Motley Fool Hidden Gems Investing - David Gardner on Financial Freedom, AI, and Basketball

Episode Date: March 31, 2024

Who better to call on April Fools Eve than our Chief Rule Breaker and Co-founder, David Gardner? Dylan Lewis caught up with Gardner for a conversation about: - Loss aversion and Rule Breaker investing - The 2nd Anniversary of The Motley Fool Foundation. - And play a special March Madness-themed Market Cap Game Show. Stocks mentioned: NVDA, AMZN Host: Dylan Lewis Guest: David Gardner Producer: Ricky Mulvey Engineer: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

The key insight I have for listeners this weekend on April Fool's Eve is that the joy of gain and investing is actually infinite times the pain of loss. The worst you can ever do is lose 100% on a stock market investment. Is the best you can ever do plus 100%? Higher. Plus 300%? Three times the joy of loss? Higher. i'm mary long and that's motley fool co-founder and chief rule breaker david gardner tomorrow april 1st marks the second anniversary of the motley fool foundation which is committed to finding funding and building equitable pathways to financial freedom to celebrate dylan lewis caught up with david for a wide-ranging conversation about a new way to measure

Americans' financial health, advice for investors in the midst of an AI hype cycle, and money in college sports. We're rolling into April Fool's Day. It has historically been a day that we celebrate here at The Motley Fool because we are fools. We pride ourselves on being fools and having some fun. And I think I wanted to kick off with your take on the virtue of foolishness and why it is so important. Well, from our earliest days, when we started The Fool, Tom and me and our pal Eric, and we signed on to AOL as paying customers, and all of a sudden, AOL said, hey, you guys have a

following. You want to open up a site on AOL? We're like, great. From our earliest days, we recognized that the financial world wasn't really that well set up or friendly to individual investors. And so, we started looking at the conventional wisdom of the time, things like load funds, if you remember those. They probably still exist somewhere, but the idea that you'd have to pay a sales commission, let's say of 3.5% up front to that talented broker who sold you on buying their overpriced fund, that was the standard fare of the time. Commissions, $50, $100 a trade, schedules that weren't even published by the Merrill Lynch's of the world because they kept it close to the vest and charged you a different

commission because you were an old widow, Dylan, which you're not. Actually, I'm increasingly an old widow or type myself. It was set up so that they won and we lost. As we looked at the financial world at the time, we're like, I want to be a fool. The conventional wisdom is not serving individual investors. That was the spirit of the fools we started. Therefore, we're going to be fools. The opposite of conventional wisdom. I know you know, Dylan, that our name comes from Shakespeare. I know you know that we're inspired by the court jesters, the characters in Shakespeare's plays, who could tell the king or queen the truth because they had license to do so. Back in that time, they used humor. They told the truth, told the emperor when he had no clothes. So that's

really where our name comes from. But I think it's going against conventional wisdom that remains true of us today. We just see different things in the world in 2024 than we did back in 1994. for. I'm curious about the notion of conventional wisdom over time, because I think we were in such a period, certainly with the pre-internet era, of really top-down, big institutions handling the way that information is handled, and also just kind of what you have access to. We are in a much more of an a la carte type diet situation when it comes to information. And it seems like conventional wisdom, it almost depends on who you ask what conventional wisdom even is anymore. And I think that's fair. In fact, there are so many different contexts that one can't even refer

conveniently to the financial world and know what we're talking about when we talk with each other about it. But I would say this, that just being self-aware of that, just recognizing what may be getting taken for granted. And a lot of times we all conventionally say or believe something because it's true or convenient. I'm not saying that, you know, whatever the man says is wrong and let's go against the man. The man's right a lot of the time. And we recognize that. For example, the stock market going up nine, 10% annualized over the last century. That's right. And so we're not here to challenge that. In fact, we're trying to spread awareness of that to as many people as possible. All of whom listening to us right now probably already know that, but there are a lot

of people not listening to us right now who don't know that. So that's an example of a conventional wisdom I support. But I would say just more broadly, ask yourself, am I taking certain things for granted. And are those things true? We're not just talking about fake news here. We may get into that later. But how about this? A lot of people think that it would just be luck to beat the stock market averages. That continues to be, in my experience, a conventional wisdom. Therefore, index, right? Why buy individual stocks? Makes no sense. It's just monkeys throwing darts, blind monkeys, no less, not just monkeys. And I just continue to totally disagree with that. And I realize a lot of that comes from academia. And studies are generally done over very

short periods of time. So Dylan, if you had an amazing year last year, will you beat the market this year? The answer is, you didn't. And therefore, it's just luck. Well, if we're going to examine people on a one-by-one-year basis, sure, it's going to look random from one year to the next. That's not what we're investing for. And that's not how logic and rationality and business work. They happen over time. And I assure you, and I hope a lot of people listening to us have been Fool members for a long time. I assure you that you can and will beat the market averages if you follow our approach to finding excellence, buying excellence, adding to it over time, selling mediocrity, rarely selling, and allow investing to take hold in your life.

Many people don't understand what the word investing is. I'm starting to rant. Pull me back. Stop me from talking. We've moved away from some of those bigger, splashier, maybe fools you for a little while type jokes in recent years. And increasingly as a company kind of shifted the focus on April Fool's Day. I think to your point earlier, so many companies do jokes. There are so many things out there that it does get a bit noisy. But we as a business have kind of moved more to focus on financial literacy on April Fool's Day and the work that goes on with the Motley Fool Foundation. What are you as the chair of the foundation excited about this April Fool's Day? Thank you. Yeah. So and by the way, I would say we're fools 365 days a year. So we let

others have their fun that one day. We don't need to because we're there the other 364 doing our fool thing. And yes, the Motley Fool Foundation, which is just in its second year, we're at an early startup stage. But I'm very excited about the work that we're doing. The way that I often and put it, especially for those who may not know our work and are hearing about it the first time, is The Motley Fool has a wonderful campfire. If you know other members, if you come join some of our member events, you know people tell their stories around the campfire of how they bought NVIDIA along with us in 2005 or Tesla rule breakers in 2011. We get to swap stock winning stories that are phenomenal campfire stories. But most of America doesn't have a story yet.

most Americans, the majority of Americans, have never bought an individual stock. And of those that have not, they're generally in two buckets. There are those who are living paycheck to paycheck. And I know I'm speaking to a lot of them right now. People who are right near saving their first dollar. They're still paying off their college debt. They're making it work. They might have an emergency fund. We hope so. But they might be working on it. But if they could just get one more paycheck or just over the hump, one more lesson, they would become net savers and investors and have those full campfire stories to share. That's about a third of America. The other third of America are called financially vulnerable. These are people that aren't living

paycheck to paycheck. They're trying to make it work. For a variety of reasons, it's hard. Rather than boil the ocean, because there are a whole lot of needs out there, aside from financial literacy altogether, but we are focusing on that middle third, on the paycheck to paycheck. By the way, the other third listening to us in force right now, the financially healthy. The focus of the Fool Foundation is on that middle third, those living paycheck to paycheck. What we decided is we should find a partner who knows what they're doing in this space and measure progress toward financial freedom. Our watchword of the Motley Fool Foundation is Financial Freedom for All. And our partner, and I'm here to announce

it this month, is the Financial Health Network, which is a phenomenal organization. You'll see an annual measurement of kind of Americans' financial health. That's been coming out through the Financial Health Network over the last decade. They have score. You can find out your own financial health score. We said, let's take it to one step up. Let's look at financial freedom. Let's build a freedometer. That's our internal working phrase, a freedometer. Let's you and I come in, take a short survey, do it one year after another, and show where we are and learn where we are on the quest toward financial freedom. I think everyone's quest. And so financial freedom and our freedometer is the focus right now. We're doing other things at

the foundation that I could talk about, but there's only so much time, Dylan. So that's where I'm focused right now. I'm curious, the freedometer, What goes into the financial phenomena? Yeah, so there are really five areas of our lives that we have to have trued up and working for us to be financially free. Really quickly, health. You have to have your health. Otherwise, financial freedom isn't worth much. Education. Financial literacy is what I think of there. Housing, a roof over your head. Work, a job, assuming you're not already retired. And then the fifth and final driver of financial freedom is money, as you might expect. But all five of those count. And so the Fredometer measures each of those. It asks a

couple of simple questions. By the way, this is a short survey. And that's what the Financial Health Network does. If you try to be broad and ask people 97 questions, like, I don't know, the Myers-Briggs, where they keep asking the same question over and over to test you out, right? We've all taken those free internet personality tests. You're not going to get a lot of people responding unless it's short and to the point. So I'm really happy to say that's what we're working on. And in fact, every single person hearing us right now, fellow Fools, can become involved in this because as part of our anniversary, it is the second anniversary of the Motley Fool Foundation tomorrow on April Fool's Day. That's when we started. That's what we celebrate.

As part of our anniversary, we're giving our Fool members, everybody listening to us right now, an opportunity to sign up and be included in our initial Freedometer financial freedom study, maybe even be a test user for what will become a tool. So if you go to fullfoundation.org, which is, of course, the Full Foundation's website, fullfoundation.org, you're going to see an opportunity to sign up and basically take an early version of the test, assess briefly where you are with your health, with your education, housing, work, and money. And then as the data comes in, we will begin crafting a tool so that when future people take that test, rather than just give them a score, we can give them a hand up, a link, a tool, their next step

in the area, maybe their housing, maybe how to do their next mortgage better, or financial literacy, like they don't quite know what an index fund is yet, a hand up. So what starts as a survey, as the Fredometer becomes a working tool that we want everyone to take so that they know their next step to financial freedom. I've known you long enough that I shouldn't be surprised that you took something that is a problem and made it feel optimistic and actionable as you were talking through it. Well, thanks. I really do think that, I mean, it's not true of me. I would say the same of you, Dylan. I believe that a big part of what The Fool tries to do in this world is we hire people who think, yes, we can, and then it doesn't

work every time. I've made a lot of bad stock picks. I'm quite sure some of our listeners still regret something that I opened my mouth about in 2008 or 2016. I picked more losers in Motley Fool history than any other Fool advisor. But the key is, the winners actually outweigh your losers. And even though psychologists tell us the pain of loss is three times the joy of gain, and that's hardwired into our human psychology, That is evolutionarily true of all of us. The pain of loss, three times the joy of gain. The key insight I have for listeners this weekend on April Fool's Eve is that the joy of gain in investing is actually infinite times the pain of loss. The worst you can ever do is lose 100%

on a stock market investment. Is the best you can ever do plus 100%? Higher. Plus 300%? Three times the joy of loss? Higher. The answer is we've picked stocks that are up 400 or more times in value, NVIDIA, Amazon, for our members over the course of our decades in business. By the way, still holding. And so the joy of gain is infinite times the pain of loss. And once you start going against the conventional wisdom and your own human psychology and recognize that, it makes you think, yeah, yes, we can. You mentioned NVIDIA there, and that's a humongous winner for so many Fool members. It's also a company that is incredibly in the zeitgeist. We can look back on 2023 into 2024 and say we are firmly in the hype cycle of AI. I'm curious, as you look at that space,

I would say NVIDIA has seemingly gone from rule breaker to rule maker in almost record time. I don't know if I've ever seen it happen this quickly. What do you make of that, David? Well, first of all, NVIDIA for me is a stock that we picked in 2005, and then I re-recommended it in 2009, and again in 2016. In other words, for me, it is a long, long holding. And it's not for me. Ironically, I don't own any NVIDIA myself. I wish I did. I'm very happy with the ones I do own, some big winners. But I'm so glad that I and we picked it for our Stock Advisor members. And we picked it not just once, but again and again. And it got Best Buy Now recommendations. So I just want you to know, especially for people who don't know The Motley Fool that well,

listening to us right now, it's a 19-year hold right now for Motley Fool Stock Advisor. And I picked it and rode every up wave and every down wave do waves go down i mean i crash go up yeah do waves go up uh so let's go with going up the mountain because that's a much better analog sometimes when you climb mount everest which apparently you don't want to do these days because it's badly polluted near the top but that's a separate topic but when you go up mountains you go down sometimes right you go down a little bit and then back up again and that really is my analog for Nvidia because it is an amazing mountain. It goes lower left to upper right over the only term that counts the long-term. But man, if we haven't experienced times where it lost two-thirds of its

value, Dylan, it did that three years ago. I think it was 2021. Check it. It lost two-thirds of its value, went from $300 to $100 as a mega cap stock already in a single year. And for us, that was our $100 bagger dropping to only a $30 bagger, but now it's well back up. And so I just want anybody listening to know that I don't view NVIDIA as a poster child for AI hype cycle, even though I recognize in some ways it serves that purpose right now. It's getting a lot of media play, and obviously the market cap is trillion-dollar-ish. But I just want everybody to know that every year that led up to that, the last 19, we've watched, we've recommended it, and we've studied it. And I know the volatility that comes with these kinds of companies, even at large sizes, large cap where it is today.

So I love AI. I check in with ChatGPT every day. I know there are other GPDs out there that people are probably cooler than mine. I'm probably like the McDonald's vanilla ice cream at this point. And people are like, dude, it's not about vanilla ice cream at McDonald's if it even serves it anymore. There's better stuff out there. I'm quite sure that's true.

But most people are not even yet using AI on a daily basis in their lives. And so that's what I'm here to say. It's amazing. And NVIDIA is helping drive that. It's one of the players. Listeners, if you have some tips for how David can put some sprinkles on his vanilla AI ice Kareem, podcasts at fool.com. You can also reach out to him on the RBI handle as well.

I appreciate that, Dylan. But let me ask you back right now. Do you have some sprinkles you want to throw my way? Is AI a part of your life? Are you doing stuff that I should be doing? So I think what's amazing about it is it is one of those technologies you can interact with very clearly as a user or be interacting with and have no idea as an end listener. And so just as an example there, I mean, our multimedia team is using AI as part of our audio edits and cleaning up the audio before it goes out.

That's one of those things where I bet listeners had no idea that was happening. Such a good point. And it's in the tape that you're consuming from us every day, whether it's the RBI podcast or the Motley Fool Money podcast. And so I think that's particularly fun. I am with you, David. I'm still a little bit on the earlier side, but I think using it to distill information is incredibly helpful. I've played around a little bit with tools like Pika, where you can do video generation, and it's incredibly interesting, incredibly fickle. I'm working on my prompts. I'm trying

to get better, but it's a little tricky. Well, and I totally agree with you on working on prompts. In fact, there's a wonderful book called A More Beautiful Question by Warren Berger, and it's all about the power of questions. And if you think of questions as prompts, like, hey, chat GPT, dot, dot, dot, question mark, would you do this thing for me? what we learn is, I think Warren Berger was right, making your questions powerful, beautiful, inquisitive, open, teaching the kids in schools, not just the stock market, which by the way, I hope we are, but teaching them to ask questions. That is actually what powers the AI. It's not some fact-based deep insight that you're giving it that it's then turning into something else.

We're asking questions. The better prompts, I learned this from Kevin Kelly as well, founder of Wired Magazine, co-founder of Wired Magazine, one of the great netizens of the world today, and Eminence Grise in the technology world. I'm a huge fan of his and his book about the inevitable. I've had him on the Rule Breaker Investing Podcast. We might have interviewed him on Motley Fool Money. Kevin Kelly, huge fan of his. Every day, he puts out a single new original piece of art on his Twitter feed. How does he come up with this art? Which is really interesting. It's kind of futuristic in some cases and very provocative and always clean, but interesting. Here's what he does. And he's been doing this before ChatGPT showed up or before Dally or

anything else became cool. He was using AI tools and prompting. And he will sit there in front of his computer for about an hour and just reprompt, reprompt, copy and paste, but tweak that word, add this or that. And he's literally creating, with the help of DALL-E or a visual AI engine, he's literally creating really interesting original art. And you could say, well, is he though? Because he's not actually doing, he has no artistic skills per se, but you know what he's doing? He's asking and inputting brilliant prompts to create a new thing every day that's incredibly creative if you think about it. So for me, that's another great example. I love the example you just gave of audio fixes. Like, Dylan, I just misspoke, but I didn't misspeak because you had my voice,

and so you corrected me, and it was more efficient and quicker. So you're right. It's already happening. It's baked into the world around us. But with intention, I think we could all ask more and more interesting questions and lead to better outcomes. I think what I'm hearing there is AI is continuing to reward curiosity. It is not going to get in the way of it. I totally agree with that. And I think, if anything, it will expand our awareness to ask questions that we didn't even know to ask here in 2024. In 2030, there'll be better questions. I hope there'll be beautiful questions. And obviously, I'm very optimistic about this. There's downsides to everything. I was a huge internet bull. Do you remember when the World

Wide Web, Dylan debuted. How old were you? What is your official date for debut? I don't know. Let's go with 1995, because that's when AOL started including a web browser as part of the AOL experience. I know it predated that by decades, depending on how you're counting. But how old were you in 1995? In that case, David, I was five. I was five years old. And I was a little older than that. But I bet you were bullish on the internet back then. A lot of people weren't, though, Dylan. A lot of people were like, you know what? This is just chat rooms, people hyping stuff. Also, eBay, are they really going to send you that item? By the way, you wouldn't even want to put your credit card out there on the internet.

E-commerce isn't going to work. That was the conventional wisdom in the mid-1990s when Tom and I started The Fool. And we were partly apologists for this new technology. We were like, no, I think people, am I crazy? Yeah, I'm a fool. I'm wearing a jester cap on CNBC. I think people will actually use their credit cards on the internet. And I'm happy to say we were right on that one. And Amazon.com has been a fantastic investment for us and our members. But I'm a bull on new technologies. People will try to make them sound scary. And I understand there are ill effects that come out of the World Wide Web and artificial intelligence. But these are amazing developments that we should be pinching ourselves that we get to live during this time

and see these things emerge. And we should be looking for the best in each other. And we should expect that they'll continue to improve our world while, admittedly, some horrific things have happened because of the internet and will because of AI as well. You play your market cap game show on Rule Breaker Investing with our analysts. I'm going to put a little March Madness twist on that and ask you to make some approximations that are a little bit March Madness themed, if that's all right. Wow, it's totally all right. I'm happy to look silly. Let's do it. All right. So, college athletes are now able to make money on their name, image, and likeness. These are these NIL deals you'll hear all about. And it has dramatically changed the landscape in

college basketball, but also college sports, just broadly. Caitlin Clark is now the all-time leading NCAA scorer. She passed Pistol Pete Maravich and his scoring record earlier this year. She is also among one of the estimated top NIL earners. My question for you, David, is what is the estimated value of her NIL deals? So are you talking about an annualized number? Or is this a package deal wrapped up over time? I have seen it as an annualized number. Okay. So first of all, I don't know. I'm always happy to guess, and I don't mind as a fool looking silly. Armando Baycott, who on the men's side is credited often with being the first person who really started cutting his own deals. He's actually a business school student in North

Carolina. He's also a national championship caliber player. Armando, I think, is around a million dollars in terms of the deals that he makes. I think women's sports, there's less revenue in it, so I'm going to go lower than that. But Kaitlyn Clark is like the Tiger Woods super athlete of her sport, of her era. And so I think I'm going to end up going with beating out Pistol Pete Maravich gives her a level of national regard, which very few people, male or female, have in any sport. I'm just going to go with $750,000. The estimate I saw, David, and I'm going to use a little sound effect here because I know you use it in the game is $3 million. That is phenomenal. So first of all, I take you at your word. I went

low. I might be low on Armando Baycott, which is a reminder to me that this is a very dynamic system. This all just kicked in about a year ago. And again, Armando was on the cover of Sports Illustrated or the Washington Post just did a whole article on him as he's sort of like the first one who went for it. And I bet he's above where I just quoted, right? Because I think Good or bad, college sports are now professionalizing and probably at a faster rate than I'm appreciating. So good on you, Caitlin. Okay, David, my second Market Cap game show inspired question for you related to March Madness. On your recent Rule Breaker podcast, you talked about a company that operates a bit as a picks and shovels company on sports betting,

and that's Sports Radar. Sports betting is becoming more and more accessible for a lot of Americans. My second question is, the American Gaming Association has an estimate for the amount of total legal bets placed on both the men's and women's NCAA tournaments for 2024. What is your guess for what that amount is? Wow. You know, I came across a headline that was about the gaming industry. So think casinos more than anything. But at casinos, people are betting on sports and they're betting on March Madness there too. This is kind of a shocking figure to me, Dylan. So this is what I'm using as a quick analog. $66.5 billion is the amount of money that Americans lost to the gaming industry last year. And that's a shocking total on its own. So obviously, they win less

than half the time, but that implies something like about $100 billion being waged-ish. And I'm just dealing in round numbers. I'm not even good at my own game, as I think we're seeing. My answer will be that out of roughly $100 billion wagered, are you talking about how much is wagered or how much is won? Wagered. So this is basically the pot and the activity for betting. So wagered on March badness, I'm going to go with $2.2 billion. You're darn close. $2.7 billion. Really? Yeah.

That was luck. That was luck. I mean, obviously, I'm just trying to deal in big numbers. The Super Bowl is going to be more than that, surely. But after the Super Bowl, I don't think Americans care about anything more at scale than March Madness. It was cool seeing you think out loud for that one, because that is exactly the logic flow. It is one of the biggest things that people bet on. it is one of the few things beyond the Super Bowl that amounts in a single-digit percentage or more

of the gaming industry take, in this case, about 2% of the sports gaming industry from 2023. Yeah, so it was fun to see you reason through that. And maybe that's why you wound up getting pretty close to the answer there. Well, in that particular case, I guess it is. We're all using something to hold onto, something to grip as we try to climb the mountain and see from the peak, like the truth. And so I had, I had a handhold there. All right. My final market cap game show inspired question for you on March Madness, David, the biggest upset of the first round of the NCAA tournament on the men's side was number four, Auburn losing to number 13, Yale. What was the spread of that game? How big of a favorite was Auburn going in? They wound up

losing by two points it's really fun that you asked me that partly because i had auburn all the way through into my final four i wasn't trying to rub it in i didn't know that hurt a lot and if you did watch the game which i did you saw a questionable call it was a flagrant two i realized not a lot of people at this point maybe care about that call anymore and a lot of people don't know basketball that well but they ejected one of auburn's talented starting players four minutes into the game. That was not the only reason they lost. That was a contributor. And that was not something I was factoring in as I rolled my dice, but you know, these things happen. Bigger upsets have happened before. Um, uh, Yale then got absolutely trounced by San Diego state in the

next round. Um, I'm going to say that Auburn was, let me see. I'm going to say they, by the way, were underseeded. I thought they should have been a two seat, not a four seat. So that was a great team that lost to Yale that day. I'm going to say that Auburn was a, um, 19 and a half point favorite 13 and a half, but you got into the double digits there. And I feel like really, when I look at spreads, there's two classes. It's like, are we in the single digits? And we think this might be a ball game or are we in the double digits? And this is perceived to be a blowout. And I say anything above 10, there is a heavy, heavy favorite. I appreciate it. I will say I was off by six. I mean, I, you know, numbers matter. So I would have liked to have been closer

to that. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. I'm Mary Long. Thanks for listening. We'll see you tomorrow.