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TIP385: Breaking the Rules w/ David Gardner

Oct 8, 2021

Guest

David Gardner

David Gardner, Chief Investment Officer at The Motley Fool, is known for his contrarian investment strategies. He discusses how to identify rule-breaking companies and the importance of optionality as a future success indicator. Gardner shares a unique 25-point system for assessing risk in stocks. He also delves into the concept of Conscious Capitalism, advocating for purpose-driven businesses that benefit all stakeholders—an approach that resonates with younger generations seeking meaningful investments.

01:05:26

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ANECDOTE

Contrarian Interests

David Gardner's contrarian nature is evident in his early interest in unconventional areas.
These include Bill James's sabermetrics in baseball, Lord of the Rings, and video games, all initially seen as niche but later gained mainstream success.

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INSIGHT

Challenging Indexing

The prevailing wisdom of indexing and the efficient market hypothesis contrasts with David Gardner's belief in beating the market.
He challenges this by actively selecting stocks, focusing on qualitative factors over quantitative metrics.

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ADVICE

Rule-Breaking Attributes

Identify rule-breaking companies by focusing on six key attributes.
These include being a top dog and first mover, sustainable competitive advantage, past price appreciation, good management, consumer appeal, and perceived overvaluation.

Get the Snipd Podcast app to discover more snips from this episode

The Power of Contrarian Thinking in Investing

02:07 • 16min

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The Power of Long-Term Investing

17:56 • 9min

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Navigating Investment Journeys

26:36 • 22min

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Evaluating Risk and Innovative Investment Strategies

49:02 • 5min

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The Essence of Conscious Capitalism: Purpose Over Profit

54:22 • 6min

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Conscious Capitalism and Stakeholder Focus

01:00:03 • 9min

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Moneyball

The Art of Winning an Unfair Game

Michael Lewis

The book tells the story of the Oakland Athletics' 2002 season, where General Manager Billy Beane and his assistant Paul DePodesta used advanced statistical analysis, known as sabermetrics, to assemble a competitive team despite a limited budget. The approach, pioneered by Bill James, focused on metrics such as on-base percentage and slugging percentage rather than traditional measures like batting average and runs batted in. This data-driven strategy allowed the Athletics to compete with teams having much larger payrolls, like the New York Yankees, and achieve significant success, including a 20-game winning streak and a playoff appearance.

The Lord of the Rings

J.R.R Tolkien

The Lord of the Rings, written by J.R. R. Tolkien, is an epic high fantasy novel set in Middle-earth. The story follows Frodo Baggins, a hobbit who inherits the One Ring from his uncle Bilbo. The Ring, forged by Sauron, holds the power to control all other Rings of Power and must be destroyed in the fires of Mount Doom to prevent Sauron's return. Frodo is joined by a fellowship of other characters, including Gandalf the Grey, Samwise Gamgee, Aragorn, Legolas, Gimli, and Boromir, as they embark on a dangerous quest across Middle-earth. The novel explores themes of good vs. evil, the corrupting influence of power, and the struggle between fate and free will.

The Innovator's Dilemma

When New Technologies Cause Great Firms to Fail

Clayton M. Christensen

In this influential business book, Clayton Christensen shows how even the most outstanding companies can lose market leadership when they fail to adapt to disruptive innovations. Christensen explains why companies often miss new waves of innovation and provides a set of rules for capitalizing on disruptive technologies. The book uses examples from various industries, including the disk drive, mechanical excavator, steel, and computer industries, to illustrate trends that lead to success or failure in the face of disruptive technologies.

David and Goliath

Underdogs, Misfits, and the Art of Battling Giants

Malcolm Gladwell

In 'David and Goliath', Malcolm Gladwell challenges conventional wisdom about obstacles and disadvantages. He uses the biblical story of David and Goliath as a starting point to explore various cases where underdogs have triumphed over more powerful opponents. The book delves into topics such as the benefits of 'desirable difficulties', the impact of dyslexia on successful individuals, and the dynamics of successful and unsuccessful strategies in different contexts, including warfare, education, and social movements. Gladwell argues that what appears to be a weakness can often be a strength, and that too much power or advantage can sometimes be counterproductive.

Conscious capitalism

Liberating the Heroic Spirit of Business

John Mackey

In this book, John Mackey and Raj Sisodia argue for the inherent good of both business and capitalism. They illustrate how well-known companies like Whole Foods Market, Southwest Airlines, Costco, Google, and Patagonia use four tenets—higher purpose, stakeholder integration, conscious leadership, and conscious culture and management—to create value for all stakeholders, including customers, employees, suppliers, investors, society, and the environment. The authors advocate for a more cooperative, humane, and positive future by advancing capitalism toward its highest potential through these principles.

It's not what you sell, it's what you stand for

Roy Spence

In 'It's Not What You Sell, It's What You Stand For,' Roy Spence and Haley Rushing argue that high-performing organizations are driven by a purpose beyond financial gain. They explore how having a clear purpose can lead to passionate employee engagement, innovation, and sustainable success. The book emphasizes that purpose is as crucial as strategy and execution in business.

IN THIS EPISODE, YOU'LL LEARN:

00:06:59 - How to identify Rule Breaking companies.
00:37:30 - Why optionality is a great indicator of a company's future success.
00:42:50 - David’s 25 point system to identify risk.
00:48:00 - What is Conscious Capitalism and why it should become a focus for your portfolio.
And so much more!

*Disclaimer: Slight timestamp discrepancies may occur due to podcast platform differences.

BOOKS AND RESOURCES

Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members.
The Motley Fool's Website.
Conscious Capitalism's Website.
Trey Lockerbie's Twitter.
David Gardner's Twitter.

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