Investing books are all well and good, but life offers myriad sources of more inspiring material. Today David turns to gurus and geeks to find investing lessons that you probably won't learn in business school. This is the second entry in our recurring Great Quotes series which debuted last December.
Rule Breaker Investing
Great Quotes, Vol. 2
It's the Rule Breaker Investing Podcast with Motley Fool Co-Founder, David Gardner. And welcome back to Rule Breaker Investing. Well, this week, it's greatest quotes, Volume 2. So this is a companion to our greatest quotes, Volume 1 podcast. If you'd like to go back, it was 16 minutes, it was taped on December 16th of last year. I enjoyed, you may remember my Jerry Garcia quote for any deadhead fans out there. I also gave a great Jeff Bezos quote and a few others. And similarly, this week, I'll be sharing, in this case, four quotes with you, pulled not just from the investing world, but from the world outside investing and just hoping to get a little smarter together this week. Before I give the first one, I want to mention that I've had a great time in recent weeks visiting college and high school campuses. I want to give shout outs to Bria College in Kentucky, to the University of Richmond, and it's Jepsen Leadership School, of course, in Richmond, Virginia, my own alma mater, the University of North Carolina, Chapel Hillwalk, where I got to speak to the Economics Club. And even St. Albans School, my high school here in Washington, D.C., where I spoke to the alumni, I've had a pleasure reaching out to many of you in the different places, in this case around the East Coast, where I've been connecting with people and enjoying the Rule Breaker vibe, sharing good ideas and thoughts with each other to help us get better as investors. And one of the best things we learn as teachers is truly how much we can learn from our students. I realize most of the time, we think in terms of pedagogy and we think, you know, how much we as students learn from teachers, but anybody who's really taught, or in this case done, podcasts knows, you learn so much simply by interacting and hearing questions and really asking questions of the people with whom you're collaborating. And so at those respective schools, I had many interesting and valuable conversations. And if you were in one of those, I'm going to say hi again to you this week, and thank you. All right, let's kick it off with Grace Quotes Volume Two. And the first quote I want to lead off with, this podcast comes from Walt Whitman, quote, do I contradict myself very well? Then I contradict myself. I am large, I contain multitudes, and quote, great poet, I have to admit, I never really did study Whitman that much myself, even as an English major going through the University of North Carolina. We were probably more focused back then anyway on English literature, not American poets. But the reason that this quote means a lot to me is because it reminds me of how to think about investing, which is that it's totally fine to have ideas at odds with each other and still decide to buy or to sell accordingly. In fact, you're going to be a better investor if you find yourself contradicting yourself as you go through the process of trying to figure out do you want to buy this stock or not. This kind of sentiment was similarly echoed, I won't quote him directly, but many, many will know F. Scott Fitzgerald's famous quote about how brilliance or genius is the ability to keep two opposed thoughts in the mind at the same time. And whether we're talking about bulls and bears long and short, buy or sell, the truly the ability to keep contradictory thoughts in your mind at the same time to harbor them to allow them to live there, not to be defensive or defend your own viewpoint, but to be open to the possibility that you're wrong, first of all, or that things might change for better or for worse, from how you're seeing things to be open to directly contradictory viewpoints from others, friends around you who may really love that stock that you hate. This is such an important part, not just of being a good investor, but I think of being a good citizen and a good human being. And so do I contradict myself very well? Then I contradict myself, I am large. You are too, by the way, I'm not really that large. I'm about five, 10, and three quarters. I am large. By the way, that I say three quarters shows that I have a slight chip on my shoulder that I didn't make five, 11, or really six feet, which is where a lot of men think. Anyway, I contain multitudes. So this is an important part, it flows very naturally into my greatest quote, number two. And this is a little bit self-serving, and I apologize because this is one of my quotes. Occasionally, as you may remember from a past mailbag, I asked myself a question on my mailbag and I might even think that I have a great thought or two that I'll occasionally move into the great quotes podcasts. And so yes, I think from time to time about the things that I've written and said and what's worked and what's not and what might actually outlive me. And I keep a list of things that I think are more likely to do so than not if anything does it all. And if it ever happens, this might be one of them. Here's the line, stocks always go down faster than they go up, but they always go up more than they go down. Why do I include it this week? Well, I hope you can see how very naturally it flows from our first quote this week, keeping opposed thoughts in one's mind, contradicting yourself. These two ideas are very contradictory in a lot of people's minds, but it's really important to keep both in mind. So let me slow it down and just go a little bit deeper into this one. First part of it, stocks always go down faster than they go up. Yes, we've seen the market slide awfully quickly there from December into February. And how many times do individual stocks drop 30, 40 percent on earnings? How often do those stocks with strong earnings go up 30 or 40 percent in my experience much less often? And so I think that it's just a truism. People tend to panic out of things. They sell the whole market or a stock and yet bullishness or the willingness or belief, not just of you as an individual, but lots of people. In order to buoy a stock, propel it up, single events don't typically in my experience trigger those kinds of big ups. And so stocks always go down faster than they go up. But then there's the second part of it. I think I've shared this sentiment with you before in this podcast. They always go up more than they go down. Step away from the 20th century right into the 21st century and just look at a graph of the Dow Jones industrial average or the S&P 500 and you're going to see something that mainly looks like going up a mountain, the classic, you know, what everybody wants to see in their graphs from lower left to upper right, that is the stock market. And it's not just over the last year or five years or some random period in this nation's or any other nation's history. If you just look at the growth of global markets, the growth of the value of being a stock market investor over centuries as somebody like Jeremy Siegel does in his work, you're going to see it goes up over time. They always go up more than they go down. Yes, stocks go down. The average bear market studies have said lasts about 18 months. It's not really a very fun 18 months. Sometimes it's less than that. Sometimes it's more. But here's the good news. The average so-called bull market lasts for years and simple math again. Two years in three, the stock market rises one year in three, the stock market declines, so the numbers are totally on our side as investors by definition people acting over the long term. And so you have to be able to look past the first part of that quote. Stocks always going down faster than they go up a lot of people in the face of that do in fact and sadly sell. They're the people who at the bottom of the market in 2009 said I'm finally done and some of them still aren't back by 2016 and this is unfortunately it's understandable from a human mentality standpoint that's why Fitzgerald calls it genius if you can keep opposed thoughts in your head at the same time. But it's so important for you and me as we look to maximize our returns. The best way most of us are going to make the most money in our lives is to invest in the stock market and leave it in the stock market and add more to the stock market as we save and age going forward. And that remains just as true today as it did 50 or 100 years ago. Stocks always go down faster than they go up, but they always go up more than they go down. Quote number three this week, this one comes from a much better investor than the last quote. And that's because it's from Warren Buffett and Warren Buffett has many great quotes. In fact, I think maybe my next great quotes, whatever we do at some months, hence volume three, I think I'm going to go all buffet all the time for that one because I have lots of great Buffett quotes and I have to confess, I'm not even a big Warren Buffett disciple. As I've mentioned before, for those of you who know me over the long term, I've actually never read a full book about Buffett. I've seen stuff from him. I've seen him speak. I admire him a lot. I've read some of his annual reports, but I've really never taken in the man. So I'm not a big Buffett disciple, even though I deeply admire him and I'm very much looking forward to my all Buffett all the time, great quotes, volume three. So consider this one just a preview and it's his three eyes. So maybe you know this one, I can't call it a direct quote because it's more a summary of his thinking and I'm pulling this particular passage from a Harvard business review, which is looking at Buffett. So this is the three eyes of every business cycle, the three eyes of every business cycle. First come the innovators who see opportunities that others don't. Then second come the imitators who copy what the innovators have done. And then finally third come the idiots whose avarice undoes the very innovations they are trying to use to get rich. Again, quoting Buffett not perfectly, but spiritually perfectly. And what a great and powerful thought this is. So in October 14th of 2015 last year, I did what is the hype cycle that for that week's podcast, you can go back and listen to it. And it really summarizes Gartner's framework of how things get hyped. And it's not always bad. By the way, hype doesn't need to be a completely negative, negatively connoted word. But for the most part, what you're seeing from Buffett here is the hype cycle in miniature. And that is we lead with the innovators. I call these the rule breakers. These are the visionaries. They're the ones we've talked a lot about this from week to week. These are the companies that are admired because they're driven by people with a vision. And as Buffett in the quote I just read you says, they see opportunities that others don't. Second, and this happens all the time in business come the imitators. We were told throughout our school days, don't look over and look at Johnny's or Sally's paper. That's cheating. You can't do that. You need to do your own work. And a lot of us raised on that pure ideal emerged from college, at least I did, and quickly get grossed out by the simple sheer amount of copying going on in the business world. Everyone's looking at Johnny's paper. Everyone's looking at Sally's paper, especially if Johnny or Sally is a visionary and trying or doing something new, some people will kind of poo poo it and say, we're not even going to go that direction. Johnny or Sally's crazy, but increasing numbers of people, especially these days, are more open innovation and tend to just see whatever's working and try that on their website too. The amount of copying and pasting, the amount of big data driving the same kinds of decisions across different groups of people. There is just a ton of, in some cases we could call it, collaboration. In other cases, we can call it just sheer copycatting that's happening all the time in the business world. And by the way, that can either work or not. There's no guarantee when you copy that it'll actually work. But if you found a best practice and it starts to work for you too, maybe, indeed, not just you, but others are being leveled up in video game terms by that innovator who came out first and did it and the rest of us are just copying. So thus much for the cycle, things feel pretty good. It's when the, in Buffett's words, idiots show up that things get problematic. Usually, at that point, you've got Dr. Coop.com. It's also going to be on the internet back in the dot com days providing health advice. There are lots of questionable, rinky dink companies that show up coming after note, please, coming after the imitators that at this point, a lot of the good venture capital is already gone. But everyone's doing it. It feels great. So whether it's the internet boom with the late 1990s or maybe 3D printing stocks in the last few years, internet of things, these are all important trends, but at a certain point, what can happen, go back and listen to the hype cycle podcast again, is it becomes not the smart money bet to keep copying. Valuations are too high. There's not enough capital out. And as will usually happen as Gartner has taught us, these technologies will disappoint in the near term. The expectations are so inflated around them at even early stages of them that it becomes impossible for them to deliver on that. And then everything kind of caves in and we can look back and realize who truly was the innovator, who was the imitator and in Buffett's line. Who were the idiots? So I think this is a really fun and good quote, and I really like that Warren put it out there. I hope that's a good and useful framework for you with a, maybe a healthy dose of little cynicism thrown in. And finally this week, quote number four. This one simply comes from one of my favorite recent television shows. The show is slightly off color. The quote is two. I hope you'll forgive me. But if you've ever not seen the IT crowd, which is a British sitcom centering on two guys who are running the IT department at a nameless faceless corporation and the antics that they go through trying to help other people who are clueless with their computers. If you've not watched the show, I would highly recommend you try to watch a couple clips at least on the internet, because you'll see the IT crowd clips out there, Roy and Moss, kind of a great buddy's comedy. But in one particular episode, Moss, who is the ultimate geeky character. This is a show by the way, which celebrates geek culture. Before I explain much more about just the nature of geekiness, let me just give this quote, which is from Moss played by the wonderful comic British actor, Richard, I think it's Iowa day, but it's something like that. And Moss's line, and I'll explain a little bit more in just a sec, is this. I came here to drink milk and kick ass, and I've just finished my milk. And what I love about that quote is not only that it's just kind of funny on its own and he is actually in a situation where he is going to try to kick some ass, but he's drinking milk because that's just part of who he is. But I think what I want to opine about this is the nature of geekiness because this show is a geeky show and a book that I recommended to some of you on this podcast, which you've enjoyed. You told me that online a few months ago, ready player one. That's a very geeky book as well. But my observation about geekiness is this. It grows less geeky and increasingly mainstream over time. Back when I first read the Lord of the Rings somewhere back in the 1980s, I know some of you read it in the 70s and 60s, that was really pretty geeky stuff back then. And it became a multi-billion dollar movie franchise on top of all those books and all the history there. Or how about Star Trek or Star Wars? These are incredibly geeky franchises. They started with small splinter groups of fanatically geeky people who loved them and yet now they all end up being again multi-billion dollar franchises that run transmedia. It might be a lunch box. It might be a movie and everything in between. So I think part of the nature of things like ready player one, which by the way, is about to go mainstream itself. Steven Spielberg is making it into a movie as we speak, is that I think what's really at the heart of this is that people seriously love these characters or situations or stories. And it's really the fanatical affection felt by even if it starts as a small group of people, that really burns bright and can burn for a long, long time. And especially I think people often associate with geeky fantastical things, sci-fi or swords and sorcery, fantasy, things that are not part of the here and now and the everyday. And so when you combine those two things, a fantastical thing and potentially a very geeky initial readership or listenership or audience, you have the stuff that makes, well, Harry Potter. That's great quotes. Volume two. I hope you enjoyed being with me this week. I made it shorter on purpose because that was my commitment starting last week. Next week, it's mailbag. A reminder, don't send in your questions. As I mentioned last week, we already got them all and taped it previously. So I'll be on spring break next week, but that doesn't mean you should be on spring break or leave rule breaker investing because darn it, I might be replying to your thought or question. Thanks a lot for joining me. See you next week. Fool on. As always, people on this program may have interest in the stocks they talk about and the Miley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. Learn more about rule breaker investing at rbi.fool.com . [BLANK_AUDIO]