Go against the conventional wisdom – buy a stock directly, and buy it to hold. David explains the importance of these actions and how anyone can be a Rule-Breaking investor.
Rule Breaker Investing
Are You a Rule Breaker?
It's the Rule Breaker Investing Podcast with Motley Fool Co-Founder, David Gardner. Hi there, it's David Gardner and this is Rule Breaker Investing and I wanted to spend a little time today just talking about what it means to be a Rule Breaker. I've got three basic traits that I think you and I share if we're Rule Breakers together. This is about investing, of course, so that's the context that we're going to go with and the very first trait is number one that we are willing to buy a stock. If you even have capital, and sadly not enough Americans do, but if you even have capital, congratulations, and you may well have it in funds, that's where most Americans have their capital who have capital. They've bought mutual funds, so they've checked a box on their 401(k) plan. In my mind, that's a good enough answer for a lot of us. If you're a Rule Breaker, if you're going to go against the conventional wisdom, then you probably want to amp it up a little bit more and I think, therefore, you're going to be willing to, I hope, even comfortable buying a stock directly. That's trait number one, naturally this is Rule Breaker Investing, so we're going to be talking about investing in stocks, my passion. Number two, you're also going to be capital F foolish, you're going to be going against conventional wisdom in this regard as well, you are going to be buying a stock to hold that stock. Again, we live in a world where most people are not investing, they're trading. If you have friends who love the stock market, a lot of them in my experience are selling too frequently, they're in and out, they're trying to guess where the market itself is headed. Those are the most frequent questions that I get asked as a professional investor myself and a co-founder of the Motley Fool. People want to know where the market's going. I've never known where the market's going. I do know probabilities, the market rises two years out of every three historically. That's been true for 100 years now. The market averages about a 10% annualized gain every year. That's been true for the last 100 years or so. It does mean in some years the market goes up 38% and other years it declines 22%. But it averages out to a 10% gain. So I know those probabilities, I think those are helpful as rules of thumb, but I don't know where the market's headed. I do know this though, when we buy a stock, we're going to be holding that stock because we're putting in good research ahead of time, trying to pick a great company. This one, not that one. There are 10,000 stocks we could buy. We'll never own that many. So we're going to be choiceful and we're going to look for excellence. And when we do find that excellence, we're going to buy it to hold it. The best way to make a lot of money over the course of time is to allow low-cost space, early positions that we take. For example, my cost in Netflix is about $12 a share. I bought it in 2004. Netflix is over $600 a share today. I haven't done much work in the last 12 years other than just sit on my hands and watch an amazing company perform. So that's rule breaker trait number two, you're buying to hold. Again, trait number one, that you're even buying a stock at all means you're a fellow rule breaker. And now let's go to my third and concluding one. And that is that when we think about the stock market, we do something very contrary again as rule breakers because most people are thinking about the stocks. They're thinking about 52-week highs and lows. Some of them look at charts. They even look at patterns on charts to divine where they think the stock is going. They're thinking about the ticker symbol. They're thinking about stocky stock thoughts. We're going to be foolish here. We're going to be rule breakers. We're going to instead think not about the stock but about the company, the company that's issuing the stock. When we buy to hold, we are taking long-term positions as owners of businesses. And the more that you and I become business focused investors, we think, you know, will Chipotle's new pizza business and Chipotle has a new pizza business coming? Will that succeed or not? I submit that'll be much more consequential to your gains as an investor in Chipotle than thinking a lot about the stock and as it is at 52-week high or low right now. We'll be talking about 52-week highs and lows in another episode of this series. But I hope I've made it clear then that if you like these three ideas, one, that it is worthwhile to buy stock directly, not just buy mutual funds. Number two, that when we buy, we should buy to hold. And finally, number three, that we're buying companies. We're not just trading stocks. If you agree with those three principles, then I think you're going to enjoy our rule breaker investing podcast series. Again, our URL, RBI.Fool.com. I'm David Gardner. Until next time. 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]