’m always inviting others because we’re Motley.

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Hold that thought right there. We need to take a short break, but coming up, we’re gonna be talking about the market at record highs and a runway showdown that puts a Wall Street maxim to the test. Forget buy low sell high. Stay tuned.This episode is brought to you by the number 27. That’s how many record highs the S&P 500 has hit this year alone. And David, you are quick to remind us in your notes that expectations were fairly low at the beginning of the year after we got those 20+% returns in the S&P 500 prior to 3rd year, the bull market’s supposed to be lackluster, but we are at record highs. We’re up, I don’t know, 3.30% off of those April lows. So another example of rule breaking here?

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I mean, I would say it’s another example of what the American markets do. I mean, truly, if you look backwards, even to the dot bomb era of the 2000s or even 2008 2009 now, it looks kind of like a blip when you really look backwards and give yourself time. And that’s what we’re all, I think.All about. We’re trying to invest using time over the course of our whole lives. The more years you have, the less you should really be concerned about short-term market dynamics. I do want to make sure I mention the market may well have a horrible year next year, and I hope we’ll rerun this tape where I’m saying once again that I’m fully invested all the way through because I have lived through every bad market. That includes the 1987 stock market.Crash, which I was fully invested in at the age of, um, 21. So, um, I, I would only say that we tend as humans to fear loss at, at, at a disproportionate level than we enjoy gain. In fact, psychologists say that the pain of loss is 3 times the joy of gain. But for investing, at least my form, rule breaker investing, the joy of gain.is actually infinite times the pain of loss, because the worst you can ever do is lose 100%, and I’ve still never really done that for our members. I’ve made some bad stock picks, but the best you can do is I’ve made more than 1000 times on Amazon and more than 1000 times on Nvidia, and either one of those stocks on its own cancels out every bad pick I’ve ever made. So I think the, the joy of gain, if you’re playing the game right.is infinite times the pain of loss, but we humans are hardwired the other way, which is why many people can’t do it.

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Very true.Well, let’s talk about some of those talks. You mentioned Nvidia. Obviously, the, the, the biggie right now in markets. Too late to get into a company like Nvidia and what others are you bullish on

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right now? Thank you, Ali. Yeah, I would say it’s never too late to get into great stocks. In fact, that’s another of the rules that I like to break. A lot of people live through things saying I missed it. I missed Amazon, missed Nvidia, and you never really did miss it, right? You didn’t miss Amazon in 1997.Or 2007, 2017, some people will still not have bought it in 2027. These are great companies and these are world shapers and those are the rule breakers. Those are the companies that come along as Davids. And if they tried to play by Goliath’s rules, they would lose, but they don’t. They’re disruptive. They take a different approach. Netflix, streaming, Tesla electric cars, all of these are companies that I have very low cost bases on and that I’ve owned all the way through every good and bad market, and I’ve seen both of them for those.Companies. So I would say for these kinds of rule breakers, Ali, you can always be a buyer, and I include Nvidia. Now at a near $4 trillion market cap, it’s not going to go up 10 times in value over the next 5 years as it may have in the last 5 years. So of course, there are different life stages, but companies like that, like Apple can start paying dividends, start throwing off additional cash and make you

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did Warren Buffett get into Apple? It’s kind of late in the game and that kind of leads me to my next question. I know you respect Warren Buffett. Are you?You ever do value investing? Do you ever look for some of those bargains, or is it more, I want to see the strength?

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Thank you, Jared. I, I would say first of all, I deeply respect Buffett, and he’s, he’s really fashioned the world kind of as a Goliath figure so that everybody thinks that you should invest that way. And I think part of what I’ve done for 30 years now is go a completely different way. And I think it works in part because so many people are following Buffett, going to Omaha, and rightly so. He’s one of the greatest investors of all time and an amazing entre.and deeply respect all respect out to Warren. And he really has never recommended, I don’t think, or bought Amazon, Tesla, Netflix. These are Nvidia. These are the great stocks of the last 25 years. I’m not trying to brag here because I’ve got a lot of bad stock picks, but I have low-cost bases, and I persistently still hold in all of those companies. And I’m using my rule breaker approach, looking for the companies that are the top dogs and first movers in important emerging industries. That is the number one.A trait we’re looking for in rule breakers and yeah, I see a lot more companies. Intuitive surgical, Axon Enterprise, Duolingo. The list goes on of companies that I think fulfill a lot of these kinds of this pattern recognition that I’ve developed and acted on over the last 30 years. And

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what is that pattern recognition? What is your process when you’re trying to find these?

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Yeah, so the number one was top dog and first mover in an important emerging industry.That’s the most important of all, Ali. Some others. Um, I love to find stocks that are already rising. A lot of people, uh, think that you should get out of stocks as they hit 52 week highs. I actually, I’m not a momentum investor per se, but when Amazon doubled before I recommended it in 1997, it felt really bad at the time.With wiser eyes, I looked back and I realized, oh my gosh, that’s what great stocks do. And that was actually a great indicator. Um, I love companies with great brands because brands are not anywhere on the balance sheet. So all of the greatest Starbucks, Tesla, Apple, all of the greatest brands in the world today are being, uh, called overvalued because nobody’s actually putting numbers on their brand. Uh, and I would also say the same thing for great founders. Where is the number on our financial statements for the CEO, his or her value.or lack thereof. There is no number. There are no numbers for the things that matter most in my world. And so I love to find the right-brained qualitative things that people are not, um, telling their computers with algorithms to chase down. And these are the things that matter most in business. I know this is an entrepreneur myself, who’s running the company, whether it has a brand, can it innovate? What is its culture? Is it consciously capitalistic? Those are the things that I’m looking for. And there’s a lot of it out there andAll right.

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It is time for our runway showdown, and we are going to take the old saying buy low sell high. Excuse me. But today we’ve got a twist. We are pitting buy low versus buy higher. On the left catwalk, buy low walks in, confident, eyes on discounts and margins of safety. This crew loves when expectations get too negative. That’s because that’s where they can clean up. Solid businesses priced like they’re broken, Catalysts waiting in the wings.On the right we have buy hire gliding past the markdown bin and following the leaders. If a company is executing and taking share, new highs aren’t a warning. They are a track record. Add to the strength. Let the compounding do the work. So David, and I can maybe guess where you’re gonna fall here, which, which, which style fits this market better, hunting for mispriced quality or pressing with those proven winners who wore it better, buy low orhigher.

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to buy high and I try not to sell. So that is my replacement phrase for the threadbare, misleading buy low, sell high, buy high and try not to sell. And I would say that it’s a, it’s an approach for all markets. Jared, we may be at a, we are at an all-time high and perhaps next year around this time we’ll be lower. I really don’t know. There’s a 2/3 chance we won’t, but there’s a 1/3 chance we will and we could have a really bad market next year. And yet I won’t change my tune because buying high, whichmeans you’re finding great companies. They are all trading at high price to earnings ratios, because most of Wall Street’s just looking at earnings and cash flow and multiples, and they’re missing who’s running the company? Is it Elon Musk or not? Uh, does the company have a brand? Can the company innovate its way out of a box? And, uh, and what’s the culture like? Do people actually like working there? Those things matter far more than the outputs near term of cash flow and earnings. So I’m afan of buying high and trying not to sell it, buying high is buying excellence.

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And when you lay it out like that, it makes perfect sense to me. But I think the investor psychology of it all, no one wants to buy high, right? Everyone wants to, yeah, everyone wants to get in and, and so how does this psychology and investor perception play into a lot of theseeveryday?

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How do you whittle away at that if you kind of suffer from some of these uh this thinking.

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I would say becoming more self-aware that you’re actually thinking that way and then recognizing that, um, I mean, look at any great stock. We’ve, I’ve thrown out a whole bunch of them in our 23 minutes together. All of them basically look like lower left, upper right. All of them were called overvalued all the way through Amazon, not gonna make money, Amazon.com, all the way through. So I watched this enough times. I was like, OK, I get it now. These are the best companies of our time and people are using the wrong metrics to value them. So, so.Once you start realizing that, Ali, it emboldens you maybe to be willing to buy a stock at new highs or even after it’s already gone up 30% to 90%. In my book Rule Breaker Investing, I put up the seven charts of my seven best stock picks. Every one of them went up 30% to 90% in the 3 to 9 months before I picked it, and all of them made 100 or more times in value. So it’s a huge eye opener, I think, for people to realize. I mean, in the end, it’s as simple as what do winners do?Winners win, and that tends to keep happening, but people with their psychology can’t really get that. So I’m here as a fool trying to help us get a little smarter. So

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don’t be afraid of the sexy names too.

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Yeah, but it, it has to be great companies, right? I mean, for some people, GameStop would be a sexy name, absolutely not for me, um, to turn about, uh, about face and walk a different direction. So for me, I’m looking for companies, most specifically that if you snapped your fingers and they disappeared overnight.Everybody would notice and a lot of people would care. Wouldn’t just be the employees or the customers, the world would notice. Those are the world shaping rule breaking companies. And so those are the ones we’re talking about. Some of my other points about valuation doesn’t matter as much. It does matter a lot for cyclicals or other kinds of companies, but we’re talking about a rare breed of the best companies in the world today, which the miracle of the stock market allows us to become part owners of.So you should and you should hold it your whole life long. David,

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it has been an absolute pleasure talking with you here. I love that you wore the hat and you really broke down some of the ways to break some of these rules that have kind of held us back as investors. So thank you for all of that. And uh that’s gonna wrap it up here for stocks and Translation. Be sure to check out all our other episodes on the Yahoo Finance platform or wherever you see or find our podcast. That’s gonna do it for today.