Rule Breaker Investing is here to review the fantastic authors we’ve interviewed over the past few weeks and draw investing lessons from their wisdom.
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This video was recorded on August 30, 2023
David Gardner: It was a month of words. It has been every August for Rule Breaker Investing. Four outstanding books and the four authors behind them this month, each spending somewhere between 45 and 90 minutes with you and me. To top it off with this fifth Wednesday in August, it’s your mailbag, which means even more words. But we’re a podcast after all, it’s what you’d expect. Though I will keep it short this week so you have extra time to catch back up on the month that has been. American Ramble, Selling Without Selling out, How Not to Be Wrong, and The Lincoln Highway, what’s a memorable moment from each? Hey, for the fun of it, what’s a related Rule Breaker Investing lesson takeaway? It’s your August 2023 Mailbag only on this week’s Rule Breaker Investing.
It’s a funny juxtaposition. I found this to be one of the great months in the history of this podcast because of the august visitors we got to host and meet. I hope you detected that pun, august. For me, it was certainly among the more enlightening and enjoyable months ever of doing this podcast now in our ninth year, and yet, this particular month, I have received the least feedback, the fewest envelopes in our mailbag ever, which by the way is fine. The mailbag is my way of saying, hey, dear listener. Hey, fellow Fool, if you’ve got anything for me, I’m here. If you have a question, I’ll help answer it. If you have feedback for me, criticism, or praise, or anything in between, I’m listening, and the best bits I read out. This is our pact. This is what we’ve done this very week of every month, since we started doing mailbags. I checked it November of 2015, which by my school boy math puts this as the 94th consecutive historical mailbag. Do you hear me, Rick Engdahl? That’s a lot of production. Anyway, we’re here to educate, amuse, and enrich you August in the Northern hemisphere anyway, it’s probably the least engaged month of all by humanity. Stock market volume often starts dropping in June, it hits lows in July and August, before returning for the fall. I would expect investing podcast listeners do the same thing. That’s part of the reason authors in August focuses on topics like American history or best-selling fiction or math.
But also traditionally yields not much back from my Foolish listeners for my August mailbags. But I do have something for you this week, so let’s get started. Hot takes from Twitter per usual. Thank you very much, Matt Hard, @307Fool. I’m still going to say Twitter, I guess it’s X. I’ll eventually change, but I’m going to say Twitter for now. Matt, you wrote, “Fired up for a new authors in August series starting today. Interesting coincidence that this just happens to be the month,” Matt writes, “I buy the most new books every year. Thanks for brightening up my Wednesdays at RBI podcast.” Well, thank you for that, Matt. It is a reminder our address on X is @RBIPodcast. Next one, Jason Moore, @JimminyJilickrz, “Buy, sell, or hold, #authors in August definitely a buy. The previous episodes in the series have been amazing and it filled by reading cue with some incredible books. 2023 is shaping up to see that trend continue upwards and to the right.” Jason, you know I appreciate that particular analogy, and thank you for that nice note. I hope here at the end of the month, you feel like we delivered. Not just on any given week, but I hope every week. Two more hot takes from X, the first is from The Frog. Well, that’s the name you take, although on X, you’re @LIBORsquared, former Fool here and a big fan of Jordan Ellenberg, “In an ocean of mediocrity, self-promotion, and hype that is the podcasting industry, Ellenberg is a wonderful guest.
He’s not only a first-rate mathematician, but has somehow managed to distinguish himself in other fields, too.” Well said, The Frog. Finally, @CBKInvestment, we had a nice exchange a week or so ago, “Loved the beginning conversation with Amor Towles about collaboration and the difference in the art, especially the quote,” and I quote, “‘It takes a village to make a movie, it takes an adult to write a novel.’ Wondering if there’s a sourcer story behind that quote you wrote.” I’m pretty sure as I wrote you back in social media that Amor and I just came up with that together, but it was all based on his experience of being in and around and movie set and realizing just how extroverted one really needs to be, how collaborative one needs to be, about how many people are involved in just making one scene and the extreme contrast with the writer who often, him or herself, sits in a study and composes alone. Yeah, it takes a village to make a movie, it takes an adult to write a novel. You also @CBKInvestment enjoyed Amor describing how he really doesn’t share his first draft with anybody at all. I was saying, “Even the wife?” The answer is no. Not even the wife. Many different ways to approach any given art. It’s always a fascination of mind to see what someone’s creative process is. It was great to learn more from Amor last week. Well, that was last week. Let’s briefly talk about next week, before we get started. Next week, it’s Stock Stories Volume 8. I’ll have a number of famous Fools around the campfire sharing with you an instructive story from their investing life. That’ll include my own, which is going to be a closeout of one of my five-stock samplers, which ends next week. It’s five stocks indistinguishable from magic. So we’ll be sharing that Reviewapalooza with you as well next week.
A lot of stock talk. Well, Rule Breaker Investing mailbag item number 1, and spoiler alert, this is the only Rule Breaker Investing mailbag item this week. I did get some other notes about investing and general questions that I could handle in future months, but this is focused on August. So thanks for this. “Hi, David, I was wondering for those who may not have gotten to hear all the authors in August this time around. Hey, maybe even for those who did, what was one helpful takeaway from each of the four interviews? I realize there was a lot more to each of them, so I’m not asking you to be reductionistic, but what were some moments that stood out? Since this is the Rule Breaker Investing podcast, not a public radio book show, how about tagging each one of those takeaways to a single Rule Breaker Investing lesson? One that can help newbies and help remind Foolish regulars. Thanks in advance. I don’t write in very often, but wanted to this month. Foolish, best signed. David Gardner. Yeah, that continues the rare but established tradition of sometimes writing a note to myself. Well, I really like that question, so let’s reflect back. Let’s think back to a moment and insight featured by each of our four authors this month. Then let me see if I can make some good Rule Breaker investment sense out of that moment as well. Shall we? Well, up first, the first week of August, it was Neil King, Jr., his wonderful book American Ramble.
Again, Neil King, Jr. who, in his early 60s, having survived a cancer scare, took the time to walk outside his front door and Capitol Hill in Washington, DC and walk all the way to New York City and write about it. What a delightful ramble it was and at no point do I think Neil ever really rambled on during our 46-minute discussion. But a moment for me anyway that stands out among many was the comparison as he reached Lancaster, Pennsylvania of James Garfield, American president who was from Lancaster, Pennsylvania and Thaddeus Stevens who also was an American politician living in Lancaster, Pennsylvania and how very differently they’ve been treated by history and yes, thereby hanging in this tale is an investing lesson. Now, given that a fair amount of my father’s family lives in and around Lancaster, Pennsylvania, this one probably hit home for me in particular, but I also felt in many ways it was sort of the centerpiece of Neil’s books. So I think it’s worth going back there briefly, and let me quote a little bit of what Neil said about this from our interview. He said and I quote, “You know what was so great as I walked in the town of Lancaster, this is a place that leading up to the civil war and even during the civil war, there were two leading lights of the town, James Buchanan, who is the president up to 1861, and Thaddeus Stevens, a very radical Republican at a time when the Republican Party was brand new. It was a very radical abolitionist party. He was among the most radical of the abolitionist. He wanted slavery ended right now and it all costs whatever it took. James Buchanan,” again, these are Neil King’s words, “This doughface, compromising, Southern cobbling, slave holder cobbling president, they were on the opposite poles. Overall the decades, a century or so since then, James Buchanan’s house has been meticulously looked after. They’ve given all the tours, rent, et cetera.
Thaddeus Stevens’ house in Lancaster, he, by the way, was a member of Congress, he was the head of the Ways and Means Committee, the force”, Neil said, “that really pushed Abraham Lincoln to finally do the Emancipation Proclamation. The force after Lincoln was assassinated, leading up to the amendments of the Constitution that officially codified the end of slavery and were the first real civil rights portions of the constitution. So only now is Thaddeus Stevens getting his due. They’re now meticulously renovating his house. It’s soon going to be a museum for civil rights. That give and take of who’s honored, who’s not honored; who’s remembered, who’s not remembered was a big part of the walk,” Neil concluded, “and that portion of it in Lancaster was really right for me.” What are the stories that we tell ourselves and then, more broadly, do those stories change over time do we start recognizing other news stories? I think any adult of any real vintage can appreciate how our own ideas or thoughts have changed over the course of our lives. Kevin Kelly, the co-founder of Wired, interviewed earlier this year, said recently on social media. This was also in his book, excellent advice for living. In so many words he said, if you can look back at your younger self and not see what a nitwit you were at some point, you haven’t grown up enough.
What are the stories that guide you and me and have they changed over the course of time? The investing lesson, for me anyway, is that I’ve found that people often overlook the obviously great as they tell themselves the wrong stories. I’ll have a corporate example in a sec, but when we see through the dark clouds, it’s when we are a Fool going against conventional wisdom. When we see a different story, we think maybe actually this guy who co-founded PayPal, maybe he could create an affordable, even amazing electric car. Maybe that could actually transform the entire US, if not global auto industry, maybe that could actually happen. Maybe Blockbuster video with tens of millions of clients back in the 1990s, with Netflix just showing up, founded this week in 1997, initially just a faddish afterthought of a company. I mean, who’d want to mail in DVDs to some Internet company when you could just rent a video of five minutes away at your Blockbuster? People overlook what becomes in retrospect Thaddeus Stevens the obviously great as they listened to others tell the wrong stories. Indeed, most of the great Rule Breaker investments that I’ve made and then you’ll make over the course of your life are in part great with great returns because people disbelieve, they did not hear that music. They did not believe that story initially, and initially or maybe a little bit after initially you did. You did. You bought this stock, you bought the story, and the world proved its quality over time. James Garfield versus Thaddeus Stevens, a great takeaway from my week with Neil King, Jr. There was one other moment in that podcast where I read to him a line from Mark Penn’s book Microtrends Squared. I read this line, “We need to encourage every rising cloistered college students to take a trip one summer not to Israel or France, but across America for six weeks.
We’ve become so siloed that Americans simply don’t know America.” That line written years ago now still feels true today. Certainly when I read that and shared that with Neil, he said amen. I think my investing takeaway from that one is just the benefit of leading a more interesting life. One of our cardinal go-to points in Rule Breaker Investing. Well, that was week number 1 and book number 1. Let’s go on to week number 2, Sunny Vanderbeck in his book, Selling Without Selling Out. While most of our conversation was about how to sell a business, especially one you’ve started or inherited, how to sell a business well in a way that you won’t regret or create regrets for others, how to do that, which is something very few of us probably in the larger scheme ever do in our lives, but for those who do and we do overindex to that sort of person at the Motley Fool. Many of the people who’ve followed our advice over the years have done so because they love business themselves often because they themselves are running a small, sometimes not so small business. So we overindexed toward people who want to sell well without selling out. Obviously, that dominated the conversation, but what I’ll really remember was Sunny saying we’re capable, you and I are capable of much more than we think. He told a story of joining the military, which I’m going to summarize again in his words right here and then connect it to an investment lesson I think we can all appreciate.
Sunny said on that podcast and I quote, “When I joined the military, I don’t think I could run a mile without stopping. My experience in the early stuff, basic training, advanced infantry and all that is that I was struggling to keep up. I remember having a conversation about being recruited to the army ranger program with one of the drill instructors,” Sunny said, “I still owe the guy a steak if I could find him. I said to him something along the lines of, ‘Look, this is ridiculous. I can barely keep up with regular army stuff. This is rough.’ He looked over and said, ‘Well, it didn’t beat you yet. Why don’t you just keep going until it does?'” Sunny went on, “And it turned out he was right, that’s what I did. One of the things I learned in the process is that when it gets really, really hard, you just have to figure out what’s the next thing I can do to move forward. Can I take 10 more steps? Can I make it to the next band? Can I get across this creek? Can I get through in a business context this one more meeting successfully?” Then I’ll see where I am. Can I go one more day? Just keep going until you can. Sunny concluded, “What I learned about myself from the process is I could go much further than my brain thought I could.” That was all a snippet from my conversation with Sunny Vanderbeck, and the Rule Breaker Investing lesson takeaway is obvious to anybody who’s listening to this podcast for more than a year because especially in the year 2022, early on in that year, I began to rock the phrase my inner Dory, if you will. We’re going to talk some more about Pixar this week.
Just keep swimming, Dory’s advice in the movie Finding Nemo. Fourteen podcasts last year, I checked it. I just searched the transcripts, including five mailbags, the March, April, May, August, and September mailbags of last year. I said my advice to you flat out, just keep swimming. It was my number 1 lesson that I highlighted last year in May, the annual birthday podcast, What you’ve learned from David Gardner 2022 edition, just keep swimming. Why did it come out so strong last year? Well, the answer is, last year was a really bad year, especially for Rule Breaker investors. Many of my stocks, my overall portfolio, just about cut in half and it only took about 12 months for that to happen. It’s not the first time that’s happened and it won’t be the last, especially if you play the only game that counts the investing game. By definition, the long term, if you’re investing right along with me for your whole life, you’re going to watch this happen multiple times in the future. My resulting advice is very clear and direct and, thanks to Pixar, illustrated up there on the big silver screen, just keep swimming. How many great notes have we shared in this year’s mailbags, 2023 of those, who listened, and did indeed with Sunny Vanderbeck asked, can I make it to the next band? Can I go one more day? Can I keep saving every two weeks from my salary and adding that to my 401(k) plan? Should I keep buying stocks? Things have been so bad, guys. Dave and Tom, should I keep investing? Our answer has been and is just keep swimming and it was a delight.
It was a sidelight for the Sunny Vanderbeck interview. It was just a couple of moments in a lovely conversation on a richer topic, but the Rule Breaker Investing lesson takeaway is just keep swimming. Week number 3, Jordan Ellenberg, I’m going to call this the power of and. I once did a five-stock sampler called five stocks that let you eat cake. I will reference that in another minute or two, but let me say first that Jordan Ellenberg is my favorite kind of genius. He’s not only brilliant, he’s got a great sense of humor. He’s fun to talk to. But he’s great at more than one thing and I feel often in life as if we put people in boxes or we think, well, that person is just that, that’s all they’ll ever be, when actually along with Sunny Vanderbeck we’re capable of a lot more than we might think. On the face of it, Jordan Ellenberg, is a very talented, world-class mathematician, but he also is a wonderful writer. I’m sure some mathematicians are put in a box. You’re a math geek, that’s all you’ll ever be. You’re amazing, but you’re a math person and others are told you’re a wonderful writer. You’ll probably never really figure out math or get math and some of us just decide to give up on it and figure, well, I’m a words guy, but Jordan Ellenberg doesn’t think that way. Jordan Ellenberg with his book, How Not to be Wrong: The Power of Mathematical Thinking, translate his mathematical genius into what Bill Gates calls one of the 10 books everybody should read that coming from a mathematician, which is why my reflection, our moments with Jordan this month, I think about the power of and. You can have your cake and eat it too, only if you purpose it, though. You’re unlikely to wander into another field and become a genius, unless you think you can, unless you think you’re capable of more than others might think you are and then start trying. That was really the theme behind five stocks that let you eat cake. I was checking the math on this. This was November 2017.
Go back and listen to that podcast if you’d like, but I introduced five stocks six years ago, each of which had a false hypothetical question. The trick answer was both. I’ll give you a quick example. Would you rather have a co-founder of a company who is a trained electrical engineer and a brilliant one, like Jordan Ellenberg if you like, because this is going to be a tech company, a technology company or would you like to have a highly capable executive in your co-founder? Which one would you rather have? You can’t have both. I think by now we’re having a little fun here because you can have both. There are probably numerous examples of people who are above trained electrical engineers and highly capable executives, but one that comes to mind that I focused on with stock number 4 and that sampler is Jensen Huang, who is, of course, the CEO and Co-Founder of Nvidia, which is among the more successful companies of our time. Earlier this year, Nvidia became the third 200-bagger stock that I’ve picked for Motley Fool members. Of course, I picked it in 2005. You have to wait a long time to get a 200-bagger, but that’s a good lesson on its own. But just within a Rule Breaker Investing podcast context, I picked five stocks that let you eat cake in November 2017. As longtime listeners will know, we play these Rule Breaker samplers for three years at a time, so it ended in November 2020. Those five stocks taken together averaged a gain of 115%. The stock market over the same period of 39%, so plus 76 percentage points per stock for five stocks that all broke the false hypothetical question of which one would you like, trade-off A or trade-off B, and the answer is, along with Jordan Ellenberg, a brilliant mathematician and writer, you can have, you can be both.
Before we close out with last week’s podcast, I’ll note in passing that time has been kind to that five-stock sampler. We did stop counting, of course, in November of 2020. But today, those five stocks are now up 184% as a basket, the market up 76%, so our Alpha lead has increased to 107 points per stock versus the market time is going to be that five-stock sampler. I think it’s true of many of them actually. It’s what I expect, but it’s especially what I think we should expect when we find things that are multitalented when we find people, institutions, public companies, stocks that are truly great and that’s what we should be on the hunt for. Well onto our fourth and final author and lesson this week, I do remind you again that next week as stock stories. Volume 8 will be reviewing five stocks indistinguishable from magic and spoiler alert. Nvidia was one of those five stocks as well. Look forward to gather around the campfire with my fellow fools, and you stock stories next week. Well, the fourth and final author was last week, Amor Towles his book, The Lincoln Highway, and part of the story Amor told last week, was how his publishers thought, well, this most recent novel, this one couldn’t possibly sell that well. A gentleman in Moscow had been such a smash hit. The one novel that Amor wrote before that, Rules of Civility had also done very well. But surely a book set in the 1950s that just tells the story in 10 days of a wayward journey taken by a Motley cast of characters shortly that one couldn’t ring the million-seller gong and yet it has. For Amor, he’s very humble but I took pains dimension. Amor Towles has now sold more than five million copies of his novels, just three novels.
After he walked away from a Wall Street career some 15 years ago or so. Although part of his story of course is he’s been writing since he was a little kid. But Amor Towles, I think a great lesson we can learn from those who demonstrate persistent success over time, this is an investing lesson as well. If there is a bandwagon effect, I think, in play, in business and investing and I’d say life as well, and it works roughly like this. One hit greatly increases the chances of having a second. Once you string together a few wins you can think again of Pixar after Toy Story, A Bug’s Life, Monsters, Inc. All of a sudden you find a ready audience for Finding Nemo and The Incredibles, and Ratatouille. The list goes on and it’s not automatic. Failures, out-years, down quarters will happen, but this sense of creating a self-fulfilling prophecy. What I’ve sometimes called in the past, building a success machine. The Investor George Soros has written some about this. He calls it reflexivity. It’s very important to recognize this dynamic in life. While his publisher or Amor may have doubted whether he would sell a million or more copies of his third novel, the fact that it had been preceded by a couple of novels that had already sold multi-million copies, makes it that much more likely that Amor would hit a home run with his third novel, and we’ll hope for him for all his future writing as well.
What do winners do? Well, I’ve said this many times in the past in this podcast. What do winners do? They win by definition, winners when it’s why we add to winners as well over time, it’s why I have a winner like Amor Towles back again on this podcast, we add to the winning, we add to our knowledge about and we get to learn more from him as we add to our winners and welcome back successful people and with our money, successful stocks. We’re going to do so much better as investors if we consistently add new money to things that are going up over time. Then if we do the opposite, what many people do try to get back to even by adding to their losers, throwing good money after bad, we’ve sometimes said so. Bestselling books generate a future momentum that makes it more likely that that author, will have another best-selling book and all that it takes because it takes a village to make a movie, all that it takes for Pixar to win once, twice, or thrice. All of a sudden propelled Pixar into the Valhalla of movie production companies, Pixar are not just a company of course, but a stock, a wonderful stock that I picked back in the day for Stock Advisor members, until unfortunately, Pixar got bought out by Disney. I mean, we still own Disney today, but I think we would have done even better as we would have with Marvel had we just gotten to keep owning Pixar and Marvel independently, but no regrets there.
There you have it in answer to my one Rule Breaker Investing mailbag item this week. To summarize, Neil King, American Ramble, make sure you’re telling yourself the stories about stocks that will fall on the right side of history. Even if initially historians paid more attention to President Garfield than Thaddeus Stevens, just as the market loved its blockbuster at first, even after Netflix had been loosed upon this earth. Second, Sunny Vanderbeck, Selling Without Selling Out, Just Keep Swimming. Third, Jordan Ellenberg, How Not to Be Wrong. Well, the less than the book has to be humbled by the way, that’s a great way. Not to be wrong. Show an awareness that you might not have it initially, right every time. But my big takeaway from Jordan is you can be great at more than one thing and you should try. Finally, Amor Towles, The Lincoln Highway winners win. Not at all the didactic lesson of his most recent novel, by the way, although when you think about it if you’ve read the book, it is, but it’s certainly one observation we can take away from Amor himself and others of his ilk who operate with excellence and then generate momentum toward more excellence in the same way we’ve seen so many Rule Breakers stocks and so many Rule Breaker companies demonstrate over time. To my one correspondent this week, thanks for riding in David, and thanks for listening, Fool on.