As Rule Breaking investors, we often focus on things that others miss. David shares what he'll be focusing on in 2016, and invites you to share your focus with us at @RBIPodcast.
Rule Breaker Investing
Focus
It's the Rule Breaker Investing Podcast with Motley Fool Co-Founder, David Gardner. And welcome back to Rule Breaker Investing Happy New Year. It's 2016. I'm really pleased that you're joining in with me. Before we get to this week's topic, I just want to mention upfront, my apologies again last week's podcast, our mailbag, misattributed, unfortunately, some of your questions to your Twitter handles, and I'm going to just simply say, sorry about that. The good news is, all your questions were real, and I answered as many as I could. And you're real, too, but I neglected in some cases to connect the real person with the real person's questions. So my apologies. That's where we at the Motley Fool say, "Hey, we're fools. We are capital F Fool investors. That's good Foolish. Capital F investing is what we talk about here on a Rule Breaker investing our podcast, but sometimes we're all small F fools. The traditional kind, the kind you don't want to be, and so my apologies for that last week." All right. Well, it is the new year, and the new year, for me, is about focus. And that's what this week's podcast is about. It's the capital F word focus as a rubric. This is a big word for especially the start of a new year. A lot of us might have made one or more New Year's resolutions. It gives you a new focus. As you begin 2016, you're saying, "I'm going to start doing something, or I'm going to stop doing something," or whatever it is, you have a new lens perched on the end of your nose. A new panzne to look at you in 2016. You're there saying, "I'm going to try to do this. I have an objective." You're not so very different from the way that Constantine Sanislavski, the great classical acting theorist and teacher, taught acting, he said, among other things, that actors typically in a scene have an objective. It might not be immediately clear or obvious, but they have sometimes, even to them, a subconscious objective but an objective. You can improve your acting. I occasionally got to the college stage. I was good in high school, but after college, my acting career ended up unfortunate. But I do remember some of those scenes as a collegiate actor at the University of North Carolina, you're thinking about what your actual objective is for your character. For each scene, the actor must discover the character's objective, and actually, more broadly than that briefly, let me just mention, you're super objective. That's generally what, out of the whole play, or if you will, the entire year of 2016, you might have a super objective, but in certain contexts, you may have objectives we always do, and that's really where I wanted to start 2016, talking about that focus. Now I do make some New Year's resolutions every year. I'm going to share one of mine with you, and I'm going to ask you at the end this week to share some of your back with us, Rule Breaker Investing over Twitter, but one of mine was simply to read more, this year, read more history specifically. I got off to a raring start. I started by reading Candice Millard, who's an excellent recent author, typically touching on subjects of American history. She wrote a great book called "River of Doubt, Theodore Roosevelt's Darkest Journey," and I had the pleasure of being in and near the Amazon River Basin over the holiday break, and so this is a wonderful book to read about Teddy Roosevelt after he had been president. As a 54 or 55-year-old man, going on a journey to map a river that had never been mapped by non-natives, our maps back in 1914 didn't have, in the dark part of Amazon, what was actually there, and the amazing journey that he went on. It reminds me of how presidents, especially a century or two ago when they used to write their own speeches and do lots of things outside of being a career politician, deeply admired not just what Roosevelt did, but really what Candice Millard did with her book, Outstanding Book River of Doubt. I'm now reading her next book because this is my focus, 2016, read more history, I really like Candice's work. Her next work was "Destiny of the Republic," about James Garfield and his presidency. Pretty remarkable story, I recommend those to you, so that's one of my resolutions. That's part of my focus. Focus is an interesting word. If right now I ask you to focus on the color red and look around you wherever you are, you're going to start noticing all the things that are red, and I'm sitting here in our studio and I see a red light, so there's red. I see my red post-it notes around me. I see a silly-looking muppet doll above my producer Rick Engdahl. It's not Rick's, I don't think, but it's just one of those silly things we have kicking around, full HQ, but I'm only noticing the things that are red, and when you can bring that kind of focus, it causes you to see the world differently. You're tuning out everything that is not red in this case, and you are wherever you are, whoever you are, you're seeing the things that are red, and that's kind of like how to succeed with your new year's resolutions. When you say I'm going to do this and you focus on it, it changes how you view the world and then how you act within the world. We hear it the fool, and that's a key word for me, fool. That's a fun word to focus on. Anytime I hear fool in literature or I see one of Shakespeare's gestures on stage, I just think about foolishness and in a world where everyone's trying to be wise, it puts you in a really interesting place when you're saying, I'm a fool, and that's different, and I'm taking a different approach, and so whenever I think about the Motley Fool, I think that we're trying to educate to amuse and to enrich, which is a phrase we've used since the first day of our website back really AOL before the web in 1994, that was right up on our front page, and that's how I think about foolishness, that's how I think about all of our podcasts here at the Motley Fool, so that's a good focus word for me as well. So whatever your color is, red, whatever your brand or name or philosophy is, getting in touch with that and thinking about that and tuning out the other things as you strive to do something new and better here in 2016 is a great reminder for us all. Now with that said, we're of course going to start talking about investing very shortly. By way of this, I want to talk about a particularly successful way that I think I've found to focus, and I'm not going to use an investing book to talk about this. In fact, I'm going to start with a book by Betty Edwards. You might have read it. You might have heard of it. It's called drawing on the right side of the brain. It's a book about drawing. So if you're like me and you're still doing the stick figure thing, even in your 40s and you never really progressed in your own drawing, pick up this book if you have any ambitions at all. I did a couple decades ago and while I didn't really keep it up, what happened was remarkable. What Betty Edwards teaches you as you read her book, drawing on the right side of the brain, is that rather than draw the thing that you're looking at, she says, draw what she calls the negative space around the thing that you're looking at. I'm not trying to sum up her whole book in a single line, but if I were forced to try to do so, it would be something very close to that. Don't draw what you're looking at, what you're focusing on, focus instead on the negative space around the thing that you're drawing. And if you do that, if you have your eye on that thing, the space around that thing and your hand with a pencil and paper, you'll be amazed. It's very transformative for your own artistic approach to drawing. And that's drawing on the right side of the brain. And of course, there's some work that's been done, the whole right brain thing where left brain is about precision numbers, right brain, much more about spatial thinking, creative thinking, abstract thinking. I think a lot of us are familiar now with that sort of yin and yang of those two things. And I'm a big fan, therefore, especially as we start to talk about investing, I'm a big fan of negative space. I'm a big fan of not doing what everybody else is doing, but instead putting your focus on something that few people are focused on. So what does that mean for foolish investing? Well, let's give some examples. So I think the first thing I think about when I think about how the world looks at the stock market or stocks versus how we do as foolish investors is I think that the world tends to look at stocks when it wants to talk about investing. It's about the stock market. It's about the 52-week high and low for a stock. For some people, it's about the chart of that stock, graphs. Some people talk about moving averages, very stock focused. This time of year, you have a lot of people trying to predict or talk about what the so-called market will do in 2016. Again, very stock focused, but I think what we do as foolish investors is we're looking at the negative space around that. Ironically, the negative space for me around investing is actually the businesses themselves. So as investors, we're business focused, not stock focused, in a world in which I think most people who talk about comment on or follow the stock market are really following the stock market. And so we as investors have a negative space opportunity by focusing our attention on the performance of the businesses that we're invested in. Their products, their services, their competitive set, how the world is changing, is the win going to be at its back or in its face for each of these businesses in an ever-changing, ever-innovating world. How is this business going to perform? For me, that's a very good example of a negative space pairing. Another one, and I know you're familiar, if you've been listening along here with Rule Breaker Investing, this, by the way, is our 29th podcast. We started last July. If you've been listening to many of our 28 so far, you'll know that another example of what I think of as negative space is that we tend as foolish investors to look at the long term in a world in which most people looking at this stock market are looking at it in a very short-term way. Turn on CNBC. I rarely do it. Turn on CNBC. It's all about not just today or this hour. It's generally all about this minute right now. Where is the market right now? Where is your stock? I remember pre-internet. I'm sure you do too. If you're 49 years old as I am, you'll remember actually a precursor to CNBC was a television channel called FNN, the Financial News Network, and I think that was the first one. And I loved it at the time. The first one that put ticker symbols sliding across the bottom in the same way that ESPN today does it for sports and sports results, FNN, at least as I recall, was the first time I could flip on my TV and actually see ticker symbols with numbers moving across the bottom. At the time it was dynamic and exciting because to me, the idea that the stock market could actually be that interesting to enough of the public that it would necessitate a cable channel or how about the magic of seeing your ticker symbol go flying by? Maybe it was AOL back in the days and seeing where it was priced seemed really interesting at the time until of course the internet showed up in minutes so that we could all just quote our stocks anytime we wanted. But again, very minute by minute oriented. So not only are the markets covered on such a short-term basis, but that naturally bleeds out into the thinking of all the people who are coming on to the programs as well as of course by association, you and I as we watch and listen to these stations and shows, we're just so short-term oriented. So that's what most of the world is doing therefore the negative space and where we want to place our focus is three years from now, not three hours from now. And again, it is that time of year where people are making their market predictions and talking about that all the time and who really cares frankly, how the stock market does in 2016. Looking back, how much do you really care about how the market did in 2003 if you could remember or 2006 or 2011? We have some associations with these years, 2008 and nine not so great, 1999 and amazing year for the stock market. But for the most part, the year is kind of slide by and it's not in the end about how you did in 1999 or 2006 that defines you as an investor. It's really comes down to how you did from whenever you started right through to today, but more important than the past where we're headed, not for the next day or year, over the next three years at a minimum. And if you even care about that, if that's your focus, if that's your color red, then I think you're going to do much better than the people who cannot see that. And in my experience, that is the majority of people who follow the markets. They do not think that way and cannot see that, which is not to elevate ourselves over them certainly. The reality is that we're all hopelessly short term as human beings. We can't not fall into that from time to time, but I think one good resolution for you and for me is to try to get beyond that this year if we've been mired in it. So I'm going to try to care slightly less about how my stocks do this year than I did last year. It doesn't mean it won't matter as much to me. It doesn't mean that I won't still love following the stock market, which I always do. But another new year's resolution is to spend more quality time. And as I think I tweeted out to a friend the other day on Twitter, are you really going to years from now reflect back in your life and say, "You know, I wish I'd quoted my stocks more. I wish I'd spent more time quoting my stocks." I doubt it. And so let's place our focus where we really can add value and where the results that we get are justified by the time that we put into whatever we're doing. And as I close this week, I feel like this is the recommended reading podcast because I have yet another thing that I've read and loved in the past that's influenced me. And if you have some time and you want to read a really rippingly great article by Malcolm Gladwell, you'll just Google how David beats Goliath, which was a New Yorker column he wrote years ago that then became a book with a very similar title more recently. And I've not read the book, but if you just want to get a quick pray, see of that book. If you want to be exposed to his thinking, which so much aligns with our theme this week, you'll read how David beats Goliath because the secret to how David beats Goliath, and I think I'm going to make this as subjective, an upcoming podcast sometime in 2016. I'm going to give some examples and reflect more on that. I'm giving it short shrift here at the end of this week, but I do want to mention to you because how David beats Goliath is that David plays the same game by completely different rules. David took a different approach in the biblical context to combat than was expected at the time. Everyone thought Goliath, the big warrior, of course, he's going to win David the little kid, but instead David brings out a slingshot and pegs the guy between the eyes as the story goes and wins. And that's how David beats Goliath. It's not just that one story though. It occurs over and over. We've talked about it in this podcast this week. I think how we beat the market, how David beats Goliath, the market is through our focus and through focusing on the negative space of our subject, but this happens and recurs through nature, through human nature, and that's really what Goliath does such a great job with many good examples in his article. So again, how David beats Goliath is by focusing on something that others aren't as he plays the same game. So now let me turn it back to you. What is your negative space specifically with this new framework that we talked about this week? Does that help you think through 2016 or what you're trying to achieve as an investor or a person? Let us know. Just tweet out @RBI podcast and tell me where you're placing your focus, especially if it's in opposition to the way that things have been done either by you in the past or at present by the world at large. Thanks a lot for joining me this week. This has been Rule Breaker Investing. I'm David Gardner. Happy New Year. As always, people on this program may have interest in the stocks they talk about and the Molly 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. [MUSIC] [BLANK_AUDIO]