Rule Breaker Investing Mailbag: Dealing With the Market

The market continued its decline this month, and there’s no denying that it hurts. Maybe that’s why Fools are so focused on optimism and consistency in investing. The market goes up more than it goes down, after all!

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This video was recorded on May 26, 2022.

David Gardner: Thanks to longtime listener and fellow Fool Jason Moore. I spent 28 minutes this week relistening to my podcast from November 25th, 2015. It was a mailbag reflecting on the month that was that had been November 2015. Do you remember that month? No? Well, the reason that I do is that Jason pointed out it was my very first mailbag, my very first time programming for this podcast. Not what I wanted to do; not what was on my mind, but what was on yours. That you shared through emails or tweets with me doing my best to respond. Well, I closed that podcast almost seven years ago wondering whether we’d ever do it again? Saying it’s pretty much all up to you. If you liked it, well you did let me know in those following weeks that it was worthy. So we ended that next month, December 2015, with a mailbag, and in fact, every month since including May 2022 only on this week’s Rule Breaker Investing.

Welcome back to Rule Breaker Investing. Looking back on the month that was, it was a shorter month for podcasts; for this podcast anyway, just three weeks proceeded. This week’s podcast we kicked off this month with a reviewapalooza looking back at stocks picked in April’s past, April 2021, 2020, 2019. Ouch, is a good way to summarize that particular podcast. A week after that, it was what you have learned from me, Volume 3. It was my birthday week and lots of great notes and an opportunity for me to summarize some of the key learnings and key takeaways from longtime listeners in order that new listeners might get up to speed. Then last week it was the 14th in my long-running series, Great Quotes.

It was Great Quotes Volume 14, a smorgasbord of quotes, but that’s typically how they are; five quotes at a time. I want to kick off this mailbag with some Twitter hot takes reacting to some of those. @Craig’s Brain, that’s Craig Hawkins on Twitter. Craig, you wrote, “Rational optimism is the Motley Fool trade I admire most. I wanted to incorporate that into my life even more than I want good investing advice though, it’s great to get both.” Well, thank you for that Craig. Rational optimism doesn’t just come naturally for me, but for many others, I think it’s contagious. I learned a lot about it from the book, The Rational Optimist by Matt Ridley. So Craig and others listening, if you haven’t read that book, it’s a wonderful take, looking truly at the long game of history typically illustrating, at least in recorded history, how often from one generation to the next, humans thought were getting worse.

Were going to be worse. Therefore, how ironic it is, looking backwards, at seeing truly how many things have gotten so much better over the course of recorded history. So The Rational Optimist by Matt Ridley is just a wonderful book. Thanks for the tweet, Craig. Next one up, @RyanCPacker. Ryan, you were reacting to one of my great quotes from last week, “Celebrate the sub-optimal because therein lies your growth.” You wrote, “Love this. Find joy in the journey. Make every day a spirit of gratitude and you’ll be amazed at how far you can come. Growth indeed comes from pushing through the storms of life. What matters is what we do in those storms. The future is as bright as our faith.” Ryan Packer, thank you for that, @RyanCPacker, we want more from you, sir, on this podcast. Last one I want to feature @Triggs1Martin, Martin Triggs.

Martin you wrote, “Always refreshing and inspiring to hear another volume of Great Quotes.” Makes one think and reflect, especially today’s last quote which I will share again, in a sec. “We should try to succeed at something that does matter, finding our role in the great metadrama. That quote again from DL Moody, love it here it is once again, “Our greatest fear should not be a failure, but of succeeding at something that doesn’t really matter.” So yes, Martin, I agree we should try to succeed at something that does matter and that theme will run through a few of the notes on this month’s mailbag. So again, thank you for lots of great tweets, especially the birthday wishes, always appreciate it. Without further ado, let’s get started with item number,1 from the May 2022 Rule Breaker Investing mailbag. This note comes from Emmy Bullock. “Hi David, A little background on me, I’m a 35-year-old stay-at-home mom of three young boys and recently found out I’m expecting another baby in December. I became a CPA back in 2011, and worked for a couple of years, until deciding to stay home full-time with my boys. I love finance, and I’ve recently learned to love investing. I found the Fool just two years ago back in 2020, and I have really gone all-in on Foolish investing, managing all my husband’s retirement accounts and investing them in individual stocks. As you can guess, since I started in late 2020, my portfolio is pretty much cut in half. It’s been a real challenge seeing this happen but I’m just trusting your principles of investing. You speak with so much wisdom and clarity and I just trust that as I follow the ways of the Motley Fool, everything will work out. I appreciate your humility and your positivity for the future.

“Those are two characteristics I believe great leaders have. I’m in this for the long haul and I just wanted to thank you for all you do to help people, like me, have hope for a successful and happy future in all aspects of life. I also really enjoyed the quote from your most recent podcast about doing what matters most. I feel for me I am doing what matters most right now, which is raising my children to be good, hard working, kind, resilient, and educated humans. I hope we can all live our lives doing what matters most and seeking to know what that is for ourselves. Thank you again for all your work in providing true principles to follow and investing in life and doing your podcasts every week,” signed Emmy.

Well, I wanted to lead off with that one Emmy because, well it hurts a little bit to share a note like yours. I think it’s appropriate in another month of stock market pain, which I’ll be speaking to in a moment to lead off with a little bit of hurt because hurt hurts. I think it’s a very human thing to feel it. It’s very important to feel it and to experience it. I’ve never given birth to a child, I never will, but I know that hurts. The stock market drops one year in every three and that hurts. There are lots of other things that hurt in life. It particularly hurts to think that you’ve followed us, trusted us, believed in our principles as we do ourselves, practiced our principles with diligence and care, and you’ve watched everything get cut in half. That does not feel good.

That does not ever hear good to me when I hear somebody say that they followed me and that that’s happened. Yet all I can say is that has happened before, and it will probably happen again in future. If you’d started investing in the year 2000, 2001 happened. If you started investing in 2007, 2008 happened. If you started investing in late 2020 or 2021, well 2022 is happening. So I acknowledge that and I congratulate you nevertheless on the resilience, the same resilience you’ll be modelling for your boys and already are resilient, of course, one of I think the United States’ core values. You actually worked another one in there as well, when you said you’re trying to teach your boys to be kind. I think kindness is one of America’s five core values as well. I love seeing that in your note. I do find myself now needing to be particularly optimistic using some numbers because I feel as if there is so much pessimism out there.

While I’ve taken pains many times to say the market drops one year in every three and I did it just about a minute ago, I’m going to say very emphatically, the market rises two years in every three; has done so historically. That’s why this works. Even if you have a really bad year or two and I know you’re playing the long game, Emmy, and you’re doing it from a young age, 35, looking ahead for your family, decades. So I want to remind you and everybody listening, the market rises two years in every three and has averaged historically a return of 9-10 percent in the United States, year-in and year out. I have referred to this, I talked about this earlier in May on this podcast as a once in a decade drop. It’s a once-in-a-decade wash-out. The Motley Fool has been in business about 30 years now.

That means we watched what happened in 2001, we watched what happened in 2008-09, and we’re watching what’s happening now in 2021, 2022. So a lot of us who got started very recently, please note this doesn’t happen very often. In fact, 1440 Daily Digest, which is a little free newsletter that drops me my news each morning around 6:00 AM Eastern, I first heard about it, by the way, on this podcast when Dan Pink said it was his way of following what happens in the world without having to read all the negative headlines all the time. It’s more of a straight shot, daily digest of the news. 1440 Daily Digest. So thank you again, Dan Pink. But in the Daily Digest of Monday of this week, I encountered this fact, the Dow is down for the eighth consecutive week, that was last week, its longest weekly losing streak since 1923.

While I’ve been using phrases like once in a decade wash-out, please know that what we’re experiencing right now is historic, 1923, was just about 100 years ago. Now, eight weeks of the Dow doesn’t even mean that much in the grander scheme, but it is emotionally, sometimes mentally healthy to remind ourselves of just what we’re seeing right now happening is unusually negative. Not likely to happen over the next eight weeks, not likely to happen again probably for a long time. I want to conclude Rule Breaker mailbag item number 1 by saying simply Emmy, you’re doing it right, stick with it.

Onto Rule Breaker mailbag item number 2, this one from Arvin Sharma, “Dear David, thank you for everything you do. I enjoy your show. I’m a relatively new follower of you, 2+ years.” Sounds like a 2020 starting date. Once again Arvin, “Every time I listened to you I learn something new. That means a minimum of 104 items a new weekly podcast every week for two years is 104. I know you or any listeners will not have time to listen to that long list of things. But here is one of my favorite things I’ve learned from you and here it is consistency. Over the past two-plus years, we experience many different conditions. The market was flying high, we were scared and stuck at home, we face political and social uncertainty, and the interest rates fell. Later this year we were hit by inflation. Rates raise, the market crash, stocks did well and then really bad. We had war and so on. Yet I can confidently say that if you listen to any of your podcasts, irrespective of what’s happening during that time, your message remained consistent, your rules did not change, your beliefs remain strong. This is what I’ve learned from you. Thank you,” Arvin.

Well, thank you, Arvin. I think to reflect on that briefly, I think if you’re a purpose-driven person or working for a purpose driven organization, it makes it a lot easier for you to be consistent, to use your lovely word, to be resilient, to keep practicing what you’re preaching. If you’re purpose-driven, it’s a lot easier, if you’re not, if you’re still trying to determine why you’re doing what you’re doing. I can imagine you could be all over the place and if you’re up podcaster, that means you’re saying many different things over many different periods.

I’ve tried to say the same thing for the most part as you’re pointing out, from one week to the next. But I always try to find new, imaginative and fun ways or friends to say those things to you. But I think purpose-driven is really helpful here. I will also say the ideas that I tried to put out to you every week, these have been honed over time. I’ve earned some scars for what I share with you every week, but when I find something that works, I tend to stick with it and so these ideas have been honed over time. Of course, when you do what we do at The Motley Fool and you publish all of your numbers in all of your returns, and you do that over long periods of time, everybody knows all of your winners and all of your losers.

You make yourself accountable and I think that also helps contribute toward consistency. My last quick thought here Arvin is, I hope I’m consistently open-minded and consistently creative. I’ve changed my mind many times over the course of my life. I generally try to make a better decision to replace something that was worse with something that was better. I’m sure you’re trying to do the same thing.I want to make it clear that part of the consistency that I hope you’ll hear from Rule Breaker Investing is a consistent willingness to rethink things. Sometimes to change our minds if we come up with a better idea. As I think Ralph Waldo Emerson once said, he had a small f on that adjective, “A foolish consistency is the hub goblin of small minds.” I could even agree with him because he’s not talking about capital F, Foolish.

He’s talking about a small f foolish consistency, been there, done that, going through the motions, that kind of thinking or living is not what I’m trying to do. I’m trying to lead a more interesting life with you and many others. Trying to remain open-minded as we go, which indeed has helped lead me to many Rule Breakery insight. I definitely want to accept the compliment. I take that from you. Thank you Arvin for consistency and I want to bounce it back to you and remind all of us that we should be consistent with the good things. We should look to replace the bad things, and more than anything if you’re purpose-driven, you’ll probably have a steadier hand on the tiller. Rule Breaker mailbag item number 3, this from Jake. Jake, thank you for this wonderful note. “Hello David, first-time writer to you or anyone at But I felt compelled to write to you this week to say thank you and happy birthday, as my birthday was just last week as well. My name is Jake, I’m 24 years old, an active duty military member from New Jersey and graduated college last year with a degree in mathematics. The theme of this email is growing pains.” We’re going back to more hurt. But you know what? Let’s do it. “During one of my schools quarantines due to COVID outbreaks, we did classes on Zoom, human interaction limited to only our roommates,” Jake writes, no eating in the cafeteria together, etc. This happened to be during the time of the meme stock Dogecoin craze of February 2021, some of my friends were making thousands buying options on Robinhood on GameStop, while others bought in Dogecoin at one penny. Here I was with just a simple checking and savings account, not knowing anything about investing.

“As my family has always been blue-collar. Money under mattress or savings account, don’t trust credit cards, don’t talk about money kind of a family. With my situation of being quarantined and nowhere else to go, I went all in on learning about finances and investing. Over the past year and change, I feel like I’ve been through the ringer and done it all. I almost immediately found The Motley Fool and became a subscriber, but also found how compelling friends could be when they said, ‘Oh this microcap biotech stock is going to pop if the FDA approve so and so drug, etc.’ I saw just how many YouTube financial ‘gurus’ there were and got caught up in the trading in and out of stocks while listening to Jim Cramer and my friends who made thousands on volatility with stocks like GameStop, AMC, and crypto pump-and-dumps to make money quick. When I told my mom I was learning about the stock market, her response was, ‘Your father once was in the stock market, lost money and has never invested again so be careful, it’s just a big gambling machine. But if you find a winning formula with that math degree of yours, can you help me?'” Jake’s mom said. “The Foolish way with a capital F has prevailed and I believe is the winning formula. I invest in my employer’s 401(k) up to their match. I put $500 into my Roth IRA each month, live below my means, save for my personal goals and invest extra cash into a brokerage account. Altogether, I’ve built up a portfolio,” I love this, “of 24 stocks matching my age, smiley, and also a couple of cryptocurrencies. Anyway, they all embody trends I believe in and hope to see prevail for the next decades.

“I don’t plan on selling for the foreseeable future things like renewable energy, Brookfield Renewable,” he names, “Streaming, Roku,” he names, “Fintech, Upstart, and Block,” he names. “Not staying at hotels, Airbnb,” he names. “Data, data, data, Confluent.” he names. “Cybersecurity, CrowdStrike,” he names. “Pets are family, Chewy,” he names, and “Online dating, Bumble,” he names. “And yes,” Jake writes “I’m now helping my own parents invest for their retirement. Oh, how the tables have turned. Do I wish I learned about investing in February 2020 and invested in these companies back then? You bet I do.

“But being a baseball player, board game lover, and listener of your podcast,” birds of a feather flock together Jake, “I have learned losing is a part of the learning process since beginning investing in February 2021. It feels like my portfolio has done nothing but lose, lose, and keep on losing. But I’d buy, buy, and keep on buying due to the positive influence I received from you,” and then he calls out lots of Fool stars, “The Brians, Bill Mann, Matt Frankel, Chris Hill, etc., through Motley Fool Money, Rule Breaker Investing, Motley Fool Live, YouTube videos. The list goes on. “Let’s say yes, the market will go up in the long run with such a long time horizon ahead of me, I’m more than happy to keep buying great companies that I don’t plan on selling anytime soon. But I couldn’t have acquired and maintained this mindset without the help of everyone at the Fool, especially you.

“Even though my portfolio has only ever seen red, it feels like, it” hurts to read that, “I look forward to being 50 and seeing a lot more green. Who knew?” Jake concludes, “It would take a global pandemic to learn how to invest and take care of my finances. But I’m forever grateful for experiencing these growing pains, especially times like the last couple of weeks. Thank you specifically for The Day The Market Crashed podcast and The Year The Market Skyrocketed.” You are very welcome, sir. “Because I am able to learn, get mental reps through disciplined finances, build healthy habits, embrace curiosity, and commit to making myself smarter, happier, and richer with my daily thoughts and action for success in the future. Cheers to the winning formula of investing for the long-term. Happy birthday, David, thank you for all you’ve done and continue to do the next generation of investors are forever grateful. Fool on, Jake.”

Well, some of the good birthday wishes I got earlier this month I couldn’t fit in to that particular week’s podcast and some of them arrived later but Jake that was a great, big happy birthday gift to me and I especially appreciate that from somebody so young. I turned 56 this month you turned, wow 24 the age of my kids these days and I just wanted to say, I feel for you. By the way, this was announced this week just as GameStop is launching its wallet for cryptocurrencies and NFTs, cough, I wanted to say by contrast you are building such a strong foundation. Your foundation consists not just of your great money habits which you have learned and have been embodying now for more than a year. But I also hear a lot of wisdom from you that speaks to a lot more than investing in things like build healthy habits and embrace curiosity, etc. Let me conclude this mailbag item by saying, Jake if you were a stock sir I would be buying you, Fool on.

All right, Rule Breaker mailbag item number 4, this one from Chris from Toronto. He starts with, “Hey Rick and David baseball. Now that I have your attention I was hoping you could help with my question about where you draw the line between a smaller cap stock and getting into stuff that might be a tinge too risky.” Chris writes, “I understand the logic behind avoiding penny-stocks that can be easily manipulated and that the companies they represent are very cheap for a reason. Where I’ve never been clear is why a low-price stock might be considered risky even if its market cap is of a decent size.

“Here’s a company that has caught my eye recently,” and Chris doesn’t even name the company he just gives these particulars, “The market cap is $1.4 billion, the share price of the stock is $3.23. The volume, I assume that’s the average daily volume for this stock is 3.17 million shares and the beta is 1.3.” Quick definition for those who don’t know the beta, it’s a measure of volatility and if you think of the stock market itself just writ large all of the stocks as 1.0 than a company with a beta of 1.3 moves 30 percent more exaggeratedly up and down than the market with its beta of 1.0. If you find yourself, still scratching your head after my brief definition feel free to Google it and learn about beta.

Well, Chris clearly has included that as one of the four stats. “Market cap 1.4 billion, share price $3.23, volume about three million shares a day, beta 1.3. Now looking at the above numbers,” Chris writes, “With no other context the market cap seems investable, 1.4 billion. It’s on the small side but it’s not in micro-cap territory. According to everything I’ve read from The Motley Fool, we should avoid companies with share prices below five dollars a share.” Chris writes, “This seems to contradict your level of market caps though.

“If this company had half as many shares traded for $6.46 a share, how would that make it less risky? I threw in the volume of the stock as well in case that affected your answer of 3.7 million shares doesn’t seem like it would be easy to manipulate and at the same time with the current share price that’s only about $10 million in daily transactions which is a small percentage of their worth. I’m hoping you can clarify your thoughts on how the share price of a stock impacts perceived risk. Of course, you have no clue what the company is I’m quoting and I don’t expect you to make any type of recommendation based on this very narrow data set. Just looking for some insights on how to interpret the above. Thank you in advance,” Chris from Toronto.

He concludes, go Jays. I’ll say right back to you Chris, go Twins. Thank you. But let’s get to the heart of the matter. Speaking of things that matter, one of the themes of May 2022, there are three things that matter when we’re talking about the size of stocks and whether or not you would want to be invested in small size companies. The first thing that matters, is market cap. We’ve got a whole game show created around that, that we played for years now I know you know how much I love my market caps, you’re right. That’s the first thing that matters to me, market cap. For a company to have a $1.4 billion market cap,

I would also call that outside of micro-cap territory, sub one billion, maybe sub $500 million market caps are really micro-cap penny-stock territory and so you’re right. I do think that 1.4 billion is potentially investable. I also want to mention another thing that matters, this doesn’t count as one of the three this is, we’ll call if market cap is 1A, I’m mentioning 1B which I’ve always called daily dollar volume. We can calculate it because of the numbers you submitted, you just take the share price of that company, $3.23 and you multiply it by the average daily volume and you’ve already done that in your email you sent us because you came up with about 10 million which is about right. The reason I look at that number is, it tells you how much money, how much liquidity is moving through the stock on a daily basis so a daily dollar volume of $10 million is nothing to sneeze at.

What I mean by that is it’s not too small, it’s not in real penny-stock manipulation territory. I will also say it’s not that big but you already know that. We’re talking about a small company here but a $10 million daily dollar volume is OK for me. On a side note, I used to have a minimum daily dollar volume in mind when I pick stocks for Rule Breakers and Stock Advisor of $50 million. You typically, especially in the last decade or so you wouldn’t see me pick a stock that didn’t have daily dollar volume of 50 million or more. That’s because a lot of Motley Fool members would buy right after we would put out our newest pick which makes sense because you subscribe for our picks and so you’re going to act on the information but I was finding, sometimes there were exaggerated moves in the stocks after I picked them.

In fact it seemed to become almost a monthly thing which is part of the reason I got frustrated a little bit toward the end of my stock-picking career because it felt like a lot of short-term bandwagoning and there was no way to stop it and I’m not even blaming our members because these days computers, algorithmic trading, momentum traders, all kinds of people might be jumping in to buy stocks or sell stocks at any given moment. Anyway, there was a huge bandwagon effect that I noticed which I found frustrating and therefore having a larger daily dollar volume made more sense to me. Anyway getting back to the three things that matter, the second is what the company does and if you’ve been a regular Rule Breaker Investing podcast listener or a follower of mine or our services over the years you know about my snap test.

I first wrote about it in my 1998 book, Rule Breakers, Rule Makers and it’s when you snap your fingers. There I went again, snap. I don’t know how well that comes through my microphone here as I podcast from Wilmington, North Carolina which is where I am this week, it’s beach week. I don’t know how well that snap came through but I hope you understand the concept which is if you were to snap your fingers like that and the company we’re talking about this company, we’re talking about right now, $1.4 billion market cap.

If it disappeared overnight, would anyone notice? Would anyone care, would everyone notice? Would everyone care? In general, the thing that matters number 2 really matters to me. I want to think that if I’m investing my hard-earned money into a company and going to leave it there for years I really insist that that company be doing something important, something that matters in the world that’s good, that people are noticing, call-out, and are grateful for. That’s true of many companies in many different industries. That’s why I’ve always enjoyed picking stocks across many different industries.

I love sharing Jake’s note earlier, sharing some of his stocks and what a wide array of different companies in different places in the world he has in his portfolio which makes me happy. The snap test helps remind you, does what your company is doing matter, does your company matter? That’s the second thing I’d be looking at that very small company. The third and final one is more about you, not about the market cap or what the company does it’s how much you invest into that really matters too. I’m perfectly happy for anybody to buy a penny-stock if they really want to speculate in what I consider to be an unlikely to succeed, often silly manner. I’m still happy for you to do it, if you’re putting down one-tenth of one percent of your overall portfolio. In other words, even if it went to zero you would barely notice that how much you invest really matters.

We’ve talked about the Sleep Number on this podcast, one of the six principles of a Rule Breaker portfolio. Know your Sleep Number. All along way of saying in so many words how much you invest really matters. I would tend not to put very much at all in highly speculative very small companies. I’ve done that before, it usually hasn’t worked for me. If there’s an inch you’re looking to scratch here and you really want to speculate you have my permission to do so with not too much money from your portfolio, not too frequently. Just realize that how much we invest or where we put it matters so much. Three things that matter the market cap matters, what the company does matters and certainly how much you invest in it matters as well. Chris, go twins.

Rule Breaker mailbag item number 5, and this one comes in a brand new form. We have an innovator on the podcast this week, Jason Moore @JimminyJilickrz on Twitter, longtime Fool and avid Rule Breaker Investing fan and Jason you decide to take to Twitter this month and record a short video. I assume you turned your iPhone on yourself, record a short video as a mailbag submission which means Rick Engdahl please play the innovator’s award from Rule Breaker Investing the podcast sound effect. That was just played for the first-time because Jason, you just earned it. You took the time to record a video. Now this is an audio podcast so we’re just going to hear the audio. It last 63 seconds. Jason, take it away.

Jason Moore: Hey David, how are you doing? Happy Friday. [laughs] I had a quick question for you. I thought maybe you could speak to it on mailbag if you had a chance. I thought I’d ask it given all the bot talk on Twitter lately I thought I’d show my face and show a little bit of authenticity. [laughs] Anyways, with markets being what they are and so many of the rule-breakers stocks being down as they are. We’re seeing a lot of talk lately about ETFs and indexing as a strategy. I’m just wondering what your thoughts are about that. At this point, is it like timing the market and it’s just a fool’s errand? Or when we’re down low like this, is this really not the time to be putting stuff into indexing and going a little bit more heavy handed into the Rule Breaking stocks. Clearly, you don’t have a crystal ball. But you’ve been through a lot more of this than I have and I like your thoughts on it. Have a great night.

David Gardner: Well, first of all, I love that you’re calling out the bots talk because of course, the much ballyhoo pitch that Elon Musk is making for Twitter became dependent at least for a time. Maybe you still is on the questions as to how many bots that is an automated robot like accounts, our member accounts on Twitter. How many humans are on Twitter and how many non-humans are on Twitter? I won’t answer that question with this mailbag, but I love that at least one human, Jason, you took the time to make a video show your face. I want to say first off that I’ve always been a fan of indexing and ETFs.

Going back to really our first book, The Motley Fool Investment Guide, Tom and I wrote about the power of good index funds, specifically usually Vanguard index funds. I think while Vanguard has never needed our help, I suspect we’ve send billions of dollars of value their way over the course of the last 25 years because we’ve always said this is the first step for many people in investing is to buy an index fund, usually a Vanguard fund. Why Vanguard? Because here in the US anyway, they’ve always been the cheapest funds. Index funds are very much a commodity. So like a lot of commodities, you just like to pay as little as you can for them. That’s why we’ve always favorite Vanguard.

But ETFs these days very much on par in terms of really cheap fees associated with investing in ETFs. So first of all, Jason, I’m here to say, we are fans of ETFs. We’re fans of people saving money and then investing it in things that go up, good things over time. Now, I know as you’re a longtime listener, you know that I’m a rule breaker. Rule Breaker Investing is just one form of investing at The Motley Fool, it happens to be mine. I’ve never had any interest in ETFs. I don’t think I’ve ever bought an ETF. Those who do buy ETFs usually can be divided into two groups. Most of them are passive investors who don’t want to have to think about what stock to buy. They don’t want to have to analyze stocks or thinking about industries or ask, what’s going to be the best fast casual restaurant? What’s going to be the best semiconductor chipmaker? They aren’t interested in those questions.

So they buy ETFs that might give them the whole fast casual restaurant industry, like a fast casual restaurant, ETF, which just buys equal amounts of lots of different fast-casual restaurants and you as a holder of that ETF, get to own a little bit of all of them. Or of course, big ETFs like ones that own the whole market. So you just own every stock on the market, just a tiny little bit of each. So that’s the first group and I think the larger group of people who own ETFs today are those who are just doing a passively over time, which I think is great. There certainly is a second group of people who very actively trade in and out of ETFs. I would say gambling in the shorter-term based on their notion of what industry, sector or country, what area of the market might be about to rise or fall. Some of them are actually hedging.

So a lot of hedge funds will hedge against risk they’re taking elsewhere in their portfolio with ETFs. But this is the more active trader crowd around ETFs. Now, in your question, it wasn’t clear to me which of those two you meant, but my answer is going to be the same no matter what. I like indexing in ETFs, if you’re paying very little to get broad diversification in an area of the market or the whole market that you wish. I like those, they are convenient, easy way to get invested and to add to over time. But of course, as a rule breaker, finding the best companies and investing in holding in the best has, in my experience, always beaten the market over time and I think it always will. I think that’s actually ironically helped by what I’ve often called this era of Big Dumb Money.

That’s capital B, Big. Capital D, Dumb with a B, Money. Capital M. Big Dumb Money is what happens when everybody is indexing, when everybody is buying ETFs or index funds and they don’t care. They’re indiscriminately buying all of the fast casual restaurants when really Chipotle has been among the very best in or at least one of our few investments within that area. I’ve also done pretty well Texas Roadhouse over time and there’s some other great companies that I’ve missed in that. But if everybody else doesn’t really care in their ETF, which one they own, so they just don’t all of them. I think you and I are rewarded as rule breakers by selecting, by being selected, by studying up and finding the best. As I’ve often said in the past, I try to find excellence, buy excellence, and add to excellence overtime. I sell mediocrity, that’s how I invest.

Maybe give you an answer, you weren’t surprised by Jason, but I hear also in your question, maybe given how bad the market has been and given how particularly bad it’s been to Rule Breaker Investing, might this be a reason you would want to start indexing instead into each listener. I would say, pick your poison, know thyself and make your best calls for yourself. For me, I’m going to continue buying stocks. But on the other hand, if you feel as if you’ve gone a little in too deep or over your head or the pain is hurting a little bit too much, not just to Jason but do anybody listening, I’d say maybe you’ve learned something good about yourself that you don’t have quite as much risk tolerance as you thought at the start.

That this pain we’re feeling which is enduring is really not comfortable for you and if that’s true of you, I would say feel free to start indexing some more if you like. Rule Breaker, mailbag, item number 6. “Happy birthday,” says Eric Devore. Thank you, Eric. You write, “I’ve had this open email draft sitting for a week or so, but have been slammed in the studio, writing and producing several albums, working on a few TV shows, Hell’s Kitchen,” he mentioned, “MTV’s Challenge All Stars,” he mentions. Ironically, I just had a lovely meeting two nights ago about a new video game. I think the reason Eric says that’s ironic is because he knows how much I love video games. I’m not so much an MTV Challenge viewer and I probably don’t listen to as many albums as many others listened to, but I sure do like even with the age of 56, great video games. So congratulations on what’s happening for you right now, Eric, you go on, “But I did have a chance to listen to your most recent RBI podcast since I’ve finally taking a breather here in the Santa Monica sunshine.” What a lovely phrase that is to read.

“Let me say above all else, the most important thing I’ve learned from you has got to be your well-rounded approach to investing and through that approach being fully invested with one major twist, taking that same mindset and applying the lessons to my craft as an entrepreneur.” Eric writes, “Is individualized conscious capitalism a thing? Because I’m about to make it a thing. I want to be fully invested in my craft and my art as an ever-evolving composer,” which is what Eric is. Just to answer that small question right up front, I’m going to say individualized conscious capitalism, sure, that’s a thing.

What I said earlier about being purpose-driven, I feel as if that’s in part what you’re saying. You’re wanting to be fully invested in what you do, believing not just in the paychecks we get, but in the outcome of our work and to keep with my May theme that it matters. He goes on, “I’ve successfully built an investment portfolio I’m happy with, albeit a recently demolished portfolio courtesy of hours of research I’ve put in and thoughtfulness with regards to business development and growth and listening to the Fool over the last few years has taught me meticulous discipline about how to approach the long game. Obviously,” Eric writes, “the only game that matters, and while I’ve made some mistakes, they were mistakes well worth making to know what not to do in the future.

Who’s to say one can’t apply the same? Just keep swimming. Realistic optimism lead a more interesting life, smarter, happier, richer to their everyday job. Well, for the first time ever I took a chance on Twitter,” Eric concludes, “and I sent a cold direct message to a director who is actively crowdsourcing for a new project in which I was extremely interested. He responded over Twitter in about 60 seconds, we chatted about ideas and the timeline, and it looks like I’ll be scoring three commercials for him. If those go well, I’ll be scoring in the upcoming YouTube series, Just Incredible. Thank you, David for allowing me the opportunity to become a more focused, hopeful, and adventurous version of myself and allowing me to become smarter, happier, and richer in the process. You’ve got a wonderful gift of inspiring those around you and it’s affected me more than you’ll probably ever know, my Foolish best, Eric Devore.” Well, I love hearing about your success, Eric and I love in particular that anecdote about taking a little risk, doing something you’d never done, direct messaging a director on Twitter and what seems to have come from it.

Put in mind that that old Wayne Gretzky line paraphrasing, you miss 100 percent of the shots you never take, you took a shot and you led a more interesting life and you’re benefiting, it sounds like from the outcome. But really I just want to, in closing on this one, highlight the application of our Foolish principles, not just to investing, but to business and to life. That’s what you are underlining here, Eric, and I could relate. A lot of the investment approach I’ve taken involves doing the opposite of what other people do with their money. So many people either don’t invest at all so I invest, or others trade. They jump in and out and I do something very different, I invest. That same contrariety, taking the contrary approach in investing, yes I think it does work in business and in life. In business, I can say taking the name The Motley Fool is a good business example of using Foolish principles and taking the contrarian approach and I think it’s worked really well for us. When we first named our newsletter The Motley Fool, a number of my friends thought, are you just trying to joke with people or it sounds like you’re an idiot.

Why would you want to call yourself an idiot? Especially because people say things like this has been set for decades, maybe centuries, a fool and his money are soon parted. Why would you guys call yourselves The Motley Fool? Well I hope some of those reasons are now evident 30-years later and why we take a lot of pride and are so grateful and I speak, I think for all 630 employees of the Fool, we love calling ourselves Fools and I think I’m speaking for a lot more than 630 when I talk to listeners of this podcast from one week to the next, many of whom sign off their own work with Fool on, foolishly, I became a Fool on this day or this month. Yes, that means a great deal to me. No, it would never happen if we hadn’t called this enterprise The Motley Fool. Breaking rules really does work not just in investing, but in business and certainly in life as well. Eric, I love sharing your note because I think you are good exemplar. Let’s do two more Rule Breaker Mailbag item number 7.

This one is for Mark [inaudible 00:44:52]. Mark, thank you. “David, one of the things I really appreciate about you is your stalwart optimism, especially when,” Mark writes “my very rule breakery portfolio is down 51 percent since February of 2021. It really does help me to hear you talk about Amazon going from 95-7 in 2001 to gain perspective.” I’m about to cue myself, no, I won’t talking about watching my Amazon going from 95-7 in 2001. Yeah, it was all real, it all happened and I kept holding all the way through to today. Many other Fools have done so for that stock and many others, I hope you find that inspiring. It’s really important to know things can drop that far and they will come back. Over time, if you found a great company, it will come back far more than that.

Anyway, let me pick up Mark’s note, “What has me concerned now though, is the idea that ‘this time it’s different’. I listen to a lot of podcasts and one person I’ve heard interviews with several times who really made an impression on me was the geopolitical strategist, Peter Zeihan. He’s a very smart guy. The thesis of his new book is that the Pax Americana post-war period, especially since the 1991 breakup of the Soviet Union, has been an aberration in history and will not be repeated going forward. He believes that the Russian invasion of Ukraine is the last battle of the cold war and that it signals the end of the era of globalization and free trade. In a previous book eight years ago,” Mark writes, “he predicted that this invasion would happened in 2022. He now foresees an era of our retreat to nationalism.

“Baby boomers retiring and pulling their money out of the market, and general economic shrinkage due to the decline in global birth rates. He also predicts widespread famine as result of the Ukraine invasion. Not a pretty picture. Now, I’m faced with a choice of two competing narratives. On the one hand is the David Gardner optimistic narrative, which says this period is just a natural part of long-term market cycles, just like the dot-com crash or the Great Recession. It’s just something to be endured because ‘this too shall pass’. On the other hand, is the global geopolitical shift narrative, which says, this is the end of the globalized era we grew up in and the start of a radical step backwards for humanity. Needless to say the two narratives lead in very different directions in terms of investment choices sincerely, Mark [inaudible 00:47:30] .”

Mark calls himself a Fool, wondering if he’s being small f, foolish. Well, I really appreciate you sharing that perspective and it was a pleasure to feature that on this week’s mailbag, Mark. I first of all, encourage not just you, but everybody listening to me right now to read widely and to think deeply. I think Peter Zeihan and a lot of people might be wondering, how do you spell this man’s name if they wanted to Google him and learn more about him. It’s Z-E-I-H-A-N. Peter Zeihan clearly contributes to that reading widely and thinking deeply. While what I’ll call geopolitical chess games, I wouldn’t be a very good player of them myself and I’m definitely not a very good predictor of geopolitical chess. It’s not for me. I still want to say the act of thinking about these things, asking, is it different this time in many different contexts.

I think the old cliche is, it’s not different this time. I think country wisdom always suggests you should never ask that question in the first place because everything has been done more than once as we circle the sun. Most of my great quotes probably just go back to the Greeks anyway, and so it’s never different this time. I think some of the thinking goes until you start encountering, I don’t know. How about the Black Swan thinking of Nicholas Nassim Taleb or others who pointed out that some unusual things do happen. They’re not part of cycles and they can change history forever. I think you have to respect that.

So I strongly believe that the future is not predictable, but I also strongly believe that it tends,, for rational reasons, to be better than people think. Earlier in this podcast, I mentioned Matt Ridley, his book, looking across the long arc of history, seeing how consistently speaking of consistency, humanity thinks things are going to be worse. I would even say if some of the things you just shared end up being true. Peter Zeihan has spent a lot more time thinking about this. This is his profession than I have. I would still be the person saying, OK, so the world is changing forever. We’re going back to nationalism, if that’s the case, will that still has implications for yes, your money and mine, but it doesn’t at all suggest that there won’t be great new start-ups, great companies doing great things.

In fact, one potential Black Swan I’ve sometimes thought about is the idea that all of these borders that we’ve grown up with the sense that you can draw a hard border right in the sand and say that’s one country and on the other side that’s another country, that geopolitical world that I grew up within the cold war, I sometimes wonder if that will lose some relevance over the course of time. Apple these days has a larger bank account, than some sovereign nations’ GDP. When you really look at some of the largest corporations in the world, and I’m talking about this in an optimistic way, I think they’re, like Apple, doing remarkable work solving problems that a lot of us have that governments can’t solve for us.

I look at a future where I see a stronger private sector driven by conscious capitalism. I see conscious capitalism much more successful making inroads in business. That I think conscious politics is these days in politics so that again, only makes me favor business even more in terms of creating real solutions and doing good things in this world. I think in the USA, we practice conscious capitalism as a country. We’re not perfect, but we do it better than anybody else in the world. So even if some of the things that you’re describing do come true it won’t make me think. I don’t want to be an investor anymore. The narrative of baby boomers retiring and pulling their money out of the market has been put out there for a long time.

Now, I remember Harry Dent selling a lot of books bearishly talking about how this is going to crash the market. Baby boomers pulling their money out of the markets, where is that money going to go? Well, they’re going to spend it, it’s going to go back into the pockets of businesses. We’re going to grow and over the course of time, some of that money will be handed down to the next generation, next-generation after that, I don’t see a cataclysmic point in time where we all realized that the baby boomers are going to pull their money out of the markets and everything is going to crash.

Maybe it’s been happening slowly. In fact, it has been probably for the last decade or so, it will probably continue for another decade. It might tamp down the markets and maybe it already is, but it’s not something that I live in fear of. I will say in closing, pessimism always sounds smart and pessimism sells. Optimism, by contrast, often sounds naive. But in my experience, it wins. I’d rather have something that wins over something that sells. But in the end, Mark, and everybody listening to me right now, each of us is left with our own decisions, derived from the opinions that we ended up with, the choices that we made. There probably isn’t one right choice or right idea that I could give right now through this podcast that would even work for everybody, so somebody’s idea can lead to a good choice for them. That same idea given to somebody else could lead to a bad choice for them. I guess, the world is a lot grayer and more complex than deep blacks and bright whites. I think there’s a lot more complexity to this. I really do appreciate brilliant people who can help us see the big picture, and perhaps, Peter Zeihan is one of them.

Sounds like he’s been doing it for some people, and probably, he’s worth listening to. I want to make it clear, I have a very open mind about things, and I like it when people have the guts to put forward a vision of the future, and be accountable for it. But I’ll always be the one saying, “Whatever you’re telling me about, I bet I can find a good investment within that context, so let’s buy and hold, Foolishly. Thanks, Mark. Closing us out this month, Deborah Monahan’s, note. Thank you, Deborah. Rule Breaker mailbag item number 8. “Hi, David. Sometime in the mid 1990s, I attended a Tony Robbins conference. I’ll do my best to recall the details. They may be fuzzy. It was after all the mid 1990s, but your point stuck with me. The conference was somewhere in the Northeast. I was living in New York at the time. I believe it may have been New Jersey or Connecticut.” Full-stop right there, I’ll tell you right now. Deborah, it was in Hartford, Connecticut. I’ll never forget that day, thereby, hanging a tail.

But Deborah continues, “You and Tom both spoke at the conference with your court jester hats on.” I do believe both Barbara Walters and Donald Trump spoke at the same conference, but it may have been another event, and full-stop there once again. I also think, not only did they speak there, Deborah, but I think Alex Rodriguez, A-Rod, the famous Yankees infielder spoke there too. In fact, before I go back to your story, I think, I’m going to have to tell a little bit of a story around this. Because I already told you, I’ll never forget that day. Tom and I used to do a lot of paid speeches, especially in an earlier era of the Fool, where that kind of money that you could make from speeches, speaking to corporations or conferences, was really significant for us at the time. It helped our small topline at The Motley Fool, it’s not as important today. We don’t do this much anymore, but we had many fun memories, and you’ve just unlocked one of them. Tom and I signed on for a two-speech deal. I believe, the year was 2000, because the name of the conference was Results 2000.

Our speaking agent at the time showed us some pretty handsome speaker’s fees. It was not usual for us to sign on to a two-gig deal, one of them in Seattle, the other in Hartford, but we said, sure, we’ll do it. In fact, the first one was in Seattle, and that’s really the story I’m going to tell. As we are driving from the airport, having recently landed, we’re in the middle of a book tour as well. We’ve been very busy, we probably were late the night before at Barnes & Noble, we’re a little tired. All of a sudden we realized, we were on our way to give our first speech in Seattle for the Results 2000 conference. We noticed that we were being driven to KeyArena. That’s what it said in our itinerary.

I think it was Tom who leaned forward to the cabbie and said to the cab driver, “KeyArena, is that where the Seattle SuperSonics basketball team plays?” The cab driver said, “Yeah, there’s a whole Robbins gig going on at the stadium today.” All of a sudden, Tom and I realized that we weren’t just going to be speaking to a couple of hundred people at somebody’s offsite corporate conference, we were actually going to be speaking to a sold-out KeyArena in Seattle that morning. We started scrambling, changing up our notes, and stories, and thinking what the implications of this would be. I’m about to give you in short form here, Deborah, our brush with Tony Robbins.

The first thing that we did is we arrived at KeyArena, we were met by Tony’s chief of staff, very nice, attractive young woman. As we reached out our hands, we already had our Jester caps on, just to shake our hand. She immediately lifted her hand up from the normal shaking position, and it had it just off of her shoulder, and it became clear, we’re going to be high-fiving her, which we did. Then she said, “Let me show you through to Tony. He’s just back here.” She showed us through to Tony Robbins, our noble host, and there was Tony. Just as we start to shake his hand, he immediately lifts his hand up and he’s got him up over his shoulder, we’re high-fiving Tony. Tony had a huge mid of a hand, but we started to realize everybody who works for Tony, they do the high-fives. They don’t do the handshakes, the old-school routine we’ve been raised. Anyway, as it turned out, at both KeyArena and in the Hartford Civic Center where you attended, we spoke to the two largest in-house audiences we have ever spoken to. Tom and I have given many talks over the years. These days we’ll speak, can’t wait to do this again to Motley Fool members. We might have 750 people come to join us in Washington DC as we did a few years ago. I know we’ll do that again sometime soon. About 20,000 people greater than signed 750. There, Tom and I were charging out onto the stage, it’s like how they set up rock musicians in conference arenas. You’re down a little stage there, but there’s confetti, dry ice, and blooms blowing up all around us as we come out to talk to the Results 2000 audience about investing in the stock market.

It maybe not quite as exciting as a rock concert, but certainly a fond memory. Deborah, you’re taking me back there because I just gave you the KeyArena version. But a week or two later, we went to Hartford Civic Center, and that’s where you were at that day, and I’m going to read the rest of your note now. I also want to note that our mother was in attendance that day. She lived in Vermont and drove down. I’m not sure mom saw many of our speeches, but I remember how hugely amused, and I think, somewhat proud she was to see her two sons wearing Jester caps, tiny little figures on the stage way down from where she was in section 511, making up the numbers, and she always looked back on that with fondness. She is no longer with us, but she loved that we were there that day at the Hartford Civic Center speaking with the Robbin’s crowd.

Now, back to Deborah’s note. “You told a story that day about a client whom you talked to about investing in companies that one knows and believes in. In trying to illustrate the point you asked about that guy’s passions and his hobbies and the name Harley-Davidson came up. You then proceeded to show this client what his dollars would be worth if he’d started to invest in HD 20 years prior. Again, the details may be fuzzy, but the point,” Deborah writes, “stuck. Invest in good companies and start with taking a look at companies you’re familiar with, loyal to, and/or passionate about. If I’m continuously spending my money with the company and happy to do so, you can bet it’s got at least a small portion of my portfolio these days, writes Deborah, and I love this, she says, for me, those companies include Starbucks, Disney, Costco, T-Mobile, Apple, Amazon, Netflix, Intuit, Visa, Home Depot, Delta Airlines, Marriott, and Toyota. Well, I moved to Alexandria, Virginia. That’s where Fool HQ is based by the way. In 2005, I saw your building sign over the years always recalling the two of you in your Jester hats at that conference and the Harley-Davidson’s story.

“During the pandemic, The Motley Fool came full circle for me, when an ad crossed my computer and I started to look at your subscription services, and since April of 2020, I’ve been a member of The Motley Fool, I’ve added positions in CrowdStrike, Nvidia, Shopify, Axon, The Trade Desk, Twilio, and some of your other favourites. It’s been a fun ride. Thank you for being so impressionable on a young mind. To help this older mind live a life filled with happiness and many types of wealth. Much love, Deborah Monahan.” Well, from Tom and from me and from our whole company, Deborah, I say much love back to you.

I love that you shared that story. You occasioned that dear memory for me as well, which I just shared, and so how could I not end this painful month of May with that delightful reflection. I’m so glad that you, using the power of time and thinking back now more than 20 years, that you took to heart this notion that the great companies, the really great companies of your time, that make the products and services that you appreciate, that you could become a part-owner of them through the miracle of the stock market, and that as a fellow Fool, you would let those positions persists, built up over time in good markets and even in bad like the one we’re living through right now. But then you see their awards, and as you said it, “To live a life filled with happiness and many types of wealth.”

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner has positions in Amazon, Apple, Axon Enterprise, GameStop, Netflix, Roku, Starbucks, and Walt Disney. The Motley Fool has positions in and recommends Airbnb, Inc., Amazon, Apple, Axon Enterprise, Block, Inc., Brookfield Renewable Corporation Inc., Chewy, Inc., Confluent, Inc., Costco Wholesale, CrowdStrike Holdings, Inc., Home Depot, Netflix, Nvidia, Roku, Shopify, Starbucks, The Trade Desk, Twilio, Twitter, Upstart Holdings, Inc., Visa, and Walt Disney. The Motley Fool recommends Bumble Inc., Delta Air Lines, Intuit, Marriott International, and T-Mobile US and recommends the following options: long January 2023 $1,140 calls on Shopify, long January 2023 $115 calls on Marriott International, long January 2024 $145 calls on Walt Disney, long March 2023 $120 calls on Apple, short January 2023 $1,160 calls on Shopify, short January 2024 $155 calls on Walt Disney, short July 2022 $85 calls on Starbucks, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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