Motley Fool Hidden Gems Investing - David Gardner on Investing During Tough Markets

Episode Date: August 27, 2022

2022 has been a challenging year for stocks in general, and rule-breaker stocks specifically. But the companies you buy during difficult times can become the best investments you make. Chris Hill talks with David Gardner, co-founder of The Motley Fool and Chief Rule Breaker, about: - Maintaining a “net buyer mindset” during a downturn - 2 books that can help you improve your investing mindset - Investing lessons from Zoom’s “short strange trip” Stocks mentioned: ZM, GOOG, GOOGL, SPCE Host: Chris Hill Guest: David Gardner Engineers: Dan Boyd, Tim Sparks Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey Ontario, come on down to BetMGM Casino and see what our newest exclusive, The Price is Right Fortune Pick, has to offer. Don't miss out! Play exciting casino games based on the iconic game show, only at BetMGM. Check out how we've reimagined three of the show's iconic games, like Plinko, Cliffhanger, and The Big Wheel, into fun casino game features. Don't forget to download the BetMGM Casino app for exclusive access and excitement on the Price is Right Fortune Pick. Pull up a seat and experience the Price is Right Fortune Pick

only available at BetMGM Casino. BetMGM and GameSense remind you to play responsibly. 19 plus to wager. Ontario only. Please play responsibly. If you have questions or concerns about your gambling or someone close to you, please contact ConnexOntario at 1-866-531-2600 to speak to an advisor free of charge.

BetMGM operates pursuant to an operating agreement with iGaming Ontario. And that's what I've been trying to say, especially through my podcast over the last year. I think a lot of us are going to look back at some of the prices we paid in the spring and the summer and go, wow, I got a pretty good price on that stock that day. And yet, importantly, it didn't feel good at all to pick it. I'm Chris Hill, and that's David Gardner, co-founder of The Motley Fool and host of the Rule Breaker Investing Podcast. I caught up with him because 2022 has been a rough one for stocks in general, and certainly for rule-breaking companies. We talked about two books that can help your investing mindset, what we can learn from Zoom videos, short

strange trip and what David is especially curious about right now. Let's start with doing something that I know is not your favorite exercise, but it's looking backwards because the first half of this year was the roughest first half of the calendar year for investors that we've had in decades. It was particularly tough on growth stocks, rule-breaker stocks. I'm curious if there was any point where you thought to yourself, you know what, the thesis on this company might be broken, or did you just view it as, look, We haven't had a pullback like this in some time. Maybe we were overdue. And as we always have in the past as investors, we'll get through this as well. Wow. Well, I would say all of the above.

Let's just pull it apart for a sec. I would say, first of all, that I'm always investing. ABI, always be investing. Chris, I think everybody should always be investing. If you are not in retirement, if you're not about to retire, you should be a net saver and you should just be adding that money to the market through thick and through thin. So in this sense, let's go back to Finding Nemo. I know it's one of your favorite movies. It has to be Chris Hill, right? Because it's the world's favorite. Yeah. Top five, just keep swimming. I found myself using that as a hashtag on Twitter throughout a lot of this year. I spoke to it on my podcast. I think that that, I mean, it's always true anyway, right? You should be, if you are earning a salary,

you should be saving every two weeks. And I think you should be adding it to the market in whatever way you prefer, whatever your orientation is. For a lot of Motley Fool Stock Advisor members, we have another good stock idea for you, a recommendation every couple of weeks. So, there are different rhythms. And some people just want to do funds, and that's fine too. But just keep swimming. I think the reason we need to say just keep swimming is not when the tide is coming in and or the surfing feels good. I think that Dory starts saying, just keep swimming because it's a time of stress. It underscores the times when it's hard. That's when we need to hear that phrase, even though we should always be doing that all the time anyway. Two other things I want

to say quickly. One is that Zoom is really instructive here. Just the stock, ticker symbol ZM, certainly a Rule Breaker-like pick, one that many Fools own. Three years ago this month, Chris, it was at $100 a share. Somewhere between three years and now, it went up near $600 a share, and today, it's right around $100 a share. As I tweeted recently, what a short, strange trip it's been. This is not just true of Zoom. It is instructive. It is true of many other Rule Breakers and Rule Breaker-like companies. I just think that you have to look at the company's results. This company has really grown substantially through these three years. While expectations were maybe that the pandemic lockdown would continue longer or that, I don't know,

Zoom would take over the world, it didn't. I think we're all glad that the pandemic lockdown is slowly melting away. I like Zoom for the long term. We just have to recognize that stocks that go from $100 to $600 to $100. That's not usual. It's an unusual time. It was really a one-off in history, at least in our lifetime. We haven't faced pandemic investing. It's kind of a poster child for me about the craziness of the last couple of years. And then to close, my long shaggy dog answer to your first good question, Chris, I want to say that I'm up 44% right now for my June lows. I spent most of 2022 talking about how far down I am from a year or two ago. But I do want to say, at least for me, and I hope this isn't bragging out of turn because I hope

it's true of a lot of other Rule Breaker investors and a lot of other Motley Fool members, check it. You might be up pretty dramatically in just the last couple of months. I can't think of that many two-month periods where I'm up 44%. So, sometimes we need to shock ourselves back into recognizing what's really happening and not spend so much time gawking in the rearview mirror. But since I'd liked briefly gawking in the rearview mirror, I have to admit, I'm still down 34% from my all-time highs, which for me were in November of last year. So still down a third from that, but up 44% in two months. That's more of the craziness that we're talking about. Oh, and it's an important reminder, I think, when you use Zoom as an example, because so often the narrative, the

conversation around stocks is about the stock price and not about the underlying business. And so the idea that, you know, because I'm sure there are a lot of people who just looked at that and said, well, there you go. It's, you know, it's crashed back to earth where it was at the start of the pandemic. And I'm guessing fewer people took the time to say, well, wait a minute, what was the business like then? What is the business like now? Even though at both points in time, this stock is $100 a share, is the business stronger now? Is it better now than it was the previous time? Yeah, I think there's absolutely no question that it is. Three years ago this month was August of 2019. I don't think that the pandemic had even presented itself in

China very demonstrably in August of 2019. So I think the conventional wisdom is to look at Zoom, call it a broken stock, say it's gone from 500 to 100, and it was a joke. But we're not following the conventional wisdom at The Motley Fool. We're fools. I look at Zoom and I'm thinking, wow, it's where it was before the pandemic. This company has substantially grown. It's also a ubiquitous, globally known brand name. And I think it's probably a pretty good buy right here right now. But again, that takes looking forward. You have to be always looking forward as you just keep swimming, not spend time crying in your soup looking backward. And certainly the underlying economy right now is significantly stronger than it was during the Great Recession. And you had said

that buying stocks for you during the Great Recession was tough because they were all going down. Everything was going down. There were legitimate conversations happening about the strength of the U.S. dollar, the strength of America's banking system. Yeah. To the extent that you can go back in time 14 years or so, how did you maintain that net buyer mindset at a time that was even tougher than the recent drop we had here? Well, in a lot of ways, it was quite easy. And I don't mean psychologically easy, but operationally easy. By our very nature at The Motley Fool, if you're working on a service like Motley Fool Stock Advisor or Motley Fool Rule Breakers, I was working on both through 2008,

2009. That means I was making three new stock picks every single month, two new rule breakers, one new stock advisor pick. By the way, also, five Best Buys Now for each of those services. So, it was 13 independent stock recommendation decisions every single month. It wasn't just true of 2008-9, but also of 2005-06-07 and 2018-19-20. So, that's just the rhythm that we are in. And especially if you're in a position as an analyst or an advisor at The Fool, it's also true of all of our members. You're listening to us. You're buying, I hope, and with a smile, most years, you're buying our recommendations and you're using them to prosper in your own portfolio. If you are being forced, Chris Hill, every single month to come up with 13 of your

best ideas at the time, it's just operationally necessary for you to do so in December of 2008 or February of 2009, even though, yes, it felt like I was walking through a minefield and half of the things that I would pick within three to six weeks would be halved. It was a remarkable time. I don't wish it on anyone. It's felt a little bit like that over the last year and a half or so. But now we look back, of course, and we realize those were some of the best picks that we made in Stock Advisor and Rule Breakers history. Not necessarily because we're geniuses or we picked the best stocks, although I think we picked some pretty good stocks, simply because the market was at such a low point that we now look at those cost bases

and think, wow. That's what I've been trying to say, especially through my podcast over the last year. I think a lot of us are going to look back at some of the prices we paid in the spring and this summer and go, wow, I got a pretty good price on that stock that day, and yet, importantly, it didn't feel good at all to pick it. So I don't want to hold myself up as an exemplar or a particularly courageous person. It was simply business necessity, the delivery of the services that people had paid for that I just kept picking, just kept swimming through those two really, really tough years. One more question around mindset before we move on. And this is also going back a number of years, but David Allen's book, Getting Things Done. I know that's

a book that had a positive impact on your work life. And I'm curious whether it's a book or an article or maybe even just someone you follow on Twitter, what you've read that has helped your mindset as an investor? Well, I read very few investment books, so I'm not about to give an investment book per se. I do read a lot more business books because ultimately, as foolish investors, we're investing in businesses. We're not playing games with the market or meme stocks. We're looking at the real hard blue glow of capitalism and saying, what's great? What's going to prosper? What's going to make the world better over the next 10 years? For me, my book, the one that comes to mind first, I'll give two, is The Inevitable by Kevin Kelly. It's just a

wonderful book. I'm going to guess a lot of our listeners have actually heard of Kevin Kelly, who co-founded Wired and may well have read The Inevitable. It was actually recommended to me by Bernd Schmidt, one of our wonderful German fools. He's like, David, you would like this book. You're a rule breaker. Bernd is also a rule breaker. So I read it, loved it, interviewed Kevin on my podcast. So anybody who wants to skip it, not read the book, although I really think you should. We actually only talk about the first half of the book on the podcast, but you can definitely hear Kevin speak to it. The reason I think this is a valuable book, Chris, is because he has us thinking about the 12 technological forces that will shape the future. One of the best antidotes

to not getting too caught up in the storm and drong of near-term market movements or sad market losses looking back over the last year is just to keep looking ahead and realize the amazing technologies that are already around us and that will only continue to proliferate and probably make themselves more awesome over the course of the next 20 years. For me, that's a mindset builder and reminder. Always be asking, where are things headed next? Most of the time, a lot of people are bearish. They think things are going down. They think things are going to be worse for their kids than they've been for themselves. That's been consistently wrong throughout history. It's very evident that we take for granted today things that our grandparents

would have dreamed of. And that's going to be true of our grandchildren. So, there's a wonderful, positive future coming. People like Kevin Kelly know that, and they speak to it. It's a great book. The one other book that I'll speak to is just, this has nothing to do with investing unless you start thinking about why are you investing and what are you going to do at the end of your life. all of our lives will end one day, sadly. And thinking about the legacy that you want and asking yourself, have I taken the necessary steps to position my money and my family to succeed when I'm not around, reminds me of a wonderful book called Let's Talk About Death Over Dinner by Michael Hebb. I highly recommend this, not just to investors, but to all humans. It's,

of course, not an investment book, nor is The Inevitable. These are both books about culture in life that deeply influence and shape how I act as an investor and as an entrepreneur. So the inevitable, and then let's talk about death over dinner. Both of them kind of about inevitability. I like the themes being tied together. When it comes to technology, business ideas, what do you find yourself curious about as you look around these days, whether it's it's news that you read, conversations you have. What are the things that you find yourself looking at and considering? I wonder where that's going. Yeah. Well, the first thing that comes to mind is space, just because we are going through a process of looking deeper into the galaxy with

more clarity than ever before. And we have more of a mindset to understand and appreciate the vastness of it. If you think I'm about to work this into a space stock, I'm probably not, but I do just want to share an anecdote that for me has been instructive and inspirational. I took, at the University of North Carolina Chapel Hill, I took one astronomy course to fulfill a requirement in my freshman year. And the one thing I remember, well, actually, I remember a lot about that course because I'm kind of an amateur astronomer, closet fan of astronomy. I just don't know enough even to be dangerous. But one thing I did note at the time, my textbook circa 1985, my astronomy textbook said, we can't yet prove the existence of planets

outside of our solar system. So here in this astronomy textbook, one generation ago, we can't tell you that there are planets outside of just Pluto, which by the way, I guess it's not a planet anymore. But looking farther out, we don't see any. So we can't, as scientists, we can't say there are any. Well, fast forward to early days of the Motley Fool. I remember giving a speech in the mid-1990s, and at that time, talking some about space and the acceleration of technology, which is ultimately the point I was making. At that point, we believed that there were one billion galaxies, and the average galaxy, including our Milky Way, had about a billion stars. Now, those are remarkable numbers. It's

hard for human beings, of course, to wrap our minds around what it would be like to have a billion galaxies that we found and our galaxy, about average, a billion stars. But let's update the numbers, shall we? This is the end of my anecdote. These days, we would say that the Milky Way itself has 100 to 200 billion stars. And we have now identified, I believe, you can check at two trillion galaxies. So just think about the mind expansion and the rapidity of improvement of our understanding of the universe at large and how it has massively enlarged over just the course of you and I are the same age, basically, since college. And so that just humbles me and reminds me always to have an open mind and a mind alive to infinite possibilities and things you couldn't

possibly dream up. I think it's kind of a rule-breaker's mindset. But space, when you say, what am I curious about? And of course, the Webb Telescope now returning images that are starkly beautiful and more detailed than we've ever seen before. And I'm not about to recommend a company that I've heard that no one else has heard of that's going to be mining space minerals and making a bundle and let's get in now. But I'm watching. I'm certainly respectful. I haven't been a big Virgin Space fan. I've never recommended that stock or owned it. But, you know, I think that's, even if it's just voyeurism over the last, I don't know, 30 years of our lives since we're in our mid-50s, even if we're just paying attention and just enjoying the eye candy of it, I think

it's fascinating. But there might well be more investment and possibility emerging. I think that there will be. So I'm fascinated by that. And I guess my one other quick thing is just conscious capitalism. I'm on the board of the national organization, Conscious Capitalism. And I think that conscious capitalism is a way of doing business better that elevates humanity. It's the companies that people love to go to work for every day. It's the stocks that outperform the market, in my experience. The Motley Fool is certainly trying to do its best to be a conscious capitalist company and an exemplar. And I'm sure in some ways, we do it really well. And in some ways. We have a lot more to learn, but I truly believe that business is self-improving and that's

because business is competitive. And the only way to win is to be better, better than you were yesterday. And so the businesses that really are set up to get that, those are my stock picks. Those always have been, those are the companies I love as an entrepreneur and the one we're trying to create. So space and conscious capitalism. I know you just got back from a vacation in Scotland and England. And I know that when I go on vacation, no matter how hard I try, I'm never 100% successful at shutting off the investing part of my brain. I've heard you say this over the years many times on Motley Fool Money. How often is it that Chris Hill comes back and he has a business insider thought, even though he was supposed to be with

his kids? I'm trying to get better. I really am. But I'm curious if you share the same melody. and if, in fact, there was anything in the investing realm or the business realm that you observed and piqued your interest when you were overseas. I don't think I have a very good answer to this one. I'll say that while I was overseas, I think that Papa John announced that it would have crust-free pizza. I know that that has been much talked about at this point, but I'll just say that it was a non-entity kind of a story for me. I don't care about that story, but that was a business thing that crossed my iPhone, I think, somewhere in the highlands of Scotland at the time. But my experience of traveling this particular time, which was 10 days in the UK, I came across

a bunch of people who know The Motley Fool. And that was a real eye-opener for me. I often think, it's just The Fool thing, we've been doing it, it's largely a U.S. phenomenon. And yet, getting overseas and having so many people recognize our company and our brand was exciting for me. And it was challenging, too, because one thing that came through a number of the voices that I had conversations with them, because they figured out who I was. We were actually all on a train together traveling around Scotland. And so they figured out who I was. So each one wanted to have their Motley Fool conversation with me. And I heard, on the one hand, encouraging news that we're simplifying our services. And that's really what The Fool's done in a lot of ways.

It's made investing accessible and simpler for people. But I also heard from people who said, we need to simplify further. And so, I would just say, as co-chairman of the company, I hear you on both counts. I think that it's really important for The Motley Fool to be making investing as accessible for as many people as possible. We have certainly, in some ways, simplified the services that we sell and that we offer, but I think we probably have some more work to do there. So there's a thought. Always great talking to you. Thank you, sir. Fool on. As always, people on the program may have interest 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 Chris Hill. Thanks for listening. We'll see you tomorrow.